** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 

| **ý**                                                                                                                                                                                                                                                                                                                                                                                | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                          |
| **For the quarterly period ended  March 31, 2003**                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                      |
| **OR**                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                          |
| **o**                                                                                                                                                                                                                                                                                                                                                                                     | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                          |
| **For the transition period from                                to                             ** |
|                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                          |
| **Commission file number 0-14289**                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                               |  |

 

**GREENE COUNTY BANCSHARES, INC.**

(Exact name of registrantas specified in its charter)

 

| **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 telephonenumber, including area code:  **(423)639-5111**.

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. YES  ý  NO  o

 

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

 

Indicate the number of shares outstanding of eachof the issuer’s classes of common stock, as of the latest practicable date:6,821,950.

 

 

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**PART 1 – FINANCIAL INFORMATION**

** **

# **ITEM 1.**                             FINANCIAL STATEMENTS

 

The unaudited condensed consolidated financial statements of theRegistrant and its wholly owned subsidiaries are as follows:

 

CondensedConsolidated Balance Sheets – March 31, 2003 and December 31, 2002.

 

CondensedConsolidated Statements of Income and Comprehensive Income - For the threemonths ended March 31, 2003 and 2002.

 

CondensedConsolidated Statement of Stockholders’ Equity - For the three months endedMarch 31, 2003.

 

CondensedConsolidated Statements of Cash Flows - For the three months ended March 31,2003 and 2002.

 

Notesto Condensed Consolidated Financial Statements.

 

1

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**GREENE COUNTY BANCSHARES, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**March 31, 2003 and December 31, 2002**

**(Dollar amounts in thousands, except share and per share data)**

 
|                                                                                            |   | **March 31,  2003** |    | **December 31,  2002*** |   |
|-------------------------------------------------------------------------------------------------|--------|---------------------|---------|-------------------------|--------|
|                                                                                            |   | **(Unaudited)**     |    |                    |   |
| **ASSETS**                                                                                      |   |                |    |                    |   |
| Cash and due from banks                                                                         |   | $                   | 32,064  |                    | $      | 23,466 |   |
| Federal funds sold                                                                              |   | 24,335              |    | 39,493                  |   |
| Securities available for sale                                                                   |   | 31,993              |    | 33,322                  |   |
| Securities held to maturity (fair value $456 and  $455)                                         |   | 448                 |    | 448                     |   |
| FHLB, Bankers Bank and other stock, at cost                                                     |   | 5,400               |    | 4,744                   |   |
| Loans held for sale                                                                             |   | 5,112               |    | 6,646                   |   |
| Loans                                                                                           |   | 766,769             |    | 750,257                 |   |
| Less: Allowance for loan losses                                                                 |   | (12,591             | )       | (12,586                 | )      |
| Net loans                                                                                       |   | 754,178             |    | 737,671                 |   |
| Premises and equipment, net                                                                     |   | 26,667              |    | 26,377                  |   |
| Other assets                                                                                    |   | 25,694              |    | 27,229                  |   |
|                                                                                            |   |                |    |                    |   |
| Total assets                                                                                    |   | $                   | 905,891 |                    | $      | 899,396 |   |
|                                                                                            |   |                |    |                    |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                  |   |                |    |                    |   |
| Liabilities                                                                                     |   |                |    |                    |   |
| Deposits                                                                                        |   | $                   | 751,234 |                    | $      | 719,323 |   |
| Repurchase agreements                                                                           |   | 14,043              |    | 10,038                  |   |
| Notes payable                                                                                   |   | 52,288              |    | 82,359                  |   |
| Accrued interest payable and other liabilities                                                  |   | 11,852              |    | 13,081                  |   |
| Total liabilities                                                                               |   | 829,417             |    | 824,801                 |   |
|                                                                                            |   |                |    |                    |   |
| Shareholders’ equity                                                                       |   |                |    |                    |   |
| Common stock: $2 par, 15,000,000 shares authorized,  6,820,540 and 6,820,540 shares outstanding |   | 13,641              |    | 13,641                  |   |
| Additional paid-in capital                                                                      |   | 4,870               |    | 4,870                   |   |
| Retained earnings                                                                               |   | 57,728              |    | 55,928                  |   |
| Accumulated other comprehensive income                                                          |   | 235                 |    | 156                     |   |
| Total shareholders’ equity                                                                 |   | 76,474              |    | 74,595                  |   |
|                                                                                            |   |                |    |                    |   |
| Total liabilities and shareholders’ equity                                                 |   | $                   | 905,891 |                    | $      | 899,396 |   |

 

----

* Condensed from audited financial statements.

 

See accompanying notes.

 

2

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**GREENE COUNTY BANCSHARES, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OFINCOME AND COMPREHENSIVE INCOME**

