<PAGE>   1
                                    FORM 10-Q


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


For Quarter ended June 30, 1998             Commission File Number
                                                   0-14289



                         GREENE COUNTY BANCSHARES, INC.
                         ------------------------------
             (Exact name of Registrant as specified in its charter)



        Tennessee                                  62-1222567             
-------------------------------                --------------------------- 
(State or other jurisdiction of                (IRS Employer Identification 
incorporated or organization)                         Number)             


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

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  X    No
                                   ---      ---


Indicate the number or shares outstanding of each of the Issuers classes of
common stock as of the latest practicable date: 1,355,088




                                       1
<PAGE>   2




                         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 - June 30, 1998 and December 31, 
      1997.

      Condensed Consolidated Statements of Earnings - For the three and six
      months ended June 30, 1998 and 1997.

      Consolidated Statements of Comprehensive Income - For the three and six
      months ended June 30, 1998 and 1997.

      Condensed Consolidated Statement of Stockholders' Equity- For the six
      months ended June 30, 1998.

      Condensed Consolidated Statements of Cash Flows - For the six months ended
      June 30, 1998 and 1997.

      Notes to Condensed Consolidated Financial Statements.









                                       2
<PAGE>   3

                 GREENE COUNTY BANCSHARES,INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                       JUNE 30, 1998 AND DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                   (UNAUDITED)                
                                                              June 30,     December 31,
                                                                1998          1997*
                                                             ----------   ------------
                                                                   (In Thousands)
                           ASSETS                                                    
                           ------                                                              
<S>                                                           <C>         <C>    
Cash and Due from Banks                                         $17,913       $20,687
Federal Funds Sold                                               20,815         5,500

Securities available-for-sale                                    29,233        33,852
Securities held-to-maturity (with a market value of $5,017
  on June 30, 1998 and $7,638 on December 31, 1997).              5,041         7,627

Loans                                                           437,486       450,544
  Less: Allowance for Loan Losses                                 9,259         9,154
                                                                  -----         -----

  Net Loans                                                     428,227       441,390
                                                                -------       -------

Bank Premises and Equipment, Net of 
  Accumulated Depreciation                                       10,424         9,803
Other Assets                                                     13,949        15,242
                                                                 ------        ------

    Total Assets                                               $525,602      $534,101
                                                               ========      ========


            LIABILITIES AND SHAREHOLDERS' EQUITY
            ------------------------------------

Deposits                                                       $456,355      $461,729
Securities Sold under Repurchase Agreements
  and Short-Term Borrowed Funds                                   3,132         1,414
Other Borrowings                                                  7,296        15,487
Other Liabilities                                                 5,253         5,359
                                                                  -----         -----

    Total Liabilities                                           472,036       483,989
                                                                -------       -------



                    SHAREHOLDERS' EQUITY
                    --------------------

Common Stock, par value $10, authorized 5,000,000 shares;
  issued and outstanding 1,355,088 and 1,354,500  shares at
  June 30, 1998 and December 31, 1997, respectively              13,551        13,545
Paid in Capital                                                   4,169         4,135
Retained Earnings                                                35,763        32,332
Accumulated Other Comprehensive Income                               83           100
                                                                     --           ---


    Total Shareholders' Equity                                   53,566        50,112
                                                                 ------        ------

                                                               $525,602      $534,101
                                                               ========      ========
</TABLE>


* Condensed from Audited Financial Statements.
See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)

                                        3



<PAGE>   4

                          GREENE COUNTY BANCSHARES,INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
               THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997

                  (Dollars in thousands except per share data)
                  --------------------------------------------

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      Three Months         Six Months
                                                         Ended                Ended               
                                                        June 30              June 30
                                                     1998       1997      1998         1997     
                                                     ----       ----      ----         ----     
Interest Income:                                                                                
<S>                                             <C>        <C>       <C>          <C>      
  Interest and Fees on Loans                      $11,709    $11,116   $23,629      $21,448     
  Interest on Securities                              557        744     1,178        1,505     
  Interest on Federal Funds Sold                      277         40       410           75     
                                                      ---         --       ---           --     
                 Total Interest Income             12,543     11,900    25,217       23,028     

Interest Expense:
  Interest on Deposits                              4,560      4,363     9,223        8,421     
  Interest on Short Term Borrowings                   103        291       280          551     
                                                      ---        ---       ---          ---     
                Total Interest Expense              4,663      4,654     9,503        8,972
                                                    -----      -----     -----        -----
                   Net Interest Income              7,880      7,246    15,714       14,056     

Provision for Loan Losses                             637        803       974        1,224     
                                                      ---        ---       ---        -----     

  Net Interest Income after
     Provision for Loan Losses                      7,243      6,443    14,740       12,832     
                                                    -----      -----    ------       ------     

