Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from _____________ to _____________ |
Commission file number 0-14289
GREEN BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
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Tennessee
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62-1222567 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.) |
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100 North Main Street, Greeneville, Tennessee
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37743-4992 |
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(Address of principle executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (423) 639-5111
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of each Exchange on which Registered |
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Common Stock $2.00 par value
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Nasdaq Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. YES o NO þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. YES o NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§
229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). YES o NO þ
The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30,
2010, the last business day of the registrants most recently completed second fiscal quarter, was
approximately $151 million. The market value calculation was determined using the closing sale
price of the registrants common stock on June 30, 2010, as reported on the Nasdaq Global Select
Market. For purposes of this calculation, the term affiliate refers to all directors, executive
officers and 10% shareholders of the registrant. As of the close of business on February 28, 2011,
13,188,896 shares of the registrants common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following lists the documents incorporated by reference and the Part of the Form 10-K into
which the document is incorporated:
1. Portions of Proxy Statement for 2011 Annual Meeting of Shareholders. (Part III)
TABLE OF CONTENTS
PART I
Forward-Looking Statements
The information contained herein contains forward-looking statements that involve a number of risks
and uncertainties. A number of factors, including those discussed herein, could cause results to
differ materially from those anticipated by such forward-looking statements which 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. In addition, such forward-looking statements are
necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise.
Accordingly, any forward-looking statements included herein do not purport to be predictions of
future events or circumstances and may not be realized. Forward-looking statements can be
identified by, among other things, the use of forward-looking terminology such as trends,
assumptions, target, guidance, outlook, opportunity, future, plans, goals,
objectives, expectations, near-term, long-term, projection, may, will, would,
could, expect, intend, estimate, anticipate, believe, potential, regular, or
continue or the negatives thereof, or other variations thereon of comparable terminology, or by
discussions of strategy or intentions. Such statements may include, but are not limited to,
projections of revenue, income or loss, expenditures, acquisitions, plans for future operations,
financing needs or plans relating to services of the Company, as well as assumptions relating to
the foregoing. The Companys actual results may differ materially from the results anticipated in
forward-looking statements due to a variety of factors, including, but not limited to those
identified in Item 1A. Risk Factors in this Form 10-K and (1) deterioration in the financial
condition of borrowers resulting in significant increases in loan losses and provisions for those
losses; (2) continuation of the historically low short-term interest rate environment; (3) changes
in loan underwriting, credit review or loss reserve policies associated with economic conditions,
examination conclusions, or regulatory developments; (4) increased levels of non-performing and
repossessed assets and the ability to resolve these may result in future losses; (5) greater than
anticipated deterioration or lack of sustained growth in the national or local economies; (6) rapid
fluctuations or unanticipated changes in interest rates; (7) the impact of governmental
restrictions on entities participating in the Capital Purchase Program (the CPP) of the
United States Department of the Treasury (the Treasury); (8) changes in state and federal
legislation, regulations or policies applicable to banks or other financial service providers,
including regulatory or legislative developments, like the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the Dodd-Frank Act), arising out of current unsettled conditions
in the economy (9) the results of regulatory examinations; (10) the remediation efforts related to
the Companys material weakness in its internal control over financial reporting; (11) increased
competition with other financial institutions in the markets that the Bank serves; (12) the Company
recording a further valuation allowance related to its deferred tax asset; (13) exploring
alternatives available for the future repayment or conversion of the preferred stock issued in the
CPP; (14) further deterioration in the valuation of other real estate owned (OREO); (15)
inability to comply with regulatory capital requirements and to secure any required regulatory
approvals for capital actions to raise capital if necessary to comply with any regulatory capital
requirements; and (16) the loss of key personnel. The Company undertakes no obligation to update
forward-looking statements.
Readers are cautioned not to place undue reliance on forward-looking statements made in this
document, since the statements speak only as of the documents date. All forward-looking statements
included in this Annual Report on Form 10-K are expressly qualified in their entirety by the
cautionary statements in this section and to the more detailed risk factors included below under
Part I, Item 1A Risk Factors. The Company has no obligation and does not intend to publicly
update or revise any forward-looking statements contained in or incorporated by reference into this
Annual Report on Form 10-K, to reflect events or circumstances occurring after the date of this
document or to reflect the occurrence of unanticipated events. Readers are advised, however, to
consult any further disclosures the Company may make on related subjects in its documents filed
with or furnished to the Securities and Exchange Commission (SEC) or in its other public
disclosures.
1
Presentation of Amounts
All dollar amounts set forth below, other than share and per-share amounts, are in thousands
unless otherwise noted. Unless this Form 10-K indicates otherwise or the context otherwise
requires, the terms we, our, us, the Company or Green Bankshares as used herein refer to
Green Bankshares, Inc. and its subsidiaries, including GreenBank, which we sometimes refer to as
GreenBank, the Bank or our Bank.
Green Bankshares, Inc.
We are the third-largest bank holding company headquartered in Tennessee, with $2.4 billion in
assets as of December 31, 2010. Incorporated in 1985, Green Bankshares is the parent of GreenBank
(the Bank) and owns 100% of the capital stock of the Bank. The primary business of the Company
is operating the Bank.
As a bank holding company, we are subject to regulation by the Board of Governors of the
Federal Reserve System, or the Federal Reserve Board (the FRB). We are required to file reports
with the Federal Reserve Bank of Atlanta (the FRB-Atlanta) and are subject to regular
examinations by that agency. Shares of our common stock are traded on the NASDAQ Global Select
Market under the trading symbol GRNB.
At December 31, 2010, the Company maintained a main office in Greeneville, Tennessee and 64
full-service bank branches (of which eleven are leased operating premises), a location for mortgage
banking and nine separate locations operated by the Banks subsidiaries.
The Companys assets consist primarily of its investment in the Bank and liquid investments.
Its primary activities are conducted through the Bank. At December 31, 2010, the Companys
consolidated total assets were $2,406,040, its consolidated net loans were $1,745,378, its total
deposits were $1,976,854 and its total shareholders equity was $143,897.
The Companys net income, or net loss, is dependent primarily on the earnings, or loss, of its
wholly-owned subsidiary, GreenBank and its level of net income, or net loss. GreenBanks net
income, or net loss, is dependent upon its level of net interest income, which is the difference
between the interest income earned on its loans and other interest-earning assets and the interest
paid on deposits and other interest-bearing liabilities plus the Banks non-interest income, the
sum of which is either partially, or fully, offset by the amount of the Banks loan loss provision
plus the Banks total operating expenses.
Lending Activities:
General: The Banks lending activities reflect its community banking philosophy, emphasizing
secured loans to individuals and businesses in its primary market areas.
Commercial Real Estate Lending: Commercial real estate loans are loans originated by the Bank that
are secured by commercial real estate and includes commercial real estate construction loans to
developers, mainly to borrowers based in its primary markets.
Residential Real Estate Lending: The Bank originates traditional one-to-four family, owner
occupied, residential mortgages secured by property located in its primary market area. Further
detail on consumer residential real estate lending may be found on page 7 of this report.
2
Commercial Business Lending: Commercial business loans are loans originated by the Bank that are
generally secured by various types of business assets including inventory, receivables, equipment,
financial instruments and commercial real estate. In limited cases, loans may be made on an
unsecured basis. Commercial business loans are used for a variety of purposes including working
capital and financing the purchase of equipment.
The Bank concentrates on originating commercial business loans to middle-market companies with
borrowing requirements of less than $25 million. Substantially all of the Banks commercial
business loans outstanding at December 31, 2010, were to borrowers based in its primary markets.
Consumer Lending: The Bank makes consumer loans for personal, family or household purposes, such as
debt consolidation, automobiles, vacations and education. Consumer lending loans are typically
secured by personal property but may also be unsecured personal loans. They may also be made on a
revolving line of credit or fixed-term basis.
Investment Activities:
The Bank has authority to invest in various types of liquid assets, including U.S. Treasury
obligations and securities of various federal agencies and U.S. Government sponsored enterprises,
deposits of insured banks and federal funds. The Banks investments do not include commercial
paper, asset-backed commercial paper, asset-backed securities secured by credit cards, or car
loans. The Bank also does not participate in structured investment vehicles. Liquidity may increase
or decrease depending upon the availability of funds and comparative yields on investments in
relation to the returns on loans and leases. The Bank must also meet reserve requirements of the
FRB, which are imposed based on amounts on deposit in various deposit categories.
Sources of Funds:
Deposits: Deposits are the primary source of the Banks funds for use in lending and for other
general business purposes. Deposit inflows and outflows are significantly influenced by economic
and competitive conditions, interest rates, money market conditions and other factors, including
depositor confidence. Consumer, small business and commercial deposits are attracted
principally from within the Banks primary market areas through the offering of a broad selection
of deposit instruments including consumer, small business and commercial demand deposit accounts,
interest-bearing checking accounts, money market accounts, regular savings accounts, certificates
of deposit and retirement savings plans.
The Banks marketing strategy emphasizes attracting core deposits held in checking, savings,
money- market and certificate of deposit accounts. These accounts are a source of low-interest cost
funds and in some cases, provide significant fee income. The composition of the Banks deposits has
a significant impact on the overall cost of funds. At December 31, 2010, interest-bearing deposits
comprised 92% of total deposits, as compared with 91% at December 31, 2009.
Borrowings: Borrowings may be used to compensate for reductions in deposit inflows or net deposit
outflows, or to support expanded lending activities. These borrowings include Federal Home Loan
Bank (FHLB) advances, repurchase agreements, federal funds and other borrowings.
The Bank, as a member of the FHLB system, is required to own a minimum level of FHLB stock and
is authorized to apply for advances on the security of such stock, mortgage-backed securities,
loans secured by real estate and other assets (principally securities which are obligations of, or
guaranteed by, the United States Government), provided certain standards related to
creditworthiness have been met. FHLB advances are made pursuant to several different credit
programs. Each credit program has its own interest rates and range of maturities. The FHLB
prescribes the acceptable uses to which the advances pursuant to each program may be made as well
as limitations on the size of advances. In addition to the program limitations, the amounts of
advances for which an institution may be eligible are generally based on the FHLBs assessment of
the institutions creditworthiness.
3
As an additional source of funds, the Bank may sell securities subject to its obligation to
repurchase these securities (repurchase agreements) with major customers utilizing government
securities or mortgage-backed securities as collateral. Generally, securities with a value in excess of the amount borrowed
are required to be maintained as collateral to a repurchase agreement.
Information concerning the Banks FHLB advances, repurchase agreements, junior subordinated
notes (trust preferred) and other borrowings is set forth in Managements Discussion and Analysis
of Financial Condition and Results of Operations Liquidity and Capital Resources and in Note 8
of Notes to Consolidated Financial Statements.
We are significantly impacted by prevailing economic conditions, competition and the monetary,
fiscal and regulatory policies of governmental agencies. Lending activities are influenced by the
general credit needs of individuals and small and medium-sized businesses in the Companys market
areas, competition among lenders, the level of interest rates and the availability of funds.
Deposit flows and costs of funds are influenced by prevailing market rates of interest, primarily
the rates paid on competing funding alternatives, account maturities and the levels of personal
income and savings in the Companys market areas.
Our principal executive offices are located at 100 North Main Street, Greeneville, Tennessee
37743-4992 and our telephone number at these offices is (423) 639-5111. Our internet address is
www.greenbankusa.com. Please note that our website is provided as an inactive textual
reference and the information on our website is not incorporated by reference herein.
GreenBank and its Subsidiaries
Our Bank is a Tennessee-chartered commercial bank established in 1890 which has its principal
executive offices in Greeneville, Tennessee. The principal business of the Bank consists of
attracting deposits from the general public and investing those funds, together with funds
generated from operations and from principal and interest payments on loans, primarily in
commercial and residential real estate loans, commercial loans and installment consumer loans. At
December 31, 2010, the Bank had 63 Tennessee-based full-service banking offices located in Greene,
Blount, Cocke, Hamblen, Hawkins, Knox, Loudon, McMinn, Monroe, Sullivan, and Washington Counties in
East Tennessee and in Davidson, Lawrence, Macon, Montgomery, Rutherford, Smith, Sumner and
Williamson Counties in Middle Tennessee. The Bank also operates two other full service
branchesone located in nearby Madison County, North Carolina and the other in nearby Bristol,
Virginia. Further, the Bank operates a mortgage banking operation in Knox County, Tennessee.
Our Bank also offers other financial services through three wholly-owned subsidiaries.
Through Superior Financial Services, Inc. (Superior Financial), the Bank operates eight consumer
finance company offices located in Greene, Blount, Hamblen, Washington, Sullivan, Sevier, Knox and
Bradley Counties, Tennessee. Through GCB Acceptance Corporation (GCB Acceptance), the Bank
operates a sub-prime automobile lending company with a sole office in Johnson City, Tennessee.
Through Fairway Title Co., the Bank operates a title company headquartered in Knox County,
Tennessee. At December 31, 2010, these three subsidiaries had total combined assets of $42,995 and
total combined loans, net of unearned interest and loan loss reserve, of $40,671.
As described in more detail below, deposits of our Bank are insured by the Deposit Insurance
Fund (DIF) of the Federal Deposit Insurance Corporation (FDIC). Our Bank is subject to
comprehensive regulation, examination and supervision by the Tennessee Department of Financial
Institutions (the TDFI), the FRB and the FDIC.
Business Strategy
In 2011, the Company expects that its primary business strategy will be on managing through
the current asset quality issues affecting the Companys performance and strengthening the
Companys capital position, including, if necessary, through the issuance of additional equity
securities. Accordingly, the Company expects that over the short term, given the current economic
environment and high levels of nonperforming assets, there will be little to no loan growth until
the current economic environment in the Companys markets stabilizes and the economy begins to
improve.
4
The Companys intermediate term prospects depend principally on the Companys ability to deal
with the asset quality issues currently facing the Company and the Companys ability to raise
capital in amounts sufficient to allow the Company and the Bank to achieve capital levels in excess
of those required by federal banking regulations and the informal commitments that the Bank has
made to the TDFI and FDIC described in more detail below.
The Bank had historically operated under a single bank charter while conducting business under
18 bank brands with a distinct community-based brand in almost every market. On March 31, 2007 the
Bank announced that it had changed all brand names to GreenBank throughout all the communities it
serves to better enhance recognition and customer convenience. The Bank continues to offer local
decision making through the presence of its regional executives in each of its markets, while
maintaining a cost effective organizational structure in its back office and support areas.
The Bank focuses its lending efforts predominately on individuals and small to medium-sized
businesses while it generates deposits primarily from individuals in its local communities. To aid
in deposit generation efforts, the Bank offers its customers extended hours of operation during the
week as well as Saturday and Sunday banking in many of its markets. The Bank also offers free
online banking along with its High Performance Checking Program which since its inception has
generated a significant number of core transaction accounts.
In addition to the Companys business model, which is described herein, the Company is
continuously investigating and analyzing other lines and areas of business. Conversely, the
Company frequently evaluates and analyzes the profitability, risk factors and viability of its
various business lines and segments and, depending upon the results of these evaluations and
analyses, may conclude to exit certain segments and/or business lines. Further, in conjunction with
these ongoing evaluations and analyses, the Company may decide to sell, merge or close certain
branch facilities.
Lending Activities
General. The loan portfolio of the Company is comprised of commercial real estate,
residential real estate, commercial and consumer loans. Such loans are primarily originated within
the Companys market areas of East and Middle Tennessee and are generally secured by residential or
commercial real estate or business or personal property located in its market footprint.
Loan Composition. Given the on-going challenging economic environment which began
during the second half of 2007 as the recession emerged and the resulting precipitous decline in
residential real estate construction values through 2010, the Company significantly reduced its
commercial real estate concentration levels, as noted in the table below for each of the periods
presented at December 31:
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2010 |
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2009 |
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2008 |
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2007 |
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2006 |
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Commercial real estate |
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$ |
1,080,805 |
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$ |
1,306,398 |
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$ |
1,430,225 |
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$ |
1,549,457 |
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$ |
921,190 |
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Residential real estate |
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378,783 |
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392,365 |
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397,922 |
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398,779 |
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281,629 |
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Commercial |
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222,927 |
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274,346 |
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315,099 |
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320,264 |
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258,998 |
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Consumer |
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75,498 |
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83,382 |
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89,733 |
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97,635 |
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87,111 |
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Other |
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1,913 |
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2,117 |
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4,656 |
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3,871 |
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2,203 |
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Unearned interest |
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(14,548 |
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(14,801 |
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(14,245 |
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(13,630 |
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(11,502 |
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Loans, net of unearned interest |
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$ |
1,745,378 |
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$ |
2,043,807 |
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$ |
2,223,390 |
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$ |
2,356,376 |
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$ |
1,539,629 |
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Allowance for loan losses |
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$ |
(66,830 |
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$ |
(50,161 |
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$ |
(48,811 |
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$ |
(34,111 |
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$ |
(22,302 |
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5
In addition to the segment information listed above, the Company monitors commercial
real estate speculative and construction by purpose code as noted in the loan migration table below
for each of the periods presented:
Higher Risk Loan Migration Table:
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2010 |
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2009 |
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2008 |
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2007 |
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2006 |
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Speculative 1-4 family residential real estate |
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Acquisition and development |
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$ |
131,669 |
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$ |
185,087 |
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$ |
242,343 |
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$ |
285,592 |
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$ |
159,760 |
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Lot warehouse |
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42,796 |
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66,104 |
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79,555 |
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104,201 |
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64,429 |
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Commercial 1-4 family residential |
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31,511 |
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70,434 |
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160,786 |
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279,680 |
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134,390 |
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Sub-total |
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205,976 |
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321,625 |
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482,684 |
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669,473 |
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358,579 |
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Construction |
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Commercial vacant land |
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77,081 |
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101,679 |
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103,160 |
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69,298 |
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37,461 |
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Commercial construction non-owner occupied |
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63,881 |
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164,887 |
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144,344 |
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157,374 |
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80,032 |
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Commercial construction owner
occupied |
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5,407 |
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28,213 |
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55,305 |
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58,814 |
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37,515 |
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Consumer residential construction |
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14,161 |
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19,073 |
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27,632 |
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38,231 |
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25,279 |
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Sub-total |
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160,530 |
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313,852 |
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330,441 |
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323,717 |
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180,287 |
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Total speculative and construction |
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$ |
366,506 |
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$ |
635,477 |
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$ |
813,125 |
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$ |
993,190 |
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$ |
538,866 |
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Loan Maturities. The following table reflects at December 31, 2010 the dollar amount
of loans maturing based on their contractual terms to maturity. Demand loans, loans having no
stated schedule of repayments and loans having no stated maturity are reported as due in one year
or less.
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Due in One |
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Due After One Year |
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Due After |
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Year or Less |
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Through Five Years |
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Five Years |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
437,374 |
|
|
$ |
613,259 |
|
|
$ |
30,172 |
|
|
$ |
1,080,805 |
|
Residential real estate (1) |
|
|
42,826 |
|
|
|
93,735 |
|
|
|
235,732 |
|
|
|
372,293 |
|
Commercial |
|
|
148,500 |
|
|
|
68,752 |
|
|
|
5,675 |
|
|
|
222,927 |
|
Consumer (1) |
|
|
19,110 |
|
|
|
45,815 |
|
|
|
2,515 |
|
|
|
67,440 |
|
Other |
|
|
1,629 |
|
|
|
236 |
|
|
|
48 |
|
|
|
1,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
649,439 |
|
|
$ |
821,797 |
|
|
$ |
274,142 |
|
|
$ |
1,745,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of unearned interest |
The following table sets forth the dollar amount of the loans maturing subsequent to the
year ended December 31, 2011 distinguished between those with predetermined interest rates and
those with floating, or variable, interest rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
Variable Rate |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
432,141 |
|
|
$ |
211,290 |
|
|
$ |
643,431 |
|
Residential real estate |
|
|
111,198 |
|
|
|
218,269 |
|
|
|
329,467 |
|
Commercial |
|
|
46,740 |
|
|
|
27,687 |
|
|
|
74,427 |
|
Consumer |
|
|
47,696 |
|
|
|
634 |
|
|
|
48,330 |
|
Other |
|
|
236 |
|
|
|
48 |
|
|
|
284 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
638,011 |
|
|
$ |
457,928 |
|
|
$ |
1,095,939 |
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate Loans. The Company has significantly curtailed the
origination of residential real estate construction and development loans over the past three years
as noted in the higher risk loan migration table above. The Company had historically originated
commercial real estate loans, including residential real estate construction and development loans,
generally to existing business customers, secured by real estate located in the Companys market
area. At December 31, 2010, commercial real estate loans totaled $1,080,805, or 62%, of the
Companys net loan portfolio. Commercial real estate loans were generally underwritten by
addressing cash flow (debt service coverage), primary and secondary source of repayment, financial
strength of any guarantor, and strength of the tenant (if any), liquidity, leverage, management
experience, ownership structure, economic conditions and collateral. Generally, the Company would
loan up to 80-85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be acquired and developed. A first lien on the
property and assignment of lease is required if the collateral is rental property, with second lien
positions considered on a case-by-case basis.
6
Residential Real Estate. The Company also originates one-to-four family,
owner-occupied residential mortgage loans secured by property located in the Companys primary
market areas. The majority of the Companys residential mortgage loans consists of loans secured
by owner-occupied, single-family residences. At December 31, 2010, the Company had $378,783, or
21%, of its net loan portfolio in residential real estate loans, net of unearned income.
Residential real estate loans generally have a loan-to-value ratio of 85% or less. These loans are
underwritten by giving consideration to the ability to pay, stability of employment, source of
income, credit history and loan-to-value ratio. Home equity loans make up approximately 52% of
residential real estate loans. Home equity loans may have higher loan-to-value ratios when the
borrowers repayment capacity and credit history conform to underwriting standards. Superior
Financial extends sub-prime mortgages to borrowers who generally have a higher risk of default than
mortgages extended by the Bank. Sub-prime mortgages totaled $11,742, or 3%, of the Companys
residential real estate loans, net of unearned income, at December 31, 2010.
The Company sells most of its one-to-four family mortgage loans in the secondary market to
Freddie Mac and other mortgage investors through the Banks mortgage banking operation. Sales of
such loans to Freddie Mac and other mortgage investors totaled $47,881 and $43,050 during 2010 and
2009, respectively, and the related mortgage servicing rights were sold together with the loans.
All mortgage loans sales are without recourse and all notes are endorsed to the investor stating
without recourse. Certain contingencies do come into play for early prepayment or early payment
defaults and would involve a refund of the yield spread premium earned on the transaction given
certain events of default. During 2010, no refunds or events of default occurred.
Commercial Loans. Commercial loans are made for a variety of business purposes,
including working capital, inventory and equipment and capital expansion. At December 31, 2010,
commercial loans outstanding totaled $222,927, or 13%, of the Companys net loan portfolio. Such
loans are usually amortized over one to seven years and generally mature within five years.
Commercial loan applications must be supported by current financial information on the borrower
and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by
addressing cash flow (debt service coverage), primary and secondary sources of repayment, financial
strength of any guarantor, liquidity, leverage, management experience, ownership structure,
economic conditions and industry-specific trends and collateral. The loan to value ratio depends
on the type of collateral. Generally speaking, accounts receivable are financed between 70% and
80% of accounts receivable less than 90 days past due. If other collateral is taken to support the
loan, the loan to value of accounts receivable may approach 85%. Inventory financing will range
between 50% and 60% depending on the borrower and nature of the inventory. The Company requires a
first lien position for such loans. These types of loans are generally considered to be a higher
credit risk than other loans originated by the Company.
Consumer Loans. At December 31, 2010, the Companys consumer loan portfolio, net of
unearned income, totaled $67,440, or 4%, of the Companys total net loan portfolio. The Companys
consumer loan portfolio is composed of secured and unsecured loans originated by the Bank, Superior
Financial and GCB Acceptance. The consumer loans of the Bank generally have a higher risk of
default than other loans originated by the Bank. Further, consumer loans originated by Superior
Financial and GCB Acceptance, which are finance companies rather than banks, generally have a
greater risk of default than such loans originated by commercial banks and, accordingly, carry a
higher interest rate. Superior Financial and GCB Acceptance consumer loans totaled approximately
$32,194, or 48%, of the Companys installment consumer loans, net of unearned income, at December
31, 2010. The performance of consumer loans will be affected by the local and regional economy as
well as the rates of personal bankruptcies, job loss, divorce and other individual-specific
characteristics.
Past Due, Special Mention, Classified and Nonaccrual Loans. The Company classifies
its loans of concern into three categories: past due loans, special mention loans and classified
loans (both accruing and non-accruing interest).
When management determines that a loan is no longer performing and that collection of interest
appears doubtful, the loan is placed on nonaccrual status. All loans that are 90 days past due are
considered nonaccrual unless they are adequately secured and there is reasonable assurance of full
collection of principal and interest. Management closely monitors all loans that are contractually
90 days past due, treated as special mention or otherwise classified or on nonaccrual status. Nonaccrual loans that are 120 days past due without assurance of
repayment are charged off against the allowance for loan losses.
7
The Company may elect to formally restructure a loan due to the weakening credit status of a
borrower so that the restructuring may facilitate a repayment plan that minimizes the potential
losses that the Company may have to otherwise incur. At December 31, 2010 and 2009, the Company
had $49,537 and $16,061 of restructured loans of which $9,597 and $4,429 were classified as
non-accrual and the remaining were performing.
The following table sets forth information with respect to the Companys nonperforming assets
at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans accounted for on a non-accrual
basis |
|
$ |
143,707 |
|
|
$ |
75,411 |
|
|
$ |
30,926 |
|
|
$ |
32,060 |
|
|
$ |
3,479 |
|
Accruing loans which are contractually
past due 90 days or more as to interest
or principal payments |
|
|
2,112 |
|
|
|
147 |
|
|
|
509 |
|
|
|
18 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans |
|
|
145,819 |
|
|
|
75,558 |
|
|
|
31,435 |
|
|
|
32,078 |
|
|
|
3,507 |
|
Real estate owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosures |
|
|
59,965 |
|
|
|
56,952 |
|
|
|
44,964 |
|
|
|
4,401 |
|
|
|
1,445 |
|
Other real estate held and
repossessed assets |
|
|
130 |
|
|
|
216 |
|
|
|
407 |
|
|
|
458 |
|
|
|
243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
205,914 |
|
|
$ |
132,726 |
|
|
$ |
76,806 |
|
|
$ |
36,937 |
|
|
$ |
5,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans not included above |
|
$ |
39,940 |
|
|
$ |
11,632 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets increased by $73,188 from December 31, 2009 to December 31,
2010. This increase was principally driven by deterioration in the economy during 2010 which was
reflected principally in the Companys residential real estate construction and development
portfolio. In 2010, the Company devoted significant attention to our asset quality issues,
including having segregated these assets within our Special Assets Group so that we may diligently
work through the resolution of each on an asset-by-asset basis. The Special Assets Group meets
monthly to discuss the performance of the portfolio and specific relationships with emphasis on the
underperforming assets. The Special Assets Group is responsible for the resolution of problem
credits by creating action plans, which could include foreclosure, restructuring the loan, issuing
demand letters or other actions. If nonaccrual loans at December 31, 2010 had been current
according to their original terms and had been outstanding throughout 2010, or since origination if
originated during the year, interest income on these loans in 2010 would have been approximately
$5,948. Interest actually recognized on these loans during 2010 was $4,843. Interest income not
recognized on restructured loans was not significant for 2010.
OREO increased by $2,927 from December 31, 2009 to December 31, 2010. The real estate
consists of 122 properties, of which 49 are 1-4 family residential properties with a carrying value
of $3,966; 38 are construction development of 1-4 residential properties with a carrying value of
$37,481; two are multi-family residential properties with a carrying value of $648; four are
parcels of commercial vacant land with a carrying value of $3,192; 23 are vacant 1-4 family
residential lots with a carrying value of $7,038; five are commercial buildings with a carrying
value of $5,321; and one is a commercial construction project with a carrying value of $2,318.
Management has recorded these properties at estimated fair market value, based on current
appraisals, less estimated selling costs. Other repossessed assets decreased from $216 at December
31, 2009 to $130 at December 31, 2010. The decrease is due primarily to the disposition of
repossessed automobiles at one of the Companys subsidiaries.
8
The recorded investment of impaired loans, defined under Accounting Standards Codification
(ASC) Topic ASC 310 as loans which, based upon current information and events, it is considered
probable that the Company will be unable to collect all amounts of contractual interest and
principal as scheduled in the loan agreement, increased by $70,753 from $115,238 at December 31,
2009 to $185,991 at December 31, 2010. The related allowance on the recorded investment of
impaired loans also increased by $19,097 from $5,737 at December 31, 2009 to $24,834 at December 31, 2010. Under accounting guidance for impaired loans,
the impairment is probable if the future events indicate that the Bank will not collect principal
and interest in accordance with contractual terms. Impaired loans are included in non-performing
loans. This increase is primarily attributable to the continued deterioration throughout 2010 in
residential real estate construction loans located in the Companys urban markets. The recorded
investment of impaired loans of $185,991 at December 31, 2010 and $115,238 at December 31, 2009 are
net of balances previously charged-off of $36,574 and $27,937 respectively.
Allowance for Loan Losses. The allowance for loan losses is maintained at a level which
management believes is adequate to absorb all probable losses on loans then present in the loan
portfolio. The amount of the allowance is affected by: (1) loan charge-offs, which decrease the
allowance; (2) recoveries on loans previously charged-off, which increase the allowance; and (3)
the provision for possible loan losses charged against income, which increases the allowance. In
determining the provision for possible loan losses, it is necessary for management to monitor
fluctuations in the allowance resulting from actual charge-offs and recoveries, and to periodically
review the size and composition of the loan portfolio in light of current and anticipated economic
conditions, including residential real estate prices and transaction volume in the Companys market
areas, in an effort to evaluate portfolio risks. In evaluating residential real estate market
conditions, the Companys internal policies require new appraisals on adversely rated collateral
dependent loans to be obtained at least annually. On a quarterly basis, the Company receives a
written report from an independent nationally recognized organization which provides updated
valuation trends, by price point and by zip code, for each of the major markets in which the
Company is conducting business. The information is then used in the Companys impairment analysis
of collateral dependent loans. If actual losses exceed the amount of the allowance for loan
losses, earnings of the Company could be adversely affected. The amount of the provision is based
on managements judgment of those risks. During the year ended December 31, 2010, the Companys
provision for loan losses increased by $20,861 to $71,107 from $50,246 for the year ended December
31, 2009 and the allowance for loan losses increased by $16,669 to $66,830 at December 31, 2010
from $50,161 at December 31, 2009.
The elevated allowance for loan losses was attributable primarily to continuing weakened
economic conditions experienced in the Companys urban markets, principally the Nashville and
Knoxville markets, beginning in the fourth quarter of 2007 and continuing through 2010, accompanied
by deteriorating credit quality associated primarily with residential real estate construction and
development loans in these markets. The allowance for loan losses as a percentage of total loans
was 3.83% at the end of 2010 versus 2.45% at December 31, 2009. The loan loss reserves reflected
the higher level of non-performing banking assets, and losses inherent in this segment of the
Companys business, as noted in Notes 3 and 17 of Notes to Consolidated Financial Statements.