**Three Months Ended March 31, 2003 and2002**

**(Dollar amounts in thousands, exceptshare and per share data)**

** **
|                                                |   | **Three Months Ended  March 31,** |   |
|-----------------------------------------------------|--------|-----------------------------------|--------|
|                                                |   | **2003**                          |   | **2002** |   |
|                                                |   | **(Unaudited)**                   |   |
|                                                |   |                              |   |   |   |
| Interest income                                     |   |                              |   |   |   |
| Interest and fees on loans                          |   | $                                 | 13,618 |   | $ | 14,290 |   |
| Investment securities                               |   | 326                               |   | 383 |   |
| Federal funds sold and interest-earning deposits    |   | 56                                |   | 249 |   |
|                                                |   | 14,000                            |   | 14,922 |   |
|                                                |   |                              |   |   |   |
| Interest expense                                    |   |                              |   |   |   |
| Deposits                                            |   | 3,478                             |   | 4,211 |   |
| Borrowings                                          |   | 717                               |   | 897 |   |
|                                                |   | 4,195                             |   | 5,108 |   |
|                                                |   |                              |   |   |   |
| Net interest income                                 |   | 9,805                             |   | 9,814 |   |
|                                                |   |                              |   |   |   |
| Provision for loan losses                           |   | 1,126                             |   | 1,307 |   |
|                                                |   |                              |   |   |   |
| Net interest income after provision for loan losses |   | 8,679                             |   | 8,507 |   |
|                                                |   |                              |   |   |   |
| Noninterest income                                  |   |                              |   |   |   |
| Service charges and fees                            |   | 2,095                             |   | 1,918 |   |
| Other                                               |   | 629                               |   | 669 |   |
|                                                |   | 2,724                             |   | 2,587 |   |
|                                                |   |                              |   |   |   |
| Noninterest expense                                 |   |                              |   |   |   |
| Salaries and employee benefits                      |   | 4,205                             |   | 4,228 |   |
| Occupancy and furniture and equipment expense       |   | 1,049                             |   | 1,032 |   |
| Other                                               |   | 1,978                             |   | 1,775 |   |
|                                                |   | 7,232                             |   | 7,035 |   |
|                                                |   |                              |   |   |   |
| Income before income taxes                          |   | 4,171                             |   | 4,059 |   |
|                                                |   |                              |   |   |   |
| Provision for income taxes                          |   | 1,553                             |   | 1,490 |   |
|                                                |   |                              |   |   |   |
| Net income                                          |   | $                                 | 2,618  |   | $ | 2,569 |   |
|                                                |   |                              |   |   |   |
| Comprehensive Income                                |   | $                                 | 2,697  |   | $ | 2,495 |   |
|                                                |   |                              |   |   |   |
| Per share of common stock:                          |   |                              |   |   |   |
| Basic earnings                                      |   | $                                 | 0.38   |   | $ | 0.38 |   |
| Diluted earnings                                    |   | 0.38                              |   | 0.38 |   |
| Dividends                                           |   | 0.12                              |   | 0.12 |   |
|                                                |   |                              |   |   |   |
| Weighted average shares outstanding:                |   |                              |   |   |   |
| Basic                                               |   | 6,820,540                         |   | 6,818,890 |   |
| Diluted                                             |   | 6,880,168                         |   | 6,841,758 |   |

 

See accompanying notes.

 

3

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**GREENE COUNTY BANCSHARES, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OFCHANGES IN SHAREHOLDERS’ EQUITY**

**For Three Months Ended March 31, 2003**

**(Dollar amounts in thousands, exceptshare and per share data)**

 
|                                                          |   | **Common  Stock** |   | **Additional  Paid-in  Capital** |   | **Retained  Earnings** |   | **Accumulated  Other  Compre-  Hensive  Income** |   | **Total  Share-  Holders’  Equity** |   |
|---------------------------------------------------------------|--------|-------------------|--------|----------------------------------|--------|------------------------|--------|--------------------------------------------------|--------|------------------------------------------|--------|
|                                                          |   | **(Unaudited)**   |   |
|                                                          |   |              |   |                             |   |                   |   |                                             |   |                                     |   |
| **Balance, January 1, 2003**                                  |   | $                 | 13,641 |                             | $      | 4,870                  |   | $                                                | 55,928 |                                     | $      | 156 |   | $ | 74,595 |   |
|                                                          |   |              |   |                             |   |                   |   |                                             |   |                                     |   |
| Dividends  paid ($.12 per share)                              |   | —            |   | —                           |   | (818                   | )      | —                                           |   | (818                                     | )      |
| Comprehensive  income:                                        |   |              |   |                             |   |                   |   |                                             |   |                                     |   |
| Net  income                                                   |   | —            |   | —                           |   | 2,618                  |   | —                                           |   | 2,618                                    |   |
| Change  in unrealized gains (losses), net of reclassification |   | —            |   | —                           |   | —                 |   | 79                                               |   | 79                                       |   |
| Total  comprehensive income                                   |   |              |   |                             |   |                   |   |                                             |   | 2,697                                    |   |
|                                                          |   |              |   |                             |   |                   |   |                                             |   |                                     |   |
| **Balance,  March 31, 2003**                                  |   | $                 | 13,641 |                             | $      | 4,870                  |   | $                                                | 57,728 |                                     | $      | 235 |   | $ | 76,474 |   |

 

See accompanying notes.

 

4

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**GREENE COUNTY BANCSHARES, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS**

**For the Three Months Ended March 31,2003 and 2002**

**(Dollar amounts in thousands, exceptshare and per share data)**

 
|                                                                                       |   | **March 31,  2003** |       | **March 31,  2002** |       |
|--------------------------------------------------------------------------------------------|--------|---------------------|------------|---------------------|------------|
|                                                                                       |   | **(Unaudited)**     |       |
|                                                                                       |   |                |       |                |       |
| **Cash flows from operating activities**                                                   |   |                |       |                |       |
| Net income                                                                                 |   | $                   | 2,618      |                | $          | 2,569 |   |
| Adjustments to reconcile net income to net cash from  Operating activities                 |   |                |       |                |       |
| Provision for loan losses                                                                  |   | 1,126               |       | 1,307               |       |
| Depreciation and amortization                                                              |   | 465                 |       | 484                 |       |
| Security amortization and accretion, net                                                   |   | 46                  |       | (62                 | )          |
| FHLB stock dividends                                                                       |   | (45                 | )          | (49                 | )          |
| Net gain on sale of mortgage loans                                                         |   | (256                | )          | (95                 | )          |
| Originations of mortgage loans held for sale                                               |   | (18,584             | )          | (12,569             | )          |
| Proceeds from sales of mortgage loans                                                      |   | 20,374              |       | 18,073              |       |
| Net (gain) loss on OREO and repossessed assets                                             |   | 38                  |       | 23                  |       |
| Net changes:                                                                               |   |                |       |                |       |
| Accrued interest receivable and other assets                                               |   | 988                 |       | (463                | )          |
| Accrued interest payable and other liabilities                                             |   | (1,229              | )          | 1,023               |       |
| Net cash from operating activities                                                         |   | 5,541               |       | 10,241              |       |
|                                                                                       |   |                |       |                |       |
| **Cash  flows from investing activities**                                                  |   |                |       |                |       |
| Net change in interest-bearing deposits with banks                                         |   | —              |       | 1,100               |       |
| Net change in securities and other interest-earning  investments                           |   | 802                 |       | (17,507             | )          |
| Increase in cash surrender value of life insurance                                         |   | (103                | )          | (84                 | )          |
| Net increase in loans                                                                      |   | (18,947             | )          | (6,002              | )          |
| Improvements to other real estate and proceeds from  sales of other real estate owned, net |   | 1,834               |       | 1,481               |       |
| Proceeds from sale of fixed assets and fixed asset  additions, net                         |   | (714                | )          | (361                | )          |
| Net cash used in investing activities                                                      |   | (17,128             | )          | (21,373             | )          |
|                                                                                       |   |                |       |                |       |
| **Cash  flows from financing activities**                                                  |   |                | ** ** |                | ** ** |
| Net change in deposits                                                                     |   | 31,911              |       | 26,564              |       |
| Net change in repurchase agreements                                                        |   | 4,005               |       | 2,310               |       |
| Net change in notes payable                                                                |   | (30,071             | )          | (88                 | )          |
| Dividends paid                                                                             |   | (818                | )          | (818                | )          |
| Net cash from financing activities                                                         |   | 5,027               |       | 27,968              |       |
|                                                                                       |   |                |       |                |       |
| **Net  change in cash and cash equivalents**                                               |   | (6,560              | )          | 16,836              |       |
|                                                                                       |   |                |       |                |       |
| Cash and cash equivalents, beginning of year                                               |   | 62,959              |       | 48,053              |       |
|                                                                                       |   |                |       |                |       |
| **Cash  and cash equivalents, end of period**                                              |   | $                   | 56,399     |                | $          | 64,889 |   |