Noninterest Income:
  Service Charges, Commissions and Fees             1,000        751     1,708        1,433     
  Security Gains(Losses)                                0          2         0            2     
  Other Income                                         69         96       321          523     
                                                       --         --       ---          ---     
                                                    1,069        849     2,029        1,958     
Noninterest Expense:
  Salaries and Employee Benefits                    2,594      2,265     5,238        4,320     
  Occupancy and Furniture and Equipment Expense       680        596     1,299        1,199     
  Other Expenses                                    1,310      1,063     2,471        1,900     
                                                    -----      -----     -----        -----     
                                                    4,584      3,924     9,008        7,419     
                                                    -----      -----     -----        -----     
Earnings Before Income Taxes                        3,728      3,368     7,761        7,371     

Income Taxes                                        1,452      1,270     2,975        2,785     
                                                    -----      -----     -----        -----     

Net income                                         $2,276     $2,098    $4,786       $4,586     
                                                   ======     ======    ======       ======     



Average Number of Shares, Assuming Dilution     1,363,101  1,357,746 1,362,566    1,357,743
Per Share of Common Stock:
  Net Income                                        $1.68      $1.55     $3.53        $3.39
                                                    =====      =====     =====        =====
  Net Income, Assuming Dilution                     $1.67      $1.55     $3.51        $3.38
                                                    =====      =====     =====        =====
  Dividends                                         $0.50      $0.42     $1.00        $0.83
                                                    =====      =====     =====        =====
</TABLE>




     See accompanying notes to Condensed Consolidated Financial Statements
                                  (Unaudited).

                                        4


<PAGE>   5

                 GREENE COUNTY BANCSHARES,INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                    SIX MONTHS ENDED JUNE 30, 1998 AND 1997
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                        (in thousands except share and per share data)       
                                                                                                             
                                                       Three Months Ended             Six Months Ended       
                                                            June 30                        June 30           
                                                      1998           1997            1998          1997      
                                                      ----           ----            ----          ----      
<S>                                                 <C>              <C>           <C>           <C>         
Net Income                                             $2,276           $2,098        $4,786        $4,586   
Other Comprehensive Income (Loss), net of tax:                                                     
  Unrealized Gains (Losses) on Securities                (4)              34           (17)          155     
                                                                                       ----          ---
Other Comprehensive Income (Loss)                        (4)              34           (17)          155
                                                         ---              --           ----          ---
Comprehensive Income                                   $2,272           $2,132        $4,769        $4,741   
                                                       ======           ======        ======        ======   
                                                                                                             
Average Number of Shares, Assuming Dilution          1,363,101        1,357,746     1,362,566     1,357,743
Per Share of Common Stock:                                                                                   
  Comprehensive Income                                 $1.68            $1.57         $3.52         $3.50    
                                                       =====            =====         =====         =====    
  Comprehensive Income, Assuming Dilution              $1.67            $1.57         $3.50         $3.49    
                                                       =====            =====         =====         =====    
  Dividends                                            $0.50            $0.42         $1.00         $0.83    
                                                       =====            =====         =====         =====    
</TABLE>



See accompanying notes to Condensed Consolidated Financial Statements(Unaudited)


                                        5






<PAGE>   6
                         GREENE COUNTY BANCSHARES, INC.
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                     FOR THE SIX MONTHS ENDED JUNE 30, 1998

                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                      Accumulated
                                                                         Other
                                     Common     Paid in   Retained   Comprehensive
                                      Stock     Capital   Earnings      Income        Total
                                      -----     -------   --------      ------        -----
<S>                                  <C>         <C>       <C>        <C>             <C>    
January 1, 1998                      $13,545     $4,135    $32,332         $100      $50,112

Comprehensive income
  Net income                            -          -         4,786           -         4,786
  Other comprehensive income (loss),                                          
   net of tax                                                                 
     Unrealized losses on securities    -          -          -              -          (17)
                                                                                        ----
  Other comprehensive income(loss)      -          -          -             (17)        (17)
                                                                                        ----
Comprehensive income                    -          -          -              -         4,769
                                                                                       -----

Dividends paid                          -          -        (1,355)          -        (1,355)
                                                                              
Exercise of stock options               6          27         -              -          33   
                                                                                             
Tax benefit from exercise                                                                    
of stock options                        -           7         -              -           7   
                                   ----------  ---------- -----------    ---------- -----------                                    

June 30, 1998                        $13,551     $4,169    $35,763          $83      $53,566
                                   ==========  ========== ===========    ========== ===========
</TABLE>



See Accompanying Notes to Condensed Consolidated Financial Statements(Unaudited)