Although Management believes that the allowance for loan losses is adequate to cover estimated
losses inherent in the portfolio, there can be no assurances that additional reserves may not be
required in the future.
9
The following is a summary of activity in the allowance for loan losses for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
$ |
50,161 |
|
|
$ |
48,811 |
|
|
$ |
34,111 |
|
|
$ |
22,302 |
|
|
$ |
19,739 |
|
Reserve acquired in acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
50,161 |
|
|
|
48,811 |
|
|
|
34,111 |
|
|
|
31,324 |
|
|
|
19,739 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
(48,617 |
) |
|
|
(40,893 |
) |
|
|
(28,759 |
) |
|
|
(7,516 |
) |
|
|
(494 |
) |
Commercial |
|
|
(3,210 |
) |
|
|
(6,941 |
) |
|
|
(6,177 |
) |
|
|
(2,065 |
) |
|
|
(879 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
(51,827 |
) |
|
|
(47,834 |
) |
|
|
(34,936 |
) |
|
|
(9,581 |
) |
|
|
(1,373 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
(3,102 |
) |
|
|
(3,176 |
) |
|
|
(2,275 |
) |
|
|
(840 |
) |
|
|
(947 |
) |
Consumer |
|
|
(2,889 |
) |
|
|
(3,880 |
) |
|
|
(4,058 |
) |
|
|
(3,050 |
) |
|
|
(2,009 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
(57,818 |
) |
|
|
(54,890 |
) |
|
|
(41,269 |
) |
|
|
(13,471 |
) |
|
|
(4,357 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
1,301 |
|
|
|
3,066 |
|
|
|
1,691 |
|
|
|
289 |
|
|
|
17 |
|
Commercial |
|
|
909 |
|
|
|
1,669 |
|
|
|
221 |
|
|
|
227 |
|
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
2,210 |
|
|
|
4,735 |
|
|
|
1,912 |
|
|
|
516 |
|
|
|
188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
287 |
|
|
|
402 |
|
|
|
138 |
|
|
|
213 |
|
|
|
284 |
|
Consumer |
|
|
882 |
|
|
|
853 |
|
|
|
1,106 |
|
|
|
1,038 |
|
|
|
936 |
|
Other |
|
|
1 |
|
|
|
4 |
|
|
|
3 |
|
|
|
8 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
3,380 |
|
|
|
5,994 |
|
|
|
3,159 |
|
|
|
1,775 |
|
|
|
1,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
(54,438 |
) |
|
|
(48,896 |
) |
|
|
(38,110 |
) |
|
|
(11,696 |
) |
|
|
(2,944 |
) |
|
Provision for loan losses |
|
|
71,107 |
|
|
|
50,246 |
|
|
|
52,810 |
|
|
|
14,483 |
|
|
|
5,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
66,830 |
|
|
$ |
50,161 |
|
|
$ |
48,811 |
|
|
$ |
34,111 |
|
|
$ |
22,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average
loans outstanding, net of
unearned discount, during
the period |
|
|
2.84 |
% |
|
|
2.25 |
% |
|
|
1.63 |
% |
|
|
.57 |
% |
|
|
.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses to
non-performing loans |
|
|
45.83 |
% |
|
|
66.39 |
% |
|
|
155.28 |
% |
|
|
106.34 |
% |
|
|
635.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses to
total loans, net of unearned income |
|
|
3.83 |
% |
|
|
2.45 |
% |
|
|
2.20 |
% |
|
|
1.45 |
% |
|
|
1.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Breakdown of allowance for loan losses by portfolio segment. The following table
presents an allocation among the listed loan categories of the Companys allowance for loan losses
at the dates indicated and the percentage of loans in each category to the total amount of loans at
the respective year-ends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
|
loans in |
|
|
|
|
|
|
loans in |
|
|
|
|
|
|
loans in |
|
|
|
|
|
|
loans in |
|
|
|
|
|
|
loans in |
|
|
|
|
|
|
|
each |
|
|
|
|
|
|
each |
|
|
|
|
|
|
each |
|
|
|
|
|
|
each |
|
|
|
|
|
|
each |
|
|
|
|
|
|
|
category |
|
|
|
|
|
|
category |
|
|
|
|
|
|
category |
|
|
|
|
|
|
category |
|
|
|
|
|
|
category |
|
Balance at end of period |
|
|
|
|
|
to total |
|
|
|
|
|
|
to total |
|
|
|
|
|
|
to total |
|
|
|
|
|
|
to total |
|
|
|
|
|
|
to total |
|
applicable to: |
|
Amount |
|
|
loans |
|
|
Amount |
|
|
loans |
|
|
Amount |
|
|
loans |
|
|
Amount |
|
|
loans |
|
|
Amount |
|
|
loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
54,203 |
|
|
|
61.93 |
% |
|
$ |
36,527 |
|
|
|
63.93 |
% |
|
$ |
35,714 |
|
|
|
64.33 |
% |
|
$ |
20,489 |
|
|
|
65.38 |
% |
|
$ |
10,619 |
|
|
|
59.38 |
% |
Residential real estate |
|
|
4,431 |
|
|
|
21.33 |
% |
|
|
4,350 |
|
|
|
18.88 |
% |
|
|
3,669 |
|
|
|
17.63 |
% |
|
|
2,395 |
|
|
|
16.83 |
% |
|
|
1,639 |
|
|
|
18.16 |
% |
Commercial |
|
|
5,080 |
|
|
|
12.78 |
% |
|
|
5,840 |
|
|
|
13.42 |
% |
|
|
6,479 |
|
|
|
14.17 |
% |
|
|
7,575 |
|
|
|
13.51 |
% |
|
|
6,645 |
|
|
|
16.70 |
% |
Consumer |
|
|
3,108 |
|
|
|
3.86 |
% |
|
|
3,437 |
|
|
|
3.67 |
% |
|
|
2,927 |
|
|
|
3.66 |
% |
|
|
3,635 |
|
|
|
4.12 |
% |
|
|
3,384 |
|
|
|
5.62 |
% |
Other |
|
|
8 |
|
|
|
0.11 |
% |
|
|
7 |
|
|
|
0.10 |
% |
|
|
22 |
|
|
|
0.21 |
% |
|
|
17 |
|
|
|
0.16 |
% |
|
|
15 |
|
|
|
0.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
66,830 |
|
|
|
100.00 |
% |
|
$ |
50,161 |
|
|
|
100.00 |
% |
|
$ |
48,811 |
|
|
|
100.00 |
% |
|
$ |
34,111 |
|
|
|
100.00 |
% |
|
$ |
22,302 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Investment Activities
General. The Company maintains a portfolio of investments for general liquidity
purposes and to cover minimum pledging requirements for municipal deposits and borrowings.
Securities by Category. The following table sets forth the carrying value of the
securities, by major categories, held by the Company at December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions |
|
$ |
215 |
|
|
$ |
251 |
|
|
$ |
404 |
|
Other securities |
|
|
250 |
|
|
|
375 |
|
|
|
253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
465 |
|
|
$ |
626 |
|
|
$ |
657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
83,299 |
|
|
$ |
52,048 |
|
|
$ |
98,806 |
|
State and political subdivisions |
|
|
31,501 |
|
|
|
32,192 |
|
|
|
31,804 |
|
Collateralized mortgage obligations |
|
|
67,575 |
|
|
|
44,677 |
|
|
|
68,373 |
|
Mortgage-backed securities |
|
|
17,964 |
|
|
|
16,892 |
|
|
|
2,086 |
|
Trust preferred securities |
|
|
1,663 |
|
|
|
1,915 |
|
|
|
2,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
202,002 |
|
|
$ |
147,724 |
|
|
$ |
203,562 |
|
|
|
|
|
|
|
|
|
|
|
Maturity Distributions of Securities. The following table sets forth the distributions of
maturities of securities at amortized cost as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due After One |
|
|
|
|
|
|
|
|
|
|
|
|
Due in One |
|
|
Year through |
|
|
Due After Five Years |
|
|
Due |
|
|
|
|
|
|
Year or Less |
|
|
Five Years |
|
|
through 10 Years |
|
|
After 10 Years |
|
|
Total |
|
|
Securities Held to Maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions |
|
$ |
215 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
215 |
|
Other securities |
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
|
|
|
|
|
|
|
|
|
39,004 |
|
|
|
45,102 |
|
|
|
84,106 |
|
State and political subdivisions |
|
|
1,005 |
|
|
|
4,067 |
|
|
|
21,986 |
|
|
|
4,133 |
|
|
|
31,191 |
|
Collateralized mortgage obligations |
|
|
|
|
|
|
651 |
|
|
|
1,584 |
|
|
|
63,809 |
|
|
|
66,044 |
|
Mortgage-backed securities |
|
|
|
|
|
|
5,989 |
|
|
|
4,012 |
|
|
|
7,167 |
|
|
|
17,168 |
|
Trust preferred securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,850 |
|
|
|
1,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
1,470 |
|
|
$ |
10,707 |
|
|
$ |
66,586 |
|
|
$ |
122,061 |
|
|
$ |
200,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value adjustment on available
for sale securities |
|
|
3 |
|
|
|
535 |
|
|
|
554 |
|
|
|
553 |
|
|
|
1,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,473 |
|
|
$ |
11,242 |
|
|
$ |
67,140 |
|
|
$ |
122,614 |
|
|
$ |
202,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield (a) |
|
|
7.08 |
% |
|
|
4.83 |
% |
|
|
3.94 |
% |
|
|
3.44 |
% |
|
|
3.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Weighted average yields on tax-exempt obligations have been computed on a fully
taxable-equivalent basis using a tax rate of 35%. |
Expected maturities may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
11
Deposits
Deposits are the primary source of funds for the Company. Such deposits consist of
noninterest bearing and interest-bearing demand deposit accounts, regular savings deposits, Money
Market accounts and market rate certificates of deposit. Deposits are attracted from individuals,
partnerships and corporations in the Companys market areas. In addition, the Company obtains
deposits from state and local entities and, to a lesser extent, U.S. Government and other
depository institutions. The Companys Asset/Liability Management Policy permits the acceptance of
limited amounts of brokered deposits. At December 31, 2010 the percentage of the Companys
brokered deposits to total deposits was 0.07%, which was within the limits of the Asset/Liability
Management Policy. The Companys brokered deposits were also within the limits of the
Asset/Liability Management Policy at December 31, 2009 and 2008, respectively.
The following table sets forth the average balances and average interest rates based on daily
balances for deposits for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
|
Balance |
|
|
Rate Paid |
|
|
Balance |
|
|
Rate Paid |
|
|
Balance |
|
|
Rate Paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of deposits (all in domestic offices): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing demand deposits |
|
$ |
166,814 |
|
|
|
|
|
|
$ |
162,765 |
|
|
|
|
|
|
$ |
187,058 |
|
|
|
|
|
Interest-bearing demand deposits |
|
|
881,978 |
|
|
|
1.01 |
% |
|
|
700,586 |
|
|
|
1.30 |
% |
|
|
577,024 |
|
|
|
1.57 |
% |
Savings deposits |
|
|
98,900 |
|
|
|
1.02 |
% |
|
|
83,549 |
|
|
|
1.13 |
% |
|
|
68,612 |
|
|
|
.77 |
% |
Time deposits |
|
|
841,458 |
|
|
|
2.20 |
% |
|
|
1,166,640 |
|
|
|
3.06 |
% |
|
|
1,317,362 |
|
|
|
3.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
1,989,150 |
|
|
|
|
|
|
$ |
2,113,540 |
|
|
|
|
|
|
$ |
2,150,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table indicates the amount of the Companys certificates of deposit and
brokered certificates of deposit of $100 or more by time remaining until maturity as of December
31, 2010:
|
|
|
|
|
|
|
Certificates of |
|
Maturity Period |
|
Deposits |
|
|
Three months or less |
|
$ |
41,190 |
|
Over three through six months |
|
|
43,741 |
|
Over six through twelve months |
|
|
112,097 |
|
Over twelve months |
|
|
112,673 |
|
|
|
|
|
Total |
|
$ |
309,701 |
|
|
|
|
|
12
Competition
The Company seeks to compete effectively through its reliance on local commercial activity;
personal contacts by its directors, officers, other employees and shareholders; personalized
services; and its reputation in the communities it serves.
According to data as of June 30, 2010 published by SNL Financial LC and using information from
the FDIC, the Bank ranked as the largest independent commercial bank headquartered in East
Tennessee, and its major market areas include Greene, Blount, Davidson, Hamblen, Hawkins, Knox,
Lawrence, Loudon, Macon, McMinn, Montgomery, Rutherford, Smith, Sullivan, Sumner, Washington and
Williamson Counties, Tennessee and portions of Cocke and Monroe Counties, Tennessee. In Greene
County, in which the Company enjoyed its largest deposit share as of June 30, 2010, there were
seven commercial banks and one savings bank, operating 26 branches and holding an aggregate of
approximately $1.0 billion in deposits as of June 30, 2010. The following table sets forth the
Banks deposit share, excluding credit unions, in each county in which it has a full-service
branch(s) as of June 30, 2010, according to data published by the FDIC:
|
|
|
|
|
County |
|
Deposit Share |
|
Greene, TN |
|
|
28.72 |
% |
Hawkins, TN |
|
|
19.36 |
% |
Lawrence, TN |
|
|
17.53 |
% |
Smith, TN |
|
|
10.58 |
% |
Sumner, TN |
|
|
10.12 |
% |
Hamblen, TN |
|
|
8.78 |
% |
Blount, TN |
|
|
8.15 |
% |
Cocke, TN |
|
|
8.15 |
% |
Macon, TN |
|
|
7.10 |
% |
Madison, NC |
|
|
6.66 |
% |
Montgomery, TN |
|
|
6.36 |
% |
Loudon, TN |
|
|
6.00 |
% |
Washington, TN |
|
|
5.91 |
% |
McMinn, TN |
|
|
5.63 |
% |
Bristol, VA1 |
|
|
4.39 |
% |
Sullivan, TN |
|
|
2.82 |
% |
Williamson, TN |
|
|
2.80 |
% |
Rutherford, TN |
|
|
2.62 |
% |
Monroe, TN |
|
|
1.49 |
% |
Knox, TN |
|
|
0.82 |
% |
Davidson, TN |
|
|
0.79 |
% |
|
|
|
1 |
|
Bristol, VA is deemed a city. |
Employees
As of December 31, 2010 the Company employed 730 full-time equivalent employees. None of the
Companys employees are presently represented by a union or covered under a collective bargaining
agreement. Management considers relations with employees to be good.
13
Regulation, Supervision and Governmental Policy
The following is a brief summary of certain statutes, rules and regulations affecting the
Company and the Bank. A number of other statutes and regulations have an impact on their
operations. These laws and regulations are generally intended to protect depositors and borrowers,
not shareholders. The following discussion describes the material elements of the regulatory
framework that currently apply. In July 2010, the Dodd-Frank Act was signed into law, incorporating
numerous financial institution regulatory reforms. Many of these reforms will be implemented over
the course of 2011 through regulations to be adopted by various federal banking and securities
regulations. The following summary of applicable statutes and regulations does not purport to be
complete and is qualified in its entirety by reference to such statutes and regulations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act implements
far-reaching reforms of major elements of the financial landscape, particularly for larger
financial institutions. Many of its most far-reaching provisions do not directly impact
community-based institutions like the Company. For instance, provisions that regulate derivative
transactions and limit derivatives trading activity of federally-insured institutions, enhance
supervision of systemically significant institutions, impose new regulatory authority over hedge
funds, limit proprietary trading by banks, and phase-out the eligibility of trust preferred
securities for Tier 1 capital are among the provisions that do not directly impact the Company
either because of exemptions for institutions below a certain asset size or because of the nature
of the Companys operations. Those provisions that will impact the Company include the following:
|
|
|
Changing the assessment base for federal deposit insurance from the amount of
insured deposits to consolidated assets less tangible capital, eliminating the ceiling
and increasing the size of the floor of the DIF, and offsetting the impact of the
increase in the minimum floor on institutions with less than $10 billion in assets; |
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Making permanent the $250,000 limit for federal deposit insurance, increasing the
cash limit of Securities Investor Protection Corporation protection to $250,000 and
providing unlimited federal deposit insurance until December 31, 2012 for non-interest
bearing demand transaction accounts at all insured depository institutions; |
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Repealing the federal prohibition on payment of interest on demand deposits, thereby
permitting depositing institutions to pay interest on business transaction and other
accounts; |
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Centralizing responsibility for consumer financial protection by creating a new
agency, the Consumer Financial Protection Bureau, responsible for implementing federal
consumer protection laws, although banks below $10 billion in assets will continue to
be examined and supervised for compliance with these laws by their federal banking
regulator; |
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Restricting the preemption of state law by federal law and disallowing national bank
subsidiaries from availing themselves of such preemption; |
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Imposing new requirements for mortgage lending, including new minimum underwriting
standards, prohibitions on certain yield-spread compensation to mortgage originators,
special consumer protections for mortgage loans that do not meet certain provision
qualifications, prohibitions and limitations on certain mortgage terms and various new
mandated disclosures to mortgage borrowers; |
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Applying the same leverage and risk based capital requirements that apply to insured
depository institutions to holding companies, although the Companys currently
outstanding subordinated debentures (but not new issuances) will continue to qualify as
Tier 1 capital, subject to existing limitations on the amount that may so qualify; |
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Permitting national and state banks to establish de novo interstate branches at any
location where a bank based in that state could establish a branch, and requiring that
bank holding companies and banks be well capitalized and well managed in order to
acquire banks located outside their home state; |
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Imposing new limits on affiliated transactions and causing derivative transactions
to be subject to lending limits; and |
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Implementing corporate governance revisions, including with regard to executive
compensation and proxy access to shareholders, that apply to all public companies not
just financial institutions. |
14
Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several
years, and their impact on the Company or the financial industry is difficult to predict before
such regulations are adopted.
Bank Holding Company Regulation. The Company is registered as a bank holding company
under the Bank Holding Company Act (the Holding Company Act) and, as such, is subject to
supervision, regulation and examination by the Board of Governors of the FRB.
Acquisitions and Mergers. Under the Holding Company Act, a bank holding company must obtain the
prior approval of the FRB before (1) acquiring direct or indirect ownership or control of any
voting shares of any bank or bank holding company if, after such acquisition, the bank holding
company would directly or indirectly own or control more than 5% of such shares; (2) acquiring all
or substantially all of the assets of another bank or bank holding company; or (3) merging or
consolidating with another bank holding company. Also, any company must obtain approval of the FRB
prior to acquiring control of the Company or the Bank. For purposes of the Holding Company Act,
control is defined as ownership of more than 25% of any class of voting securities of a bank
holding company or bank, the ability to control the election of a majority of the directors, or the
exercise of a controlling influence over management or policies of the a bank holding company or
bank. Control is rebuttably presumed to exist if a person or company acquires 10% or more, but
less than 25%, of any class of voting securities and either:
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The bank holding company has registered securities under Section 12 of the Securities
Exchange Act of 1934; or |
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No other person owns a greater percentage of that class of voting securities immediately
after the transaction. |
Our common stock is registered under Section 12 of the Securities Exchange Act of 1934. The
regulations provide a procedure for challenge of the rebuttable control presumption.
The Change in Bank Control Act and the related regulations of the FRB require any person or
persons acting in concert (except for companies required to make application under the Holding
Company Act), to file a written notice with the FRB before such person or persons may acquire
control of a bank holding company or bank. The Change in Bank Control Act defines control as the
power, directly or indirectly, to vote 25% or more of any voting securities or to direct the
management or policies of a bank holding company or an insured bank.
Bank holding companies like the Company are currently prohibited from engaging in activities
other than banking and activities so closely related to banking or managing or controlling banks as
to be a proper incident thereto. The FRBs regulations contain a list of permissible nonbanking
activities that are closely related to banking or managing or controlling banks. A bank holding
company must file an application or notice with the FRB prior to acquiring more than 5% of the
voting shares of a company engaged in such activities. The Gramm-Leach-Bliley Act of 1999 (the
GLB Act), however, greatly broadened the scope of activities permissible for bank holding
companies. The GLB Act permits bank holding companies, upon election and classification as
financial holding companies, to engage in a broad variety of activities financial in nature. The
Company has not filed an election with the FRB to be a financial holding company, but may choose to
do so in the future.
Capital Requirements. The Company is also subject to FRB guidelines that require bank holding
companies to maintain specified minimum ratios of capital to total assets and capital to
risk-weighted assets. The Dodd-Frank Act extended additional capital requirements to bank holding
companies on a consolidated basis. See Capital Requirements.
Dividends. The FRB has the power to prohibit dividends by bank holding companies if their
actions constitute unsafe or unsound practices. The FRB has issued a policy statement expressing
its view that a bank holding company should pay cash dividends only to the extent that the
companys net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is
consistent with the companys capital needs, asset quality, and overall financial condition.
15
The Company is a legal entity separate and distinct from the Bank. Over time, the principal
source of the Companys cash flow, including cash flow to pay interest to its holders of trust
preferred securities and dividends to holders of the Series A preferred stock the Company issued to
the U.S. Treasury in connection with the Capital Purchase Program (CPP) and to the Companys
common stock shareholders, will be dividends that the Bank pays to the Company as its sole
shareholder. Under Tennessee law, the Company is not permitted to pay dividends if, after giving
effect to such payment, the Company would not be able to pay its debts as they become due in the
normal course of business or the Companys total assets would be less than the sum of its total
liabilities plus any amounts needed to satisfy any preferential rights if the Company were
dissolving. In addition, in deciding whether or not to declare a dividend of any particular size,
the Companys board of directors must consider the Companys current and prospective capital,
liquidity, and other needs.
In addition to the limitations on the Companys ability to pay dividends under Tennessee law,
the Companys ability to pay dividends on its common stock is also limited by the Companys
participation in the CPP, by certain statutory or regulatory limitations and by an informal
commitment the Company has made to the FRB-Atlanta that it will not pay dividends on its common or
preferred stock (or interest on its subordinated debentures) without the prior approval of the
FRB-Atlanta. The Company also informally committed to the FRB-Atlanta that it will not incur any
indebtedness or repurchase any shares of its capital stock without the prior approval of the
FRB-Atlanta. Prior to December 23, 2011, unless the Company has redeemed the Series A preferred
stock issued to the U.S. Treasury in the CPP or the U.S. Treasury has transferred the Series A
preferred stock to a third party, the consent of the U.S. Treasury must be received before the
Company can declare or pay any dividend or make any distribution on the Companys common stock in
excess of $0.13 per quarter. Furthermore, if the Company is not current in the payment of
quarterly dividends on the Series A preferred stock, it cannot pay dividends on its common stock.
These dividend restrictions resulting from the Companys participation in the CPP are in addition
to those resulting from the Companys informal commitment to the FRB-Atlanta.
Statutory and regulatory limitations also apply to the Banks payment of dividends to the
Company. Under Tennessee law, the Bank can only pay dividends to the Company in an amount equal to
or less than the total amount of its net income for that year combined with retained net income for
the preceding two years. Payment of dividends in excess of this amount requires the consent of the
Commissioner of the TDFI (the Commissioner). Because the Bank incurred a loss in both 2010 and
2009, dividends from the Bank to the Company, including, if necessary, dividends to support the
Companys payment of interest on its subordinated debt and dividends on the Series A preferred
stock it sold to the U.S. Treasury will require prior approval by the Commissioner.
The payment of dividends by the Bank and the Company may also be affected by other factors,
such as the requirement to maintain adequate capital above regulatory guidelines. The federal
banking agencies have indicated that paying dividends that deplete a depository institutions
capital base to an inadequate level would be an unsafe and unsound banking practice. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), a depository institution
may not pay any dividend if payment would cause it to become undercapitalized or if it already is
undercapitalized. Moreover, the federal agencies have issued policy statements that provide that
bank holding companies and insured banks should generally only pay dividends out of current
operating earnings. Recent supervisory guidance from the FRB indicates that bank holding companies
that are participants in the CPP that are experiencing financial difficulty generally should
eliminate, reduce or defer dividends on Tier 1 capital instruments including trust preferred
securities, preferred stock or common stock, if the holding company needs to conserve capital for
safe and sound operation and to serve as a source of strength to its subsidiaries.
On November 9, 2010, following consultation with the FRB-Atlanta, the Company notified the
U.S. Treasury that the Company was suspending the payment of regular quarterly cash dividends on
the Series A preferred stock issued to the U.S. Treasury The dividends, which are cumulative, will
continue to be reported as a preferred dividend requirement that is deducted from net income for
financial statement purposes. Additionally, following consultation with the FRB-Atlanta, the
Company has exercised its rights to defer regularly scheduled interest payments on all of its
issues of junior subordinated notes having an outstanding principal amount of $88.6 million,
relating to outstanding trust preferred securities (TRUPs). Under the terms of the trust
documents, the Company may defer payments of interest for up to 20 consecutive quarterly periods without triggering
an event of default. During a deferral period, the Company may not pay dividends on its common or
preferred stock or interest on indebtedness that ranks pari passu or junior to the subordinated
debentures. The regular scheduled interest payments will continue to be accrued for payment in the
future and reported as an expense for financial statement purposes. Together, the deferral of
interest payments on TRUPs and suspension of dividend payments to the U.S. Treasury will preserve
about $5.1 million per year in cash flow.
16
Support of Banking Subsidiaries. Under the Dodd-Frank Act, and previously under FRB policy,
the Company is expected to act as a source of financial strength to the Bank and, where required,
to commit resources to support the Bank. This support can be required at times when it would not
be in the best interest of the Companys shareholders or creditors to provide it. Further, if the
Banks capital levels were to fall below minimum regulatory guidelines, the Bank would need to
develop a capital plan to increase its capital levels and the Company would be required to
guarantee the Banks compliance with the capital plan in order for such plan to be accepted by the
federal regulatory authority. In the event of the Companys bankruptcy, any commitment by the
Company to a federal bank regulatory agency to maintain the capital of the Bank would be assumed by
the bankruptcy trustee and entitled to a priority of payment.
Under the cross guarantee provisions of the Federal Deposit Insurance Act (the FDI Act),
any FDIC-insured subsidiary of the Company such as the Bank could be liable for any loss incurred
by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of any
other FDIC-insured subsidiary also controlled by the Company or (ii) any assistance provided by the
FDIC to any FDIC-insured subsidiary of the Company in danger of default.
Transactions with Affiliates. The Federal Reserve Act, as amended by Regulation W, imposes
legal restrictions on the quality and amount of credit that a bank holding company or its non-bank
subsidiaries (affiliates) may obtain from bank subsidiaries of the holding company. For
instance, these restrictions generally require that any such extensions of credit by a bank to its
affiliates be on non-preferential terms and be secured by designated amounts of specified
collateral. Further, a banks ability to lend to its affiliates is limited to 10% per affiliate
(20% in the aggregate to all affiliates) of the banks capital and surplus.
Bank Regulation. As a federally-insured, Tennessee banking institution, the Bank is subject
to regulation, supervision and regular examination by the TDFI and the FDIC. Tennessee and federal
banking laws and regulations control, among other things, required reserves, investments, loans,
mergers and consolidations, issuance of securities, payment of dividends, and establishment of
branches and other aspects of the Banks operations. Supervision, regulation and examination of
the Company and the Bank by the bank regulatory agencies are intended primarily for the protection
of depositors rather than for the Companys security holders.
Extensions of Credit. Under joint regulations of the federal banking agencies, including the
FDIC, banks must adopt and maintain written policies that establish appropriate limits and
standards for extensions of credit that are secured by liens or interests in real estate or are
made for the purpose of financing permanent improvements to real estate. These policies must
establish loan portfolio diversification standards, prudent underwriting standards, including
loan-to-value limits that are clear and measurable, loan administration procedures and
documentation, approval and reporting requirements. A banks real estate lending policy must
reflect consideration of the Interagency Guidelines for Real Estate Lending Policies (the
Interagency Guidelines) that have been adopted by the federal banking regulators. The
Interagency Guidelines, among other things, call upon depository institutions to establish internal
loan-to-value limits for real estate loans that are not in excess of the loan-to-value limits
specified in the Interagency Guidelines for the various types of real estate loans. The
Interagency Guidelines state that it may be appropriate in individual cases to originate or
purchase loans with loan-to-value ratios in excess of the supervisory loan-to-value limits. The
aggregate amount of loans in excess of the supervisory loan-to-value limits, however, should not
exceed 100% of total capital, and the total of such loans secured by commercial, agricultural,
multifamily and other non-one-to-four family residential properties should not exceed 30% of total
capital.
17
Federal Deposit Insurance. The deposits of the Bank are insured by the FDIC to the maximum
extent provided by law, and the Bank is subject to FDIC deposit insurance assessments. The FDIC
has adopted a risk-based assessment system for insured depository institutions that takes into account the risks
attributable to different categories and concentrations of assets and liabilities. In early 2006,
Congress passed the Federal Deposit Insurance Reform Act of 2005, which made certain changes to the
Federal deposit insurance program. These changes included merging the Bank Insurance Fund and the
Savings Association Insurance Fund, increasing retirement account coverage to $250,000 and
providing for inflationary adjustments to general coverage beginning in 2010, providing the FDIC
with authority to set the funds reserve ratio within a specified range, and requiring dividends to
banks if the reserve ratio exceeds certain levels. The statute grants banks an assessment credit
based on their share of the assessment base on December 31, 1996, and the amount of the credit can
be used to reduce assessments in any year subject to certain limitations.
Under the Dodd-Frank Act, the FDIC was required to adopt regulations that would base deposit
insurance assessments on total assets less capital rather than deposit liabilities and to include
off-balance sheet liabilities of institutions and their affiliates in risk-based assessments.
The Emergency Economic Stabilization Act of 2008 (EESA) provided for a temporary increase in
the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. This
increased level of basic deposit insurance was made permanent by the Dodd-Frank Act. In addition,
on October 14, 2008, the FDIC instituted temporary unlimited FDIC coverage of non-interest bearing
deposit transaction accounts. Following passage of the Dodd-Frank Act, an institution can provide
full coverage on non-interest bearing transaction accounts until December 31, 2012. The Dodd-Frank
Act also repealed the prohibition on paying interest on demand transaction accounts, but did not
extend unlimited insurance protection for these accounts.
The FDIC may terminate its insurance of deposits if it finds that the institution has engaged
in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or
has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Safety and Soundness Standards. The FDICIA required the federal bank regulatory agencies to
prescribe, by regulation, non-capital safety and soundness standards for all insured depository
institutions and depository institution holding companies. The FDIC and the other federal banking
agencies have adopted guidelines prescribing safety and soundness standards pursuant to FDICIA.
The safety and soundness guidelines establish general standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, and compensation, fees and benefits. Among other things, the guidelines
require banks to maintain appropriate systems and practices to identify and manage risks and
exposures identified in the guidelines.