 

See accompanying notes.

 

5

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**GREENECOUNTY BANCSHARES, INC.**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**March31, 2003**

**Unaudited**

**(Dollaramounts in thousands, except share and per share data)**

 

**NOTE 1 – PRINCIPLES OF CONSOLIDATION**

 

The accompanying unaudited condensed consolidated financial statementsof Greene County Bancshares, Inc. (the “Company”) and its wholly ownedsubsidiary, Greene County Bank (the “Bank”), have been prepared in accordancewith accounting principles generally accepted in the United States of Americafor interim information and in accordance with the instructions to Form 10-Qand Article 10 of Regulation S-X as promulgated by the Securities and ExchangeCommission. Accordingly, they do not include all the information and footnotesrequired by accounting principles generally accepted in the United States ofAmerica for complete financial statements. In the opinion of management, alladjustments (consisting of normal recurring accruals) considered necessary fora fair presentation have been included. Operating results for the three monthsended March 31, 2003 are not necessarily indicative of the results that may beexpected for the year ending December 31, 2003. For further information, referto the consolidated financial statements and footnotes thereto included in theCompany’s Annual Report on Form 10-K for the year ended December 31, 2002.Certain amounts from prior period financial statements have been reclassifiedto conform to the current year’s presentation.

# ** **

# **NOTE 2 – STOCK COMPENSATION**

 

Employeecompensation expense under stock option plans is reported if options aregranted below market price at grant date, whereas expense for options grantedat market price are reported on a pro forma basis.  Pro forma disclosures of net income and earnings per share areshown below using the fair value method of SFAS No. 123 to measure expensefor options using the Black-Scholes option pricing model to estimate fairvalue.

 

Thefollowing disclosures show the effect on income and earnings per share had theoptions’ fair value been recorded using an option pricing model.

 
|                       |   | **Three Months Ended  March 31,** |   |
|----------------------------|--------|-----------------------------------|--------|
|                       |   | **2003**                          |   | **2002** |   |
|                       |   | **As  Reported**                  |   | **Proforma** |   | **As  Reported** |   | **Proforma** |   |
|                       |   |                              |   |   |   |   |   |   |   |
| Net income                 |   | $                                 | 2,618  |   | $ | 2,589 |   | $ | 2,569 |   | $ | 2,544 |   |
| Basic earnings per share   |   | $                                 | 0.38   |   | $ | 0.38 |   | $ | 0.38 |   | $ | 0.38 |   |
| Diluted earnings per share |   | $                                 | 0.38   |   | $ | 0.38 |   | $ | 0.38 |   | $ | 0.38 |   |

 

6

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**NOTE 3 – ALLOWANCE FOR LOAN LOSSES**

 

Transactions in the allowance for loan losses for thethree months ended March 31, 2003 and twelve months ended December 31, 2002were as follows:

 
|                          |   | **March 31,  2003** |   | **December 31,  2002** |   |
|-------------------------------|--------|---------------------|--------|------------------------|--------|
|                          |   |                |   |                   |   |
| Balance at beginning of  year |   | $                   | 12,586 |                   | $      | 11,221 |   |
| Add (deduct):                 |   |                |   |                   |   |
| Charge-offs                   |   | (1,545              | )      | (7,648                 | )      |
| Recoveries                    |   | 424                 |   | 1,948                  |   |
| Provisions                    |   | 1,126               |   | 7,065                  |   |
| Ending balance                |   | $                   | 12,591 |                   | $      | 12,586 |   |

 

 
|                                    |   | **March 31,  2003** |   | **December 31,  2002** |   |
|-----------------------------------------|--------|---------------------|--------|------------------------|--------|
|                                    |   |                |   |                   |   |
| Loans past due 90 days still on accrual |   | $                   | 28     |                   | $      | 307 |   |
| Nonaccrual loans                        |   | 8,516               |   | 7,475                  |   |
| Total                                   |   | $                   | 8,544  |                   | $      | 7,782 |   |

 

7

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# **NOTE 4 – EARNINGS PER SHARE OFCOMMON STOCK**

 

Basicearnings per share (EPS) of common stock is computed by dividing net income bythe weighted average number of common shares outstanding during the period.Diluted earnings per share of common stock is computed by dividing net incomeby the weighted average number of common shares and potential common sharesoutstanding during the period. Stock options are regarded as potential commonshares. Potential common shares are computed using the treasury stock method.For the three months ended March 31, 2003, 94,325 options are excluded from theeffect of dilutive securities because they are anti-dilutive; 113,870 optionsare similarly excluded from the effect of dilutive securities for the threemonths ended March 31, 2002.