                                        6

<PAGE>   7

                GREENE COUNTY BANCSHARES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997

                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                       June 30,          June 30,            
                                                                         1998              1997              
                                                                       --------          ---------           
<S>                                                                      <C>               <C>               
    NET CASH PROVIDED BY OPERATING ACTIVITIES:                                                               
        Net Income                                                       $4,786            $4,586            
        Adjustments to reconcile net income to                                                               
        net cash provided by operating activities:                                                           
          Provision for loan losses                                         974             1,224            
          Provision for depreciation and amortization                       575               581            
          Amortization of investment security premiums,                                                      
            net of accretion                                                165               202            
          Decrease in interest receivable                                   292               212            
          Increase in unearned income                                     1,552             1,139            
          Decrease (increase) in other assets, net of intangibles           867            (1,466)           
          (Decrease) increase in accrued interest payable                                                    
            and other                                                    (2,257)            1,921            
                                                                         ------            ------            
          Net cash provided by operating activities                       6,954             8,399            
                                                                         ------            ------            
                                                                                                             
    CASH FLOWS FROM INVESTING ACTIVITIES:                                                                    
          Net (increase) decrease in investment securities                                                   
            and federal funds                                            (8,110)            5,243            
          Net decrease (increase) in loans                               11,505           (50,894)           
          (Increase) decrease in other real                                                                  
            estate owned and other, net                                     (16)              119            
          Recoveries of loan losses                                       1,039               240            
          Fixed asset additions                                            (979)             (187)           
                                                                         ------            ------            
          Net cash provided (used) by investing activities                3,439           (45,479)           
                                                                         ------            ------            
                                                                                                             
    CASH FLOWS FROM FINANCING ACTIVITIES:                                                                    
          Net (decrease) increase in demand deposits, NOW,                                                   
            money market and savings accounts                            (5,373)           34,273            
          Cash dividends paid                                            (1,355)           (1,129)           
          Exercise of stock options                                          33                 3            
          Increase in securities sold under                                                                  
            agreements to repurchase                                      1,718             5,679            
          Decrease in other borrowings, net                              (8,190)           (2,743)           
                                                                         ------            ------            
          Net cash (used) provided by financing activities              (13,167)           36,083            
                                                                         ------            ------            
     NET DECREASE IN CASH                                                (2,774)             (997)           
                                                                         ------            ------            
     CASH AT BEGINNING OF YEAR                                           20,687            21,332            
                                                                         ------            ------            
     CASH AT END OF QUARTER                                             $17,913           $20,335            
                                                                        =======           =======            
</TABLE>

See Accompanying Notes to Condensed Consolidated Financial Statements(Unaudited)


                                        7


<PAGE>   8



                         GREENE COUNTY BANCSHARES, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1-PRINCIPLES OF CONSOLIDATION

The accompanying unaudited consolidated financial statements of Greene County
Bancshares, Inc. (the "Company") and its wholly owned subsidiaries, Greene
County Bank ("GCB") and Premier Bank of East Tennessee ("PBET"), have been
prepared in accordance with generally accepted accounting principles 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.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles 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. All
interim amounts are subject to year-end audit and the results of operations for
the interim period herein are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998. 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, 1997.

2-ALLOWANCE FOR LOAN LOSSES

Transactions in the Allowance for Loan Losses for the six months ended June 30,
1998 were as follows:

<TABLE>
<CAPTION>
                                            (In Thousands)
                                            --------------
<S>                                              <C>   
Balance, January 1, 1998                         $9,154

Add(Deduct):
  Charge-offs                                    (1,908)
  Recoveries                                      1,039
  Provision                                         974
                                                 ------

Balance, June 30, 1998                           $9,259
                                                 ======
</TABLE>


                                       8
<PAGE>   9


3-NET INCOME PER SHARE OF COMMON STOCK

Net income per share of common stock is computed by dividing net income by the
weighted average number of common shares and common stock equivalents
outstanding during the period. Stock options are regarded as common stock
equivalents. Common stock equivalents are computed using the treasury stock
method.

The following is a reconciliation of the numerators and denominators used in the
basic and diluted earnings per share computations for the three and six months
ended June 30, 1998 and 1997:


<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED JUNE 
                                                1998                         1997
                                       ----------------------      ------------------------
                                                (DOLLAR AMOUNTS IN THOUSANDS)
                                   INCOME         SHARES          INCOME        SHARES
                                (NUMERATOR)   (DENOMINATOR)     (NUMERATOR)  (DENOMINATOR)

<S>                                    <C>        <C>                <C>         <C>      
         BASIC EPS
         Income available to
           common shareholders         $2,276     1,355,019          $2,098      1,354,500

         EFFECT OF DILUTIVE SECURITIES
         Stock options outstannding       -           8,082              -           3,246
                                       ----------------------------------------------------

         DILUTED EPS
         Income available to common
           shareholders plus assumed
           conversions                 $2,276     1,363,101          $2,098      1,357,746
                                       ====================================================
</TABLE>



<TABLE>
<CAPTION>
                                                 SIX MONTHS ENDED JUNE 30
                                                1998                         1997
                                       ----------------------      ------------------------
                                             (DOLLAR AMOUNTS IN THOUSANDS)
                                   INCOME         SHARES          INCOME        SHARES
                                (NUMERATOR)   (DENOMINATOR)     (NUMERATOR)  (DENOMINATOR)