Participation in the Capital Purchase Program of the Troubled Asset Relief Program. On October
3, 2008, the EESA became law. Under the Troubled Asset Relief Program (TARP) authorized by EESA,
the U.S. Treasury established the CPP providing for the purchase of senior preferred shares of
qualifying U.S. controlled banks, savings associations and certain bank and savings and loan
holding companies. On December 23, 2008, the Company sold 72,278 shares of Series A preferred stock
and warrants to acquire 635,504 shares of common stock to the U.S. Treasury pursuant to the CPP for
aggregate consideration of $83 million. As a result of the Companys participation in the CPP, the
Company agreed to certain limitations on executive compensation. On February 17, 2009, President
Obama signed into law The American Recovery and Reinvestment Act of 2009 (ARRA), more commonly
known as the economic stimulus or economic recovery package. ARRA, which amends EESA, includes a
wide variety of programs intended to stimulate the economy and provide for extensive
infrastructure, energy, health, and education needs. Under ARRA, the Company is subject to
additional and more extensive executive compensation limitations and corporate governance
requirements. ARRA also permits the Company to redeem the preferred shares it sold to the U.S.
Treasury without penalty and without the need to raise new capital, subject to the U.S. Treasurys
consultation with the Companys and the Banks appropriate regulatory agency.
18
For as long as the U.S. Treasury owns any debt or equity securities of the Company issued in
connection with the CPP, the Company will be required to take all necessary action to ensure that
its benefit plans with respect to its senior executive officers comply in all respects with Section
111(b) of the EESA, as amended by the ARRA, and the regulations issued and in effect thereunder,
including the interim final rule related to executive compensation and corporate governance issued
by the U.S. Treasury on June 15, 2009 (the IFR). This means that, among other things, while the
U.S. Treasury owns debt or equity securities issued by the Company in connection with the CPP, the
Company must:
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Ensure that the incentive compensation programs for its senior executive officers do not
encourage unnecessary and excessive risks that threaten the value of the Company; |
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Implement a required clawback of any bonus or incentive compensation paid to the
Companys senior executive officers and the next twenty most highly compensated employees
based on materially inaccurate financial statements or any other materially inaccurate
performance metric; |
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Not make any bonus, incentive or retention payment to any of the Companys five most
highly compensated employees, except as permitted under the IFR; |
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Not make any golden parachute payment (as defined in the IFR) to any of the Companys
senior executive officers or next five most highly compensated employees; and |
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Agree not to deduct for tax purposes executive compensation in excess of $500,000 in any
one fiscal year for each of the Companys senior executive officers. |
Capital Requirements. Both the Company and the Bank are required to comply with the capital
adequacy standards established by the FRB, in the Companys case, and the FDIC, in the case of the
Bank. The FRB has established a risk-based and a leverage measure of capital adequacy for bank
holding companies, like the Company. The Bank is also subject to risk-based and leverage capital
requirements adopted by the FDIC, which are substantially similar to those adopted by the FRB for
bank holding companies. In addition, the FDIC and TDFI may require state banks that are not members
of the FRB, like the Bank, to maintain capital at levels higher than those required by general
regulatory requirements.
The risk-based capital standards are designed to make regulatory capital requirements more
sensitive to differences in risk profiles among banks and bank holding companies, to account for
off-balance-sheet exposure, and to minimize disincentives for holding liquid assets. Assets and
off-balance-sheet items, such as letters of credit and unfunded loan commitments, are assigned to
broad risk categories, each with appropriate risk weights. The resulting capital ratios represent
capital as a percentage of total risk-weighted assets and off-balance-sheet items.
The minimum statutory guideline for the ratio of total capital to risk-weighted assets is 8%.
Total capital consists of two components, Tier 1 capital and Tier 2 capital. Tier 1 capital
generally consists of common stock, minority interests in the equity accounts of consolidated
subsidiaries, noncumulative perpetual preferred stock, and a limited amount of cumulative perpetual
preferred stock, less goodwill and other specified intangible assets. The Series A preferred stock
that the Company sold to the U.S. Treasury in connection with the CPP and the TRUPs each qualifies
as Tier 1 capital, and as described below will continue to qualify as Tier 1 capital following
passage of the Dodd-Frank Act. Under statutory guidelines, Tier 1 capital must equal at least 4% of
risk-weighted assets. Tier 2 capital generally consists of subordinated debt, other preferred
stock, and a limited amount of loan loss reserves. The total amount of Tier 2 capital is limited to
100% of Tier 1 capital.
In addition, the FRB has established minimum leverage ratio guidelines for bank holding
companies. These guidelines provide for a minimum ratio of Tier 1 capital to average assets, less
goodwill and other specified intangible assets, of 3% for bank holding companies that meet
specified criteria, including having the highest regulatory rating and implementing the FRBs
risk-based capital measure for market risk. All other bank holding companies generally are required
to maintain a leverage ratio of at least 4%. The guidelines also provide that bank holding
companies experiencing high internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels. Furthermore, the FRB
has indicated that it will consider a bank holding companys Tier 1 capital leverage, after
deducting all intangibles, and other indicators of capital strength in evaluating proposals for
expansion or new activities.
In late 2010, the Basel Committee on Banking Supervision issued Basel III, a new capital
framework for banks and bank holding companies. If implemented in the United States, Basel III will
impose a stricter definition of capital, with more focus on common equity. At this time, the
Company does not know whether Basel III will be implemented in the United States, and if so
implemented whether it will be applicable to the Company and the Bank, because by its terms it is
applicable only to internationally active banks. But, if Basel III is implemented in the United
States and becomes applicable to the Company, the Company and the Bank would likely be subject to
higher minimum capital ratios than those to which the Company and the Bank are currently subject.
19
Failure to meet statutorily mandated capital guidelines or more restrictive ratios separately
established for a financial institution (like those that the Bank has informally agreed with the
TDFI and FDIC that it will maintain) could subject a bank or bank holding company to a variety of
enforcement remedies, including issuance of a capital directive, the termination of deposit
insurance by the FDIC, a prohibition on accepting or renewing brokered deposits, limitations on the
rates of interest that the institution may pay on its deposits and other restrictions on its
business. As described above, significant additional restrictions can be imposed on FDIC-insured
depository institutions that fail to meet applicable capital requirements.
Additionally, the Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a
system of prompt corrective action to resolve the problems of undercapitalized financial
institutions. Under this system, the federal banking regulators have established five capital
categories (well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized) into one of which all institutions are placed.
Federal banking regulators are required to take various mandatory supervisory actions and are
authorized to take other discretionary actions with respect to institutions in the three
undercapitalized categories. The severity of the action depends upon the capital category in which
the institution is placed. Generally, subject to a narrow exception, the banking regulator must
appoint a receiver or conservator for an institution that is critically undercapitalized. The
federal banking agencies have specified by regulation the relevant capital level for each category.
An institution that is categorized as undercapitalized, significantly undercapitalized, or
critically undercapitalized is required to submit an acceptable capital restoration plan to its
appropriate federal banking agency. A bank holding company must guarantee that a subsidiary
depository institution meets its capital restoration plan, subject to various limitations. The
controlling holding companys obligation to fund a capital restoration plan is limited to the
lesser of 5% of an undercapitalized subsidiarys assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally prohibited from increasing
its average total assets, making acquisitions, establishing any branches or engaging in any new
line of business, except under an accepted capital restoration plan or with FDIC approval. The
regulations also establish procedures for downgrading an institution and a lower capital category
based on supervisory factors other than capital. As of December 31, 2010, the Bank would be
considered well capitalized under the FDICs prompt corrective action provisions; however, the
Bank has informally committed to the TDFI and the FDIC that it will maintain a Tier 1 leverage
ratio of not less than 10% and a Total risk-based capital ratio of not less than 14%. Because of
the significant losses that the Bank incurred in the second half of 2010, the Banks capital levels
fell below these required minimum levels at December 31, 2010. At December 31, 2010, the Banks
Tier 1 leverage ratio was 8.88% and its ratio of Total capital to risk-weighted assets was 13.22%.
Because the Banks capital levels at December 31, 2010 were below those that the Bank had
informally committed to its primary regulators that it would maintain, the Bank was required to
submit a Capital Action Plan to its primary regulators.
The Dodd-Frank Act contains a number of provisions dealing with capital adequacy of insured
depository institutions and their holding companies, and for the most part will result in insured
depository institutions and their holding companies being subject to more stringent capital
requirements. Under the so-called Collins Amendment to the Dodd-Frank Act, federal regulators were
directed to establish minimum leverage and risk-based capital requirements for, among other
entities, banks and bank holding companies on a consolidated basis. These minimum requirements
cant be less than the generally applicable leverage and risk-based capital requirements
established for insured depository institutions nor quantitatively lower than the leverage and
risk-based capital requirements established for insured depository institutions that were in effect
as of the date that the Dodd-Frank Act was enacted. These requirements in effect create capital
level floors for bank holding companies similar to those in place currently for insured depository
institutions. The Collins Amendment also excludes trust preferred securities issued after May 19,
2010 from being included in Tier 1 capital unless the issuing company is a bank holding company
with less than $500 million in total assets. Trust preferred securities issued prior to that date
will continue to count as Tier 1 capital for bank holding companies with less than $15 billion in
total assets, and such securities will be phased out of Tier 1 capital treatment for bank holding
companies with over $15 billion in total assets over a three-year period beginning in 2013. The
Collins Amendment did not exclude preferred stock issued to the U.S. Treasury through the CPP from
Tier 1 capital treatment. Accordingly, the Companys TRUPs and Series A preferred stock issued to
the U.S. Treasury through the CPP will continue to qualify as Tier 1 capital.
20
More information concerning the Companys, and the Banks, regulatory capital ratios at
December 31, 2010 is included in Note 12 to the Notes to Consolidated Financial Statements
included elsewhere in this Annual Report on Form 10-K.
Legislative, Legal and Regulatory Developments. The banking industry is generally subject
to extensive regulatory oversight. The Company, as a publicly held bank holding company, and the
Bank, as a state-chartered bank with deposits insured by the FDIC, are subject to a number of laws
and regulations. Many of these laws and regulations have undergone significant change in recent
years. In July 2010, the U.S. Congress passed, and President Obama signed into law, the Dodd-Frank
Act, which includes significant consumer protection provisions related to residential mortgage
loans that is likely to increase our regulatory compliance costs. These laws and
regulations impose restrictions on activities, minimum capital requirements, lending and deposit
restrictions and numerous other requirements. Future changes to these laws and regulations, and
other new financial services laws and regulations, are likely and cannot be predicted with
certainty. With the enactments of EESA, AARA and the Dodd-Frank Act and the significant amount of
regulations that are to come from the passage of that legislation, the nature and extent of the
future legislative and regulatory changes affecting financial institutions and the resulting impact
on those institutions is very unpredictable at this time. The Dodd-Frank Act, in particular, will
require that a significant number of new regulations be adopted by various financial regulatory
agencies over 2011 and 2012.
USA Patriot Act. The President of the United States signed the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the
Patriot Act), into law on October 26, 2001. The Patriot Act establishes a wide variety of new
and enhanced ways of combating international terrorism. The provisions that affect banks (and
other financial institutions) most directly are contained in Title III of the act. In general, Title III amended existing law primarily the
Bank Secrecy Act to provide the Secretary of U.S. Treasury and other departments and agencies of
the federal government with enhanced authority to identify, deter, and punish international money
laundering and other crimes.
Among other things, the Patriot Act prohibits financial institutions from doing business with
foreign shell banks and requires increased due diligence for private banking transactions and
correspondent accounts for foreign banks. In addition, financial institutions will have to follow
new minimum verification of identity standards for all new accounts and will be permitted to share
information with law enforcement authorities under circumstances that were not previously
permitted. These and other provisions of the Patriot Act became effective at varying times and the
Treasury and various federal banking agencies are responsible for issuing regulations to implement
the new law.
Additional Information
The Company maintains a website at www.greenbankusa.com and is not including the information
contained on this website as a part of, or incorporating it by reference into, this Annual Report
on Form 10-K. The Company makes available free of charge (other than an investors own internet
access charges) through its website its Annual Report on Form 10-K, quarterly reports on Form 10-Q,
and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable
after the Company electronically files such material with, or furnishes such material to, the SEC.
21
Investing in our common stock involves various risks which are particular to our company,
our industry and our market area. Several risk factors regarding investing in our common stock are
discussed below. This listing should not be considered as all-inclusive. If any of the following
risks were to occur, we may not be able to conduct our business as currently planned and our
financial condition or operating results could be negatively impacted. These matters could cause
the trading price of our common stock to decline in future periods.
We could sustain additional losses if our asset quality declines further.
Our earnings are affected by general economic conditions, economic conditions within our
markets, loan concentrations and our ability to properly originate, underwrite and service loans.
We could sustain additional losses if we incorrectly assess the creditworthiness of our borrowers
or fail to detect or respond to deterioration in asset quality in a timely manner. Recent problems
with asset quality, particularly within the commercial real estate segment of our loan portfolio,
have caused, and could continue to cause, our interest income and net interest margin to decrease
and our provisions for loan losses and noninterest expenses to increase, which could continue to
adversely affect our results of operations and financial condition. Further increases in
non-performing loans would reduce net interest income below levels that would exist if such loans
were performing.
Our loan portfolio includes an elevated, although shrinking level, of residential construction and
land development loans, which loans have a greater credit risk than residential mortgage loans.
The Company engages in both traditional single-family residential lending and residential
construction and land development lending to developers. The percentage of speculative 1-4 family
loans to developers plus construction and land development loans to developers in the Banks
portfolio was approximately 21.9% at December 31, 2010 compared to 31.1% of total loans at December
31, 2009. This type of lending is generally considered to have relatively high credit risks because
the principal is concentrated in a limited number of loans with repayment dependent on the
successful completion and operation of the related real estate project. Consequently, the credit
quality of many of these loans have deteriorated as a result of the current adverse conditions in
the real estate market within our markets. These loans are generally less predictable and more
difficult to evaluate and monitor and collateral may be difficult to dispose of in a market
decline. A continued reduction in residential real estate market prices and demand could result in
further price reductions in home and land values adversely affecting the value of collateral
securing the construction and development loans that we hold. These adverse economic and real
estate market conditions may lead to further increases in non-performing loans and other real
estate owned, increased losses and expenses from the management and disposition of non-performing
assets, increases in provision for loan losses, and increases in operating expenses as a result of
the allocation of management time and resources to the collection and work out of these loans, all
of which would negatively impact our financial condition and results of operations.
Furthermore, during adverse general economic conditions, such as we believe are now being
experienced in residential real estate construction nationwide, borrowers involved in the
residential real estate construction and development business may suffer above normal financial
strain. Throughout 2010, the number of newly constructed homes or lots sold in our market areas
has continued to decline, but at a lesser rate than experienced in 2009, negatively affecting
collateral values. As the residential real estate development and construction market in our
markets has deteriorated, our borrowers in this segment have experienced difficulty repaying their
obligations to us. As a result, our loans to these borrowers have deteriorated and may deteriorate
further and may result in additional charge-offs negatively impacting our results of operations.
Additionally, to the extent repayment is dependent upon the sale of newly constructed homes or
of lots, such sales are likely to be at lower prices or at a slower rate than as expected when the
loan was made, which may result in such loans being placed on non-accrual status and subject to
higher loss estimates even if the borrower keeps interest payments current. These adverse economic
and real estate market conditions may lead to further increases in non-performing loans and other
real estate owned, increased charge-offs from the disposition of non-performing assets, and
increases in provision for loan losses, all of which would negatively impact our financial
condition and results of operations.
Negative developments in the U.S. and local economy and in local real estate markets have adversely
impacted our operations and results and may continue to adversely impact our results in the future.
Economic conditions in the markets in which we operate deteriorated significantly between
early 2008 and the second half of 2010. As a result, we incurred significant losses in 2008, 2009
and 2010. These challenges resulted primarily from provisions for loan losses related to declining
collateral values in our construction and development loan portfolio plus rising OREO related costs
associated with the holding and disposition of these assets. Although the FRB has issued statements
that economic data suggests strongly that the recession ended in the latter half of 2009, we
believe that this difficult economic environment will continue at least into the second half of
2011, and we expect that our results of operations will continue to be negatively impacted as a result. There can be no
assurance that the economic conditions that have adversely affected the financial services
industry, and the capital, credit and real estate markets generally or us in particular, will
improve materially, or at all, in the near future, or thereafter, in which case we could continue
to experience significant losses and write-downs of assets, and could face capital and liquidity
constraints or other business challenges.
22
Negative developments in the financial services industry and U.S. and global credit markets may
adversely impact our operations and results.
Negative developments beginning in 2008 and continuing into 2010 in the capital markets have
resulted in uncertainty in the financial markets in general with the expectation of the general
economic downturn continuing into 2011. Loan portfolio performances have deteriorated at many
institutions resulting from, amongst other factors, a weak economy and a decline in the value of
the collateral supporting their loans. The competition for our deposits has increased significantly
due to liquidity concerns at many of these same institutions. Stock prices of bank holding
companies have been negatively affected by the current condition of the financial markets, as has
our ability, if needed, to raise capital at reasonable prices or borrow in the debt markets
compared to recent years.
Our business is subject to the success of the local economies where we operate.
Our success significantly depends upon the growth in population, income levels, deposits,
residential real estate stability and housing starts in our market areas. If the communities in
which we operate do not grow or if prevailing economic conditions locally or nationally are
unfavorable, our business may not succeed. Adverse economic conditions in our specific market areas
could cause us to continue to experience negative, or limited, growth, affect the ability of our
customers to repay their loans to us and generally affect our financial condition and results of
operations. Moreover, we cannot give any assurance that we will benefit from any market growth or
favorable economic conditions in our primary market areas if they do occur.
Continued adverse market or economic conditions in the state of Tennessee generally, and in
our markets specifically, may increase the risk that our borrowers will be unable to timely make
their loan payments. In addition, the market value of the real estate securing loans as collateral
has been and may continue to be adversely affected by continued unfavorable changes in market and
economic conditions. As of December 31, 2010, approximately 47% of our loans held for investment
were secured by non-owner occupied commercial real estate. Of this amount, approximately 26% were
speculative 1-4 residential construction and land development loans to developers, 21% were
commercial construction and development loans and 53% were non-owner occupied commercial real
estate loans. We experienced increased payment delinquencies with respect to these loans throughout
2009 and 2010 which negatively impacted our results of operations and a sustained period of
increased payment delinquencies, foreclosures or losses caused by continuing adverse market or
economic conditions in the state of Tennessee generally, and in our markets specifically, could
adversely affect the value of our assets, revenues, results of operations and financial condition.
An inadequate allowance for loan losses would reduce our earnings.
The risk of credit losses on loans varies with, among other things, general economic
conditions, the type of loan being made, the creditworthiness of the borrower over the term of the
loan and, in the case of a collateralized loan, the value and marketability of the collateral for
the loan. Management maintains an allowance for loan losses based upon, among other things,
historical experience, an evaluation of economic conditions and regular reviews of delinquencies
and loan portfolio quality. Based upon such factors, management makes various assumptions and
judgments about the ultimate collectability of the loan portfolio and provides an allowance for
loan losses based upon a percentage of the outstanding balances and takes a charge against earnings
with respect to specific loans when their ultimate collectability is considered questionable.
23
If managements assumptions and judgments prove to be incorrect and the allowance for loan
losses is inadequate to absorb losses, or if the bank regulatory authorities require us to increase
our allowance for loan losses as a part of their examination process additional provision expense would be incurred and our
earnings and capital could be significantly and adversely affected. Moreover, additions to the
allowance may be necessary based on changes in economic and real estate market conditions, new
information regarding existing loans or borrowers, identification of additional problem loans and
other factors, both within and outside of our managements control. These additions may require
increased provision expense which would negatively impact our results of operations.
The Companys policy requires new appraisals on adversely rated collateral dependent loans to
be obtained at least annually. On a quarterly basis, the Company receives a written report from an
independent nationally recognized organization which provides updated valuation trends, by price
point and by zip code, for each of the major markets in which the Company is conducting business.
The information obtained is then used in the Companys impaired loan analysis of collateral
dependent loans and potentially could impact the allowance for loan losses.
We, or our bank subsidiary, may become subject to supervisory actions and/or enhanced regulation
that could have an additional material negative effect on our business, operating flexibility,
financial condition and the value of our common stock. In addition, addressing regulatory concerns
in this market environment will require significant time and attention from our management team,
which may increase our costs, impede the efficiency of our internal business processes and
adversely affect our profitability in the near-term.
Under federal and state laws and regulations pertaining to the safety and soundness of insured
depository institutions, the FRB (for bank holding companies), the TDFI (for Tennessee-chartered
banks) and, separately, the FDIC (as the insurer of bank deposits), have the authority to compel or
restrict certain actions on our part, or the part of the Bank, if they determine that we, or the
Bank, have insufficient capital or are otherwise operating in a manner that may be deemed to be
inconsistent with safe and sound banking practices. Under this authority, our, and the Banks
regulators can require us to enter into informal or formal enforcement orders, including board
resolutions, memoranda of understanding, written agreements and consent or cease and desist orders,
pursuant to which we, or the Bank, would be required to take identified corrective actions to
address cited concerns and to refrain from taking certain actions. For additional information
relating to the extensive regulation, supervision and legislation that govern most aspects of our
operations and limit the businesses in which we engage, please see
Regulation, Supervision and Governmental Policy
beginning on page 14.
In light of declining asset quality and earnings in 2010, the Bank informally committed to the
TDFI and the FDIC that, among other things, it would maintain a Tier 1 leverage ratio of at least
10% and Total risk-based capital ratio of at least 14%, and the Company informally committed to the
FRB-Atlanta that, among other things, we would not incur any additional indebtedness, pay dividends
on our common or preferred stock or pay interest on our TRUPs, without, in each case, the prior
approval of the FRB-Atlanta.
During the third quarter of 2010, the Bank was subject to a joint examination by the FDIC and
the TDFI. Based on initial findings presented to the Banks management, the Bank expects that
either the FDIC or the TDFI or both will require the Bank to agree to certain improvements in its
operations, particularly in relation to asset quality matters. We also believe that the Bank will
be required to agree to maintain or increase capital to levels above those required to be
considered well capitalized. We do not know at this time what minimum levels of capital the
regulators will require. If the requirement to maintain higher capital levels than those required
to be well capitalized under the prompt corrective action provisions of the FDICIA is contained in
a formal enforcement action of the FDIC, the Bank may be subject to additional limitations on its
operations including its ability to pay interest on deposits above proscribed rates, which could
adversely affect the Banks liquidity and/or operating results. The terms of any such supervisory
action that goes beyond the steps we have already taken may have a significant negative effect on our business,
operating flexibility, results of operations, financial condition and the value of our common
stock.
24
If we, or our bank subsidiary, are unable to maintain capital levels above those that we, or the
bank subsidiary, are required to maintain either as a result of federal regulations or as a result
of commitments or agreements that we, or our bank subsidiary, have made to, or with, our
regulators, we would likely need to raise additional capital, but that capital may not be available
when it is needed.
We, and the Bank, are required by federal and state regulatory authorities to maintain
adequate levels of capital to support our, and the Banks, operations. In addition, the Bank has
informally committed to the TDFI and the FDIC that it will maintain a Tier 1 leverage ratio of at
least 10% and a Total risk-based capital ratio of at least 14%. At December 31, 2010, the Banks
Tier 1 leverage ratio and Total risk-based capital ratio were each below the levels that the Bank
had committed to maintain and a Capital Action Plan was submitted to our regulators. At December
31, 2010, the Company did not have sufficient capital available to contribute to the Bank to aid
the Bank in meeting its commitment. If the Bank is unable to generate sufficient earnings or
reduce the size of its assets to achieve the capital levels that it has informally committed to
maintain, the Company will likely have to raise additional capital and contribute that capital to
the Bank. We can give you no assurance that we will be able to raise this additional capital on
terms acceptable to us and given our current stock price and recent financial performance, it is
likely that the price at which we could raise such capital, if at all, would result in significant
dilution to our existing shareholders. Further, our ability to raise common equity is limited by
the number of authorized, but unissued shares reserved under our charter. If we were to raise
capital through a common stock offering, we would likely need to increase our authorized common
stock, which would require approval of our shareholders. We cannot assure you that our shareholders
would approve such a request.
Liquidity needs could adversely affect our results of operations and financial condition.
We rely on dividends from the Bank as our primary source of funds. The primary source of funds
of the Bank, are customer deposits and loan repayments. While scheduled loan repayments are a
relatively stable source of funds, they are subject to the ability of borrowers to repay the loans
which may be more difficult in economically challenging environments like those currently being
experienced. The ability of borrowers to repay loans can be adversely affected by a number of
factors, including changes in economic conditions, adverse trends or events affecting business
industry groups, reductions in real estate values or markets, business closings or lay-offs,
inclement weather, natural disasters and international instability. Additionally, deposit levels
may be affected by a number of factors, including rates paid by competitors, general interest rate
levels, customer confidence levels and the Banks financial strength, returns available to
customers on alternative investments, our financial condition and general economic conditions.
Accordingly, we may be required from time to time to rely on secondary sources of liquidity to meet
withdrawal demands or otherwise fund operations. Such sources include FHLB advances and federal
funds lines of credit from correspondent banks. While we believe that these sources are currently
adequate, there can be no assurance they will be sufficient to meet future liquidity demands. We
may be required to continue to reduce our asset size, slow or discontinue capital expenditures or
other investments or liquidate assets should such sources not be adequate.
We rely on dividends from our bank subsidiary as our primary source of liquidity and payment of
these dividends is limited under Tennessee law.
Under Tennessee law, the amount of dividends that may be declared by the Bank in a year
without approval of the Commissioner is limited to net income for that year combined with retained
net income for the two preceding years. Because of the losses incurred by the Bank in 2009 and
2010, dividends from the Bank to us, including, if necessary, dividends to support our payment of
interest on our subordinated debt and dividends on our preferred stock, including the preferred
stock we issued to the U.S. Treasury, would have required prior approval by the Commissioner.
During the fourth quarter of 2010, we elected to defer the interest payments on our subordinated
debt and dividends on the preferred stock that we issued to the U.S. Treasury as disclosed in our
third quarter 2010 Form 10-Q.
25
Our ability to maintain required capital levels and adequate sources of funding and liquidity could
be impacted by changes in the capital markets and deteriorating economic and market conditions.
We, and the Bank, are required to maintain certain capital levels established by banking
regulations or specified by bank regulators or to which we have committed or agreed to maintain. We
must also maintain adequate funding sources in the normal course of business to support our operations and fund outstanding
liabilities. Our ability to maintain capital levels, sources of funding and liquidity could be
impacted by changes in the capital markets and deteriorating economic and market conditions.
Failure by the Bank to meet applicable capital guidelines (including those higher levels that the
Bank has committed, or may commit in the future, to maintain) or to satisfy certain other
regulatory requirements could subject the Bank to a variety of enforcement remedies available to
the federal regulatory authorities.
We have increased levels of other real estate, primarily as a result of foreclosures, and we
anticipate higher levels of foreclosed real estate expense.
As we have begun to resolve non-performing real estate loans, we have increased the level of
foreclosed properties primarily those acquired from builders and from residential land developers.
Foreclosed real estate expense consists of three types of charges: maintenance costs, valuation
adjustments due to new appraisal values and gains or losses on disposition. As levels of other real
estate increase and also as local real estate values decline these charges will likely increase,
negatively affecting our results of operations.
Environmental liability associated with commercial lending could result in losses.
In the course of business, the Bank may acquire, through foreclosure, properties securing
loans it has originated or purchased which are in default. Particularly in commercial real estate
lending, there is a risk that hazardous substances could be discovered on these properties. In this
event, we, or the Bank, might be required to remove these substances from the affected properties
at our sole cost and expense. The cost of this removal could substantially exceed the value of
affected properties. We may not have adequate remedies against the prior owner or other responsible
parties and could find it difficult or impossible to sell the affected properties. These events
could have an adverse effect on our business, results of operations and financial condition.
Changes in interest rates could adversely affect our results of operations and financial condition.
Changes in interest rates may affect our level of interest income, the primary component of
our gross revenue, as well as the level of our interest expense. Interest rates are highly
sensitive to many factors that are beyond our control, including general economic conditions and
the policies of various governmental and regulatory authorities. Accordingly, changes in interest
rates could decrease our net interest income. Changes in the level of interest rates also may
negatively affect our ability to originate real estate loans, the value of our assets and our
ability to realize gains from the sale of our assets, all of which ultimately affects our earnings.
National or state legislation or regulation may increase our expenses and reduce earnings.
Federal bank regulators are increasing regulatory scrutiny, and additional restrictions
(including those originating from the Dodd-Frank Act) on financial institutions have been proposed
or adopted and signed into law by the President, regulators and Congress. Changes in federal
legislation, regulation or policies, such as bankruptcy laws, deposit insurance, consumer
protection laws, and capital requirements, among others, can result in significant increases in our
expenses and/or charge-offs, which may adversely affect our earnings. Changes in state or federal
tax laws or regulations can have a similar impact. Furthermore, financial institution regulatory
agencies are expected to continue to be very aggressive in responding to concerns and trends
identified in examinations, including the continued issuance of additional formal or informal
enforcement or supervisory actions. These actions, whether formal or informal, could result in our,
or the Bank, agreeing to limitations or to take actions that limit our operational flexibility,
restrict our growth or increase our capital or liquidity levels. Failure to comply with any formal
or informal regulatory restrictions, including informal commitments like those we and the Bank have
made to our primary regulators, could lead to further regulatory enforcement actions. Negative
developments in the financial services industry and the impact of recently enacted or new
legislation in response to those developments could negatively impact our operations by restricting
our business operations, including our ability to originate or sell loans, and adversely impact our financial performance. In addition, industry, legislative or regulatory
developments may cause us to materially change our existing strategic direction, capital
strategies, compensation or operating plans.
26
Competition from financial institutions and other financial service providers may adversely affect
our profitability.
The banking business is highly competitive and we experience competition in each of our
markets from many other financial institutions. We compete with commercial banks, credit unions,
savings and loan associations, mortgage banking firms, consumer finance companies, securities
brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other
community banks and super-regional and national financial institutions that operate offices in our
primary market areas and elsewhere.
Additionally, we face competition from de novo community banks, including those with senior
management who were previously affiliated with other local or regional banks or those controlled by
investor groups with strong local business and community ties. These de novo community banks may
offer higher deposit rates or lower cost loans in an effort to attract our customers, and may
attempt to hire our management and employees.
We compete with these other financial institutions both in attracting deposits and in making
loans. In addition, we have to attract our customer base from other existing financial institutions
and from new residents. We expect competition to increase in the future as a result of legislative,
regulatory and technological changes and the continuing trend of consolidation in the financial
services industry. Our profitability depends upon our continued ability to successfully compete
with an array of financial institutions in our market areas.
We reported a material weakness in our internal control over financial reporting, and if we are
unable to improve our internal controls, our financial results may not be accurately reported.
Managements assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2010 identified a material weakness in its internal control over financial
reporting, as described in Item 9A. Controls and Procedures. This material weakness, or
difficulties encountered in implementing new or improved controls or remediation, could prevent us
from accurately reporting our financial results, result in material misstatements in our financial
statements or cause us to fail to meet our reporting obligations. Failure to comply with Section
404 of the Sarbanes-Oxley Act of 2002 could negatively affect our business, the price of our common
stock and market confidence in our reported financial information.
We have a deferred tax asset and cannot assure you that it will be fully realized.
We had net deferred tax assets (DTA) of $45.7 million as of December 31, 2010 and
established a valuation allowance against our federal net deferred tax assets of $43.5 million. A
valuation allowance is recognized for a net DTA if, based on the weight of available evidence, it
is more-likely-than-not that some portion or the entire DTA will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. In making such judgments,
significant weight is given to evidence that can be objectively verified.