 

The following is areconciliation of the numerators and denominators used in the basic and dilutedearnings per share computations for the three months ended March 31, 2003 and2002:

 
|                                                              |   | **Three Months Ended  March 31,** |   |
|-------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                              |   | **2003**                          |   | **2002** |   |
|                                                              |   | **Income  (Numerator)**           |   | **Shares  (Denominator)** |   | **Income  (Numerator)** |   | **Shares  (Denominator)** |   |
|                                                              |   |                              |   |   |   |   |   |   |   |
| **Basic  EPS**                                                    |   |                              |   |   |   |   |   |   |   |
| Income available to common shareholders                           |   | $                                 | 2,618  |   | 6,820,540 |   | $ | 2,569 |   | 6,818,890 |   |
|                                                              |   |                              |   |   |   |   |   |   |   |
| **Effect  of dilutive securities**                                |   |                              |   |   |   |   |   |   |   |
| Stock options outstanding                                         |   | —                            |   | 59,628 |   | — |   | 22,868 |   |
|                                                              |   |                              |   |   |   |   |   |   |   |
| **Diluted  EPS**                                                  |   |                              |   |   |   |   |   |   |   |
| Income available to common shareholders plus assumed  conversions |   | $                                 | 2,618  |   | 6,880,168 |   | $ | 2,569 |   | 6,841,758 |   |

 

8

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# **NOTE 5 – SEGMENT INFORMATION**

 

**The Company’s operating segments include banking, mortgagebanking, consumer finance, subprime automobile lending and title insurance. Thereportable segments are determined by the products and services offered, andinternal reporting. Loans, investments, and deposits provide the revenues inthe banking operation, loans and fees provide the revenues in consumer finance,mortgage banking, and subprime lending and insurance commissions providerevenues for the title insurance company. Consumer finance, subprime automobilelending and title insurance do not meet the quantitative threshold on anindividual basis, and are therefore shown below in “other”. Mortgage bankingoperations are included in “Bank”.   Alloperations are domestic.**

 

Segment performance isevaluated using net interest income and noninterest income. Income taxes areallocated based on income before income taxes and indirect expenses (includesmanagement fees) are allocated based on time spent for each segment.Transactions among segments are made at fair value. Information reportedinternally for performance assessment follows.

 
| **Three  months ended March 31, 2003** |   | **Bank** |    | **Other** |   | **Total** |   |
|----------------------------------------|--------|----------|---------|-----------|--------|-----------|--------|
|                                   |   |     |    |      |   |      |   |
| Net interest income                    |   | $        | 8,186   |      | $      | 1,619     |   | $ | 9,805 |   |
| Provision for loan losses              |   | 585      |    | 541       |   | 1,126     |   |
| Noninterest income                     |   | 2,325    |    | 399       |   | 2,724     |   |
| Noninterest expense                    |   | 6,043    |    | 1,189     |   | 7,232     |   |
| Income tax expense                     |   | 1,462    |    | 91        |   | 1,553     |   |
| **Segment  profit**                    |   | $        | 2,421   |      | $      | 197       |   | $ | 2,618 |   |
|                                   |   |     |    |      |   |      |   |
| **Segment assets at March 31, 2003**   |   | $        | 870,354 |      | $      | 35,537    |   | $ | 905,891 |   |

 
| **Three months ended March 31, 2002** |   | **Bank** |    | **Other** |   | **Total** |   |
|---------------------------------------|--------|----------|---------|-----------|--------|-----------|--------|
|                                  |   |     |    |      |   |      |   |
| Net interest  income                  |   | $        | 8,124   |      | $      | 1,690     |   | $ | 9,814 |   |
| Provision for  loan losses            |   | 418      |    | 889       |   | 1,307     |   |
| Noninterest  income                   |   | 2,205    |    | 382       |   | 2,587     |   |
| Noninterest  expense                  |   | 5,949    |    | 1,086     |   | 7,035     |   |
| Income tax  expense                   |   | 1,515    |    | (25       | )      | 1,490     |   |
| **Segment  profit**                   |   | $        | 2,447   |      | $      | 122       |   | $ | 2,569 |   |
|                                  |   |     |    |      |   |      |   |
| **Segment  assets at March 31, 2002** |   | $        | 805,106 |      | $      | 37,991    |   | $ | 843,097 |   |

 

9

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# **NOTE 6 – GOODWILL AND OTHERINTANGIBLE ASSETS**

 

**Goodwill**

 

Goodwillresults from prior business acquisitions and represents the excess of thepurchase price over the fair value of acquired tangible assets and liabilitiesand identifiable intangible assets. Upon adopting new accounting guidance on January 1, 2002, the Companyceased amortizing goodwill.  Goodwill isassessed at least annually for impairment and any such impairment will berecognized in the period identified. The effect on net income of ceasing goodwill amortization for the threemonths ended March 31, 2002 was $43.

 

Thechange in the carrying amount of goodwill for the three months ended March 31,2003 is as follows:

 
| Beginning of year                            |   | $      | 2,053  |   |
|----------------------------------------------|--------|--------|--------|--------|
| Goodwill from acquisition during the quarter |   | — |   |
| End of quarter                               |   | $      | 2,053  |   |

 

Theeffect of not amortizing goodwill is summarized as follows:

 
|                                      |   | **Three  Months Ended  March 31,** |   |
|-------------------------------------------|--------|------------------------------------|--------|
|                                      |   | **2003**                           |   | **2002** |   |
|                                      |   |                               |   |   |   |
| Reported net income                       |   | $                                  | 2,618  |   | $ | 2,569 |   |
| Add back:   goodwill amortization    |   | —                             |   | 43 |   |
| Adjusted net income                       |   | $                                  | 2,618  |   | $ | 2,612 |   |
|                                      |   |                               |   |   |   |
| Reported basic earnings per share         |   | $                                  | 0.38   |   | $ | 0.38 |   |
| Add back: goodwill amortization per share |   | —                             |   | — |   |
| Adjusted basic earnings per share         |   | $                                  | 0.38   |   | $ | 0.38 |   |
|                                      |   |                               |   |   |   |
| Reported diluted earnings per share       |   | $                                  | 0.38   |   | $ | 0.38 |   |
| Add back: goodwill amortization per share |   | —                             |   | — |   |
| Adjusted diluted earnings per share       |   | $                                  | 0.38   |   | $ | 0.38 |   |

 

10

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**Core deposit and other intangibles**

 

Otherintangible assets consist of core deposit intangibles arising from whole bankand branch acquisitions.  They areinitially measured at fair value and then are amortized on an acceleratedmethod over their estimated useful lives, which is 10 years.