<S>                                    <C>        <C>                <C>         <C>      
         BASIC EPS
         Income available to
           common shareholders         $4,786     1,354,809          $4,586      1,354,497

         EFFECT OF DILUTIVE SECURITIES
         Stock options outstanding        -           7,757             -            3,246
                                       ----------------------------------------------------

         DILUTED EPS
         Income available to common
           shareholders plus assumed
           conversions                 $4,786     1,362,566          $4,586      1,357,743
                                       ====================================================
</TABLE>


                                       9

<PAGE>   10


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 OR OTHERWISE. THE WORDS
"BELIEVE", "EXPECT", "SEEK", AND "INTEND" AND SIMILAR EXPRESSIONS IDENTIFY
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE THE STATEMENT IS
MADE. SUCH FORWARD-LOOKING STATEMENTS ARE WITHIN THE MEANING OF THAT TERM IN
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS MAY INCLUDE, BUT
ARE NOT LIMITED TO, PROJECTIONS OF INCOME OR LOSS, EXPENDITURES, ACQUISITIONS,
PLANS FOR FUTURE OPERATIONS, FINANCING NEEDS OR PLANS RELATING TO SERVICES OF
THE COMPANY, AS WELL AS ASSUMPTIONS RELATING TO THE FOREGOING. FORWARD-LOOKING
STATEMENTS ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, SOME OF WHICH
CANNOT BE PREDICTED OR QUANTIFIED. FUTURE EVENTS AND ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE SET FORTH IN, CONTEMPLATED BY OR UNDERLYING THE
FORWARD-LOOKING STATEMENTS.

GENERAL

      Greene County Bancshares, Inc. (the "Company") is the bank holding company
for Greene County Bank("GCB") and Premier Bank of East Tennessee("APBET"), and
collectively referred to as the "Banks", which are Tennessee-chartered
commercial banks that conduct the principal business of the Company. The Company
is currently in the process of transferring the assets of PBET to GCB and
expects to complete the process before year-end. For further information, see
Item 5 below. In addition to its commercial banking operations, GCB conducts
separate businesses through its three wholly-owned subsidiaries: Superior
Financial Services, Inc. ("Superior Financial"), a consumer finance company;
Superior Mortgage Company ("Superior Mortgage"), a mortgage banking company; and
GCB Acceptance Corporation ("GCB Acceptance"), a subprime automobile lending
company.

LIQUIDITY AND CAPITAL RESOURCES

     LIQUIDITY. Liquidity refers to the ability or the financial flexibility to
manage future cash flows to meet the needs of



                                       10
<PAGE>   11


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 Banks. Applicable Tennessee statutes and
regulations impose restrictions on the amount of dividends that may be declared
by the subsidiary Banks. Further, any dividend payments are subject to the
continuing ability of each of the Banks to maintain their respective compliance
with minimum federal regulatory capital requirements and to retain their
characterization under federal regulations as "well-capitalized" institutions.
In addition, the Company maintains a line of credit of $20 million with the
Federal Home Loan Bank of Cincinnati and three federal funds lines of credit
totaling $20 million at three correspondent banks.

      The Company's liquid assets include investment securities, federal funds
sold and other interest-earning deposits, and cash and due from banks. These
assets represented 15.64% of the total liquidity base at June 30, 1998, as
compared to 12.5% at December 31, 1997. The liquidity base is generally defined
to include deposits, securities sold under repurchase agreements and short-term
borrowed funds and other borrowings.

      For the six months ended June 30, 1998, operating activities of the
Company provided $6,954,000 of cash flows. Net income of $4,786,000, adjusted
for non-cash operating activities, including $974,000 in provision for loan
losses and amortization and depreciation of $575,000, provided the majority of
the cash generated from operations.

      Investing activities, including lending, provided $3,439,000 of the
Company's cash flow during the six months ended June 30, 1998. The net decrease
in loans provided $11,505,000 in funds. The Company's increase in investment
securities and federal funds sold used $8,110,000 in cash flows.

      Net additional cash outflows of $13,167,000 were used by financing
activities during the six months ended June 30, 1998. Net deposit reduction
accounted for $5,373,000 of the decrease. Other decreases arose from a decrease
in other borrowings, net and cash dividends paid to shareholders of $1,355,000.
Offsetting these decreases were an increase in securities sold under agreements
to repurchase of $1,718,000.

      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



                                       11
<PAGE>   12

position while consistently paying dividends to its stockholders. 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 June 30, 1998 was $53,566,000, an increase of
$3,454,000 or 6.89%, from $50,112,000 on December 31, 1997. The increase in
shareholders' equity reflects net income for the six months ended June 30, 1998
of $4,786,000 ($3.51 per share, assuming dilution), and proceeds from the
exercise of stock options during the six months ended June 30, 1998 totaling
$33,000. This increase was offset by quarterly dividend payments during the six
months ended June 30, 1998 totaling $1,355,000 ($1.00 per share) and the
reduction in equity associated with the decrease in the value of securities
available for sale of $17,000.