As a result of the increased credit losses, the Company entered into a three-year cumulative
pre-tax loss position (excluding the goodwill impairment charge recognized in the second quarter of
2009) as of June 30, 2010. A cumulative loss position is considered significant negative evidence
in assessing the realizability of a deferred tax asset which is difficult to overcome. The
Companys estimate of the realization of its net DTA was based on the scheduled reversal of
deferred tax liabilities and taxable income available in prior carry back years, and tax planning
strategies. Once profitability has been restored for a reasonable time and such profitability is
considered sustainable, the valuation allowance would be reversed. Reversal of the valuation
allowance requires a great deal of judgment and will be based on the circumstances that exist as of
that future date.
We are subject to lawsuits as a result of the losses we incurred in the third quarter of 2010.
In the third quarter of 2010, we recognized significant losses as a result of higher costs
related to loan charge-offs, coupled with losses incurred on OREO resulting from sales completed
and updated property appraisals received during that quarter. As a result, various plaintiffs
filed class action lawsuits, which have subsequently been consolidated into one class action, alleging, among other things, disclosure violations
regarding our collateral valuations, the timing of our impairment charges and our accounting for
loan charge-offs. The defense of this matter has and will continue to entail considerable cost and
will be time-consuming for our management. Unfavorable outcomes in this matter could have an
adverse effect on our business, financial condition, results of operations and cash flows.
27
We rely heavily on the services of key personnel.
We are dependent on certain key officers who have important customer relationships or are
instrumental to our operations. Changes in key personnel and their responsibilities may be
disruptive to our business and could have a material adverse effect on our business, financial
condition and results of operations. We believe that our future results will also depend in part
upon our attracting and retaining highly skilled and qualified management and sales and marketing
personnel, particularly in those areas where we may open new branches. Competition for such
personnel is intense, and we cannot assure you that we will be successful in attracting or
retaining such personnel.
On February 16, 2011, we announced that James E. Adams, our Chief Financial Officer, will be
retiring on May 16, 2011 after the Annual Shareholders Meeting on May 12, 2011. We have commenced a
search for a replacement for Mr. Adams, but there can be no assurance that we will have found a
suitable replacement prior to that date.
The limitations on bonuses, retention awards, severance payments and incentive compensation
contained in ARRA may adversely affect our ability to retain our highest performing employees.
For so long as any equity securities that we issued to the U.S. Treasury under the CPP remain
outstanding, ARRA and regulations issued thereunder, including the IFR, severely restrict bonuses,
retention awards, severance and change in control payments and other incentive compensation payable
to our most highly compensated employees including our five senior executive officers. It is
possible that we may be unable to create a compensation structure that permits us to retain such
officers or other key employees or recruit additional employees, especially if we are competing
against institutions that are not subject to the same restrictions. Failure to retain our key
employees could materially adversely affect our business and results of operations.
We are subject to extensive regulation that could limit or restrict our activities.
We operate in a highly regulated industry and are subject to examination, supervision, and
comprehensive regulation by various federal and state agencies including the FRB, the FDIC and the
TDFI. Our regulatory compliance is costly and restricts certain of our activities, including
payment of dividends, mergers and acquisitions, investments, loans and interest rates charged,
interest rates paid on deposits and locations of offices. We are also subject to capitalization
guidelines established by our regulators, which require us to maintain adequate capital to support
our operations.
The laws and regulations applicable to the banking industry could change at any time, and we
cannot predict the effects of these changes on our business and profitability. Because government
regulation greatly affects the business and financial results of all commercial banks and bank
holding companies, our cost of compliance could adversely affect our ability to operate profitably.
The Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by the
Securities and Exchange Commission and the Nasdaq Stock Market that are applicable to us, have
increased the scope, complexity and cost of corporate governance, reporting and disclosure
practices. We expect that the Dodd-Frank Act will similarly result in increases in our compliance
costs. As a result, we have experienced, and may continue to experience, greater compliance costs.
28
Our long-term business strategy includes the continuation of growth plans, and our financial
condition and results of operations could be affected if our long-term business strategies are not
effectively executed.
Although our primary focus in the near term will be on strengthening our asset quality and
improving our capital position, we intend, over the longer term, to continue pursuing a growth
strategy for our business through acquisitions and de novo branching. Our prospects must be
considered in light of the risks, expenses and difficulties occasionally encountered by financial
services companies in growth stages, which may include the following:
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Maintaining loan quality; |
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Maintaining adequate management personnel and information systems to oversee such
growth; and, |
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Maintaining adequate control and compliance functions. |
Operating Results: There is no assurance that existing offices or future offices will
maintain or achieve deposit levels, loan balances or other operating results necessary to avoid
losses or produce profits. Our growth and de novo branching strategy necessarily entails growth in
overhead expenses as it routinely adds new offices and staff. Our historical results may not be
indicative of future results or results that may be achieved as we continue to increase the number
and concentration of our branch offices.
Development of Offices: There are considerable costs involved in opening branches, and new branches
generally do not generate sufficient revenues to offset their costs until they have been in
operation for at least a year or more. Accordingly, our de novo branches may be expected to
negatively impact our earnings during this period of time until the branches reach certain
economies of scale.
Expansion into New Markets: Much of our growth over the last five years has been focused in the
highly competitive Nashville, Knoxville and Clarksville metropolitan markets. The customer
demographics and financial services offerings in these markets are unlike those found in the
smaller, more rural East Tennessee markets that we historically served. In the Nashville, Knoxville
and Clarksville markets, we face competition from a wide array of financial institutions. Our
expansion efforts in these new markets may be impacted if we are unable to meet customer demands or
compete effectively with the financial institutions operating in these markets.
Regulatory and Economic Factors: Our growth and expansion plans may be adversely affected by a
number of regulatory and economic developments or other events. Failure to obtain required
regulatory approvals, changes in laws and regulations or other regulatory developments and changes
in prevailing economic conditions or other unanticipated events may prevent or adversely affect our
continued growth and expansion.
Failure to successfully address the issues identified above could have a material adverse
effect on our business, future prospects, financial condition or results of operations, and could
adversely affect our ability to successfully implement our longer term business strategy.
We may face risks with respect to future expansion.
From time to time we may engage in additional de novo branch expansion as well as the
acquisition of other financial institutions or parts of those institutions. We may also consider
and enter into new lines of business or offer new products or services. Acquisitions and mergers
involve a number of risks, including:
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the time and costs associated with identifying and evaluating potential acquisitions and
merger partners; |
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inaccuracies in the estimates and judgments used to evaluate credit, operations,
management and market risks with respect to the target institution; |
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the time and costs of evaluating new markets, hiring experienced local management and
opening new offices, and the time lags between these activities and the generation of
sufficient assets and deposits to support the costs of the expansion; |
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our ability to finance an acquisition and possible dilution to our existing
shareholders; |
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the diversion of our managements attention to the negotiation of a transaction, and the
integration of the operations and personnel of the combining businesses; |
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entry into new markets where we lack experience; |
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the introduction of new products and services into our business; |
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the incurrence and possible impairment of goodwill associated with an acquisition and
possible adverse short-term effects on our results of operations; and |
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the risk of loss of key employees and customers. |
29
We may incur substantial costs to expand. There can be no assurance that integration efforts
for any future mergers or acquisitions will be successful. Also, we may issue equity securities,
including common stock and securities convertible into shares of our common stock in connection
with future acquisitions, which could cause ownership and economic dilution to our shareholders.
There is no assurance that, following any future mergers or acquisitions, our integration efforts
will be successful or we, after giving effect to the acquisition, will achieve profits comparable
to or better than our historical experience.
We are subject to Tennessee anti-takeover statutes and certain charter provisions which could
decrease our chances of being acquired even if the acquisition is in our shareholders best
interests.
As a Tennessee corporation, we are subject to various legislative acts which impose
restrictions on and require compliance with procedures designed to protect shareholders against
unfair or coercive mergers and acquisitions. These statutes may delay or prevent offers to acquire
us and increase the difficulty of consummating any such offers, even if the acquisition of us would
be in our shareholders best interests. Our amended and restated charter also contains provisions
which may make it difficult for another entity to acquire us without the approval of a majority of
the disinterested directors on our board of directors.
The success and growth of our business will depend on our ability to adapt to technological
changes.
The banking industry and the ability to deliver financial services is becoming more dependent
on technological advancement, such as the ability to process loan applications over the Internet,
accept electronic signatures, provide process status updates instantly and on-line banking
capabilities and other customer expected conveniences that are cost efficient to our business
processes. As these technologies are improved in the future, we may, in order to remain
competitive, be required to make significant capital expenditures.
Even though our common stock is currently traded on The Nasdaq Global Select Market, the trading
volume in our common stock has been thin and the sale of substantial amounts of our common stock in
the public market could depress the price of our common stock.
We cannot say with any certainty when a more active and liquid trading market for our common
stock will develop or be sustained. Because of this, our shareholders may not be able to sell their
shares at the volumes, prices, or times that they desire.
We cannot predict the effect, if any, that future sales of our common stock in the market, or
availability of shares of our common stock for sale in the market, will have on the market price of
our common stock. We, therefore, can give no assurance that sales of substantial amounts of our
common stock in the market, or the potential for large amounts of sales in the market, would not
cause the price of our common stock to decline or impair our ability to raise capital through sales
of our common stock.
The market price of our common stock may fluctuate in the future, and these fluctuations may
be unrelated to our performance. General market price declines or overall market volatility in the
future could adversely affect the price of our common stock, and the current market price may not
be indicative of future market prices.
We may issue additional common stock or other equity securities in the future which could dilute
the ownership interest of existing common shareholders.
In order to maintain our capital at desired levels or required regulatory levels, or to fund
future growth, our board of directors may decide from time to time to issue additional shares of
common stock, preferred stock or securities convertible into, exchangeable for or representing
rights to acquire shares of our common stock. The sale of these shares may significantly dilute our
shareholders ownership interest and the per share book value of our common stock. New investors in the future may also have rights, preferences and privileges senior
to our current shareholders which may adversely impact our current shareholders.
30
Our ability to declare and pay dividends is limited by law, by commitments we have made to our
regulators and by the terms of the Series A preferred stock that we have issued to the U.S.
Treasury, and we may be unable to pay future dividends.
We derive our income solely from dividends on the shares of common stock of the Bank. The
Banks ability to declare and pay dividends to us is limited by its obligations to maintain
sufficient capital and by other general restrictions on its dividends that are applicable to banks
that are regulated by the FDIC and the TDFI. In addition, the terms of the Series A preferred stock
impose restrictions on our ability to pay dividends on our common stock and we have informally
committed to the FRB-Atlanta that we will not pay dividends on our common or preferred stock
without the FRB-Atlantas prior approval. On November 9, 2010, following consultation with the
FRB-Atlanta, we notified the U.S. Treasury that we were suspending the payment of regular quarterly
cash dividends on preferred stock that we had issued to the U.S. Treasury in the CPP. We do not
know when we will receive permission from the FRB-Atlanta to resume paying dividends on our common
or preferred stock. We cannot assure our shareholders that we will declare or pay dividends on
shares of our common stock in the future.
Holders of our junior subordinated debentures have rights that are senior to those of our common
and Series A preferred shareholders.
We had supported our previous growth through the issuance of trust preferred securities from
special purpose trusts and accompanying junior subordinated debentures. This financing vehicle is
no longer an attractive source for funding acquisitions as a result of the changing characteristics
of trust preferred securities and their limited attributes towards qualifying as primary regulatory
capital. At December 31, 2010, we had outstanding trust preferred securities and accompanying
junior subordinated debentures totaling $88.7 million. Payments of the principal and interest on
the trust preferred securities of these trusts are conditionally guaranteed by us. Further, the
accompanying junior subordinated debentures we issued to the trusts are senior to our shares of
common stock and the Series A preferred stock that we issued to the U.S. Treasury in the CPP. As a
result, we must make payments on the junior subordinated debentures before any dividends can be
paid on our common stock or the Series A preferred stock and, in the event of our bankruptcy,
dissolution or liquidation, the holders of the junior subordinated debentures must be satisfied
before any distributions can be made on our common stock or Series A preferred stock. We have the
right to defer distributions on our junior subordinated debentures (and the related trust preferred
securities) for up to five years, during which time no dividends may be paid on our common stock or
our Series A preferred stock.
As described above, we have informally committed to the FRB-Atlanta that we will not pay
interest on the subordinated debentures without the prior approval of the FRB-Atlanta. In the
fourth quarter of 2010, following consultation with the FRB-Atlanta, we notified the trustees with
respect to each series of our subordinated debentures, of our intent to defer interest payments on
the subordinated debentures beginning with the interest payments due in the fourth quarter of 2010.
The Series A preferred stock impacts net income available to our common shareholders and our
earnings per share.
As long as shares of our Series A preferred stock are outstanding, no dividends may be paid on
our common stock unless all dividends on the Series A preferred stock have been paid in full.
Additionally, prior to December 23, 2011, unless we redeem the Series A preferred stock or the U.S.
Treasury has transferred the Series A preferred stock to a third party, we are not permitted to pay
cash dividends on our common stock in excess of $0.13 per quarter without the U.S. Treasurys
consent. The dividends declared on shares of our Series A preferred stock will reduce the net
income available to common shareholders and our earnings per common share. Additionally, warrants
to purchase our common stock issued to the Treasury, in conjunction with the issuance of the Series
A preferred stock, may be dilutive to our earnings per share. The shares of our Series A preferred
stock will also receive preferential treatment in the event of our liquidation, dissolution or
winding up.
31
Holders of the Series A preferred stock have rights that are senior to those of our common
shareholders.
The Series A preferred stock that we have issued to the U.S. Treasury is senior to our shares
of common stock, and holders of the Series A preferred stock have certain rights and preferences
that are senior to holders of our common stock. The Series A preferred stock will rank senior to
our common stock and all other equity securities of ours designated as ranking junior to the Series
A preferred stock. So long as any shares of the Series A preferred stock remain outstanding, unless
all accrued and unpaid dividends on shares of the Series A preferred stock for all prior dividend
periods have been paid or are contemporaneously declared and paid in full, no dividend whatsoever
shall be paid or declared on our common stock or other junior stock, other than a dividend payable
solely in common stock. Prior to December 23, 2011, unless we redeem the Series A preferred stock
or the U.S. Treasury has transferred the Series A preferred stock to a third party we and our
subsidiaries also may not, with certain limited exceptions, purchase, redeem or otherwise acquire
any shares of our common stock or other junior stock without the U.S. Treasurys consent. During
that three-year period, and thereafter, we and our subsidiaries may not purchase, redeem or
otherwise acquire for consideration any shares of our common stock or other junior stock unless we
have paid in full all accrued and unpaid dividends on the Series A preferred stock, other than in
certain circumstances. Furthermore, the Series A preferred stock is entitled to a liquidation
preference over shares of our common stock in the event of our liquidation, dissolution or winding
up.
Holders of the Series A preferred stock may, under certain circumstances, have the right to elect
two directors to our board of directors.
As described above, on November 9, 2010, we notified the U.S. Treasury that we were suspending
the payment of dividends on the Series A preferred stock beginning with the dividend payment due in
the fourth quarter of 2010. In the event that we fail to pay dividends on the Series A preferred
stock for an aggregate of six quarterly dividend periods or more (whether or not consecutive), the
authorized number of directors then constituting our board of directors will be increased by two.
Holders of the Series A preferred stock, together with the holders of any outstanding parity stock
with like voting rights, referred to as voting parity stock, voting as a single class, will be
entitled to elect the two additional members of our board of directors, referred to as the
preferred stock directors, at the next annual meeting (or at a special meeting called for the
purpose of electing the preferred stock directors prior to the next annual meeting) and at each
subsequent annual meeting until all accrued and unpaid dividends for all past dividend periods have
been paid in full.
|
|
|
ITEM 1B. |
|
UNRESOLVED STAFF COMMENTS. |
None.
At December 31, 2010, the Company maintained a main office in Greeneville, Tennessee in a
building it owns, 65 full-service bank branches (of which 54 are owned premises and 11 are leased
premises) and a building for mortgage lending operations which it owns. In addition, the Banks
subsidiaries operate from nine separate locations, all of which are leased.
|
|
|
ITEM 3. |
|
LEGAL PROCEEDINGS. |
On November 18, 2010 a shareholder of the Company filed a putative class action lawsuit
(styled Bill Burgraff v. Green Bankshares, Inc., et al., U.S. District Court, Eastern District of
Tennessee, Northeastern Division, Case No. 2:10-cv-00253) against the Company and certain of its
current and former officers in the United States District Court for the Eastern District of
Tennessee in Greeneville, Tennessee on behalf of all persons that acquired shares of the Companys
common stock between January 19, 2010 and November 9, 2010. On January 18, 2011, a separate
shareholder of the Company filed a putative class action lawsuit (styled Brian Molnar v. Green
Bankshares, Inc., et al., U.S. District Court, Eastern District of Tennessee, Northeastern
Division, Case No. 2:11-cv-00014) against the Company and certain of its current and former
officers in the same court on behalf of all persons that acquired shares of the Companys common
stock between January 19, 2010 and October 20, 2010. These lawsuits were filed following, and relate to the drop in value of the Companys common stock price
after, the Company announced its third quarter performance results on October 20, 2010. The
Burgraff case also complains of the Companys decision on November 9, 2010, to suspend payment of
certain quarterly cash dividends.
32
The plaintiffs allege that defendants made false and/or misleading statements or failed to
disclose that the Company was purportedly overvaluing collateral of certain loans; failing to
timely take impairment charges of these certain loans; failing to properly account for loan
charge-offs; lacking adequate internal and financial controls; and providing false and misleading
financial results. The plaintiffs have asserted federal securities laws claims against all
defendants for alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (the
Exchange Act) and Rule 10b-5 promulgated thereunder. The plaintiffs have also asserted control
person liability claims against the individual defendants named in the complaints pursuant to
Section 20(a) of the Exchange Act.
The two cases were consolidated on February 4, 2011. Plaintiffs have 60 days from that date
within which to file an amended and consolidated complaint. On February 11, 2011, the Court
appointed movant Jeffrey Blomgren as lead plaintiff.
The Company and the individual named defendants collectively intend to vigorously defend
themselves against these allegations.
The Company and its subsidiaries are subject to claims and suits arising in the ordinary
course of business. In the opinion of management, the ultimate resolution of these pending claims
and legal proceedings will not have a material adverse effect on the Companys results of
operations.
|
|
|
ITEM 4. |
|
REMOVED AND RESERVED |
33
PART II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES. |
On February 28, 2011, Green Bankshares had 13,188,896 shares of common stock outstanding.
The Companys shares are traded on The Nasdaq Global Select Market, under the symbol GRNB. As
of February 28, 2011, the Company estimates that it had approximately 5,200 shareholders, including
approximately 2,600 shareholders of record and approximately 2,600 beneficial owners holding shares
in nominee or street name.
The following table shows the high and low sales price and closing price for the Companys
common stock as reported by The Nasdaq Global Select Market for 2010 and 2009. The table also sets
forth the dividends per share paid each quarter during 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High/Low Sales Price |
|
|
Closing |
|
|
Dividends Paid |
|
|
|
During Quarter |
|
|
Price |
|
|
Per Share |
|
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
$ |
9.48 / 3.52 |
|
|
$ |
8.16 |
|
|
$ |
|
|
Second quarter |
|
|
15.04 / 7.96 |
|
|
|
12.77 |
|
|
|
|
|
Third quarter |
|
|
13.11 / 6.58 |
|
|
|
6.79 |
|
|
|
|
|
Fourth quarter |
|
|
7.73 / 2.39 |
|
|
|
3.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
$ |
14.71 / 4.51 |
|
|
$ |
8.80 |
|
|
$ |
0.13 |
|
Second quarter |
|
|
9.73 / 4.14 |
|
|
|
4.48 |
|
|
|
|
|
Third quarter |
|
|
6.83 / 3.25 |
|
|
|
5.00 |
|
|
|
|
|
Fourth quarter |
|
|
5.48 / 3.51 |
|
|
|
3.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Holders of the Companys common stock are entitled to receive dividends when, as and if
declared by the Companys board of directors out of funds legally available for dividends.
Historically, the Company has paid quarterly cash dividends on its common stock. On June 2, 2009
the Company announced that due to the uncertain nature of the current economic environment that it
was suspending the payment of cash dividends to common shareholders in order to prudently preserve
capital levels. In the fourth quarter of 2010, the Company informally committed to the FRB-Atlanta
that it would not pay dividends on its common or preferred stock without the prior approval of the
FRB-Atlanta. The Companys ability to pay dividends to its shareholders in the future will depend
on its earnings and financial condition, liquidity and capital requirements, the general economic
and regulatory climate, the Companys ability to service any equity or debt obligations senior to
its common stock, including its outstanding trust preferred securities and accompanying junior
subordinated debentures, and other factors deemed relevant by the Companys board of directors. In
addition, in order to pay dividends to shareholders, the Company must receive cash dividends from
the Bank. As a result, the Companys ability to pay future dividends will depend upon the earnings
of the Bank, its financial condition and its need for funds.
34
Moreover, there are a number of federal and state banking policies and regulations that
restrict the Banks ability to pay dividends to the Company and the Companys ability to pay
dividends to its shareholders. In particular, because the Bank is a depository institution and its
deposits are insured by the FDIC, it may not pay dividends or distribute capital assets if it is in
default on any assessment due to the FDIC. In addition, the Tennessee Banking Act prohibits the
Bank from declaring dividends in excess of net income for the calendar year in which the dividend
is declared plus retained net income for the preceding two years without the approval of the
Commissioner of the Tennessee Department of Financial Institutions. Because of the losses incurred
by the Bank in 2010 and 2009, the Bank will need to receive the approval of the Commissioner of the
TDFI before if pays dividends to the Company. Also, the Bank is subject to regulations which
impose certain minimum regulatory capital and minimum state law earnings requirements that affect
the amount of cash available for distribution to the Company.
In addition, as long as shares of Series A preferred stock are outstanding, no dividends may
be paid on our common stock unless all dividends on the Series A preferred stock have been paid in
full and in no event may dividends on our common stock exceed $0.13 per quarter without the consent
of the U.S. Treasury for the first three years following our sale of Series A preferred stock to
the U.S. Treasury. Lastly, under Federal Reserve policy, the Company is required to maintain
adequate regulatory capital, is expected to serve as a source of financial strength to the Bank and
to commit resources to support the Bank. These policies and regulations may have the effect of
reducing or eliminating the amount of dividends that the Company can declare and pay to its
shareholders in the future. For information regarding restrictions on the payment of dividends by the Bank to the Company, see
Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity
and Capital Resources and Business Regulation, Supervision and Governmental Policy
Dividends in this Annual Report. See also Note 12 of Notes of Consolidated Financial Statements.
The Company made no repurchases of its common stock during the quarter ended December 31,
2010.
35
|
|
|
ITEM 6. |
|
SELECTED FINANCIAL DATA. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007(1) |
|
|
2006 |
|
|
|
(in thousands, except per share data, ratios and percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
120,864 |
|
|
$ |
138,456 |
|
|
$ |
170,516 |
|
|
$ |
176,626 |
|
|
$ |
117,357 |
|
Total interest expense |
|
|
37,271 |
|
|
|
57,931 |
|
|
|
75,491 |
|
|
|
81,973 |
|
|
|
45,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
83,593 |
|
|
|
80,525 |
|
|
|
95,025 |
|
|
|
94,653 |
|
|
|
71,957 |
|
Provision for loan losses |
|
|
(71,107 |
) |
|
|
(50,246 |
) |
|
|
(52,810 |
) |
|
|
(14,483 |
) |
|
|
(5,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
12,486 |
|
|
|
30,279 |
|
|
|
42,215 |
|
|
|
80,170 |
|
|
|
66,450 |
|
Noninterest income |
|
|
32,544 |
|
|
|
31,578 |
|
|
|
33,614 |
|
|
|
27,602 |
|
|
|
20,710 |
|
Noninterest expense |
|
|
(110,815 |
) |
|
|
(229,587 |
) |
|
|
(85,837 |
) |
|
|
(69,252 |
) |
|
|
(52,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(65,785 |
) |
|
|
(167,730 |
) |
|
|
(10,008 |
) |
|
|
38,520 |
|
|
|
34,452 |
|
Income tax (expense) benefit |
|
|
(14,910 |
) |
|
|
17,036 |
|
|
|
4,648 |
|
|
|
(14,146 |
) |
|
|
(13,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(80,695 |
) |
|
|
(150,694 |
) |
|
|
(5,360 |
) |
|
|
24,374 |
|
|
|
21,262 |
|
Preferred stock dividend and accretion of discount on warrants |
|
|
(5,001 |
) |
|
|
(4,982 |
) |
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
(85,696 |
) |
|
$ |
(155,676 |
) |
|
$ |
(5,452 |
) |
|
$ |
24,374 |
|
|
$ |
21,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders, basic |
|
$ |
(6.54 |
) |
|
$ |
(11.91 |
) |
|
$ |
(0.42 |
) |
|
$ |
2.07 |
|
|
$ |
2.17 |
|
Net income (loss) available to common shareholders, assuming
dilution |
|
$ |
(6.54 |
) |
|
$ |
(11.91 |
) |
|
$ |
(0.42 |
) |
|
$ |
2.07 |
|
|
$ |
2.14 |
|
Net income (loss) available to common shareholders, assuming
dilution adjusted for goodwill impairment
charge(7) |
|
$ |
(6.54 |
) |
|
$ |
(1.40 |
) |
|
$ |
(0.42 |
) |
|
$ |
2.07 |
|
|
$ |
2.14 |
|
Dividends declared |
|
$ |
0.00 |
|
|
$ |
0.13 |
|
|
$ |
0.52 |
|
|
$ |
0.68 |
|
|
$ |
0.64 |
|
Common book value(2)(7) |
|
$ |
5.75 |
|
|
$ |
12.15 |
|
|
$ |
24.09 |
|
|
$ |
24.94 |
|
|
$ |
18.80 |
|
Tangible common book value(3)(7) |
|
$ |
5.23 |
|
|
$ |
11.44 |
|
|
$ |
12.23 |
|
|
$ |
12.73 |
|
|
$ |
14.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Condition Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
2,406,040 |
|
|
$ |
2,619,139 |
|
|
$ |
2,944,671 |
|
|
$ |
2,947,741 |
|
|
$ |
1,772,654 |
|
Loans, net of unearned interest |
|
$ |
1,745,378 |
|
|
$ |
2,043,807 |
|
|
$ |
2,223,390 |
|
|
$ |
2,356,376 |
|
|
$ |
1,539,629 |
|
Cash and investments |
|
$ |
504,559 |
|
|
$ |
378,785 |
|
|
$ |
410,344 |
|
|
$ |
314,615 |
|
|
$ |
91,997 |
|
Federal funds sold |
|
$ |
4,856 |
|
|
$ |
3,793 |
|
|
$ |
5,263 |
|
|
$ |
|
|
|
$ |
25,983 |
|
Deposits |
|
$ |
1,976,854 |
|
|
$ |
2,084,096 |
|
|
$ |
2,184,147 |
|
|
$ |
1,986,793 |
|
|
$ |
1,332,505 |
|
FHLB advances and notes payable |
|
$ |
158,653 |
|
|
$ |
171,999 |
|
|
$ |
229,349 |
|
|
$ |
318,690 |
|
|
$ |
177,571 |
|
Subordinated debentures |
|
$ |
88,662 |
|
|
$ |
88,662 |
|
|
$ |
88,662 |
|
|
$ |
88,662 |
|
|
$ |
13,403 |
|
Federal funds purchased and repurchase agreements |
|
$ |
19,413 |
|
|
$ |
24,449 |
|
|
$ |
35,302 |
|
|
$ |
194,525 |
|
|
$ |
42,165 |
|
Shareholders equity |
|
$ |
143,897 |
|
|
$ |
226,769 |
|
|
$ |
381,231 |
|
|
$ |
322,477 |
|
|
$ |
184,471 |
|
Common shareholders equity(2)(7) |
|
$ |
75,776 |
|
|
$ |
160,034 |
|
|
$ |
315,885 |
|
|
$ |
322,477 |
|
|
$ |
184,471 |
|
Tangible common shareholders equity(3)(7) |
|
$ |
69,025 |
|
|
$ |
150,699 |
|
|
$ |
160,411 |
|
|
$ |
164,650 |
|
|
$ |
145,931 |
|
Tangible shareholders equity(4)(7) |
|
$ |
137,146 |
|
|
$ |
217,434 |
|
|
$ |
225,757 |
|
|
$ |
164,650 |
|
|
$ |
145,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
3.79 |
% |
|
|
3.19 |
% |
|
|
3.48 |
% |
|
|
3.83 |
% |
|
|
4.32 |
% |
Net interest margin(6) |
|
|
3.86 |
% |
|
|
3.34 |
% |
|
|
3.70 |
% |
|
|
4.25 |
% |
|
|
4.77 |
% |
Total tangible equity to tangible assets(4)(5)(7) |
|
|
5.72 |
% |
|
|
8.33 |
% |
|
|
8.09 |
% |
|
|
5.90 |
% |
|
|
8.42 |
% |
Tangible common equity to tangible assets(3)(5)(7) |
|
|
2.88 |
% |
|
|
5.77 |
% |
|
|
5.75 |
% |
|
|
5.90 |
% |
|
|
8.42 |
% |
Return on average assets |
|
|
(3.41 |
%) |
|
|
(5.59 |
%) |
|
|
(0.18 |
%) |
|
|
0.98 |
% |
|
|
1.28 |
% |
Return on average equity |
|
|
(38.56 |
%) |
|
|
(50.44 |
%) |
|
|
(1.64 |
%) |
|
|
8.96 |
% |
|
|
11.91 |
% |
Return on average common equity(2)(7) |
|
|
(55.35 |
%) |
|
|
(64.25 |
%) |
|
|
(1.65 |
%) |
|
|
8.96 |
% |
|
|
11.91 |
% |
Return on average common tangible equity(3)(7) |
|
|
(58.32 |
%) |
|
|
(96.77 |
%) |
|
|
(3.14 |
%) |
|
|
15.41 |
% |
|
|
15.25 |
% |
Average equity to average assets |
|
|
8.85 |
% |
|
|
11.09 |
% |
|
|
11.24 |
% |
|
|
10.91 |
% |
|
|
10.78 |
% |
Dividend payout ratio |
|
|
N/M |
|
|
|
N/M |
|
|
|
N/M |
|
|
|
32.85 |
% |
|
|
29.49 |
% |
Ratio of nonperforming assets to total assets |
|
|
8.56 |
% |
|
|
5.07 |
% |
|
|
2.61 |
% |
|
|
1.25 |
% |
|
|
0.29 |
% |
Ratio of allowance for loan losses to nonperforming loans |
|
|
45.83 |
% |
|
|
66.39 |
% |
|
|
155.28 |
% |
|
|
106.34 |
% |
|
|
635.93 |
% |
Ratio of allowance for loan losses to total loans, net of
unearned income loans |
|
|
3.83 |
% |
|
|
2.45 |
% |
|
|
2.20 |
% |
|
|
1.45 |
% |
|
|
1.45 |
% |
|
|
|
1 |
|
Information for the 2007 fiscal year includes the operations of CVBG, with which the
Company merged on May 18, 2007. |
|
2 |
|
Common shareholders equity is shareholders equity less preferred stock. |
36
|
|
|
3 |
|
Tangible common shareholders equity is shareholders equity less goodwill, other
intangible assets and preferred stock. |
|
4 |
|
Tangible shareholders equity is shareholders equity less goodwill and other
intangible assets. |
|
5 |
|
Tangible assets is total assets less goodwill and other intangible assets. |
|
6 |
|
Net interest margin is the net yield on interest earning assets and is the difference
between the Fully Taxable Equivalent yield earned on
interest-earning assets less the effective cost of supporting liabilities. |
|
7 |
|
Please refer to the GAAP Reconciliation and Management Explanation of Non-GAAP
Financial Measures section following Selected Financial Data for more information, including a reconciliation of this non-GAAP financial
measure. |
GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures
Certain financial information included in the selected financial data is determined by methods
other than in accordance with accounting principles generally accepted within the United States
(GAAP). These non-GAAP financial measures are net income (loss) per share assuming dilution
adjusted for goodwill impairment charge, common shareholders equity, tangible assets,
tangible shareholders equity, tangible common book value per share, tangible common
shareholders equity, return on average common equity, and return on average
common tangible equity. The Companys management, the entire financial services sector, bank
stock analysts, and bank regulators use these non-GAAP measures in their analysis of the Companys
performance.
|
|
Net income (loss) per share available to common shareholders assuming dilution adjusted
for goodwill impairment charge is defined as net income (loss) per share available to common
shareholders reduced by goodwill impairment charge, net of tax. |
|
|
Common shareholders equity is shareholders equity less preferred stock. |
|
|
Tangible assets are total assets less goodwill and other intangible assets. |
|
|
Tangible shareholders equity is shareholders equity less goodwill and other intangible
assets. |
|
|
Tangible common book value per share is defined as total equity reduced by recorded
goodwill, other intangible assets and preferred stock divided by total common shares
outstanding. This measure discloses changes from period-to-period in book value per share
exclusive of changes in intangible assets and preferred stock. Goodwill, an intangible asset
that is recorded in a purchase business combination, has the effect of increasing total book
value while not increasing the tangible assets of a company. Companies utilizing purchase
accounting in a business combination, as required by GAAP, must record goodwill related to
such transactions. |
|
|
Tangible common shareholders equity is shareholders equity less goodwill, other
intangible assets and preferred stock. |
|
|
Return on average common equity is defined as net income (loss) available to common
shareholders for the period divided by average equity reduced by average preferred stock. |
|
|
Return on average common tangible equity is defined as net income (loss) available to
common shareholders for the period divided by average equity reduced by average goodwill,
other intangible assets and preferred stock. |
These disclosures should not be viewed as a substitute for results determined in accordance
with GAAP, and are not necessarily comparable to non-GAAP performance measures which may be
presented by other companies.