 

Coredeposit intangibles had a gross carrying amount of $1,771 for the period endedMarch 31, 2003 and the year ended December 31, 2002 and accumulatedamortization of $1,068 and $1,028 for the same periods, respectively.  Aggregate amortization expense for the threemonths ended March 31, 2003 was $40. Annual estimated amortization expense forthe next five years is:

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

 

11

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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 documentsincorporated herein by reference, contains forward-looking statements.Additional written or oral forward-looking statements may be made by theCompany from time to time in filings with the Securities and ExchangeCommission or otherwise. The words “believe”, “expect”, “seek”, and “intend”and similar expressions identify forward-looking statements, which speak onlyas of the date the statement is made. Such forward-looking statements arewithin 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 orloss, expenditures, acquisitions, plans for future operations, financing needsor plans relating to services of the Company, as well as assumptions relatingto the foregoing. Forward-looking statements are inherently subject to risksand uncertainties, some of which cannot be predicted or quantified. Futureevents and actual results could differ materially from those set forth in,contemplated by or underlying the forward-looking statements.**

 

**Presentation of Amounts**

 

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

 

**General**

 

Greene County Bancshares, Inc. (the “Company”) is thebank holding company for Greene County Bank (“the Bank”), a Tennessee-charteredcommercial bank that conducts the principal business of the Company. Inaddition to its commercial banking operations, the Bank conducts separatebusinesses through its three wholly-owned subsidiaries: Superior FinancialServices, Inc. (“Superior Financial”), a consumer finance company; GCBAcceptance Corporation (“GCB Acceptance”), a subprime automobile lendingcompany; and Fairway Title Co., a title company formed in 1998. The Bank alsooperates a mortgage banking operation through its main office in Knox County,Tennessee and it also has representatives located through out the Company’sbranch system.

 

**Growth and Business Strategy**

 

The Company expects that, overthe intermediate term, a majority of its growth will result from mergers andacquisitions including acquisitions of both entire financial institutions andselected branches of financial institutions. De novo branching will also be amethod of growth, particularly in high-growth and otherdemographically-desirable markets.

 

The Company’s strategic planoutlines a geographic expansion policy within a 300-mile radius of its majormarkets. This policy could result in the Company expanding westward andeastward up to and including Nashville, Tennessee and Roanoke, Virginia,respectively, east/southeast up to and including the Piedmont area of NorthCarolina and western North Carolina, southward to northern Georgia andnorthward into eastern and central Kentucky. In particular, the Companybelieves the markets in and around Knoxville and Nashville, Tennessee arehighly desirable areas with respect to expansion and growth plans and theCompany has submitted regulatory applications for the establishment of afull-service branch in Knoxville.

 

In addition to the Company’s business model, which is summarized in theparagraphs above entitled “The Company” and “The Bank”, the Company iscontinuously investigating and analyzing other lines and areas ofbusiness.  These include, but are notlimited to, various types of insurance, real estate activities, etc. Conversely,the Company frequently evaluates and analyzes the profitability, risk factorsand viability of its various business lines and segments and, depending uponthe results of these evaluations and analyses, may conclude to exit certainsegments and/or business lines. Further, in conjunction with these ongoingevaluations and analyses, the Company may decide to sell, merge or closecertain branch facilities.

 

12

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**Liquidityand Capital Resources**

 

**Liquidity. **Liquidityrefers to the ability or the financial flexibility to manage future cash flowsto meet the needs of depositors and borrowers and fund operations. Maintainingappropriate levels of liquidity allows the Company to have sufficient fundsavailable for reserve requirements, customer demand for loans, withdrawal ofdeposit balances and maturities of deposits and other liabilities. TheCompany’s liquid assets include investment securities, federal funds sold andother interest-earning deposits, and cash and due from banks. Includingsecurities pledged to collateralize municipal deposits, these assetsrepresented 11.5% of the total liquidity base at March 31, 2003, as compared to12.5% at December 31, 2002. The liquidity base is generally defined to includedeposits, securities sold under repurchase agreements and short-term borrowedfunds and other borrowings. In addition, the Company maintains borrowingavailability with the Federal Home Loan Bank of Cincinnati (“FHLB”)approximating $61,400 at March 31, 2003. The Company also maintains federalfunds lines of credit totaling $78,900 at seven correspondent banks of which$78,900 was available at March 31, 2003. The Company believes it has sufficientliquidity to satisfy its current operating needs.

 

For the threemonths ended March 31, 2003, operating activities of the Company provided$5,541 of cash flows. Net income of $2,618 adjusted for non-cash operatingactivities, including $1,790 in net proceeds from loans originated for sale,$1,126 in provision for loan losses and depreciation and amortization,including premium amortization on securities, net of accretion of $511,comprised the majority of the cash generated from operations. These increasesin cash flows were offset, in part, by the net gain on sale of mortgage loansin the amount of $256 and the $241 in cash flows used from the net change ininterest receivable and other assets, and accrued interest payable and otherliabilities.

 

The Company’s net increase in held-to-maturity loansoriginated, net of principal collected, used $18,947 in cash flows and was theprimary component of the $17,128 in net cash used in investing activities.Offsetting, in part, this use of cash flows were the net changes in securitiesand other interest-earning investments and in improvements to other real estateand proceeds from sales of other real estate owned, net, in the amounts of $699and $1,834, respectively.