      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. At June 30,
1998, the Company and the Banks each satisfied their respective minimum
regulatory capital requirements, and each of the Banks was "well-capitalized"
within the meaning of federal regulatory requirements.


<TABLE>
<CAPTION>
====================================================================================
                         Capital Ratios at June 30, 1998
------------------------------------------------------------------------------------
                                    Required
                                    Minimum      Company       GCB         PBET
                                      Ratio
------------------------------------------------------------------------------------
<S>                                      <C>        <C>         <C>         <C>   
   Tier 1 risk-based capital             4.00%      12.40%      12.97%      10.71%
------------------------------------------------------------------------------------
   Total risk-based capital              8.00%      13.67%      14.23%      11.96%
------------------------------------------------------------------------------------
        Leverage Ratio                   4.00%       9.76%      10.27%       7.58%
====================================================================================
</TABLE>

CHANGES IN RESULTS OF OPERATIONS

      NET INCOME. Net income for the three and six months ended June 30, 1998
was $2,276,000 and $4,786,000, respectively, an increase of $178,000, or 8.5%
and $200,000, or 4.4%, as compared to net



                                       12
<PAGE>   13


income of $2,098,000 and $4,586,000, respectively, for the same periods in 1997.

      The increase for the three months ended June 30, 1998 resulted primarily
from an increase in net interest income of $634,000, or 8.7%, to $7,880,000 for
the three months ended June 30, 1998 from $7,246,000 for the same period in
1997. The increase in net interest income reflects the Company's continued
growth in average loan balances for the three months ended June 30, 1998, as
compared to the same period in 1997, through its expanding branch network,
primarily through increases in real estate and consumer loans. However, total
loans at June 30, 1998 have declined from the balance at December 31, 1997. For
further information, see the discussion in Changes in Financial Condition below.
Further, the Company benefitted from an increase in noninterest income of
$220,000, or 25.9%, to $1,069,000 for the three months ended June 30, 1998 from
$849,000 for the same period in 1997. The increase in noninterest income
resulted primarily from a $249,000, or 33.1%, increase in service charges,
commissions and fees from $751,000 for the same period in 1997. This increase
reflects the Company's strategic focus on the generation of fee income through
implementation of additional fees and increasing existing fees. In addition,
this increase in net income also reflects the decline for each of the periods in
the Company's provision for loan losses. Offsetting, in part, the increases in
net interest income and noninterest income was the $660,000, or 16.8%, increase
in non-interest expense to $4,584,000 for the three months ended June 30, 1998
from $3,924,000 for the same period in 1997, attributable primarily to
increasing compensation and fixed asset expenses associated with the growth of
the Company's branch network.

      The increase for the six months ended June 30, 1998 resulted primarily
from an increase in net interest income of $1,658,000, or 11.8%, to $15,714,000
for the six months ended June 30, 1998 from $14,056,000 for the same period in
1997. This increase reflects the same basic trends in existence during the three
months ended June 30, 1998. These increases were offset in part by the
$1,589,000, or 21.4%, increase in non-interest expense to $9,008,000 for the six
months ended June 30, 1998 from $7,419,000 for the same period in 1997, again
primarily attributable to increasing compensation, occupancy and furniture and
equipment expense and other expenses associated with the growth of the Company's
branch network.

      NET INTEREST INCOME. The largest source of earnings for the Company is net
interest income, which is the difference between interest income on
interest-earning assets and interest paid on deposits and other interest-bearing
liabilities. The primary factors which affect net interest income are changes in
volume and yields of earning assets and interest-bearing liabilities, which are
affected in part by management's responses to changes in interest rates through
asset/liability management. During the three 



                                       13
<PAGE>   14
and six months ended June 30, 1998, net interest income was $7,880,000 and
$15,714,000, respectively, as compared to $7,246,000 and $14,056,000 for the
same periods in 1997, representing increases of 8.7% and 11.8%, respectively.
With respect to the three months ended June 30, 1998, this increase was due
primarily to an increase in average volume and yield of interest-earning assets,
offset by increased average balances of interest-bearing liabilities. This
increase in average balances of interest-bearing liabilities was mitigated
slightly by lower costs. With respect to the six months ended June 30, 1998,
this increase was due primarily to an increase in average volume and yield of
interest-earning assets, offset primarily by increased average balances of
interest-bearing liabilities. However, this continued increase in average volume
and yield of interest-earning assets will depend, in large part, upon the level
of the Company's loan balances, which have declined since December 31, 1997. For
further information, see Changes in Financial Condition below.