37
The following reconciliation table provides a more detailed analysis of these non-GAAP
performance measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and for the Fiscal Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Total shareholders equity |
|
$ |
143,897 |
|
|
$ |
226,769 |
|
|
$ |
381,231 |
|
|
$ |
322,477 |
|
|
$ |
184,471 |
|
Less: Preferred stock |
|
|
(68,121 |
) |
|
|
(66,735 |
) |
|
|
(65,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shareholders equity |
|
$ |
75,776 |
|
|
$ |
160,034 |
|
|
$ |
315,855 |
|
|
$ |
322,477 |
|
|
$ |
184,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
$ |
143,897 |
|
|
$ |
226,769 |
|
|
$ |
381,231 |
|
|
$ |
322,477 |
|
|
$ |
184,471 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
(143,389 |
) |
|
|
(143,140 |
) |
|
|
(31,327 |
) |
Core Deposit and other intangibles |
|
|
(6,751 |
) |
|
|
(9,335 |
) |
|
|
(12,085 |
) |
|
|
(14,687 |
) |
|
|
(7,213 |
) |
Preferred stock |
|
|
(68,121 |
) |
|
|
(66,735 |
) |
|
|
(65,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible common shareholders equity |
|
$ |
69,025 |
|
|
$ |
150,699 |
|
|
$ |
160,411 |
|
|
$ |
164,650 |
|
|
$ |
145,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
$ |
143,897 |
|
|
$ |
226,769 |
|
|
$ |
381,231 |
|
|
$ |
322,477 |
|
|
$ |
184,471 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
(143,389 |
) |
|
|
(143,140 |
) |
|
|
(31,327 |
) |
Core Deposit and other intangibles |
|
|
(6,751 |
) |
|
|
(9,335 |
) |
|
|
(12,085 |
) |
|
|
(14,687 |
) |
|
|
(7,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible shareholders equity |
|
$ |
137,146 |
|
|
$ |
217,434 |
|
|
$ |
225,757 |
|
|
$ |
164,650 |
|
|
$ |
145,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,406,040 |
|
|
$ |
2,619,139 |
|
|
$ |
2,944,671 |
|
|
$ |
2,947,741 |
|
|
$ |
1,772,654 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
(143,389 |
) |
|
|
(143,140 |
) |
|
|
(31,327 |
) |
Core Deposit and other intangibles |
|
|
(6,751 |
) |
|
|
(9,335 |
) |
|
|
(12,085 |
) |
|
|
(14,687 |
) |
|
|
(7,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible assets |
|
$ |
2,399,289 |
|
|
$ |
2,609,804 |
|
|
$ |
2,789,197 |
|
|
$ |
2,789,914 |
|
|
$ |
1,734,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common book value per share |
|
$ |
5.75 |
|
|
$ |
12.15 |
|
|
$ |
24.09 |
|
|
$ |
24.94 |
|
|
$ |
18.80 |
|
Effect of intangible assets |
|
$ |
(0.52 |
) |
|
$ |
(0.71 |
) |
|
$ |
(11.86 |
) |
|
$ |
(12.21 |
) |
|
$ |
(3.93 |
) |
Tangible common book value per share |
|
$ |
5.23 |
|
|
$ |
11.44 |
|
|
$ |
12.23 |
|
|
$ |
12.73 |
|
|
$ |
14.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average common equity |
|
|
(55.35 |
%) |
|
|
(64.25 |
%) |
|
|
(1.65 |
%) |
|
|
8.96 |
% |
|
|
11.91 |
% |
Effect of intangible assets |
|
|
(2.97 |
%) |
|
|
(32.52 |
%) |
|
|
(1.49 |
%) |
|
|
6.45 |
% |
|
|
3.34 |
% |
Return on average common tangible equity |
|
|
(58.32 |
%) |
|
|
(96.77 |
%) |
|
|
(3.14 |
%) |
|
|
15.41 |
% |
|
|
15.25 |
% |
38
The table below presents computations and other financial information excluding the
goodwill impairment charge that the Company incurred in 2009. The goodwill impairment charge is
included in the financial results presented in accordance with GAAP. The Company believes that the
exclusion of the goodwill impairment in expressing net operating income (loss), operating expenses
and earnings (loss) per diluted share data provides a more meaningful base for period to period
comparisons which will assist investors in analyzing the operating results of the Company. The
Company utilizes these non-GAAP financial measures to compare the operating performance with
comparable periods in prior years and with internally prepared projections. Non-GAAP financial
measures have inherent limitations, are not required to be uniformly applied and are not audited.
To mitigate these limitations, the Company has policies in place to address goodwill impairment
from other normal operating expenses to ensure that the Companys operating results are properly
reflected for period to period comparisons.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Total non-interest expense |
|
$ |
110,815 |
|
|
$ |
229,587 |
|
|
$ |
85,837 |
|
|
$ |
69,252 |
|
|
$ |
52,708 |
|
Goodwill impairment charge |
|
|
|
|
|
|
(143,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
$ |
110,815 |
|
|
$ |
86,198 |
|
|
$ |
85,837 |
|
|
$ |
69,252 |
|
|
$ |
52,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available
to common shareholders |
|
$ |
(85,696 |
) |
|
$ |
(155,676 |
) |
|
$ |
(5,452 |
) |
|
$ |
24,374 |
|
|
$ |
21,262 |
|
Goodwill impairment charge,
net of tax of $5,975 |
|
|
|
|
|
|
137,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
(loss) available to common
shareholders |
|
$ |
(85,696 |
) |
|
$ |
(18,262 |
) |
|
$ |
(5,452 |
) |
|
$ |
24,374 |
|
|
$ |
21,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Diluted Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available
to common shareholders |
|
$ |
(6.54 |
) |
|
$ |
(11.91 |
) |
|
$ |
(0.42 |
) |
|
$ |
2.07 |
|
|
$ |
2.14 |
|
Goodwill impairment charge,
net of tax of $5,975 |
|
|
|
|
|
|
10.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) |
|
$ |
(6.54 |
) |
|
$ |
(1.40 |
) |
|
$ |
(0.42 |
) |
|
$ |
2.07 |
|
|
$ |
2.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
The Company reported a net loss available to common shareholders of $85,696 for the full year
2010 compared with a net loss available to common shareholders of $155,676 for the full year 2009.
The loss for the year 2010 was primarily attributable to an increase in credit costs, including
both a higher loan loss provision and elevated costs associated with the disposition and
revaluation of OREO related assets along with the effects of the continued weaknesses in the
economy through 2010. This weakness was manifested primarily in the Companys residential real
estate construction and development portfolio. As a result, the Companys provision for loan losses
for the full year 2010 remained elevated at $71,107 compared to $50,246 in 2009 and $52,810 in
2008. Additionally, Other Real Estate Owned (OREO) charges totaled $29,895 in 2010 compared with
$8,156 for 2009 and $7,028 in 2008. As the economy in the Companys market areas continued to
struggle to improve during 2010, net loan charge-offs rose to $54,438 in 2010 compared with net
loan charge-offs of $48,896 in 2009 and $38,110 in 2008. On a diluted per share basis, the net
operating loss available to common shareholders in 2010 was $6.54 compared with a net operating
loss in 2009, excluding the goodwill impairment charge, of $1.40 (please see ITEM 6 GAAP
Reconciliation and Management Explanations of Non-GAAP Financial Measures above for more
information) and a net operating loss available to common shareholders of $0.42 for 2008. The net
loss available to common shareholders on a diluted per share basis for 2010 was $6.54 and including
the goodwill impairment charge, on a diluted per share basis the net loss available to common
shareholders for 2009 was $11.91 compared with a net loss available to common shareholders of $0.42
for 2008.
Net interest income for 2010 was $83,593 compared with $80,525 in 2009 including the impact of
interest reversals of $2,965 in 2010 and $2,606 in 2009. Despite the decline in average earning
assets, the improvement in net interest income was due to the Company experiencing the benefit of
interest rate floors built into loan agreements beginning in 2009 plus the re-pricing of interest
bearing liabilities in a lower market interest rate environment in 2010. As a result, the Company
experienced a widening in its net interest margin from 3.34% in 2009 to 3.86% in 2010. Noninterest
income improved modestly from $31,578 in 2009 to $32,544 in 2010 principally as a result of higher
fee income generated from the sales of annuity and investment products. Operating expenses for 2010
totaled $110,815 in 2010 compared with $229,587 in 2009, or $86,198, excluding the goodwill
impairment charge of $143,389 (please see ITEM 6 GAAP Reconciliation and Management
Explanations of Non-GAAP Financial Measures above for more information). The increase in
operating expenses of $24,617 (excluding the goodwill impairment charge taken in 2009 of $143,389)
was principally driven by the increased costs associated with the losses incurred on the
revaluations and dispositions of OREO related assets.
Critical Accounting Policies and Estimates
The Companys consolidated financial statements and accompanying notes have been prepared in
accordance with accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reported periods.
Management continually evaluates the Companys accounting policies and estimates it uses to
prepare the consolidated financial statements. In general, managements estimates are based on
current and projected economic conditions, historical experience, information from regulators and
third party professionals and various assumptions that are believed to be reasonable under the then
existing set of facts and circumstances. Actual results could differ from those estimates made by
management.
The Company believes its critical accounting policies and estimates include the valuation of
the allowance for loan losses and the fair value of financial instruments and other accounts,
including OREO. Based on managements calculation, an allowance of $66,830, or 3.83%, of total
loans, net of unearned interest was an adequate estimate of losses inherent in the loan portfolio
as of December 31, 2010. This estimate resulted in a provision for loan losses on the income
statement of $71,107 during 2010. If the mix and amount of future charge-off percentages differ
significantly from those assumptions used by management in making its determination, the allowance
for loan losses and provision for loan losses on the income statement could be materially affected.
For further discussion of the allowance
for loan losses and a detailed description of the methodology management uses in determining
the adequacy of the allowance, see ITEM 1. Business Lending Activities Allowance for Loan
Losses located above, and Changes in Results of Operations Provision for Loan Losses located
below.
40
The consolidated financial statements include certain accounting and disclosures that require
management to make estimates about fair values. Estimates of fair value are used in the accounting
for securities available for sale, loans held for sale, goodwill, other intangible assets, OREO and
acquisition purchase accounting adjustments. Estimates of fair values are used in disclosures
regarding securities held to maturity, stock compensation, commitments, and the fair values of financial instruments. Fair values are
estimated using relevant market information and other assumptions such as interest rates, credit
risk, prepayments and other factors. The fair values of financial instruments are subject to
change as influenced by market conditions.
The Company believes its critical accounting policies and estimates also include the valuation
of the allowance for the net DTA. A valuation allowance is recognized for a net DTA if, based on
the weight of available evidence, it is more-likely-than-not that some portion or the entire DTA
will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become
deductible. In making such judgments, significant weight is given to evidence that can be
objectively verified. As a result of the increased credit losses, the Company entered into a
three-year cumulative pre-tax loss position (excluding the goodwill impairment charge recognized in
the first quarter of 2009) as of December 31, 2010. A cumulative loss position is considered
significant negative evidence in assessing the realizability of a deferred tax asset which is
difficult to overcome.
The Companys estimate of the realization of its net DTA was based on the scheduled reversal
of deferred tax liabilities and taxable income available in prior carry back years, and tax
planning strategies. Based on managements calculation, a valuation allowance of $43,455, or 95.2%
of the net DTA, was an adequate estimate as of December 31, 2010. This estimate resulted in a
valuation allowance for the net DTA in the income statement of $43,455 for the period ended
December 31, 2010. Once profitability has been restored for a reasonable time, generally
considered four consecutive quarters, and such profitability is considered sustainable, the
valuation allowance would be reversed. Reversal of the valuation allowance requires a great deal of
judgment and will be based on the circumstances that exist as of that future date.
The consolidated financial statements include certain accounting disclosures that require
management to make estimates about fair values. Independent third party valuations are used for
securities available for sale and securities held to maturity as well as acquisition purchase
accounting adjustments. Third party valuations are inputs, but are not solely determinative of
value. Estimates of fair value are used in the accounting for loans held for sale, goodwill and
other intangible assets. Estimates of fair values are used in disclosures regarding stock
compensation, commitments, and the fair values of financial instruments. Fair values are
estimated using relevant market information and other assumptions such as interest rates,
credit risk, prepayments and other factors. The fair values of financial instruments are subject
to change as influenced by market conditions.
Changes in Results of Operations
Net loss. The net loss available to common shareholders was $85,696 in 2010 and
$155,676 for 2009. The net loss for the year 2009 was primarily attributable to a non-cash charge
taken for the impairment of goodwill of $137,414, net of tax of $5,975 and the continued weaknesses
in the economy through 2009. Excluding the goodwill impairment charge, net of tax, of $137,414 the
Companys net operating loss was $18,262 for 2009 (please see ITEM 6 GAAP Reconciliation and
Management Explanations of Non-GAAP Financial Measures above for more information). When
comparing the net operating loss of $85,696 in 2010 to the net operating loss of $18,262, excluding
the goodwill impairment charge, for 2009 the principal reasons for the increased loss in 2010 were
credit related costs that continued to escalate in 2010 driven by both a higher loan loss provision
coupled with rising costs associated with the maintenance, disposition and revaluation of OREO
along with continued deterioration in economic conditions in our markets. These costs were
partially offset by improvements in both net interest income and non-interest income.
41
The net loss available to common shareholders for 2009 was $155,676 compared to a net loss of
$5,452 in 2008. The net loss for the year 2009 was primarily attributable to a non-cash charge
taken for the impairment of goodwill of $137,414, net of tax of $5,975 and the continued weaknesses
in the economy through 2009. Excluding the goodwill impairment charge, net of tax, of $137,414 the
Companys net operating loss was $18,262 for 2009 (please see ITEM 6 GAAP Reconciliation and
Management Explanations of Non-GAAP Financial Measures above for more information).The increase in
the net operating loss between 2009 and 2008 was primarily attributable to a decline in net
interest income of $14,500 from $95,025 in 2008 to $80,525 in 2009 due to narrowing interest rate
spreads and deteriorating economic conditions throughout 2009 impacting residential real estate
construction lending plus a decline in net securities gains of $2,222 between periods due to higher
other-than-temporary impairment charges taken in 2009.
Net Interest Income. The largest source of earnings for the Company is net interest
income, which is the difference between interest income on earning assets and interest paid on
deposits and other interest-bearing liabilities. The primary factors that affect net interest
income are changes in volumes and rates on earning assets and interest-bearing liabilities, which
are affected in part by managements anticipatory responses to changes in interest rates through
asset/liability management. Despite deleveraging average earning assets of the Company by $247,978
from 2009 to 2010, net interest income improved from $80,525 in 2009 to $83,593 in 2010 as interest
rate floors were triggered in loan agreements and interest-bearing liabilities were re-priced in a
lower interest rate market environment. As a result of the re-pricing characteristics of the
balance sheet plus a modest increase of $4,049 in average non-interest bearing demand deposits, the
Companys net interest margin rose from 3.34% in 2009 to 3.86% in 2010. Average loan balances in
2010 were $1,833,865 compared with $2,096,181 in 2009 and this reduction was principally
responsible for the decline in average earning assets, partially offset by an increase in
short-term investments as liquidity levels increased. Simultaneously, the Company reduced its large
certificates of deposit as average balances declined by $325,182 and further eliminated $55,764 in
borrowed funds.
During 2009, net interest income was $80,525 as compared to $95,025 in 2008. The Company
experienced a decline in average balances of interest-earning assets, with average total
interest-earning assets decreasing by $156,713, or 6%, to $2,433,476 in 2009 from $2,590,189 in
2008. Most of the decline occurred in loans, with average loan balances decreasing by $202,724, or
9%, to $2,096,181 in 2009 from $2,298,905 in 2008. The decrease was primarily due to the continued
downturn in economic conditions throughout 2009 that resulted in lower loan demand and heightened
levels of loan charge-offs. Average investment securities also decreased $83,966, or 31%, to
$189,377 in 2009 from $273,343 in 2008 as the Company focused on de-levering the balance sheet and
reducing excess liquidity. Average balances of total interest-bearing liabilities also decreased
in 2009 from 2008, with average total interest-bearing deposit balances decreasing by $12,223, or
1%, to $1,950,775 in 2009 from $1,962,998 in 2008, and average securities sold under repurchase
agreements and short-term borrowings, and subordinated debentures and FHLB advances and notes
payable decreased by $111,132, or 25%, to $337,993 in 2009 from $449,125 in 2008. These decreases
are primarily related to the reduction in securities sold under repurchase agreements and
short-term borrowings along with the maturities and early payoffs of FHLB advances.
Average Balances, Interest Rates and Yields. Net interest income is affected by (i) the
difference between yields earned on interest-earning assets and rates paid on interest-bearing
liabilities (interest rate spread) and (ii) the relative amounts of interest-earning assets and
interest-bearing liabilities. The Companys interest rate spread is affected by regulatory,
economic and competitive factors that influence interest rates, loan demand and deposit flows.
When the total of interest-earning assets approximates or exceeds the total of interest-bearing
liabilities, any positive interest rate spread will generate net interest income. An indication of
the effectiveness of an institutions net interest income management is its net yield on
interest-earning assets, which is net interest income on a fully taxable equivalent basis divided
by average interest-earning assets.
42
The following table sets forth certain information relating to the Companys consolidated
average interest-earning assets and interest-bearing liabilities and reflects the average fully
taxable equivalent yield on assets and average cost of liabilities for the periods indicated. Such
yields and costs are derived by dividing income or expense by the average daily balance of assets
or liabilities, respectively, for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(1)(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans |
|
$ |
1,517,937 |
|
|
$ |
86,904 |
|
|
|
5.73 |
% |
|
$ |
1,719,026 |
|
|
$ |
99,796 |
|
|
|
5.81 |
% |
|
$ |
1,890,209 |
|
|
$ |
121,168 |
|
|
|
6.41 |
% |
Commercial loans |
|
|
250,126 |
|
|
|
14,358 |
|
|
|
5.74 |
% |
|
|
295,913 |
|
|
|
16,284 |
|
|
|
5.50 |
% |
|
|
319,131 |
|
|
|
20,020 |
|
|
|
6.27 |
% |
Consumer and other loans-
net(2) |
|
|
65,802 |
|
|
|
8,963 |
|
|
|
13.62 |
% |
|
|
81,242 |
|
|
|
9,660 |
|
|
|
11.89 |
% |
|
|
89,565 |
|
|
|
10,516 |
|
|
|
11.74 |
% |
Fees on loans |
|
|
|
|
|
|
3,563 |
|
|
|
|
|
|
|
|
|
|
|
3,532 |
|
|
|
|
|
|
|
|
|
|
|
3,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (including fees) |
|
$ |
1,833,865 |
|
|
$ |
113,788 |
|
|
|
6.20 |
% |
|
$ |
2,096,181 |
|
|
$ |
129,272 |
|
|
|
6.17 |
% |
|
$ |
2,298,905 |
|
|
$ |
155,683 |
|
|
|
6.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
137,148 |
|
|
$ |
4,937 |
|
|
|
3.60 |
% |
|
$ |
144,881 |
|
|
$ |
7,035 |
|
|
|
4.86 |
% |
|
$ |
227,710 |
|
|
$ |
12,770 |
|
|
|
5.61 |
% |
Tax-exempt(4) |
|
|
30,799 |
|
|
|
1,909 |
|
|
|
6.20 |
% |
|
|
31,660 |
|
|
|
1,938 |
|
|
|
6.12 |
% |
|
|
32,743 |
|
|
|
1,995 |
|
|
|
6.09 |
% |
FHLB and other stock |
|
|
12,734 |
|
|
|
530 |
|
|
|
4.16 |
% |
|
|
12,836 |
|
|
|
573 |
|
|
|
4.46 |
% |
|
|
12,890 |
|
|
|
647 |
|
|
|
5.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment
securities |
|
$ |
180,681 |
|
|
$ |
7,376 |
|
|
|
4.08 |
% |
|
$ |
189,377 |
|
|
$ |
9,546 |
|
|
|
5.04 |
% |
|
$ |
273,343 |
|
|
$ |
15,412 |
|
|
|
5.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other short-term investments |
|
|
170,952 |
|
|
|
435 |
|
|
|
0.25 |
% |
|
|
147,918 |
|
|
|
376 |
|
|
|
0.25 |
% |
|
|
17,941 |
|
|
|
175 |
|
|
|
0.98 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
2,185,498 |
|
|
$ |
121,599 |
|
|
|
5.56 |
% |
|
$ |
2,433,476 |
|
|
$ |
139,194 |
|
|
|
5.72 |
% |
|
$ |
2,590,189 |
|
|
$ |
171,270 |
|
|
|
6.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from
banks |
|
$ |
42,743 |
|
|
|
|
|
|
|
|
|
|
$ |
45,870 |
|
|
|
|
|
|
|
|
|
|
$ |
51,181 |
|
|
|
|
|
|
|
|
|
Premises and
equipment |
|
|
80,556 |
|
|
|
|
|
|
|
|
|
|
|
83,478 |
|
|
|
|
|
|
|
|
|
|
|
83,411 |
|
|
|
|
|
|
|
|
|
Other, less allowance
for loan losses |
|
|
202,649 |
|
|
|
|
|
|
|
|
|
|
|
219,831 |
|
|
|
|
|
|
|
|
|
|
|
231,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-earning assets |
|
$ |
325,948 |
|
|
|
|
|
|
|
|
|
|
$ |
349,179 |
|
|
|
|
|
|
|
|
|
|
$ |
366,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,511,446 |
|
|
|
|
|
|
|
|
|
|
$ |
2,782,655 |
|
|
|
|
|
|
|
|
|
|
$ |
2,956,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Average loan balances exclude nonaccrual loans. |
|
2 |
|
Installment loans are stated net of unearned income. |
|
3 |
|
The average balance of and the related yield associated with securities available for
sale is based on the cost of such securities. |
|
4 |
|
Fully Taxable Equivalent (FTE) at the rate of 35%. The FTE basis adjusts for the
tax benefits of income on certain tax-exempt loans and investments using the federal statutory rate
of 35% for each period presented. The Company believes this measure to be the preferred industry
measurement of net interest income and provides relevant comparison between taxable and non-taxable
amounts. |
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, interest checking, and money market accounts |
|
$ |
980,878 |
|
|
$ |
9,924 |
|
|
|
1.01 |
% |
|
$ |
784,135 |
|
|
$ |
10,078 |
|
|
|
1.29 |
% |
|
$ |
645,636 |
|
|
$ |
9,588 |
|
|
|
1.49 |
% |
Time deposits |
|
|
841,458 |
|
|
|
18,510 |
|
|
|
2.20 |
% |
|
|
1,166,640 |
|
|
|
35,690 |
|
|
|
3.06 |
% |
|
|
1,317,362 |
|
|
|
48,502 |
|
|
|
3.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
1,822,336 |
|
|
$ |
28,434 |
|
|
|
1.56 |
% |
|
$ |
1,950,775 |
|
|
$ |
45,768 |
|
|
|
2.35 |
% |
|
$ |
1,962,998 |
|
|
$ |
58,090 |
|
|
|
2.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under repurchase agreements and short-term borrowings |
|
|
22,338 |
|
|
|
22 |
|
|
|
0.10 |
% |
|
|
28,049 |
|
|
|
29 |
|
|
|
0.10 |
% |
|
|
106,309 |
|
|
|
2,111 |
|
|
|
1.99 |
% |
Subordinated debentures |
|
|
88,662 |
|
|
|
1,980 |
|
|
|
2.23 |
% |
|
|
88,662 |
|
|
|
2,577 |
|
|
|
2.91 |
% |
|
|
88,662 |
|
|
|
4,555 |
|
|
|
5.14 |
% |
FHLB advances and notes payable |
|
|
171,229 |
|
|
|
6,835 |
|
|
|
3.99 |
% |
|
|
221,282 |
|
|
|
9,557 |
|
|
|
4.32 |
% |
|
|
254,154 |
|
|
|
10,735 |
|
|
|
4.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
2,104,565 |
|
|
$ |
37,271 |
|
|
|
1.77 |
% |
|
$ |
2,288,768 |
|
|
$ |
57,931 |
|
|
|
2.53 |
% |
|
$ |
2,412,123 |
|
|
$ |
75,491 |
|
|
|
3.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
166,814 |
|
|
|
|
|
|
|
|
|
|
$ |
162,765 |
|
|
|
|
|
|
|
|
|
|
$ |
187,058 |
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
17,854 |
|
|
|
|
|
|
|
|
|
|
|
22,477 |
|
|
|
|
|
|
|
|
|
|
|
24,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest- bearing liabilities |
|
$ |
184,668 |
|
|
|
|
|
|
|
|
|
|
$ |
185,242 |
|
|
|
|
|
|
|
|
|
|
$ |
211,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
222,213 |
|
|
|
|
|
|
|
|
|
|
|
308,645 |
|
|
|
|
|
|
|
|
|
|
|
332,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,511,446 |
|
|
|
|
|
|
|
|
|
|
$ |
2,782,655 |
|
|
|
|
|
|
|
|
|
|
$ |
2,956,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
84,328 |
|
|
|
|
|
|
|
|
|
|
$ |
81,263 |
|
|
|
|
|
|
|
|
|
|
$ |
95,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin analysis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
3.79 |
% |
|
|
|
|
|
|
|
|
|
|
3.19 |
% |
|
|
|
|
|
|
|
|
|
|
3.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest-earning assets (net
interest margin) |
|
|
|
|
|
|
|
|
|
|
3.86 |
% |
|
|
|
|
|
|
|
|
|
|
3.34 |
% |
|
|
|
|
|
|
|
|
|
|
3.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
Rate/Volume Analysis. The following table analyzes net interest income in terms of
changes in the volume of interest-earning assets and interest-bearing liabilities and changes in
yields and rates. The table reflects the extent to which changes in the interest income and
interest expense are attributable to changes in volume (changes in volume multiplied by prior year
rate) and changes in rate (changes in rate multiplied by prior year volume). Changes attributable
to the combined impact of volume and rate have been separately identified.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 vs. 2009 |
|
|
2009 vs. 2008 |
|
|
|
|
|
|
|
|
|
|
|
Rate/ |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Rate/ |
|
|
Total |
|
|
|
Volume |
|
|
Rate |
|
|
Volume |
|
|
Change |
|
|
Volume |
|
|
Rate |
|
|
Volume |
|
|
Change |
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income |
|
$ |
(16,177 |
) |
|
$ |
792 |
|
|
$ |
(99 |
) |
|
$ |
(15,484 |
) |
|
$ |
(13,729 |
) |
|
$ |
(13,909 |
) |
|
$ |
1,227 |
|
|
$ |
(26,411 |
) |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
(376 |
) |
|
|
(1,826 |
) |
|
|
104 |
|
|
|
(2,098 |
) |
|
|
(4,645 |
) |
|
|
(1,713 |
) |
|
|
623 |
|
|
|
(5,735 |
) |
Tax-exempt |
|
|
(53 |
) |
|
|
25 |
|
|
|
1 |
|
|
|
(27 |
) |
|
|
(66 |
) |
|
|
9 |
|
|
|
|
|
|
|
(57 |
) |
FHLB and other stock, at cost |
|
|
(5 |
) |
|
|
(38 |
) |
|
|
|
|
|
|
(43 |
) |
|
|
13 |
|
|
|
(88 |
) |
|
|
1 |
|
|
|
(74 |
) |
Other short-term investments |
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
59 |
|
|
|
1,272 |
|
|
|
(127 |
) |
|
|
(944 |
) |
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
(16,552 |
) |
|
|
(1,047 |
) |
|
|
6 |
|
|
|
(17,593 |
) |
|
|
(17,155 |
) |
|
|
(15,828 |
) |
|
|
907 |
|
|
|
(32,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, interest checking,
and money market accounts |
|
|
2,529 |
|
|
|
(2,145 |
) |
|
|
(539 |
) |
|
|
(155 |
) |
|
|
2,128 |
|
|
|
(1,347 |
) |
|
|
(291 |
) |
|
|
490 |
|
Time deposits |
|
|
(9,948 |
) |
|
|
(10,027 |
) |
|
|
2,795 |
|
|
|
(17,180 |
) |
|
|
(5,549 |
) |
|
|
(8,201 |
) |
|
|
938 |
|
|
|
(12,812 |
) |
Short-term borrowings |
|
|
(6 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
(1,671 |
) |
|
|
(1,379 |
) |
|
|
968 |
|
|
|
(2,082 |
) |
Subordinated debentures |
|
|
|
|
|
|
(597 |
) |
|
|
|
|
|
|
(597 |
) |
|
|
|
|
|
|
(1,978 |
) |
|
|
|
|
|
|
(1,978 |
) |
Notes payable |
|
|
(2,162 |
) |
|
|
(724 |
) |
|
|
164 |
|
|
|
(2,722 |
) |
|
|
(1,389 |
) |
|
|
242 |
|
|
|
(31 |
) |
|
|
(1,178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(9,587 |
) |
|
|
(13,494 |
) |
|
|
2,420 |
|
|
|
(20,661 |
) |
|
|
(6,481 |
) |
|
|
(12,663 |
) |
|
|
1,584 |
|
|
|
(17,560 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
(6,965 |
) |
|
$ |
12,447 |
|
|
$ |
(2,414 |
) |
|
$ |
3,068 |
|
|
$ |
(10,674 |
) |
|
$ |
(3,165 |
) |
|
$ |
(677 |
) |
|
$ |
(14,516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, loans outstanding, net of unearned income, were $1,745,378 compared to
$2,043,807 at 2009 year end. The decrease is primarily due to weak loan demand resulting from the
continued economic pressures experienced within our markets throughout 2010, loan foreclosures
resulting in loan balances being transferred to OREO and repossessed assets and increased loan
charge-offs. Average outstanding loans, net of unearned interest, for 2010 were $1,833,865, a
decrease of 13% from the 2009 average of $2,096,181. Average outstanding loans for 2008 were
$2,298,905.