 

The net increasein deposits and repurchase agreements provided $31,911 and $4,005 in cashflows, respectively.  Offsetting, inpart, these increases in cash flows were the $30,071 decrease in notes payable,net and quarterly dividends paid in the amount of $818.  The $30,071 decrease in notes payable, net,reflects the Company’s payoff of a short-term FHLB advance, originated in late2002 in anticipation of year-end liquidity needs on the part of some of theCompany’s major corporate borrowers, in early 2003.

 

**Capital Resources. **TheCompany’s capital position is reflected in its shareholders’ equity, subject tocertain adjustments for regulatory purposes. Shareholders’ equity, or capital,is a measure of the Company’s net worth, soundness and viability. The Companycontinues to exhibit a strong capital position while consistently payingdividends to its shareholders. Further, the capital base of the Company allowsit to take advantage of business opportunities while maintaining the level ofresources deemed appropriate by management of the Company to address businessrisks inherent in the Company’s daily operations.

 

Shareholders’ equity on March 31, 2003 was $76,474, anincrease of $1,879, or 2.52%, from $74,595 on December 31, 2002. The increasein shareholders’ equity primarily reflected net income for the three monthsended March 31, 2003 of $2,618 ($.38 per share, assuming dilution). Thisincrease was offset by quarterly dividend payments during the three monthsended March 31, 2003 totaling $818 ($0.12 per share).

 

The Company’sprimary source of liquidity is dividends paid by the Bank.  Applicable Tennessee statutes andregulations impose restrictions on the amount of dividends that may be declaredby the Bank. Further, any dividend payments are subject to the continuingability of the Bank to maintain its compliance with minimum federal regulatorycapital requirements and to retain its characterization under federalregulations as a “well-capitalized” institution.

 

Risk-based capital regulations adopted by the Board ofGovernors of the Federal Reserve Board (the “FRB”) and the Federal DepositInsurance 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 TotalCapital in relation to the credit risk of both on- and off-balance sheetitems.  Under the guidelines, one offour risk weights is applied to the different on-balance sheet items.  Off-balance sheet items, such as loancommitments, are also subject to risk-weighting after conversion to balance sheetequivalent amounts.

 

13

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All bank holding companies and banks must maintain a minimum totalcapital to total risk-weighted assets ratio of 8.00%, at least half of whichmust be in the form of core, or Tier 1, capital (consisting of shareholders’equity, less goodwill). At March 31, 2003, the Company and the Bank eachsatisfied their respective minimum regulatory capital requirements, and theBank was “well-capitalized” within the meaning of federal regulatoryrequirements. The capital ratios of the Bank contained within the table belowdo not differ materially from those of the Company.

 

**CAPITAL RATIOS AT MARCH 31, 2003**

 

|                      |   | **Required  Minimum  Ratio** |   | **Bank** |   |
|---------------------------|--------|------------------------------|--------|----------|--------|
| Tier 1 risk-based capital |   | 4.00                         | %      | 9.76     | %      |
| Total risk-based  capital |   | 8.00                         | %      | 11.01    | %      |
| Leverage Ratio            |   | 4.00                         | %      | 8.47     | %      |

 

**Changes in Results of Operations**

 

**Net income. **Netincome for the three months ended March 31, 2003 was $2,618, as compared to$2,569 for the same period in 2002. This increase of $49, or 1.9%, resultedprimarily from a $137, or 5.3%, increase in noninterest income from $2,587 forthe three months ended March 31, 2002 to $2,724 for the same period of 2003.This increase resulted principally from a $177, or 9.2%, increase in servicecharges and fees from $1,918 for the three months ended March 31, 2002 to$2,095 for the same period of 2003, and mainly reflects additional gains onsales of loans generated by the Company’s mortgage division. In addition, theCompany’s provision for loan losses decreased $181, or 13.8%, from $1,307 forthe three months ended March 31, 2002 to $1,126 for the same period of 2003,reflecting primarily lower provisions and net chargeoffs in Superior Financialin the quarter ended March 31, 2003 compared to the same period in 2002.Offsetting these increases, in part, was a $197, or 2.8%, increase innoninterest expense from $7,035 for the three months ended March 31, 2002 to$7,232 for the same period of 2003, and resulted principally from a $203, or11.4%, increase in other expense from $1,775 for the three months ended March31, 2002 to $1,978 for the same period of 2003. This increase in other expenseprimarily reflected additional loan collection and repossession expenses andresulted from a substantial recovery of such expenses in the quarter endedMarch 31, 2002.

 

**Net Interest Income.**  The largest source of earnings for theCompany is net interest income, which is the difference between interest incomeon interest-earning assets and interest paid on deposits and otherinterest-bearing liabilities. The primary factors which affect net interestincome are changes in volume and yields of interest-earning assets andinterest-bearing liabilities, which are affected in part by management’sresponses to changes in interest rates through asset/liability management.During the three months ended March 31, 2003, net interest income was $9,805,as compared to $9,814 for the same period in 2002, representing a decrease of0.1%. While the Company’s average balances of interest-earning assets increasedmore than the average balances of interest-bearing liabilities in the threemonths ended March 31, 2003, as compared to the same quarter in 2002, thuspotentially enhancing net interest income, such potential increase was morethan offset by the reduction in yield on these interest-earning assets whichexceeded the decrease in cost on interest-bearing liabilities. As a result, theCompany’s net interest margin decreased in the three months ended March 31,2003 as compared to the same period in 2002. Further, the Company’s netinterest margin for the three months ended March 31, 2003 declined from thequarter ended December 31, 2002, as the Company has been unable to managedeposit rates down sufficiently to compensate for the decline in yields oninterest-earning assets. The Company believes its net interest margin willcompress further if interest rates continue to decline; however, if interestrates begin to rise, based on the Company’s asset-sensitive interest rate riskposition and its current mix of interest-earning assets and interest-bearingliabilities, the Company believes its net interest margin will begin toincrease. Management believes that the Company’s net interest margin may wellcontinue to decline slightly even if interest rates remain stable, as certainadjustable-rate loans continue to reprice downward in conjunction with theCompany’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 five to six percent,and (d) continued growth in low cost and total deposits, the Company foreseesstability in its net interest margin.