      PROVISION FOR LOAN LOSSES. During the three and six month periods ended
June 30, 1998, loan charge-offs were $1,277,000 and $1,908,000, and recoveries
of charged-off loans were $660,000 and $1,039,000, respectively. The Company's
provision for loan losses decreased to $637,000 and $974,000 for the three and
six month periods ended June 30, 1998, respectively, from $803,000 and
$1,224,000 for the respective periods in 1997. This decline reflects the
elimination of a specific reserve attributable to a commercial real estate loan
that was restructured with a smaller than anticipated loss to the Company and
also reflects management's assessment of the overall risk to the Company's loan
portfolio in the current interest rate environment. As a result, the Company's
allowance for loan losses increased to $9,259,000 at June 30, 1997 from
$9,154,000 at December 31, 1997. The ratio of the allowance for loan losses to
nonperforming assets was 235.9% and 210.15% at June 30, 1998 and December 31,
1997, respectively, and the ratio of nonperforming assets to total assets was
 .75% and .81% at June 30, 1998 and December 31, 1997, respectively.

      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 and six month periods ended June
30, 1998 was $1,069,000 and $2,029,000, respectively, as compared to $849,000
and $1,958,000 for the same periods in 1997. The largest component of
non-interest income is service charges, commissions and fees, which totaled
$1,000,000 and $1,708,000, respectively, for the three and six month periods
ended June 30, 1998, as compared to $751,000 and $1,433,000, respectively, for
the same periods in 1997. The $249,000, or 33.2%, increase for the three months
ended June 30, 1998 compared to the same period in 



                                       14
<PAGE>   15

1997, is reflective principally of management's focus on the generation of fee
income through implementation of additional fees and increasing existing fees.
Service charges and fees for the six months ended June 30, 1998 increased
$275,000, or 19.2%, from the same period in 1997, primarily for the same reasons
discussed above relative to the three months ended June 30, 1998.

      Other income for the three and six month periods ended June 30, 1998 was
$69,000 and $321,000, respectively, as compared to $96,000 and $523,000 for the
same periods in 1997. With respect to the three months ended June 30, 1998, the
decrease of $27,000 is primarily explained by relatively small decreases in
check order income, gains on sales of other real estate owned and other
miscellaneous income. With respect to the six months ended June 30, 1998, the
decrease of $202,000 is explained primarily by an approximate $191,000 gain,
recognized in the six months ended June 30, 1997, on the sale of GCB's Sullivan
County Walmart branch in connection with the Company's continuous review of
branch operations and market strategy.

      NON-INTEREST EXPENSE. Control of non-interest expense also is an important
aspect in managing net 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 increased to $4,584,000 and
$9,008,000 for the three and six month periods ended June 30, 1998,
respectively, as compared to $3,924,000 and $7,419,000 for the same periods in
1997. These increases totaled $660,000, or 16.8%, and $1,589,000, or 21.4%, for
the three and six month periods ended June 30, 1998, respectively. Primarily as
a result of this increase in non-interest expense, the Company's efficiency
ratio was adversely affected, as the ratio increased from 46.33% at June 30,
1997 to 50.77% at June 30, 1998. The efficiency ratio illustrates how much it
costs the Company to generate revenue; for example, it cost the Company 50.77
cents to generate one dollar of revenue for the six months ended June 30, 1998.

      Personnel costs are the primary element of the Company's non-interest
expenses. For the three and six month periods ended June 30, 1998, salaries and
benefits represented $2,594,000, or 56.6%, and $5,238,000, or 58.1%, of total
noninterest expenses, respectively. This was an increase of $329,000, or 14.5%,
and $918,000, or 21.3%, over the $2,265,000 and $4,320,000 for the three and six
month periods ended June 30, 1997. For the six months ended June 30, 1997,
salaries and benefits represented 58.2% of total noninterest expenses. These
increases were due to opening new branches and strengthening certain operational
areas, which required increased staff at varying experience and compensation
levels and increased employee benefit costs. Overall, the number of full-time
equivalent employees at June 30, 1998 was 272 versus 250


                                       15
<PAGE>   16

at June 30, 1997, an increase of 8.8%.

      Occupancy and furniture and equipment expense also increased during the
three and six month periods ended June 30, 1998 compared to the same periods in
1997 as the Company increased its size to 30 branches at June 30, 1998, from 29
branches at June 30, 1997.

      Other expenses for the three and six month periods ended June 30, 1998
were $1,310,000 and $2,471,000, increases of $247,000, or 23.2%, and $571,000,
or 30.0%, respectively, from the same periods in 1997. These increases are
reflective of the Company's new branches which required additional advertising,
postage, telephone and other expenses, as well as increased expenses related to
new programs for customer product delivery.

CHANGES IN FINANCIAL CONDITION

      Total assets at June 30, 1998 were $525.6 million, a decrease of $8.5
million, or 1.6%, from 1997's year end total assets of $534.1 million. The
slight reduction in assets was centered principally in interest-earning assets
as a result of the use of cash to reduce other borrowings, as further described
below.