Average investment securities for 2010 were $180,681 compared to $189,377 in 2009 and $273,343
in 2008. The decreases of $8,696 and $83,966, or 5% and 31%, from 2009 to 2010 and 2008 to 2009
primarily reflect the elimination of excess liquidity in the balance sheet through de-levering. In
2010, the average yield on investments was 4.08%, a decrease from the 5.04% yield in 2009 and from
the 5.64% yield in 2008. The declining investment yields since 2008 represent the reinvestment of
proceeds of maturing securities in a lower interest rate environment. Fully taxable equivalent
income provided by the investment portfolio in 2010 was $7,376 as compared to $9,546 in 2009 and
$15,412 in 2008.
45
Provision for Loan Losses. Management assesses the adequacy of the allowance for loan
losses by considering a combination of regulatory and credit risk criteria. The entire loan
portfolio is graded and potential loss factors are assigned accordingly. The potential loss
factors for impaired loans are assigned based on independent valuations of underlying collateral
and managements judgment. The potential loss factors associated with unimpaired loans are based
on a combination of both internal and industry net loss experience, as well as managements review
of trends within the portfolio and related industries.
Generally, commercial real estate, residential real estate and commercial loans are assigned a
level of risk at inception. Thereafter, these loans are reviewed on an ongoing basis. The review
includes loan payment and collateral status, borrowers financial data and borrowers internal
operating factors such as cash flows, operating income, liquidity, leverage and loan documentation,
and any significant change can result in an increase or decrease in the loans assigned risk grade.
Aggregate dollar volume by risk grade is monitored on an ongoing basis. The establishment of and
any changes to risk grades for consumer loans are generally based upon payment performance.
The Banks loan loss allowance is increased or decreased based on managements assessment of
the overall risk of its loan portfolio. A portion of the allowance may be allocated to specific
loans reflecting unusual circumstances.
Management reviews certain key loan quality indicators on a monthly basis, including current
economic conditions, historical charge-offs, delinquency trends and ratios, portfolio mix changes
and other information management deems necessary. This review process provides a degree of
objective measurement that is used in conjunction with periodic internal evaluations. To the
extent that this process yields differences between estimated and actual observed losses,
adjustments are made to provisions and/or the level of the allowance for loan losses.
Increases and decreases in the allowance for loan losses due to changes in the measurement of
impaired loans are reviewed monthly given the current economic environment. To the extent that
impairment is deemed probable, an adjustment is reflected in the provision for loan losses, if
necessary, to reflect the losses inherent in the loan portfolio. Loans continue to be classified
as impaired unless payments are brought fully current and satisfactory performance is observed for
a period of at least six months and management further considers the collection of scheduled
interest and principal to be probable.
The Companys provision for loan losses increased for the year 2010 by $20,861 to $71,107 from
$50,246 in 2009 while the total loan loss reserve increased from $50,161 at December 31, 2009 to
$66,830 at December 31, 2010. The impact of the continuing challenging economic environment,
elevated net charge-offs and increased non-performing assets were the primary reasons for the
increase in provision expense in 2010. Net charge-offs were $54,438 in 2010 compared with net
charge-offs of $48,896 in 2009 and $38,110 in 2008. Management continually evaluates the existing
portfolio in light of loan concentrations, current general economic conditions and economic trends.
On a monthly basis, the Company undertakes an extensive review of every loan in excess of $1
million that is adversely risk graded and every loan regardless of amount graded substandard.
Appraisals received by the Company during the second half of 2010 on existing OREO and
targeted loans reflected further significant deterioration in the value of the underlying
properties from the prior year, which along with the deterioration of previously performing
relationships, triggered increased charge-offs during this period of time. Management believes that
the economic slowdown in the Companys markets occurring throughout 2008, 2009 and 2010 will
continue into at least the first half of 2011. Based on its evaluation of the allowance for loan
loss calculation and review of the loan portfolio, management believes the allowance for loan
losses is adequate at December 31, 2010. However, the provision for loan losses could further
increase throughout 2011 if the general economic trends continue to weaken or the residential real
estate markets in Nashville or Knoxville or the financial conditions of borrowers deteriorate
beyond managements current expectations.
46
The ratio of nonperforming assets to total assets reached 8.56% at December 31, 2010 compared
with 5.07% at December 31, 2009 and 2.61% at December 31, 2008 reflecting not only the challenging
economic environment but also the rise in non-performing asset levels combined with a
shrinking Balance Sheet. Total nonperforming assets increased to $205,914 in 2010 from $132,726 in
2009 from $76,806 at year-end 2008. Nonaccrual loans, included in non-performing assets, increased
to $143,707 as of December 31, 2010 compared to $75,411 at December 31, 2009 and $30,926 at
December 31, 2008. Further reflecting the economic downturn, OREO and repossessed assets increased from $45,371 at the end of 2008 to $57,168 at year-end 2009 and $60,095 at December
31, 2010. Management believes that, based upon recent appraisals, these assets have been
appropriately written down based on current economic conditions. The recorded investment of
impaired loans, which include substandard loans as well as nonaccrual loans, increased from $47,215
at December 31, 2008 to $115,238 at December 31, 2009 and $185,991 at December 31, 2010. The
related allowance on the investment of impaired loans also increased from $2,651 at December 31,
2008 to $5,737 at December 31, 2009 and $24,834 at December 31, 2010. The Company records a risk
allocation allowance for loan losses on impaired loans where the risk of loss is deemed to be
probable and the amount can be reasonably estimated. Further, the Company specifically records
additional allowance amounts for individual loans when the circumstances so warrant. For further
discussion of nonperforming assets as it relates to foreclosed real estate and impaired loans, see
ITEM 1. Business Lending Activities Past Due, Special Mention, Classified and Nonaccrual
Loans located above.
To further manage its credit risk on loans, the Company maintains a watch list of loans
that, although currently performing, have characteristics that require closer supervision by
management. At December 31, 2010 watch list loans totaled $88,130 declining from $212,288
identified at year end 2009. At December 31, 2008 watch list loans totaled $182,984. If, and
when, conditions are identified that would require additional loan loss reserves to be established
due to potential losses inherent in these loans, action would then be taken.
Non-interest Income. The generation of non-interest income, which is income that is
not related to interest-earning assets and consists primarily of service charges, commissions and
fees, has become more important as increases in levels of interest-bearing deposits and other
liabilities continually challenge interest rate spreads.
Total non-interest income for 2010 increased slightly to $32,544 compared to $31,578 in 2009
and declined modestly from $33,614 in 2008. The largest components of non-interest income are
service charges on deposit accounts, which totaled $24,179 in 2010, $23,738 in 2009 and $23,176 in
2008. The increase in total non-interest income in 2010 primarily reflects higher service charges
on deposit accounts, trust and investment services income and lower other-than-temporary impairment
charges on investments. The decrease in total non-interest income from 2008 to 2009 reflected a
reduction in net securities gains of $2,222 to $439 in 2009 from $2,661 in 2008. This decrease is
a result of lower realized gains on the sale of securities of $1,415 in 2009 compared to $2,661 in
2008 coupled with additional charges taken in 2009 of $976 for other-than-temporary impairment on
certain investment portfolio securities. Deposit service charges are fees generated from the
higher volume of deposit-related products, specifically fees associated with the continued success
of the Banks High Performance Checking Program. From the inception of this new product during the
first quarter of 2005, the Company experienced net new checking account growth of 7,665 in 2005
to net new checking account growth of 14,269 during 2010.
Non-interest Expense. Control of non-interest expense also is an important aspect in
generating earnings. Non-interest expense includes, among other expenses, personnel, occupancy,
goodwill impairment charges, write downs and net losses from the sales on OREO and expenses such as
data processing, printing and supplies, legal and professional fees, postage and FDIC assessments.
Total non-interest expense was $110,815 in 2010 compared to $229,587 in 2009 and $85,837 in 2008.
The decline in 2010 of $118,772 from 2009 principally reflects the one-time non-cash charge taken
for goodwill impairment of $143,389. During 2010, the Company incurred $29,895 in costs associated
with losses and revaluations on OREO properties held for sale compared with $8,156 incurred in 2009
and $7,028 in 2008.
Employee compensation and employee benefit costs are the primary element of the Companys
non-interest expenses, excluding the one-time, non-cash write-off of goodwill in 2009. For the
years ended December 31, 2010 and 2009, compensation and benefits represented $35,368, or 32% and
$34,446, or 40% (excluding the goodwill impairment charge of $143,389 see ITEM 6 GAAP
Reconciliation and Management Explanations of Non-GAAP Financial Measures above for more
information), respectively, of total non-interest expense. Including Bank branches and non-Bank
office locations, the Company had 65 locations at December 31, 2010 and 2009, and the number of
full-time equivalent employees totaled 730 at December 31, 2010 and 716 at December 31, 2009.
47
Income Taxes. The Companys effective income tax rate (benefit) was 22.7% in 2010
compared to (10.2%) in 2009 and (46.4%) in 2008. The effective tax rate for the year ended December
31, 2010 was significantly impacted by the DTA valuation allowance of $43,455. A valuation
allowance is recognized for a net DTA if, based on the weight of available evidence, it is
more-likely-than-not that some portion or the entire DTA will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible. In making such
judgments, significant weight is given to evidence that can be objectively verified. As a result of
the increased credit losses, the Company entered into a three-year cumulative pre-tax loss position
(excluding the goodwill impairment charge recognized in the second quarter of 2009) as of June 30,
2010. A cumulative loss position is considered significant negative evidence in assessing the
realizability of a deferred tax asset which is difficult to overcome.
The Companys estimate of the realization of its net DTA was based on the scheduled reversal of
deferred tax liabilities and taxable income available in prior carry back years, and tax planning
strategies.
Changes in Financial Condition
Total assets at December 31, 2010 were $2,406,040 compared with $2,619,139 at December 31,
2009 a decrease of $213,099. Major changes in the balance sheet categories reflect a decline in
loan balances of $298,429 from the prior year comprised of loan charge-offs of $54,438 and
transfers to foreclosures of $54,613 accompanied with a decline in lending associated with the
current challenging conditions in the economy. These decreases were offset by an increase of
$83,720 in cash and cash equivalents and interest earning deposits in banks. Average assets for
2010 also decreased to $2,511,446, a reduction of $271,209, or 10%, from the average asset balance
of $2,782,655 for 2009. This decrease in average assets was also due primarily to the items
mentioned previously. The Companys return on average assets was (3.41%) in 2010 and (5.59%) in
2009, principally as a result of significant provisioning expense and OREO expenses in 2010 and the
goodwill impairment charge in 2009.
Total assets at December 31, 2009 were $2,619,139, a decrease of $325,532 from total assets of
$2,944,671 at December 31, 2008. Major changes in the balance sheet categories reflect a decline
in loan balances of $179,583 from the prior year comprised of loan charge-offs of $48,896 and
transfers to foreclosures of $75,545 accompanied with a decline in lending associated with
recessionary conditions in the economy. An increase of $23,136 in cash and cash equivalents from
year-end 2008 was driven principally by the deleveraging of the balance sheet through reducing
investment portfolio holdings, partially offset by liquidating borrowed funds. Average assets for
2009 declined to $2,782,655 from $2,956,280 in 2008, a decrease of $173,625. This decrease in
average assets was due primarily to the decline in average loan volume of $202,724.
Earning assets consist of loans, investment securities and short-term investments that earn
interest. Average earning assets during 2010 were $2,185,498 compared with $2,433,476 in 2009, a
decrease of 10%. The decrease in average earnings assets was due primarily to the reduction of loan
and investment securities balances throughout 2010 as the Company de-levered the Balance Sheet plus
the general decline in demand for loans associated with challenging conditions in the economy.
Nonperforming loans include nonaccrual loans and loans past due 90 days and still on accrual.
The Company has a policy of placing loans 90 days delinquent in nonaccrual 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 Companys balance sheet. For further information, see
Notes 1 and 3 of the Notes to Consolidated Financial Statements. The Company has aggressive
collection practices in which senior management is significantly and directly involved.
The Company maintains an investment portfolio to primarily cover pledging requirements for
deposits and borrowings and secondarily as a source of liquidity while modestly adding to earnings.
Investments at December 31, 2010 had an amortized cost of $200,824 and a market value of $202,469
compared with investments at December 31, 2009 which had an amortized cost of $148,040 and a market
value of $148,362. As excess balance sheet liquidity continued to build throughout 2010, the
Company increased its investment portfolio accordingly. The Company invests principally in callable
federal agency securities. These callable federal agency securities will provide a higher yield
than non-callable securities with similar maturities. The primary risk involved in callable
securities is that they may be called prior to maturity and the call proceeds received would be
re-invested at lower yields. In 2010, the Company purchased $137,297 of callable federal agency
securities, which have a high likelihood of being called on the first call date, $31,538 of
collateralized mortgage obligations, and $2,985 of mortgage-backed securities. Also in 2010, the
Company received $9,095 from the pay down of collateralized mortgage obligations, $2,233 from the
pay down of mortgage-backed securities, $105,890 on the maturity or call of various U.S. agency
securities, and $1,025 from the maturity or call of municipal securities.
48
The Companys deposits totaled $1,976,854 at December 31, 2010, which represents a decrease of
$107,242, or 5%, from $2,084,096 at December 31, 2009. Non-interest bearing demand deposit
balances declined to $152,752 at December 31, 2010 from $177,602 at December 31, 2009. The
decrease in total deposits was due primarily to the reduction of $83,155 in Certificates of
Deposits in excess of $100,000. Average interest-bearing deposits decreased $128,439, or 7%, to
$1,822,336 from $1,950,775 at December 31, 2009. In 2009, average interest-bearing deposits
decreased $12,223, or 1%, to $1,950,775 from $1,962,998 at December 31, 2008.
Interest paid on deposits in 2010 was $28,434 at an effective rate of 1.56% compared with
$45,768 in 2009 at an average cost of 2.35% as market interest rates declined throughout 2010. In
2008, interest of $58,090 was paid at a cost of 2.96% on average deposits of $1,962,998.
Liquidity and Capital Resources
Liquidity. Liquidity refers to the ability or the financial flexibility to manage future
cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining
appropriate levels of liquidity allows the Company to have sufficient funds available for reserve
requirements, customer demand for loans, withdrawal of deposit balances and maturities of deposits
and other liabilities. The Companys primary source of liquidity is dividends paid by the Bank.
Applicable Tennessee statutes and regulations impose restrictions on the amount of dividends that
may be declared by the Bank. Under Tennessee law, the Bank can only pay dividends to the Company
in an amount equal to or less than the total amount of its net income for that year combined with
retained net income for the preceding two years. Payment of dividends in excess of this amount
requires the consent of the Commissioner of the Tennessee Department of Financial Institutions
(TDFI), FDIC, and the Federal Reserve Bank of Atlanta (FRB-Atlanta). Further, any dividend
payments are subject to the continuing ability of the Bank to maintain compliance with minimum
federal regulatory capital requirements, or any higher requirements that the Bank may be subject
to, (like those that the Bank has informally committed to the TDFI and FDIC that it will maintain),
and to retain its characterization under federal regulations as a well-capitalized institution.
Because of the Banks losses in 2009 and 2010, dividends from the Bank to the Company, including
funds for payment of dividends on preferred stock and trust preferred, including the preferred
stock issued to the U.S. Treasury, and interest on trust preferred securities to the extent that
the Company does not have sufficient cash available at the holding company level, will require
prior approval of the TDFI, FDIC and FRB.
Supervisory guidance from the FRB indicates that bank holding companies that are experiencing
financial difficulties generally should eliminate, reduce or defer dividends on Tier 1 capital
instruments including trust preferred securities, preferred stock or common stock, if the holding
company needs to conserve capital for safe and sound operation and to serve as a source of strength
to its subsidiaries. The Company has informally committed to the FRB that it will not (1) declare
or pay dividends on the Companys common or preferred stock, including the preferred shares owned
by the U.S. Treasury (2) make any distributions on subordinated debentures or trust preferred
securities or (3) incur any additional indebtedness without in each case, the prior written
approval of the FRB. On November 9, 2010, following consultation with the FRB-Atlanta, the Company
notified the U.S. Treasury that the Company was suspending the payment of regular quarterly cash
dividends on the Series A preferred stock issued to the U.S. Treasury. The dividends, which are
cumulative, will continue to be accrued for payment in the future and reported as a preferred
dividend requirement that is deducted from net income for financial statement purposes.
Additionally, following consultation with the FRB-Atlanta, the Company has exercised its rights to
defer regularly scheduled interest payments on all of its issues of junior subordinated notes
having an outstanding principal amount of $88.6 million, relating to outstanding trust preferred
securities (TRUPs). In addition, the Company maintains borrowing availability with the FHLB
which was fully utilized at December 31, 2010. The Company also maintains federal funds lines of
credit totaling $70,000 at four correspondent banks of which $70,000 was available at December 31,
2010, and $10,000 of the federal funds lines of credit is secured by cash on deposit. The Company
believes it has sufficient liquidity to satisfy its current operating needs.
In 2010, operating activities of the Company provided $44,842 of cash flows. Cash flows from
operating activities were positively affected by various non-cash items, including (i) $71,107 in
provision for loan losses, (ii) $7,152 of depreciation and amortization, (iii) $29,895 net loss on
OREO and repossessed assets, and (iv) $26,739 in deferred tax expense. This was offset in part by
(i) a net loss of $80,695, (ii) a decrease in other assets of $4,139 and (iii) a reduction in
accrued interest payable and other liabilities of $5,505. In addition, cash flows from operating
activities were increased by the proceeds from the sale of held-for-sale loans of $47,881,
offset by cash used to originate held-for-sale loans of $46,994.
49
Investing activities, including lending, provided $167,213 of the Companys cash flows in
2010. Cash flows from investing activities increased from (i) the sale of OREO in the amount of
$16,136, (ii) the net decrease in interest-bearing deposits with banks of $11,000 and (iii) the net
decrease in loans of $195,847. Investments from the purchase of securities in excess of maturities
from securities available for sale over in the amount of $53,414 and premises and equipment of
$1,551 in 2010 reduced cash provided from investing activities.
Net cash flows of $128,335 were used by financing activities. The financing cash flow activity
in 2010 with respect to notes payable reflected a repayment of funds in the amount of $13,346 and a
repayment of funds of $57,350 during 2009. The Company elected to repay FHLB advances by the
overall contraction of the balance sheet. In addition, federal funds purchased and repurchase
agreements were reduced by $5,036 during 2009. Cash flows used by the net change in total deposits
reduced deposits by $107,242, as the continued to reduce the size of the balance sheet. The
Companys cash flow from financing activities was also decreased by the Companys dividend payments
during 2010 of $2,711 on preferred stock.
Capital Resources. The Companys regulatory capital position is reflected in its
shareholders equity, subject to certain adjustments for regulatory purposes. Shareholders
equity, or capital, is a measure of the Companys net worth, soundness and viability. The Companys
capital continued to exceed the regulatory definition of a well capitalized financial institution
at December 31, 2010, but fell below the levels that the Bank informally committed to the TDFI and
FDIC that it would maintain. Management believes the capital base of the Company allows it to
consider business opportunities while maintaining the level of resources deemed appropriate by
management of the Company to address business risks inherent in the Companys daily operations.
On September 25, 2003, the Company issued $10,310 of subordinated debentures, as part of a
privately placed pool of trust preferred securities. The securities, due in 2033, bear interest at
a floating rate of 2.85% above the three-month LIBOR rate, reset quarterly, and are currently
callable by the Company without penalty. The Company used the proceeds of the offering to support
its acquisition of Independent Bankshares Corporation, and the capital raised from the offering
qualified as Tier 1 capital for regulatory purposes.
On June 28, 2005, the Company issued an additional $3,093 of subordinated debentures, as part
of a privately placed pool of trust preferred securities. The securities, due in 2035, bear
interest at a floating rate of 1.68% above the three-month LIBOR rate, reset quarterly, and are
callable by the Company five years from the date of issuance without penalty. The Company used the
proceeds to augment its capital position in connection with its significant asset growth, and the
capital raised from the offering qualifies as Tier 1 capital for regulatory purposes.
On May 16, 2007, the Company issued $57,732 of subordinated debentures, as part of a privately
placed pool of trust preferred securities. The securities, due in 2037, bear interest at a
floating rate of 1.65% above the three-month LIBOR rate, reset quarterly, and are callable by the
Company five years from the date of issuance without penalty. The Company used the proceeds of the
offering to support its acquisition of CVBG, and the capital raised from the offering qualified as
Tier I capital for regulatory purposes.
On May 18, 2007 the Company assumed the obligations of the following two trusts in the CVBG
acquisition.
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|
On December 28, 2005, CVBG issued $13,403 of subordinated debentures, as part of
a privately placed pool of trust preferred securities. The securities, due in
2036, bear interest at a floating rate of 1.54% above the three-month LIBOR rate,
reset quarterly, and are callable five years from the date of issuance without
penalty. |
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|
On July 31, 2001, CVBG issued $4,124 of subordinated debentures, as part of a
privately placed pool of trust preferred securities. The securities, due in 2031,
bear interest at a floating rate of 3.58% above the three-month LIBOR rate, reset
quarterly, and are currently callable without penalty. |
50
During 2007 the FRB issued regulations which allow continued inclusion of outstanding and
prospective issuances of trust preferred securities as Tier 1 capital subject to stricter
quantitative and qualitative limits than allowed under prior regulations. The new limits will
phase in over a five-year transition period and would permit the Companys trust preferred
securities, including those obligations assumed in the CVBG acquisition, to continue to be treated
as Tier 1 capital. Under the Dodd-Frank Act, the Companys trust preferred securities should
continue to qualify as Tier I capital.
The Companys ability to repurchase the trust preferred securities or pay dividends on the
trust preferred securities, may be limited as a result of the Companys participation in the CPP,
as described above and is limited by the informal commitment the Company made to the FRB-Atlanta in
2010, also as described above.
Shareholders equity on December 31, 2010 was $143,897, a decrease of $82,872, or 37%, from
$226,769 on December 31, 2009. The decrease in shareholders equity was primarily driven by the
net loss available to common shareholders of $85,696 in 2010.
On December 23, 2008 the Company entered into a definitive agreement with the U.S. Treasury.
Pursuant to the Agreement, we sold to the U.S. Treasury 72,280 shares of Series A preferred stock,
having a liquidation amount equal to $1,000 per share, with an attached warrant (the Warrant) to
purchase 635,504 shares of our common stock, par value $2.00 per share, for $17.06 per share.
The preferred stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 5%
per year, for the first five years, and 9% per year thereafter. The Warrant has a 10-year term and
an exercise price, subject to anti-dilution adjustments, equal to $17.06 per share of common stock.
The Company is permitted to redeem the Series A preferred stock at any time without penalty
subject to the U.S. Treasurys consultation with the Companys and the Banks appropriate
regulatory agency.
Risk-based capital regulations adopted by the FRB and the FDIC require both bank holding
companies and banks to achieve and maintain specified ratios of capital to risk-weighted assets.
The risk-based capital rules are designed to measure Tier 1 capital (consisting of stockholders
equity and trust preferred securities, less goodwill) and total capital in relation to the credit
risk of both on- and off-balance sheet items. Under the guidelines, one of four risk weights is
applied to the different on-balance sheet items. Off-balance sheet items, such as loan
commitments, are also subject to risk weighting after conversion to balance sheet equivalent
amounts. All bank holding companies and banks must maintain a minimum total capital to total
risk-weighted assets ratio of 8.00%, at least half of which must be in the form of core, or Tier 1,
capital. At December 31, 2010, the Company and the Bank each satisfied their respective minimum
regulatory capital requirements, and the Bank was well-capitalized within the meaning of federal
regulatory requirements. In light of declining asset quality and earnings in 2010, the Bank
informally committed to the TDFI and the FDIC that, among other things, it would maintain a Tier 1
leverage ratio (Tier 1 Capital to Average Assets) of at least 10% and Total risk-based capital
ratio (Total Capital to Risk Weighted Assets) of at least 14%.
51
As reflected in the table below, the Bank did not satisfy these higher ratio requirements at
December 31, 2010. Actual capital levels and minimum levels (in millions) were:
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Minimum Amounts |
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|
|
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to be Well |
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Minimum Required |
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Capitalized Under |
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for Capital |
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Prompt Corrective |
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Actual |
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Adequacy Purposes |
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Action Provisions |
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Actual |
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Ratio (%) |
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Actual |
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Ratio (%) |
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Actual |
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Ratio (%) |
|
2010 |
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|
Total Capital (to Risk Weighted Assets) |
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|
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|
|
|
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|
|
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|
|
|
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Consolidated |
|
$ |
239.7 |
|
|
|
13.2 |
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|
$ |
145.2 |
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|
|
8.0 |
|
|
$ |
181.6 |
|
|
|
10.0 |
|
Bank |
|
|
239.6 |
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|
|
13.2 |
|
|
|
145.0 |
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|
|
8.0 |
|
|
|
181.3 |
|
|
|
10.0 |
|
Tier 1 Capital (to Risk Weighted Assets) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Consolidated |
|
$ |
216.5 |
|
|
|
11.9 |
|
|
$ |
72.6 |
|
|
|
4.0 |
|
|
$ |
108.9 |
|
|
|
6.0 |
|
Bank |
|
|
216.4 |
|
|
|
11.9 |
|
|
|
72.5 |
|
|
|
4.0 |
|
|
|
108.8 |
|
|
|
6.0 |
|
Tier 1 Capital (to Average Assets) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
216.5 |
|
|
|
8.9 |
|
|
$ |
97.6 |
|
|
|
4.0 |
|
|
$ |
122.0 |
|
|
|
5.0 |
|
Bank |
|
|
216.4 |
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|
|
8.9 |
|
|
|
97.5 |
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|
|
4.0 |
|
|
|
121.8 |
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5.0 |
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2009 |
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Total Capital (to Risk Weighted Assets) |
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|
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|
|
|
|
|
|
|
|
|
|
|
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|
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Consolidated |
|
$ |
318.5 |
|
|
|
14.9 |
|
|
$ |
171.0 |
|
|
|
8.0 |
|
|
$ |
213.8 |
|
|
|
10.0 |
|
Bank |
|
|
317.4 |
|
|
|
14.9 |
|
|
|
170.7 |
|
|
|
8.0 |
|
|
|
213.4 |
|
|
|
10.0 |
|
Tier 1 Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Consolidated |
|
$ |
291.5 |
|
|
|
13.6 |
|
|
$ |
85.5 |
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|
|
4.0 |
|
|
$ |
128.3 |
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|
|
6.0 |
|
Bank |
|
|
290.4 |
|
|
|
13.6 |
|
|
|
85.4 |
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|
|
4.0 |
|
|
|
128.0 |
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|
|
6.0 |
|
Tier 1 Capital (to Average Assets) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Consolidated |
|
$ |
291.5 |
|
|
|
10.7 |
|
|
$ |
108.6 |
|
|
|
4.0 |
|
|
$ |
135.8 |
|
|
|
5.0 |
|
Bank |
|
|
290.4 |
|
|
|
10.7 |
|
|
|
108.6 |
|
|
|
4.0 |
|
|
|
135.7 |
|
|
|
5.0 |
|
Off-Balance Sheet Arrangements
At December 31, 2010, the Company had outstanding unused lines of credit and standby letters
of credit totaling $227,647 and unfunded loan commitments outstanding of $6,291. Because these
commitments generally have fixed expiration dates and many will expire without being drawn upon,
the total commitment level does not necessarily represent future cash requirements. If needed to
fund these outstanding commitments, the Company has the ability to liquidate federal funds sold or
securities available-for-sale or, on a short-term basis, to borrow or purchase federal funds from
other financial institutions. At December 31, 2010, the Company had accommodations with upstream
correspondent banks for unsecured federal funds lines. These accommodations have various covenants
related to their term and availability, and in most cases must be repaid within less than a month.
The following table presents additional information about the Companys commitments as of December
31, 2010, which by their terms has contractual maturity dates subsequent to December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
|
More than 5 |
|
|
|
|
|
|
Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
Years |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to make loans fixed |
|
$ |
3,827 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,827 |
|
Commitments to make loans variable |
|
|
2,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,464 |
|
Unused lines of credit |
|
|
101,145 |
|
|
|
14,460 |
|
|
|
13,457 |
|
|
|
72,911 |
|
|
|
201,973 |
|
Letters of credit |
|
|
17,632 |
|
|
|
8,042 |
|
|
|
|
|
|
|
|
|
|
|
25,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
125,068 |
|
|
$ |
22,502 |
|
|
$ |
13,457 |
|
|
$ |
72,911 |
|
|
$ |
233,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset/Liability Management
The Companys Asset/Liability Committee (ALCO) actively measures and manages interest rate
risk using a process developed by the Bank. The ALCO is also responsible for recommending the
Companys asset/liability management policies to the Board of Directors for approval, overseeing
the formulation and implementation of strategies to improve balance sheet positioning and earnings,
and reviewing the Companys interest rate sensitivity position.
52
The primary tool that management uses to measure short-term interest rate risk is a net
interest income simulation model prepared by an independent national consulting firm and reviewed
by another separate and independent national consulting firm. These simulations estimate the
impact that various changes in the overall level of interest rates over one- and two-year time
horizons would have on net interest income. The results help the Company develop strategies for
managing exposure to interest rate risk.
Like any forecasting technique, interest rate simulation modeling is based on a large number
of assumptions. In this case, the assumptions relate primarily to loan and deposit growth, asset
and liability prepayments, interest rates and balance sheet management strategies. Management
believes that both individually and in the aggregate the assumptions are reasonable. Nevertheless,
the simulation modeling process produces only a sophisticated estimate, not a precise calculation
of exposure.