 

**Provision for Loan Losses.**During the threemonths ended March 31, 2003, loan charge-offs were $1,545 and recoveries ofcharged-off loans were $424. The Company’s provision for loan losses decreasedby $181, or

 

14

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13.8%, to $1,126 for the three months ended March 31, 2003 as comparedto $1,307 for the same period in 2002. The Company’s allowance for loan lossesincreased by $5 to $12,591 March 31, 2003 from $12,586 at December 31, 2002,with the ratio of the allowance for loan losses to total loans remaining essentiallyconstant from period to period. As of March 31, 2003, indicators of creditquality, as discussed below, have declined somewhat compared to December 31,2002. The ratio of allowance for loan losses to nonperforming assets was 92.86%and 94.24% at March 31, 2003 and December 31, 2002, respectively, and the ratioof nonperforming assets to total assets was 1.50% and 1.48% at March 31, 2003and December 31, 2002, respectively. The ratio of nonperforming loans to totalloans, excluding loans held for sale, was 1.10% and 1.02% at March 31, 2003 andDecember 31, 2002, respectively. The decline in credit quality indicators isprimarily related to one large commercial relationship and one borrower withmultiple commercial loans that have been placed on nonaccrual status during thequarter ended March 31, 2003.  Thelargest relationship is comprised of business loans approximating $1,136 and issecured by real estate and equipment. The Company is in the process of foreclosure on the collateral andanticipates a loss of approximately $100. The multiple commercial loans, approximating $1,067, associated with theone borrower are in the process of collection. Management believes the collateral for the loans is not adequate andanticipates a loss of approximately $350. The Company believes its allowance for loan losses is adequate to absorbboth of these anticipated losses.

 

The Company’sannualized net charge-offs for the three months ended March 31, 2003 were$4,484 compared to actual net charge-offs of $5,700 for the year ended December31, 2002. Annualized net charge-offs in Superior Financial for the three monthsended March 31, 2003 were $1,096 compared to actual net charge-offs of $1,606for the year ended December 31, 2002. Annualized net charge-offs in the Bankfor the three months ended March 31, 2003 were $1,756 compared to actual netcharge-offs of $2,834 for the year ended December 31, 2002. Annualized netcharge-offs in GCB Acceptance for the three months ended March 31, 2003 were$1,632 compared to actual net charge-offs of $1,260 for the year ended December31, 2002. At this point, management believes that total charge-offs for 2003 inthe Bank and Superior Financial will slightly improve compared to 2002charge-offs.

 

Based on theCompany’s allowance for loan losscalculation, and more specifically, the collateral values underlyingnonperforming assets, management believes the allowance for loan losses isadequate at March 31, 2003.  However,management anticipates that the provision for loan losses during the secondquarter of 2003 will be higher than the first quarter of 2003 and alsoanticipates that the provision for loan losses for the entire year of 2003 mayexceed the provision for 2002 if indicators of credit quality continue todeteriorate.  In addition, normal loangrowth may well lead to an increase in the provision for loan losses ifeconomic conditions remain uncertain.

** **

**Non-Interest Income. **Income that is not relatedto interest-earning assets, consisting primarily of service charges,commissions and fees, has become an important supplement to the traditionalmethod of earning income through interest rate spreads.

 

Total non-interestincome for the three months ended March 31, 2003 was $2,724, as compared to$2,587 for the same period in 2002. Service charges, commissions and feesremain the largest component of total non-interest income and increased from$1,918 for the three months ended March 31, 2002 to $2,095 for the same periodin 2003. This increase mainly reflects additional gains on sales of loansgenerated by the Company’s mortgage division, as well as additional volume andfee increases associated with the Company’s retail service charge program.

** **

**Non-Interest Expense.**  Control of non-interest expense also is animportant 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 Corporationassessment, etc. Total non-interest expense was $7,232 for the three monthsended March 31, 2003 compared to $7,035 for the same period in 2002. The $197,or 2.8%, increase in total non-interest expense for the three months endedMarch 31, 2003 compared to the same period of 2002 resulted principally from a$203, or 11.4%, increase in other expense from $1,775 for the three monthsended March 31, 2002 to $1,978 for the same period of 2003. This increase inother expense primarily reflected additional loan collection and repossessionexpenses and resulted from a substantial recovery of such expenses in thequarter ended March 31, 2002.

 

Personnel costsare the primary element of the Company’s non-interest expenses. For the threemonths ended March 31, 2003, salaries and benefits represented $4,205, or58.1%, of total non-interest expense. This was an decrease of $23, or .5%, fromthe $4,228 for the three months ended March 31, 2002.  The Company had 43 branches at March 31, 2003, as compared to 42at both December 31, 2002 and March 31, 2002, and the number of full-timeequivalent employees increased 2.1% from 377 at March 31, 2002 to 385 at March31, 2003. 

 

15

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Primarily as aresult of this overall increase in non-interest expense, the Company’s efficiencyratio was negatively affected, as the ratio increased from 56.73% at March 31,2002 to 57.72% at March 31, 2003. The efficiency ratio illustrates how much itcost the Company to generate revenue; for example, it cost the Company 57.72cents to generate one dollar of revenue for the three months ended March 31,2003.

** **

**Changes in Financial Condition**

 

Total assets at March 31, 2003 were $905,891, anincrease of $6,495, or 0.7%, from total assets of $899,396 at December 31,2002. The increase in assets was primarily reflective of the $16,507, or 2.2%,increase, as reflected on the Condensed Consolidated Balance Sheets, in netloans, excluding loans held for sale, which was funded, in part, by the $7,233,or 7.1%, decline in the Company’s liquidity base (see “Liquidity and CapitalResources—Liquidity” located earlier for the general definition of liquiditybase). The Company’s $31,911, or 4.4%, increase in deposits during the quarterended March 31, 2003 approximated the $30,071 reduction in notes payable, asthe Company elected to use most of the funds provided by the deposit increaseto pay off a short-term advance with the FHLB. Accordingly, the other primaryfunding source for the increase in net loans, as well as the $6,495 increase intotal assets, was the $4,005 increase in repurchase agreements.