      At June 30, 1998, loans, net of unearned income and allowance for loan
losses, were $428.2 million compared to $441.4 million at December 31, 1997, a
decrease of $13.2 million, or 3.0%, from December 31, 1997. The decrease in
loans during the first half of 1998 is primarily due to payoffs of certain
commercial and commercial real estate loans, as well as a softening in loan
demand in certain markets.

      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. The Company has aggressive collection practices in which senior
management is heavily involved. Nonaccrual loans decreased by $623,000, or
27.5%, during the six months ended June 30, 1998.

      The Company maintains an investment portfolio to provide liquidity and
earnings. Investments at June 30, 1998 had an amortized cost of $34.1 million
and a market value of $34.3 million. At year end 1997, investments with an
amortized cost of $41.3 million had a market value of $41.5 million. This
decrease, resulting from normal maturing of securities, was principally used to
fund part of the decrease in other borrowings.

      In view of the softening of loan demand in certain markets during the six
months ended June 30, 1998, the company elected to deploy some of its liquidity
toward the reduction of its other 


                                       16
<PAGE>   17

borrowings. Accordingly, other borrowings were reduced approximately $8.2
million. Most of the reduction took place in the Company's advances with the
Federal Home Loan Bank of Cincinnati, which were costing more than the earnings
being generated on federal funds sold. The funding mechanism for the Company's
assets consists primarily of deposits, which were $456.3 million at June 30,
1998. This represents a $5.4 million, or 1.2%, decrease from the deposits at
year end 1997 of $461.7 million, with most of the decrease occurring in
certificate of deposit accounts. With the softening of loan demand in certain
markets, the Company has not aggressively sought new time deposits during the
six months ended June 30, 1998.

EFFECT OF NEW ACCOUNTING STANDARDS

      In June, 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards for
reporting by public companies of operating segments in annual financial
statements and requires that those enterprises also report selected information
about operating segments in interim financial reports issued to shareholders.
This statement also establishes standards for related disclosures about products
and services, geographic areas and major customers. This statement requires the
reporting of financial and descriptive information about an enterprise's
reportable operating segments. This statement is effective for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years must be restated. The Company is evaluating SFAS
No. 131 to determine the impact, if any, on the Company's reporting and
disclosure requirements. The Company intends to adopt the reporting requirements
of SFAS No. 131 as of December 31, 1998.

During February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post-retirement Benefits." The statement revises
employers' disclosures about pension and other post-retirement benefit plans. It
does not change the measurement or recognition of those plans. The statement is
effective for fiscal years beginning after December 15, 1997. Restatement of
disclosures for earlier periods for comparative purposes is required. The
Company is evaluating SFAS No. 132 to determine the impact on the Company's
reporting and disclosure requirements.




                                       17
<PAGE>   18


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.










<PAGE>   19


                           PART II - OTHER INFORMATION


Item 1.     Legal Proceedings

            The Company and its subsidiaries are involved in arious claims and
            legal actions arising in the ordinary course of business. Management
            currently is not aware of any material legal proceedings to which
            the Company or any of its subsidiaries is a party or to which any of
            their property is subject.



Item 2.     Changes in Securities

            None.


Item 3.     Defaults upon Senior Securities

            None.


Item 4.     Submission of Matters to a Vote of Security Holders

            (a)The 1998 Annual Meeting of Shareholders of the Company was held
               on May 13, 1998.

            (b)Not applicable.

            (c)The following proposals were considered by shareholders at the
               Annual Meeting:

            I. Proposals Adopted

            Proposal 1-Election of Directors 
            The following directors were re-elected:

<TABLE>
<CAPTION>
                                                                  Votes
                                                                  -----
                                                 For                  Withheld
                                                 ---                  --------
<S>                                              <C>              <C>
            Harrison Lamons(1)                   977,715                   48
            J.W. Douthat(1)                      977,715                   48
            Helen Horner(1)                      977,715                   48
            Jerald K. Jaynes(1)                  965,955               11,808
            W.T. Daniels(2)                      976,371                1,392
            R. Stan Puckett(2)                   977,715                   48
            Davis Stroud(2)                      976,965                  798
            Charles S. Brooks(2)                 977,715                   48
            Phil M. Bachman(3)                   977,715                   48
            Terry Leonard(3)                     977,715                   48
            Ralph T. Brown(3)                    977,715                   48
            James A. Emory(3)                    977,715                   48
</TABLE>




                                       19
<PAGE>   20


            Proposal 2-Adoption of a Classified Board 
            The above proposal was adopted with the following vote:

<TABLE>
<CAPTION>
                        Votes
            For         Against           Abstain
            ---         -------           -------
<S>         <C>         <C>               <C>   
            905,342     1,764             63,987
</TABLE>

            The directors were elected to staggered terms, as outlined below:

            Directors identified with footnote (1) in Proposal 1 above were
            elected to terms which expire in 1999.