The Companys current guidelines for interest rate risk management call for preventive
measures if a gradual 200 basis point increase or decrease in short-term rates over the next 12
months would affect net interest income over the same period by more than 18.5%. The Company has
been operating well within the guidelines. As of December 31, 2010 and 2009, based on the results
of the independent consulting firms simulation model, the Company could expect net interest income
to increase by approximately 6.31% and 12.75%, respectively, if short-term interest rates
immediately increase by 200 basis points. Conversely, if short-term interest rates immediately
decrease by 200 basis points, net interest income could be expected to decrease by approximately
5.40% and 14.20%, respectively.
The scenario described above, in which net interest income increases when interest rates
increase and decreases when interest rates decline, is typically referred to as being asset
sensitive because interest-earning assets exceed interest-bearing liabilities. At December 31,
2010, approximately 43% of the Companys gross loans had adjustable rates. While management
believes, based on its asset/liability modeling, that the Company is liability sensitive as
measured over the one year time horizon, it also believes that a rapid, significant and prolonged
increase or decrease in rates could have a substantial adverse impact on the Companys net interest
margin.
The Companys net interest income simulation model incorporates certain assumptions with
respect to interest rate floors on certain deposits and other liabilities. Further, given the
relatively low interest rates on some deposit products, a 200 basis point downward shock could very
well reduce the costs on some liabilities below zero. In these cases, the Companys model
incorporates constraints which prevent such a shock from simulating liability costs to zero.
The Company also uses an economic value of equity model, prepared and reviewed by the same
independent national consulting firm, to complement its short-term interest rate risk analysis.
The benefit of this model is that it measures exposure to interest rate changes over time frames
longer than the two-year net interest income simulation. The economic value of the Companys
equity is determined by calculating the net present value of projected future cash flows for
current asset and liability positions based on the current yield curve.
Economic value analysis has several limitations. For example, the economic values of asset
and liability balance sheet positions do not represent the true fair values of the positions, since
economic values reflect an analysis at one particular point in time and do not consider the value
of the Companys franchise. In addition, we must estimate cash flow for assets and liabilities
with indeterminate maturities. Moreover, the models present value calculations do not take into
consideration future changes in the balance sheet that will likely result from ongoing loan and
deposit activities conducted by the Companys core business. Finally, the analysis requires
assumptions about events which span several years. Despite its limitations, the economic value of
equity model is a relatively sophisticated tool for evaluating the long term effect of possible
interest rate movements.
53
The Companys current guidelines for risk management call for preventive measures if an
immediate 200 basis point increase or decrease in interest rates would reduce the economic value of
equity by more than 23%. The Company operated well within the upper guideline but did not operate
within the lower guideline for this ratio as of December 31, 2010. As of December 31, 2010 and
2009, based on the results of an independent national consulting firms simulation model and
reviewed by a separate independent national consulting firm, the Company could expect its economic
value of equity to increase by approximately 16.71% and 10.48%, respectively, if short-term
interest rates immediately increased by 200 basis points. Conversely, if short-term interest rates
immediately decrease by 200 basis points, economic value of equity could be expected to decrease by
approximately
27.85% and 21.94%, at December 31, 2010 and 2009, respectively. The down 200 basis point
scenario came in below the Companys minimum operating guideline of 23% as a result of loan
transfers to OREO and non-accrual status thus reducing the impact of the down 200 basis point
scenario from the asset side of our balance sheet.
Disclosure of Contractual Obligations
In the ordinary course of operations, the Company enters into certain contractual obligations.
Such obligations include the funding of operations through debt issuances as well as leases for
premises and equipment. The following table summarizes the Companys significant fixed and
determinable contractual obligations as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
|
More than 5 |
|
|
|
|
|
|
Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
Years |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposits |
|
$ |
531,829 |
|
|
$ |
192,743 |
|
|
$ |
55,068 |
|
|
$ |
3,446 |
|
|
$ |
783,086 |
|
Repurchase agreements |
|
|
19,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,413 |
|
FHLB advances and notes payable |
|
|
15,288 |
|
|
|
65,566 |
|
|
|
30,605 |
|
|
|
47,194 |
|
|
|
158,653 |
|
Subordinated debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,662 |
|
|
|
88,662 |
|
Operating lease obligations |
|
|
1,243 |
|
|
|
2,294 |
|
|
|
1,226 |
|
|
|
734 |
|
|
|
5,497 |
|
Deferred compensation |
|
|
1,543 |
|
|
|
|
|
|
|
256 |
|
|
|
475 |
|
|
|
2,274 |
|
Purchase obligations |
|
|
1,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
570,927 |
|
|
$ |
260,603 |
|
|
$ |
87,155 |
|
|
$ |
140,511 |
|
|
$ |
1,059,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, the Company routinely enters into contracts for services. These contracts
may require payment for services to be provided in the future and may also contain penalty clauses
for early termination of the contract. Management is not aware of any additional commitments or
contingent liabilities which may have a material adverse impact on the liquidity or capital
resources of the Company.
Inflation
The effect of inflation on financial institutions differs from its impact on other types of
businesses. Since assets and liabilities of banks are primarily monetary in nature, they are more
affected by changes in interest rates than by the rate of inflation.
Inflation generates increased credit demand and fluctuation in interest rates. Although
credit demand and interest rates are not directly tied to inflation, each can significantly impact
net interest income. As in any business or industry, expenses such as salaries, equipment,
occupancy, and other operating expenses also are subject to the upward pressures created by
inflation.
Since the rate of inflation has been stable during the last several years, the impact of
inflation on the earnings of the Company has been insignificant.
Effect of New Accounting Standards
FASB ASU 2010-06 In January 2010, the FASB issued additional guidance on fair value
disclosures. The new guidance clarifies two existing disclosure requirements and requires two new
disclosures as follows: (1) a gross presentation of activities (purchases, sales, and
settlements) within the Level 3 rollforward reconciliation, which will replace the net
presentation format; and (2) detailed disclosures about the transfers in and out of Level 1 and 2
measurements. This guidance is effective for the first interim or annual reporting period beginning
after December 15, 2009, except for the gross presentation of the Level 3 rollforward information,
which is required for annual reporting periods beginning after December 15, 2010, and for interim
reporting periods within those years. The Company adopted the fair value disclosures guidance on
January 1, 2010, except for the gross presentation of the Level 3 rollforward information which is
not required to be adopted by the Company until January 1, 2011.
54
FASB ASC 810 and amended by FASB ASU 2010-10 became effective on January 1, 2010, and
was amended to change how a company determines when an entity that is insufficiently capitalized or
is not controlled
through voting (or similar rights) should be consolidated. The determination of whether a
company is required to consolidate an entity is based on, among other things, an entitys purpose
and design and a companys ability to direct the activities of the entity that most significantly
impact the entitys economic performance. The new authoritative accounting guidance requires
additional disclosures about the reporting entitys involvement with variable-interest entities and
any significant changes in risk exposure due to that involvement as well as its affect on the
entitys financial statements. The new authoritative accounting guidance under ASC 810 was
effective January 1, 2010 and did not have a significant impact on the Companys financial
statements.
FASB ASU 2010-20 Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses The new standard governing the disclosures associated with credit
quality and the allowance for loan losses. This standard requires additional disclosures related
to the allowance for loan loss with the objective of providing financial statement users with
greater transparency about an entitys loan loss reserves and overall credit quality. Additional
disclosures include showing on a disaggregated basis the aging of receivables, credit quality
indicators, and troubled debt restructures with its effect on the allowance for loan loss. The
provisions of this standard were effective for interim and annual periods ending on or after
December 15, 2010. The adoption of this standard did not have a material impact on the Companys
financial position and results of operations, but did increase the amount and quality of the credit
disclosures in the notes to the consolidated financial statements.
|
|
|
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The information set forth on pages 52 through 54 of Item 7, MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Asset/Liability Management is
incorporated herein by reference.
55
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Managements Annual Report on Internal Control Over Financial Reporting
The Companys management is responsible for establishing and maintaining effective internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act. The Companys internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. GAAP. The Companys internal control over
financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. GAAP, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys internal control over financial
reporting as of December 31, 2010. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework.
As a result of managements evaluation of the Companys internal controls over financial
reporting, management identified deficiencies, that when evaluated in combination, lead to the
determination that there is a reasonable possibility that the Companys internal controls could
fail to prevent or detect a material misstatement on a timely basis as of December 31, 2010.
Accordingly, as a result of this material weakness, management has concluded that the Companys
internal control over financial reporting was not effective as of December 31, 2010. This material
weakness relates to controls surrounding the valuation, documentation and review of impaired loans
and other real estate owned at December 31, 2010. As a result of this material weakness,
management has adopted a specific action plan to address these deficiencies in internal controls
which are discussed in more detail below in Item 9A. Controls and Procedures.
The Companys independent registered public accounting firm has issued a report on the
effectiveness of the Companys internal control over financial reporting. That report appears on
pages 57 and 58 of this Report.
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF DIRECTORS AND SHAREHOLDERS
GREEN BANKSHARES, INC.
We have audited Green Bankshares, Inc. and subsidiaries (the Company) internal control over
financial reporting as of December 31, 2010, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Managements Annual Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the Companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of
the Companys annual or interim financial statements will not be prevented or detected on a timely
basis. A combination of deficiencies noted as of December 31, 2010 give rise to the following
material weakness which is included in managements assessment. As of December 31, 2010, the
Company did not have adequate internal controls surrounding the valuation, documentation and review
of impaired loans and other real estate owned. This material weakness was considered in determining
the nature, timing and extent of audit tests applied in our audit of the 2010 consolidated
financial statements, and this report does not affect our report dated March 15, 2011 on those
consolidated financial statements.
57
In our opinion, because of the effect of the material weakness described above on the achievement
of the objectives of the control criteria, Green Bankshares, Inc. and subsidiaries has not
maintained effective internal control over financial reporting as of December 31, 2010, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements of Green Bankshares, Inc. and
subsidiaries as of December 31, 2010 and 2009 and for each of the years in the three-year period
ended December 31, 2010, and our report dated March 15, 2011, expressed an unqualified opinion on
those consolidated financial statements. Our report on the consolidated financial statements
referred to above refers to the adoption of a new accounting standard in relation to accounting for
other-than-temporary impairments of debt securities in 2009.
/s/ Dixon Hughes PLLC
Atlanta, Georgia
March 15, 2011
58
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF DIRECTORS AND SHAREHOLDERS
GREEN BANKSHARES, INC.
We have audited the accompanying consolidated balance sheets of Green Bankshares, Inc. and
subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income,
changes in shareholders equity and cash flows for each of the years in the three-year period ended
December 31, 2010. These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by Management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Green Bankshares, Inc. and subsidiaries as of December
31, 2010 and 2009, and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America.
Effective January 1, 2009, the Company changed its method of accounting for other-than-temporary
impairments of debt securities in connection with the adoption of revised accounting guidance
issued by the Financial Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Green Bankshares, Inc.s internal control over financial reporting as of
December 31, 2010, based on criteria established in Internal ControlIntegrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March
15, 2011 expressed an adverse opinion on the effectiveness of the Companys internal control over
financial reporting.
/s/ Dixon Hughes PLLC
Atlanta, Georgia
March 15, 2011
59
GREEN BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
289,358 |
|
|
$ |
206,701 |
|
Federal funds sold |
|
|
4,856 |
|
|
|
3,793 |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
294,214 |
|
|
|
210,494 |
|
Interest earning deposits in other banks |
|
|
|
|
|
|
11,000 |
|
Securities available for sale |
|
|
202,002 |
|
|
|
147,724 |
|
Securities held to maturity (with a market value of $467 and $638) |
|
|
465 |
|
|
|
626 |
|
Loans held for sale |
|
|
1,299 |
|
|
|
1,533 |
|
Loans, net of unearned interest |
|
|
1,745,378 |
|
|
|
2,043,807 |
|
Allowance for loan losses |
|
|
(66,830 |
) |
|
|
(50,161 |
) |
Other real estate owned and repossessed assets |
|
|
60,095 |
|
|
|
57,168 |
|
Premises and equipment, net |
|
|
78,794 |
|
|
|
81,818 |
|
FHLB and other stock, at cost |
|
|
12,734 |
|
|
|
12,734 |
|
Cash surrender value of life insurance |
|
|
31,479 |
|
|
|
30,277 |
|
Core deposit and other intangibles |
|
|
6,751 |
|
|
|
9,335 |
|
Deferred tax asset (net of valuation allowance of $43,455 and $0) |
|
|
2,177 |
|
|
|
13,600 |
|
Other assets |
|
|
37,482 |
|
|
|
49,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,406,040 |
|
|
$ |
2,619,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Non interest-bearing deposits |
|
$ |
152,752 |
|
|
$ |
177,602 |
|
Interest-bearing deposits |
|
|
1,822,703 |
|
|
|
1,899,910 |
|
Brokered deposits |
|
|
1,399 |
|
|
|
6,584 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
1,976,854 |
|
|
|
2,084,096 |
|
|
|
|
|
|
|
|
|
|
Repurchase agreements |
|
|
19,413 |
|
|
|
24,449 |
|
FHLB advances and notes payable |
|
|
158,653 |
|
|
|
171,999 |
|
Subordinated debentures |
|
|
88,662 |
|
|
|
88,662 |
|
Accrued interest payable and other liabilities |
|
|
18,561 |
|
|
|
23,164 |
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
2,262,143 |
|
|
$ |
2,392,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Preferred stock: no par, 1,000,000 shares authorized, 72,278
shares outstanding |
|
$ |
68,121 |
|
|
$ |
66,735 |
|
Common stock: $2 par, 20,000,000 shares authorized, 13,188,896
and 13,171,474 shares outstanding |
|
|
26,378 |
|
|
|
26,343 |
|
Common stock warrants |
|
|
6,934 |
|
|
|
6,934 |
|
Additional paid-in capital |
|
|
188,901 |
|
|
|
188,310 |
|
Retained earnings (deficit) |
|
|
(147,436 |
) |
|
|
(61,742 |
) |
Accumulated other comprehensive income (loss) |
|
|
999 |
|
|
|
189 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
143,897 |
|
|
|
226,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,406,040 |
|
|
$ |
2,619,139 |
|
|
|
|
|
|
|
|
See accompanying notes.
60
GREEN BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2010, 2009 and 2008
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
113,721 |
|
|
$ |
129,212 |
|
|
$ |
155,627 |
|
Taxable securities |
|
|
4,938 |
|
|
|
7,035 |
|
|
|
12,770 |
|
Nontaxable securities |
|
|
1,241 |
|
|
|
1,260 |
|
|
|
1,297 |
|
FHLB and other stock |
|
|
530 |
|
|
|
573 |
|
|
|
647 |
|
Federal funds sold and other |
|
|
434 |
|
|
|
376 |
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
120,864 |
|
|
|
138,456 |
|
|
|
170,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
28,434 |
|
|
|
45,768 |
|
|
|
58,090 |
|
Federal funds purchased and repurchase agreements |
|
|
22 |
|
|
|
29 |
|
|
|
2,111 |
|
FHLB advances and notes payable |
|
|
6,835 |
|
|
|
9,557 |
|
|
|
10,735 |
|
Subordinated debentures |
|
|
1,980 |
|
|
|
2,577 |
|
|
|
4,555 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
37,271 |
|
|
|
57,931 |
|
|
|
75,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
83,593 |
|
|
|
80,525 |
|
|
|
95,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
71,107 |
|
|
|
50,246 |
|
|
|
52,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
12,486 |
|
|
|
30,279 |
|
|
|
42,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
24,179 |
|
|
|
23,738 |
|
|
|
23,176 |
|
Other charges and fees |
|
|
1,791 |
|
|
|
1,999 |
|
|
|
2,192 |
|
Trust and investment services income |
|
|
2,842 |
|
|
|
1,977 |
|
|
|
1,878 |
|
Mortgage banking income |
|
|
703 |
|
|
|
383 |
|
|
|
804 |
|
Other income |
|
|
3,122 |
|
|
|
3,042 |
|
|
|
2,903 |
|
Securities gains (losses), net |
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
|
|
|
|
|
1,415 |
|
|
|
2,661 |
|
Other-than-temporary impairment |
|
|
(553 |
) |
|
|
(1,678 |
) |
|
|
|
|
Less non-credit portion recognized in other comprehensive income |
|
|
460 |
|
|
|
702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities gains (loss), net |
|
|
(93 |
) |
|
|
439 |
|
|
|
2,661 |
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
32,544 |
|
|
|
31,578 |
|
|
|
33,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation |
|
|
31,990 |
|
|
|
30,611 |
|
|
|
33,615 |
|
Employee benefits |
|
|
3,378 |
|
|
|
3,835 |
|
|
|
4,788 |
|
Occupancy expense |
|
|
6,908 |
|
|
|
6,956 |
|
|
|
6,900 |
|
Equipment expense |
|
|
2,846 |
|
|
|
3,092 |
|
|
|
3,555 |
|
Computer hardware/software expense |
|
|
3,523 |
|
|
|
2,816 |
|
|
|
2,752 |
|
Professional services |
|
|
2,777 |
|
|
|
2,108 |
|
|
|
2,069 |
|
Advertising |
|
|
2,388 |
|
|
|
1,894 |
|
|
|
3,538 |
|
OREO maintenance expense |
|
|
2,324 |
|
|
|
1,222 |
|
|
|
825 |
|
Collection and repossession expense |
|
|
3,228 |
|
|
|
3,131 |
|
|
|
1,109 |
|
Loss on OREO and repossessed assets |
|
|
29,895 |
|
|
|
8,156 |
|
|
|
7,028 |
|
FDIC insurance |
|
|
4,155 |
|
|
|
4,960 |
|
|
|
1,631 |
|
Core deposit and other intangibles amortization |
|
|
2,584 |
|
|
|
2,750 |
|
|
|
2,602 |
|
Goodwill impairment |
|
|
|
|
|
|
143,389 |
|
|
|
|
|
Other expenses |
|
|
14,819 |
|
|
|
14,667 |
|
|
|
15,425 |
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
110,815 |
|
|
|
229,587 |
|
|
|
85,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(65,785 |
) |
|
|
(167,730 |
) |
|
|
(10,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
14,910 |
|
|
|
(17,036 |
) |
|
|
(4,648 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(80,695 |
) |
|
|
(150,694 |
) |
|
|
(5,360 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends and accretion of discount |
|
|
5,001 |
|
|
|
4,982 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
(85,696 |
) |
|
$ |
(155,676 |
) |
|
$ |
(5,452 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(6.54 |
) |
|
$ |
(11.91 |
) |
|
$ |
(0.42 |
) |
Diluted |
|
|
(6.54 |
) |
|
|
(11.91 |
) |
|
|
(0.42 |
) |
See accompanying notes.
61
GREEN BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Years ended December 31, 2010, 2009 and 2008
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
|
Additional |
|
|
Retained |
|
|
Other |
|
|
Total |
|
|
|
Preferred |
|
|
Common Stock |
|
|
Common |
|
|
Paid-in |
|
|
Earnings |
|
|
Comprehensive |
|
|
Shareholders |
|
|
|
Stock |
|
|
Shares |
|
|
Amount |
|
|
Stock |
|
|
Capital |
|
|
(Deficit) |
|
|
Income (Loss) |
|
|
Equity |
|
Balance, January 1, 2008 |
|
|
|
|
|
|
12,931,015 |
|
|
|
25,862 |
|
|
|
|
|
|
|
185,170 |
|
|
|
109,938 |
|
|
|
1,507 |
|
|
|
322,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 72,278 shares of
preferred stock |
|
|
72,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,278 |
|
Discount associated with
635,504 common stock warrants
issued with preferred stock |
|
|
(6,934 |
) |
|
|
|
|
|
|
|
|
|
|
6,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of preferred stock
discount |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
Preferred stock dividends
accrued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90 |
) |
|
|
|
|
|
|
(90 |
) |
Common stock transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of shares under
stock option plan |
|
|
|
|
|
|
9,759 |
|
|
|
19 |
|
|
|
|
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
220 |
|
Common stock exchanged for
exercised stock options |
|
|
|
|
|
|
(7,991 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
(109 |
) |
Issuance of restricted common
shares |
|
|
|
|
|
|
60,907 |
|
|
|
122 |
|
|
|
|
|
|
|
(122 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Stock dividend |
|
|
|
|
|
|
118,997 |
|
|
|
238 |
|
|
|
|
|
|
|
1,822 |
|
|
|
(2,060 |
) |
|
|
|
|
|
|
|
|
Compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
456 |
|
|
|
|
|
|
|
|
|
|
|
456 |
|
Restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
303 |
|
|
|
|
|
|
|
|
|
|
|
303 |
|
Stock option tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Dividends paid ($.52 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,779 |
) |
|
|
|
|
|
|
(6,779 |
) |
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,360 |
) |
|
|
|
|
|
|
(5,360 |
) |
Change in unrealized losses,
net of reclassification and
taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,170 |
) |
|
|
(2,170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,530 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
65,346 |
|
|
|
13,112,687 |
|
|
|
26,225 |
|
|
|
6,934 |
|
|
|
187,742 |
|
|
|
95,647 |
|
|
|
(663 |
) |
|
|
381,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of preferred stock
discount |
|
|
1,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,389 |
) |
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,593 |
) |
|
|
|
|
|
|
(3,593 |
) |
Common stock transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted common
shares |
|
|
|
|
|
|
58,787 |
|
|
|
118 |
|
|
|
|
|
|
|
(118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387 |
|
|
|
|
|
|
|
|
|
|
|
387 |
|
Restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299 |
|
|
|
|
|
|
|
|
|
|
|
299 |
|
Dividends paid ($.13 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,713 |
) |
|
|
|
|
|
|
(1,713 |
) |
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150,694 |
) |
|
|
|
|
|
|
(150,694 |
) |
Change in unrealized gains,
net of reclassification and
taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
852 |
|
|
|
852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149,842 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
66,735 |
|
|
|
13,171,474 |
|
|
$ |
26,343 |
|
|
$ |
6,934 |
|
|
$ |
188,310 |
|
|
$ |
(61,742 |
) |
|
$ |
189 |
|
|
$ |
226,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of preferred stock
discount |
|
|
1,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,386 |
) |
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,613 |
) |
|
|
|
|
|
|
(3,613 |
) |
Common stock transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted common
shares |
|
|
|
|
|
|
17,422 |
|
|
|
35 |
|
|
|
|
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295 |
|
|
|
|
|
|
|
|
|
|
|
295 |
|
Restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
331 |
|
|
|
|
|
|
|
|
|
|
|
331 |
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,695 |
) |
|
|
|
|
|
|
(80,695 |
) |
Change in unrealized gains,
net of reclassification and
taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
810 |
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,885 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
68,121 |
|
|
|
13,188,896 |
|
|
$ |
26,378 |
|
|
$ |
6,934 |
|
|
$ |
188,901 |
|
|
$ |
(147,436 |
) |
|
$ |
999 |
|
|
$ |
143,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
62
GREEN BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2010, 2009 and 2008
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(80,695 |
) |
|
$ |
(150,694 |
) |
|
$ |
(5,360 |
) |
Adjustments to reconcile net income (loss) to net cash
provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
71,107 |
|
|
|
50,246 |
|
|
|
52,810 |
|
Impairment of goodwill |
|
|
|
|
|
|
143,389 |
|
|
|
|
|
Depreciation and amortization |
|
|
7,152 |
|
|
|
7,117 |
|
|
|
7,030 |
|
Security amortization and accretion, net |
|
|
538 |
|
|
|
73 |
|
|
|
(983 |
) |
Write down of investments and other securities for impairment |
|
|
93 |
|
|
|
1,272 |
|
|
|
174 |
|
(Gain) loss on sale of securities |
|
|
|
|
|
|
(1,415 |
) |
|
|
(2,661 |
) |
FHLB stock dividends |
|
|
|
|
|
|
|
|
|
|
(464 |
) |
Net gain on sale of mortgage loans |
|
|
(653 |
) |
|
|
(264 |
) |
|
|
(573 |
) |
Originations of mortgage loans held for sale |
|
|
(46,994 |
) |
|
|
(43,879 |
) |
|
|
(49,501 |
) |
Proceeds from sales of mortgage loans |
|
|
47,881 |
|
|
|
43,050 |
|
|
|
51,962 |
|
Increase in cash surrender value of life insurance |
|
|
(1,202 |
) |
|
|
(1,125 |
) |
|
|
(1,073 |
) |
Gain from settlement of life insurance |
|
|
|
|
|
|
(305 |
) |
|
|
|
|
Net (gains) losses from sales of fixed assets |
|
|
(1 |
) |
|
|
(85 |
) |
|
|
665 |
|
Stock-based compensation expense |
|
|
626 |
|
|
|
686 |
|
|
|
759 |
|
Net loss on OREO and repossessed assets |
|
|
29,895 |
|
|
|
8,156 |
|
|
|
7,028 |
|
Deferred tax (benefit) |
|
|
26,739 |
|
|
|
(1,654 |
) |
|
|
(4,374 |
) |
Net changes: |
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
(4,139 |
) |
|
|
(21,375 |
) |
|
|
78 |
|
Accrued interest payable and other liabilities |
|
|
(5,505 |
) |
|
|
(3,177 |
) |
|
|
(10,875 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
44,842 |
|
|
|
30,016 |
|
|
|
44,642 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in interest-earning deposits with banks |
|
|
11,000 |
|
|
|
(11,000 |
) |
|
|
|
|
Purchase of securities available for sale |
|
|
(171,820 |
) |
|
|
(92,100 |
) |
|
|
(180,626 |
) |
Proceeds from sale of securities available for sale |
|
|
|
|
|
|
36,266 |
|
|
|
123,701 |
|
Proceeds from maturities of securities available for sale |
|
|
118,246 |
|
|
|
113,440 |
|
|
|
88,711 |
|
Proceeds from maturities of securities held to maturity |
|
|
160 |
|
|
|
30 |
|
|
|
645 |
|
Purchase of FHLB stock |
|
|
|
|
|
|
|
|
|
|
(417 |
) |
Net change in loans |
|
|
195,847 |
|
|
|
99,111 |
|
|
|
27,754 |
|
Proceeds from settlement of life insurance |
|
|
|
|
|
|
691 |
|
|
|
|
|
Proceeds from sale of other real estate |
|
|
16,136 |
|
|
|
11,930 |
|
|
|
20,654 |
|
Improvements to other real estate |
|
|
(813 |
) |
|
|
(307 |
) |
|
|
(1,071 |
) |
Proceeds from sale of fixed assets |
|
|
8 |
|
|
|
800 |
|
|
|
58 |
|
Premises and equipment expenditures |
|
|
(1,551 |
) |
|
|
(3,542 |
) |
|
|
(5,814 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
167,213 |
|
|
|
155,319 |
|
|
|
73,595 |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in core deposits |
|
|
(102,057 |
) |
|
|
270,162 |
|
|
|
48,589 |
|
Net change in brokered deposits |
|
|
(5,185 |
) |
|
|
(370,213 |
) |
|
|
148,765 |
|
Net change in federal funds purchased and repurchase agreements |
|
|
(5,036 |
) |
|
|
(10,853 |
) |
|
|
(159,223 |
) |
Tax benefit resulting from stock options |
|
|
|
|
|
|
|
|
|
|
5 |
|
Proceeds from FHLB advances and notes payable |
|
|
|
|
|
|
|
|
|
|
20,916 |
|
Repayment of FHLB advances and notes payable |
|
|
(13,346 |
) |
|
|
(57,350 |
) |
|
|
(110,258 |
) |
Preferred stock dividends paid |
|
|
(2,711 |
) |
|
|
(3,232 |
) |
|
|
|
|
Common stock dividends paid |
|
|
|
|
|
|
(1,713 |
) |
|
|
(6,779 |
) |
Proceeds from issuance of preferred stock and common stock warrants |
|
|
|
|
|
|
|
|
|
|
72,278 |
|
Proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(128,335 |
) |
|
|
(173,199 |
) |
|
|
14,404 |
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
83,720 |
|
|
|
12,136 |
|
|
|
132,641 |
|
Cash and cash equivalents, beginning of year |
|
|
210,494 |
|
|
|
198,358 |
|
|
|
65,717 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
294,214 |
|
|
$ |
210,494 |
|
|
$ |
198,358 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures cash and noncash |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
41,875 |
|
|
$ |
62,198 |
|
|
$ |
77,761 |
|
Income taxes paid net of refunds |
|
|
(148 |
) |
|
|
1,675 |
|
|
|
5,674 |
|
Loans converted to other real estate |
|
|
54,613 |
|
|
|
75,545 |
|
|
|
37,991 |
|
Unrealized gain (loss) on available for sale securities, net of tax |
|
|
810 |
|
|
|
852 |
|
|
|
(2,170 |
) |
See accompanying notes.
63
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the accounts of
Green Bankshares, Inc. (the Company) and its wholly owned subsidiary, GreenBank (the Bank), and
the Banks wholly owned subsidiaries, Superior Financial Services, Inc., GCB Acceptance Corp.,
Inc., Fairway Title Company, Inc, and GB Holdings, LLC. All significant inter-company balances and
transactions have been eliminated in consolidation.
Nature of Operations: The Company primarily provides financial services through its offices
in Eastern, Middle and Southeastern Tennessee, Western North Carolina and Southwestern Virginia.
Its primary deposit products are checking, savings, and term certificate accounts, and its primary
lending products are residential mortgage, commercial, and installment loans. Substantially all
loans are secured by specific items of collateral including business assets, consumer assets and
real estate. Commercial loans are expected to be repaid from cash flow from operations of
businesses. Real estate loans are secured by both residential and commercial real estate.
Use of Estimates: To prepare financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates and assumptions
based on available information. These estimates and assumptions impact the amounts reported in the
financial statements and the disclosures provided, and future results could differ. The allowance
for loan losses, deferred tax asset valuation, OREO valuation and fair values of financial
instruments are significant items based on estimates and assumptions.
Cash Flows: Cash and cash equivalents include cash, deposits with other financial
institutions under 90 days, and federal funds sold. Net cash flows are reported for loan, deposit
and other borrowing transactions.
Securities: Securities are classified as held to maturity and carried at amortized cost
when management has the positive intent and ability to hold them to maturity. Securities are
classified as available for sale when they might be sold before maturity. Securities available for
sale are carried at fair value, with unrealized holding gains and losses reported in accumulated
other comprehensive income.
Interest income includes amortization of purchase premium or discount and is recognized based upon
the level-yield method. Gains and losses on sales are based on the amortized cost of the security
sold. Securities are written down to fair value when a decline in fair value is other than
temporary.
Investments in Equity Securities Carried at Cost: Investment in Federal Home Loan Bank
(FHLB) stock, which is carried at cost because it can only be redeemed at par, is a required
investment based on membership requirements. The Bank also carries certain other equity
investments at cost, which approximates fair value.
Loans: Loans are reported at the principal balance outstanding, net of unearned interest,
deferred loan fees and costs.
Interest income is reported on the interest method over the loan term. Loan origination fees, net
of certain direct origination costs, are deferred and recognized in interest income using the
level-yield method. Interest income includes amortization of purchase premiums or discounts on
loans purchased. Premiums and discounts are amortized on the level yield-method. Interest income
on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless
the loan is well secured and in process of collection. Most consumer loans are charged off no
later than 120 days past due. In all cases, loans are placed on nonaccrual or charged off at an
earlier date if collection of principal and interest is doubtful. Interest accrued but not
collected is reversed against interest income when a loan is placed on nonaccrual status.