 

At March 31, 2003,loans, net of unearned income and allowance for loan losses, were $754,178compared to $737,671 at December 31, 2002, an increase of $16,507, or 2.2%,from December 31, 2002. The increase in loans during the first three months of2003 primarily reflects an increase in commercial real estate loans andresidential real estate loans. Non-performing loans include non-accrual loansand loans 90 or more days past due. All loans that are 90 days past due areconsidered non-accrual unless they are adequately secured and there isreasonable assurance of full collection of principal and interest. Non-accrualloans that are 120 days past due without assurance of repayment are charged offagainst the allowance for loan losses. The Company has aggressive collectionpractices in which senior management is heavily involved. Nonaccrual loans and loans past due 90 days andstill accruing increased by $762, or 9.8%, during the three months ended March31, 2003 to $8,544. The increase is mainly attributable to the two creditrelationships discussed in the earlier section entitled “Provision for LoanLosses” located earlier.  AtMarch 31, 2003, the ratio of the Company’s allowance for loan losses tonon-performing assets (which include non-accrual loans) was 92.86%.

 

The Companymaintains an investment portfolio to provide liquidity and earnings.Investments at March 31, 2003 with an amortized cost of $32,061 had a marketvalue of $32,449. At year-end 2002, investments with an amortized cost of$33,519 had a market value of $33,777. This decrease consists primarily of theexcess of called short-term agency securities over the reinvested proceeds.

** **

**Effect of New Accounting Standards**

** **

**Newaccounting standards on asset retirement obligations, restructuring activitiesand exit costs, operating leases, and early extinguishment of debt were issuedin 2002.  Management has determined thatwhen the new accounting standards are adopted in 2003 they will not have amaterial impact on the Company’s financial condition or results of operations.**

** **

**ITEM 3.****                             QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

A comprehensive qualitative and quantitative analysis regarding marketrisk was disclosed in the Company’s December 31, 2002 Form 10-K.  No material changes in the assumptions usedor results obtained from the model have occurred since December 31, 2002.

 

Actual results for the yearending December 31, 2003 will differ from simulated results due to timing,magnitude, and frequency of interest rate changes, as well as changes in marketconditions and management strategies.

 

**ITEM 4.****                             CONTROLSAND PROCEDURES**

 

A review andevaluation was performed by the Company’s management, including the Company’sChief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures as of a date within 90 days prior to the filing of thisquarterly report pursuant to Rule 13a-14 of the Securities Act of 1934. Basedon that review and evaluation, the

 

16

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CEO andCFO have concluded that the Company’s current disclosure controls andprocedures, as designed and implemented, were effective. There have been nosignificant changes in the Company’s internal controls or in other factors thatcould significantly affect the Company’s internal controls subsequent to thedate of their evaluation. There were no significant material weaknesses identifiedin the course of such review and evaluation and, therefore, no correctivemeasures were taken by the Company.

 

17

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**PART II - OTHER INFORMATION**

 

**Item 1.****                                   Legal Proceedings**

 

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

 

**Item2.****                                   Changesin Securities and Use of Proceeds**

 

None.

 

**Item 3.****                                   Defaultsupon Senior Securities**

 

None.

 

**Item 4.****                                   Submissionof Matters to a Vote of Security Holders**

 

None

 

**Item 5.****                                   OtherInformation**

 

None.

 

**Item 6.****                                  ****Exhibits and Reports on Form 8-K**

 

(a) Exhibits

 
| Exhibit No. 99.1 |   | Chief Executive Officer Certification Pursuant to 18  U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 |
|------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                             |
| Exhibit No. 99.2 |   | Chief Financial Officer Certification Pursuant to 18  U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 |

 

 

(b) Reports on Form 8-K

 

None

 

18

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   | Greene County Bancshares, Inc. |   |
|--------|--------------------------------|--------|
|   | Registrant                     |   |
|   |                           |   |
|   |                           |   |
| Date:  | May 9, 2003                    |   | By: | /s/  R. Stan  Puckett |   |
|   |                           |   | R. Stan Puckett |
|   |                           |   | Chairman of the Board and Chief Executive Officer  (Duly authorized representative) |
|   |                           |   |
|   |                           |   |
| Date:  | May 9, 2003                    |   |   | /s/  William  F. Richmond |   |
|   |                           |   | William F. Richmond |
|   |                           |   | Senior Vice President and Chief Financial  Officer (Principal financial and accounting officer) |
|        |                                |        |  |  |  |  |  |  |  |  |

 

19

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**CERTIFICATION PURSUANT TO**

**SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

**SEC RELEASE NO. 33-8124**

 

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

 

1)              I have reviewed thisquarterly report on Form 10-Q of Greene County Bancshares, Inc.(the“registrant”);

 

2)              Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3)              Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4)              The registrant’sother certifying officer and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:

 

a)              designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b)             evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)              presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5)              The registrant’sother certifying officer and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee of theregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)              all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)             any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6)              The registrant’sother certifying officer and I have indicated in this quarterly report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 
|   | Date:  | May 9, 2003                                       |   | /s/ | R. Stan Puckett |   |
|--------|--------|---------------------------------------------------|--------|-----|-----------------|--------|
|   |   | R. Stan Puckett                                   |
|   |   | Chairman of the Board and Chief Executive Officer |

 

 

 

20

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**CERTIFICATION PURSUANT TO**

**SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

**SEC RELEASE NO. 33-8124**

 

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

 

1)              I have reviewed thisquarterly report on Form 10-Q of Greene County Bancshares, Inc.(the“registrant”);

 

2)              Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3)              Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4)              The registrant’sother certifying officer and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:

 

a)              designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b)             evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)              presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5)              The registrant’sother certifying officer and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee of theregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)              all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)             any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6)              The registrant’s othercertifying officer and I have indicated in this quarterly report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
|   | Date:  | May 9, 2003                                              |   | /s/ | William F. Richmond |   |
|--------|--------|----------------------------------------------------------|--------|-----|---------------------|--------|
|   |   | William F. Richmond                                      |
|   |   |  Senior Vice President and  Chief Financial Officer |

 

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