            Directors identified with footnote (2) in Proposal 1 above were
            elected to terms which expire in 2000.

            Directors identified with footnote (3) in Proposal 1 above were
            elected to terms which expire in 2001.

            Proposal 3-Allowable Range of the Number of Directors, as further
            defined in the Company's Proxy Statement for the Year Ended December
            31, 1997

            The above proposal was adopted with the following vote:

<TABLE>
<CAPTION>
                        Votes
            For         Against           Abstain
            ---         -------           -------
<S>         <C>         <C>               <C>   
            902,604     3,882             64,607
</TABLE>


            Proposal 5-Prohibition on Cumulative Voting, as further defined in
            the Company's Proxy Statement for the Year Ended December 31, 1997

<TABLE>
<CAPTION>
                        Votes
            For         Against           Abstain
            ---         -------           -------
<S>         <C>         <C>                <C>   
            864,254     37,348             69,491
</TABLE>


            Proposal 6-Calling of Special Meetings, as further defined in the
            Company's Proxy Statement for the Year Ended December 31, 1997

<TABLE>
<CAPTION>
                        Votes
            For         Against           Abstain
            ---         -------           -------
<S>         <C>         <C>               <C>   
            864,910     40,016            66,167
</TABLE>



                                       20
<PAGE>   21



            Proposal 7-Increase in Number of Authorized Shares of Common Stock,
            as further defined in the Company's Proxy Statement for the Year
            Ended December 31, 1997

<TABLE>
<CAPTION>
                        Votes
            For         Against           Abstain
            ---         -------           -------
<S>         <C>         <C>               <C>   
            859,839     41,108            70,146
</TABLE>



            Proposal 8-Notice of Nominations and New Proposals, as further
            defined in the Company's Proxy Statement for the Year Ended December
            31, 1997


<TABLE>
<CAPTION>
                        Votes
            For         Against           Abstain
            ---         -------           -------
<S>         <C>         <C>               <C>   
            889,485     14,855            66,753
</TABLE>


            Proposal 9-Elimination of Voting of Excess Shares, as further
            defined in the Company's Proxy Statement for the Year Ended December
            31, 1997


<TABLE>
<CAPTION>
                        Votes
            For         Against           Abstain
            ---         -------           -------
<S>         <C>         <C>               <C>   
            885,947     17,957            67,189
</TABLE>


            Proposal 10-Adjournment of the Annual Meeting, as further defined in
            the Company's Proxy Statement for the Year Ended December 31, 1997


<TABLE>
<CAPTION>
                        Votes
            For         Against           Abstain
            ---         -------           -------
<S>         <C>         <C>                <C>   
            892,025     14,447             64,621
</TABLE>


            II. Proposals Considered and Not Adopted

            Proposal 4-Removal of Directors, as further defined in the Company's
            Proxy Statement for the Year Ended December 31, 1997


<TABLE>
<CAPTION>
            For         Against           Abstain
            ---         -------           -------
<S>         <C>         <C>                <C>   
            872,415     31,808             66,870
</TABLE>


            This proposal was not adopted because it failed to receive the
            minimum vote of 66 2/3% of all outstanding shares.



                                       21
<PAGE>   22


Item 5.     Other Information

      During the quarter ended June 30, 1998, the Company announced its
intentions to consolidate the operations of its subsidiary, Premier Bank of East
Tennessee, into the operations of its largest subsidiary, Greene County Bank.
With respect to the mechanics of the consolidation, the Company anticipates an
acquisition of all the assets and liabilities of that entire bank by Greene
County Bank, with the result that Premier Bank of East Tennessee will no longer
operate as a separate entity; however, the mechanics of the transaction will be
such that the state charter of Premier Bank of East Tennessee will be preserved
for future salability.

      The Company projects that seven employee positions will be eliminated as a
result of this consolidation, which is expected to be completed in the fourth
quarter of 1998. The elimination of these positions is expected to result in
annual pretax personnel expense savings of approximately $180,000 commencing in
late 1998. Severance benefits related to this consolidation will be expensed
when paid and are projected to amount to approximately $50,000.


Item 6.   Exhibits and Reports on Form 8-K

            (a)Exhibits

               Exhibit 27 Financial Data Schedule(for SEC use only)

            (b)Reports on Form 8-K

               None




                                       22
<PAGE>   23


                                   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.


Date: 8/3/98                              Greene County Bancshares, Inc.
     ------------                         ------------------------------
                                                   Registrant



Date: 8/3/98                              /s/ 
     ------------                         ------------------------------
                                          R. Stan Puckett
                                          President and CEO
                                          (Duly authorized officer)


Date: 8/3/98                              /s/
     ------------                         ------------------------------
                                          William F. Richmond
                                          Sr. Vice President and Chief
                                          Financial   Officer
                                          (Principal financial and
                                          accounting officer)


                                       23