(Continued)
64
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest received is recognized on the cash basis or cost recovery method until qualifying for
return to accrual status. Accrual is resumed when all contractually due payments are brought
current, six months of payment performance can be measured, and future payments are reasonably
assured.
Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for
probable incurred credit losses, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required using past loan
loss experience, known and inherent risks in the nature and volume of the portfolio, information
about specific borrower situations and estimated collateral values, economic conditions, and other
factors. Allocations of the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in managements judgment, should be charged-off. Loan losses are
charged against the allowance when management believes the uncollectibility of a loan is confirmed.
The Bank uses several factors in determining if a loan is impaired. The internal asset
classification procedures include a thorough review of significant loans and lending relationships
and include the accumulation of related data. This data includes loan payment and collateral
status, borrowers financial data and borrowers operating factors such as cash flows, operating
income, liquidity, leverage and loan documentation, and any significant changes. A loan is
considered impaired, based on current information and events, if it is probable that the Bank will
be unable to collect the scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Uncollateralized loans are measured for impairment based
on the present value of expected future cash flows discounted at the historical effective interest
rate, while all collateral-dependent loans are measured for impairment based on the fair value of
the collateral. Larger groups of smaller balance, homogeneous loans, such as consumer and
residential real estate loans, are collectively evaluated for impairment, and accordingly, they are
not separately identified for impairment disclosures.
Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially
recorded at fair value less estimated cost to sell when acquired, establishing a new cost basis.
If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition
are expensed.
Premises and Equipment: Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed over an assets useful life on a straight-line basis.
Buildings and related components have useful lives ranging from 10 to 40 years, while furniture,
fixtures and equipment have useful lives ranging from 3 to 10 years. Leasehold improvements are
amortized over the lesser of the life of the asset or lease term.
Mortgage Banking Activities: Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of aggregate cost or market value. The Company controls
its interest rate risk with respect to mortgage loans held for sale and loan commitments expected
to close by usually entering into agreements to sell loans. The Company records loan commitments
related to the origination of mortgage loans held for sale as derivative instruments. The Companys
commitments for fixed rate mortgage loans, generally last 60 to 90 days and are at market rates
when initiated. The Company had $4,813 in outstanding loan commitment derivatives at December 31,
2010. The aggregate market value of mortgage loans held for sale takes into account the sales
prices of such agreements. The Company also provides currently for any losses on uncovered
commitments to lend or sell. The Company sells mortgage loans servicing released.
Bank Owned Life Insurance: The Company has purchased life insurance policies on certain key
executives. Company owned life insurance is recorded at its cash surrender value or the amount
that can be realized.
(Continued)
65
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill, Core Deposit Intangibles and Other Intangible Assets: Goodwill results from prior
business acquisitions and represents the excess of the purchase price over the fair value of
acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed
at least annually for impairment and any such impairment is recognized in the period identified.
During the second quarter of 2009 the Company identified impairment in its goodwill resulting from
a prolonged decline in the market value of its stock price relative to book value, and took the
appropriate actions. This is explained further in Note 6 Goodwill and Other Intangible
Assets.
Core deposit intangible assets arise from whole bank and branch acquisitions. They are initially
measured at fair value and then are amortized on a straight line method over their estimated useful
lives, which range from seven to 15 years and are determined by an independent consulting firm.
Core deposit intangible assets are assessed at least annually for impairment and any such
impairment is recognized in the period identified.
Other intangible assets consist of mortgage servicing rights (MSRs). MSRs represent the cost
of acquiring the rights to service mortgage loans. MSRs are amortized based on the principal
reduction of the underlying loans. The Company is obligated to service the unpaid principal
balances of these loans, which were approximately $33 million and $43 million as of December 31,
2010 and 2009, respectively. The Company pays a third party subcontractor to perform servicing and
escrow functions with respect to loans sold with retained servicing. MSRs are assessed at least
annually for impairment. The Company does not intend to further pursue this line of business.
Long-term Assets: Premises and equipment and other long-term assets are reviewed for
impairment when events indicate their carrying amount may not be recoverable from future
undiscounted cash flows. If impaired, the assets are recorded at fair value.
Repurchase Agreements: All repurchase agreement liabilities represent secured borrowings
from existing Bank customers and are not covered by federal deposit insurance.
Benefit Plans: Retirement plan expense is the amount contributed to the plan as determined
by Board decision. Deferred compensation expense is recognized during the year the benefit is
earned.
Stock Compensation: Compensation cost for stock-based payments is measured based on the
fair value of the award, which most commonly includes restricted stock (i.e., unvested common
stock), stock options, and stock appreciation rights at the grant date and is recognized in the
consolidated financial statements on a straight-line basis over the requisite service period for
service-based awards. The fair value of restricted stock is determined based on the price of the
Companys common stock on the date of grant. The fair value of stock options is estimated at the
date of grant using a Black-Scholes option pricing model and related assumptions.
Income Taxes: Income tax expense is the total of the current year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax amounts for the temporary differences between carrying
amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation
allowance reduces deferred tax assets to the amount expected to be realized and as of December 31,
2010 the Company had recorded a deferred tax valuation allowance of $43,455.
Loan Commitments and Related Financial Instruments: Financial instruments include credit
instruments, such as commitments to make loans and standby letters of credit, issued to meet
customer financing needs. The face amount for these items represents the exposure to loss before
considering customer collateral or ability to repay. Such financial instruments are recorded when
they are funded. Instruments such as standby letters of credit are considered financial guarantees
in accordance with applicable accounting standards. The fair value of these financial guarantees
is not material.
(Continued)
66
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings (loss) Per Common Share: Basic earnings (loss) per common share are net income (loss)
available to common shareholders divided by the weighted average number of common shares
outstanding during the period. Diluted earnings available to common shareholders per common share
includes the dilutive impact of additional potential common shares issuable under stock options,
unvested restricted stock awards and stock warrants issued to the U.S. Treasury in connection with
the Capital Purchase Program.
Comprehensive Income: Comprehensive income consists of net income and other comprehensive
income. Other comprehensive income includes unrealized gains and losses on securities available
for sale which are also recognized as a separate component of equity. Comprehensive income is
presented in the consolidated statements of changes in shareholders equity.
Recent Accounting Pronouncements: FASB ASU 2010-06 In January 2010, the FASB
issued additional guidance on fair value disclosures. The new guidance clarifies two existing
disclosure requirements and requires two new disclosures as follows: (1) a gross presentation of
activities (purchases, sales, and settlements) within the Level 3 rollforward reconciliation, which
will replace the net presentation format; and (2) detailed disclosures about the transfers in and
out of Level 1 and 2 measurements. This guidance is effective for the first interim or annual
reporting period beginning after December 15, 2009, except for the gross presentation of the Level
3 rollforward information, which is required for annual reporting periods beginning after December
15, 2010, and for interim reporting periods within those years. The Company adopted the fair value
disclosures guidance on January 1, 2010, except for the gross presentation of the Level 3
rollforward information which is not required to be adopted by the Company until January 1, 2011.
FASB ASC 810 and amended by FASB ASU 2010-10 became effective on January 1, 2010, and was
amended to change how a company determines when an entity that is insufficiently capitalized or is
not controlled through voting (or similar rights) should be consolidated. The determination of
whether a company is required to consolidate an entity is based on, among other things, an entitys
purpose and design and a companys ability to direct the activities of the entity that most
significantly impact the entitys economic performance. The new authoritative accounting guidance
requires additional disclosures about the reporting entitys involvement with variable-interest
entities and any significant changes in risk exposure due to that involvement as well as its affect
on the entitys financial statements. The new authoritative accounting guidance under ASC 810 was
effective January 1, 2010 and did not have a significant impact on the Companys financial
statements.
FASB ASU 2010-20 Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses. The Company adopted the new standard governing the disclosures
associated with credit quality and the allowance for loan losses. This standard requires
additional disclosures related to the allowance for loan loss with the objective of providing
financial statement users with greater transparency about an entitys loan loss reserves and
overall credit quality. Additional disclosures include showing on a disaggregated basis the aging
of receivables, credit quality indicators, and troubled debt restructures with its effect on the
allowance for loan loss. The provisions of this standard were effective for interim and annual
periods ending on or after December 15, 2010. The adoption of this standard did not have a
material impact on the Companys financial position and results of operations, but did increase the
amount and quality of the credit disclosures in the notes to the consolidated financial statements.
(Continued)
67
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Contingencies: Loss contingencies, including claims and legal actions arising in
the ordinary course of business, are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably estimated. In the third quarter of 2010,
we recognized significant losses as a result of higher costs related to loan charge-offs, coupled
with losses incurred on OREO resulting from sales completed and updated property appraisals
received during that quarter. As a result, various plaintiffs filed class action lawsuits, which
have subsequently been consolidated into one class action, alleging, among other things, disclosure
violations regarding our collateral valuations, the timing of our impairment charges and our
accounting for loan charge-offs. The defense of this matter has and will continue to entail
considerable cost and will be time-consuming for our management. Unfavorable outcomes in this
matter could have an adverse effect on our business, financial condition, results of operations and
cash flows.
Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank of $14,457
and $19,245 was required to meet regulatory reserve and clearing requirements at year-end 2010 and
2009. These balances do not earn interest.
Segments: Internal financial reporting is primarily reported and aggregated in five lines
of business: banking, mortgage banking, consumer finance, subprime automobile lending, and title
insurance. Banking accounts for 93.6% of revenues for 2010.
Fair Value of Financial Instruments: Fair values of financial instruments are estimated
using relevant market information and other assumptions, as more fully disclosed in a separate
note. Fair value estimates involve uncertainties and matters of significant judgment regarding
interest rates, credit risk, prepayments, and other factors, especially in the absence of broad
markets for particular items. Changes in assumptions or in market conditions could significantly
affect the estimates.
Reclassifications: Certain items in prior year financial statements have been reclassified
to conform to the 2010 presentation. These reclassifications had no effect on net income or
shareholders equity as previously reported.
(Continued)
68
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 2 SECURITIES
Securities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
84,106 |
|
|
$ |
115 |
|
|
$ |
(922 |
) |
|
$ |
83,299 |
|
States and political subdivisions |
|
|
31,192 |
|
|
|
705 |
|
|
|
(396 |
) |
|
|
31,501 |
|
Collateralized mortgage obligations |
|
|
66,043 |
|
|
|
1,901 |
|
|
|
(369 |
) |
|
|
67,575 |
|
Mortgage-backed securities |
|
|
17,168 |
|
|
|
815 |
|
|
|
(19 |
) |
|
|
17,964 |
|
Trust preferred securities |
|
|
1,850 |
|
|
|
|
|
|
|
(187 |
) |
|
|
1,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
200,359 |
|
|
$ |
3,536 |
|
|
$ |
(1,893 |
) |
|
$ |
202,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
52,937 |
|
|
$ |
99 |
|
|
$ |
(988 |
) |
|
$ |
52,048 |
|
States and political subdivisions |
|
|
31,764 |
|
|
|
877 |
|
|
|
(449 |
) |
|
|
32,192 |
|
Collateralized mortgage obligations |
|
|
44,018 |
|
|
|
1,281 |
|
|
|
(622 |
) |
|
|
44,677 |
|
Mortgage-backed securities |
|
|
16,607 |
|
|
|
291 |
|
|
|
(6 |
) |
|
|
16,892 |
|
Trust preferred securities |
|
|
2,088 |
|
|
|
|
|
|
|
(173 |
) |
|
|
1,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
147,414 |
|
|
$ |
2,548 |
|
|
$ |
(2,238 |
) |
|
$ |
147,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions |
|
$ |
215 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
216 |
|
Other securities |
|
|
250 |
|
|
|
1 |
|
|
|
|
|
|
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
465 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions |
|
$ |
251 |
|
|
$ |
4 |
|
|
$ |
|
|
|
$ |
255 |
|
Other securities |
|
|
375 |
|
|
|
8 |
|
|
|
|
|
|
|
383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
626 |
|
|
$ |
12 |
|
|
$ |
|
|
|
$ |
638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
69
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 2 SECURITIES (Continued)
Contractual maturities of securities at year-end 2010 are shown below. Securities not due at a
single maturity date, collateralized mortgage obligations and mortgage-backed securities are shown
separately.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
Held to Maturity |
|
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
|
Due in one year or less |
|
$ |
979 |
|
|
$ |
465 |
|
|
$ |
467 |
|
Due after one year through five years |
|
|
4,226 |
|
|
|
|
|
|
|
|
|
Due after five years through ten years |
|
|
61,208 |
|
|
|
|
|
|
|
|
|
Due after ten years |
|
|
50,050 |
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations |
|
|
67,575 |
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
17,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total maturities |
|
$ |
202,002 |
|
|
$ |
465 |
|
|
$ |
467 |
|
|
|
|
|
|
|
|
|
|
|
Gross gains of $0, $1,415 and $2,661 were recognized in 2010, 2009 and 2008, respectively, from
proceeds of $0, $36,266, and $123,701, respectively, on the sale of securities available for sale.
Securities with a fair value of $135,692 and $125,005 at year-end 2010 and 2009 were pledged for
public deposits and securities sold under agreements to repurchase and to the Federal Reserve Bank.
The balance of pledged securities in excess of the pledging requirements was $7,983 and $9,135 at
year-end 2010 and 2009, respectively.
The Company held 200 and 168 securities in its portfolio as of December 31, 2010 and 2009,
respectively, and of these securities 53 and 35 had an unrealized loss. Unrealized losses on
securities are due to changes in interest rates and not due to credit quality issues.
Securities with unrealized losses at year-end 2010 and 2009 not recognized in income are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. government agencies |
|
$ |
65,178 |
|
|
$ |
(922 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
65,178 |
|
|
$ |
(922 |
) |
States and political subdivisions |
|
|
2,488 |
|
|
|
(114 |
) |
|
|
1,659 |
|
|
|
(282 |
) |
|
|
4,147 |
|
|
|
(396 |
) |
Collateralized mortgage
obligations |
|
|
14,666 |
|
|
|
(266 |
) |
|
|
2,699 |
|
|
|
(104 |
) |
|
|
17,365 |
|
|
|
(370 |
) |
Mortgage-backed securities |
|
|
2,821 |
|
|
|
(17 |
) |
|
|
8 |
|
|
|
(2 |
) |
|
|
2,829 |
|
|
|
(19 |
) |
Trust preferred securities |
|
|
|
|
|
|
|
|
|
|
1,663 |
|
|
|
(186 |
) |
|
|
1,663 |
|
|
|
(186 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired |
|
$ |
85,153 |
|
|
$ |
(1,319 |
) |
|
$ |
6,029 |
|
|
$ |
(574 |
) |
|
$ |
91,182 |
|
|
$ |
(1,893 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. government agencies |
|
$ |
40,959 |
|
|
$ |
(988 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
40,959 |
|
|
$ |
(988 |
) |
States and political subdivisions |
|
|
2,463 |
|
|
|
(24 |
) |
|
|
3,075 |
|
|
|
(425 |
) |
|
|
5,538 |
|
|
|
(449 |
) |
Collateralized mortgage
obligations |
|
|
4,997 |
|
|
|
(32 |
) |
|
|
3,222 |
|
|
|
(590 |
) |
|
|
8,219 |
|
|
|
(622 |
) |
Mortgage-backed securities |
|
|
2,028 |
|
|
|
(5 |
) |
|
|
11 |
|
|
|
(1 |
) |
|
|
2,039 |
|
|
|
(6 |
) |
Trust preferred securities |
|
|
1,783 |
|
|
|
(122 |
) |
|
|
132 |
|
|
|
(51 |
) |
|
|
1,915 |
|
|
|
(173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired |
|
$ |
52,230 |
|
|
$ |
(1,171 |
) |
|
$ |
6,440 |
|
|
$ |
(1,067 |
) |
|
$ |
58,670 |
|
|
$ |
(2,238 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
70
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 2 SECURITIES (Continued)
The Company reviews its investment portfolio on a quarterly basis judging each investment for
other-than-temporary impairment (OTTI). Management does not have the intent to sell any of the
temporarily impaired investments and believes it is more likely than not that the Company will not
have to sell any such securities before a recovery of cost. The OTTI analysis focuses on the
duration and amount a security is below book value and assesses a calculation for both a credit
loss and a non credit loss for each measured security considering the securitys type, performance,
underlying collateral, and any current or potential debt rating changes. The OTTI calculation for
credit loss is reflected in the income statement while the non credit loss is reflected in other
comprehensive income (loss).
The Company holds a single issue trust preferred security issued by a privately held bank
holding company. Based upon available but limited information we have estimated that the
likelihood of collecting the securitys principal and interest payments is approximately 50%. In
addition, the bank holding company deferred its interest payments beginning in the second quarter
of 2009, and we have placed the security on non-accrual. The Federal Reserve Bank of St. Louis
entered into an agreement with the bank holding company on October 22, 2009 which was made public
on October 30, 2009. Among other provisions of the regulatory agreement, the bank holding company
must strengthen its management of operations, strengthen its credit risk management practices, and
submit a capital plan. As of December 31, 2010 no other communications between the bank holding
company and the Federal Reserve Bank of St. Louis have been made public.
The Company valued the security by projecting estimated cash flows given the assumption of
collecting approximately 50% of the securitys principal and interest and then discounting the
amount back to the present value using a discount rate of 3.50% plus three month LIBOR. As of
December 31, 2010, our best estimate for the three month LIBOR over the next twenty years (the
remaining life of the security) is 3.17%. The difference in the present value and the carrying
value of the security was the OTTI credit portion. Due to the illiquid trust preferred market for
private issuers and the absence of a credible pricing source, we calculated a 15% illiquidity
premium for the security to calculate the OTTI non credit portion. The security is currently booked
at a fair value of $638 at December 31, 2010 and during the twelve months ended December 31, 2010
the Company recognized a write-down of $75 through non-interest income representing
other-than-temporary impairment on the security.
The Company holds a private label class A21 collateralized mortgage obligation that was
analyzed for the year ended December 31, 2010 with multiple stress scenarios using conservative
assumptions for underlying collateral defaults, loss severity, and prepayments. The average
principal at risk given the stress scenarios was calculated at 4.37%, and then analyzed using the
present value of the future cash flows using the fixed rate of the security of 5.5% as the discount
rate. The difference in the present value and the carrying value of the security was the OTTI
credit portion. The security is currently booked at a fair value of $2,699 at December 31, 2010
and during the twelve months ended December 31, 2010 the Company recognized a write-down of $18
through non-interest income representing other-than-temporary impairment on the security.
(Continued)
71
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 2 SECURITIES (Continued)
The following table presents more detail on selective Company security holdings as of year-end
2010. These details are listed separately due to the inherent level of risk for OTTI on these
securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present |
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value |
|
|
|
|
|
|
|
Credit |
|
|
Book |
|
|
Fair |
|
|
Unrealized |
|
|
Discounted |
|
Description |
|
Cusip # |
|
|
Rating |
|
|
Value |
|
|
Value |
|
|
Loss |
|
|
Cash Flow |
|
Collateralized
mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo 2007 - 4 A21 |
|
|
94985RAW2 |
|
|
Caa2 |
|
|
$ |
2,802 |
|
|
$ |
2,699 |
|
|
|
(103 |
) |
|
$ |
2,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Tennessee Bancshares,
Inc. |
|
|
956192AA6 |
|
|
N/A |
|
|
|
675 |
|
|
|
638 |
|
|
|
(37 |
) |
|
|
675 |
|
The following table presents a roll-forward of the cumulative amount of credit losses on the
Companys investment securities that have been recognized through earnings as of December 31, 2010
and 2009. Credit losses on the Companys investment securities recognized in earnings were $93 for
the year ended December 31, 2010 and $976 for the year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Beginning balance of credit losses at January 1, 2010 and 2009 |
|
$ |
976 |
|
|
$ |
|
|
Other-than-temporary impairment credit losses |
|
|
93 |
|
|
|
976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of cumulative credit losses recognized in earnings |
|
$ |
1,069 |
|
|
$ |
976 |
|
|
|
|
|
|
|
|
NOTE 3 LOANS
Loans at year-end by segment, net of unearned interest, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
Commercial real estate |
|
$ |
1,080,805 |
|
|
$ |
1,306,398 |
|
|
$ |
1,430,225 |
|
Residential real estate |
|
|
378,783 |
|
|
|
392,365 |
|
|
|
397,922 |
|
Commercial |
|
|
222,927 |
|
|
|
274,346 |
|
|
|
315,099 |
|
Consumer |
|
|
75,498 |
|
|
|
83,382 |
|
|
|
89,733 |
|
Other |
|
|
1,913 |
|
|
|
2,117 |
|
|
|
4,656 |
|
Unearned interest |
|
|
(14,548 |
) |
|
|
(14,801 |
) |
|
|
(14,245 |
) |
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned interest |
|
$ |
1,745,378 |
|
|
$ |
2,043,807 |
|
|
$ |
2,223,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
(66,830 |
) |
|
$ |
(50,161 |
) |
|
$ |
(48,811 |
) |
|
|
|
|
|
|
|
|
|
|
(Continued)
72
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 3 LOANS
(Continued)
Activity in the allowance for loan losses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
50,161 |
|
|
$ |
48,811 |
|
|
$ |
34,111 |
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
71,107 |
|
|
|
50,246 |
|
|
|
52,810 |
|
Loans charged off |
|
|
(57,818 |
) |
|
|
(54,890 |
) |
|
|
(41,269 |
) |
Recoveries of loans charged off |
|
|
3,380 |
|
|
|
5,994 |
|
|
|
3,159 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
66,830 |
|
|
$ |
50,161 |
|
|
$ |
48,811 |
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for loan losses and recorded investment in loans by
segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
|
Real Estate |
|
|
Commercial |
|
|
Consumer |
|
|
Other |
|
|
Total |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
36,527 |
|
|
$ |
4,350 |
|
|
$ |
5,840 |
|
|
$ |
3,437 |
|
|
$ |
7 |
|
|
$ |
50,161 |
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
(48,617 |
) |
|
|
(3,102 |
) |
|
|
(3,210 |
) |
|
|
(2,889 |
) |
|
|
|
|
|
|
(57,818 |
) |
Recoveries |
|
|
1,301 |
|
|
|
287 |
|
|
|
909 |
|
|
|
882 |
|
|
|
1 |
|
|
|
3,380 |
|
Provision |
|
|
64,992 |
|
|
|
2,896 |
|
|
|
1,541 |
|
|
|
1,678 |
|
|
|
|
|
|
|
71,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
54,203 |
|
|
$ |
4,431 |
|
|
$ |
5,080 |
|
|
$ |
3,108 |
|
|
$ |
8 |
|
|
$ |
66,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation for loans
individually
evaluated for impairment |
|
$ |
22,939 |
|
|
$ |
1,027 |
|
|
$ |
722 |
|
|
$ |
146 |
|
|
$ |
|
|
|
$ |
24,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation for loans
collectively
evaluated for impairment |
|
|
31,264 |
|
|
|
3,404 |
|
|
|
4,358 |
|
|
|
2,962 |
|
|
|
8 |
|
|
|
41,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
$ |
54,203 |
|
|
$ |
4,431 |
|
|
$ |
5,080 |
|
|
$ |
3,108 |
|
|
$ |
8 |
|
|
$ |
66,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated
for impairment |
|
|
170,175 |
|
|
|
8,697 |
|
|
|
6,149 |
|
|
|
970 |
|
|
|
|
|
|
|
185,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated
for impairment |
|
|
910,630 |
|
|
|
363,506 |
|
|
|
216,778 |
|
|
|
66,470 |
|
|
|
1,913 |
|
|
|
1,559,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with no allowance allocated |
|
$ |
81,981 |
|
|
$ |
89,292 |
|
|
$ |
29,602 |
|
Loans with allowance allocated |
|
$ |
104,010 |
|
|
$ |
25,946 |
|
|
$ |
17,613 |
|
Amount of allowance allocated |
|
|
24,834 |
|
|
|
5,737 |
|
|
|
2,651 |
|
Average impaired loan balance during the year |
|
|
212,167 |
|
|
|
125,280 |
|
|
|
48,347 |
|
Interest income not recognized during
impairment |
|
|
1,105 |
|
|
|
558 |
|
|
|
619 |
|
(Continued)
73
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 3 LOANS (Continued)
Impaired loans of $185,991, $115,238 and $47,215, respectively, at 2010, 2009, 2008 are shown net
of amounts previously charged off of $36,574, $27,937, and 11,995, respectively. Interest income
actually recognized on these loans during 2010, 2009 and 2008 was $7,470, $2,842, and $2,135,
respectively.
Impaired loans by class are presented below for 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid |
|
|
|
|
|
Average |
|
|
Interest |
|
|
|
Recorded |
|
|
Principal |
|
|
Related |
|
|
Recorded |
|
|
Income |
|
|
|
Investment |
|
|
Balance |
|
|
Allowance |
|
|
Investment |
|
|
Recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Speculative 1-4 Family |
|
$ |
72,138 |
|
|
$ |
98,141 |
|
|
$ |
11,830 |
|
|
$ |
85,487 |
|
|
$ |
2,292 |
|
Construction |
|
|
56,758 |
|
|
|
69,355 |
|
|
|
8,366 |
|
|
|
63,710 |
|
|
|
2,565 |
|
Owner Occupied |
|
|
13,590 |
|
|
|
14,513 |
|
|
|
851 |
|
|
|
14,119 |
|
|
|
644 |
|
Non-owner Occupied |
|
|
25,824 |
|
|
|
27,561 |
|
|
|
1,823 |
|
|
|
28,786 |
|
|
|
1,375 |
|
Other |
|
|
1,865 |
|
|
|
2,090 |
|
|
|
69 |
|
|
|
2,278 |
|
|
|
66 |
|
Residential Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOC |
|
|
2,807 |
|
|
|
2,894 |
|
|
|
346 |
|
|
|
2,603 |
|
|
|
88 |
|
Mortgage-Prime |
|
|
4,539 |
|
|
|
4,722 |
|
|
|
590 |
|
|
|
4,661 |
|
|
|
209 |
|
Mortgage-Subprime |
|
|
370 |
|
|
|
370 |
|
|
|
57 |
|
|
|
370 |
|
|
|
|
|
Other |
|
|
981 |
|
|
|
1,285 |
|
|
|
34 |
|
|
|
2,419 |
|
|
|
47 |
|
Commercial |
|
|
6,149 |
|
|
|
7,510 |
|
|
|
722 |
|
|
|
6,729 |
|
|
|
171 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
217 |
|
|
|
228 |
|
|
|
32 |
|
|
|
252 |
|
|
|
13 |
|
Subprime |
|
|
228 |
|
|
|
228 |
|
|
|
35 |
|
|
|
228 |
|
|
|
|
|
Auto-Subprime |
|
|
525 |
|
|
|
525 |
|
|
|
79 |
|
|
|
525 |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
185,991 |
|
|
$ |
229,422 |
|
|
$ |
24,834 |
|
|
$ |
212,167 |
|
|
$ |
7,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank manages the loan portfolio by assigning one of nine credit risk ratings based on an
internal assessment of credit risk. The credit risk categories are prime, desirable, satisfactory
I or pass, satisfactory II, acceptable with care, management watch, substandard, and loss.
Prime credit risk rating: Assets of this grade are the highest quality credits of the Bank.
They exceed substantially all the Banks underwriting criteria, and provide superior protection for
the Bank through the paying capacity of the borrower and value of the collateral. The Banks credit
risk is considered to be negligible. Included in this section are well-established borrowers with
significant, diversified sources of income and net worth, or borrowers with ready access to
alternative financing and unquestioned ability to meet debt obligations as agreed. A loan secured
by cash or other highly liquid collateral, where the Bank holds such collateral, may be assigned
this grade.
Desirable credit risk rating: Assets of this grade also exceed substantially all of the
Banks underwriting criteria; however, they may lack the consistent long-term performance of a
Prime rated credit. The credit risk to the Bank is considered minimal on these assets. Paying
capacity of the borrower is still very strong with favorable trends and
the value of the collateral is considered more than adequate to protect the Bank. Unsecured loans
to borrowers with above-average earnings, liquidity and capital may be assigned this grade.
(Continued)
74
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 3 LOANS (Continued)
Satisfactory I credit risk rating or pass credit rating: Assets of this grade conform to
all of the Banks underwriting criteria and evidence a below-average level of credit risk.
Borrowers paying capacity is strong, with stable trends. If the borrower is a company, its
earnings, liquidity and capitalization compare favorably to typical companies in its industry. The
credit is well structured and serviced. Secondary sources of repayment are considered to be good.
Payment history is good, and borrower consistently complies with all major covenants.
Satisfactory II credit risk rating: Assets of this grade conform to substantially all of
the Banks underwriting criteria and evidence an average level of credit risk. However, such assets
display more susceptibility to economic, technological or political changes since they lack the
above-average financial strength of credits rated Satisfactory
Tier I. Borrowers repayment capacity is considered to be adequate. Credit is appropriately
structured and serviced; payment history is satisfactory.
Acceptable with care credit risk rating: Assets of this grade conform to most of the Banks
underwriting criteria and evidence an acceptable, though higher than average, level of credit risk.
However, these loans have certain risk characteristics that could adversely affect the borrowers
ability to repay, given material adverse trends. Therefore, loans in this category require an
above-average level of servicing or show more reliance on collateral and guaranties to preclude a
loss to the Bank, should material adverse trends develop. If the borrower is a company, it
earnings, liquidity and capitalization are slightly below average, when compared to its peers.
Management watch credit risk rating: Assets included in this category are currently
protected but are potentially weak. These assets constitute an undue and unwarranted credit risk
but do not presently expose the Bank to a sufficient degree of risk to warrant adverse
classification. However, Management Watch assets do possess credit deficiencies deserving
managements close attention. If not corrected, such weaknesses or deficiencies may expose the Bank
to an increased risk of loss in the future. Management Watch loans represent assets where the
Banks ability to substantially affect the outcome has diminished to some degree, and thus it must
closely monitor the situation to determine if and when a downgrade is warranted.
Substandard credit risk rating: Substandard assets are inadequately protected by the
current net worth and financial capacity of the borrower or of the collateral pledged, if any.
Assets so classified must have a well-defined weakness or weaknesses that jeopardize the
liquidation of the debt. They are characterized by the distinct possibility that the Bank will
sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the
aggregate amount of substandard assets, does not have to exist in individual assets classified as
Substandard.
Loss credit rating: These assets are considered uncollectible and of such little value that
their continuance as assets is not warranted. This classification does not mean that an asset has
absolutely no recovery or salvage value, but rather it is not practical or desirable to defer
writing off a basically worthless asset even though partial recovery may be affected in the future.
Losses should be taken in the period in which they are identified as uncollectible.
(Continued)
75
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 3 LOANS (Continued)
Credit quality indicators by class are presented below as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Speculative 1-4 |
|
|
|
|
|
|
|
|
|
|
Non-Owner |
|
|
|
|
|
|
Family |
|
|
Construction |
|
|
Owner Occupied |
|
|
Occupied |
|
|
Other |
|
Commercial Real
Estate Credit
Exposure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Desirable |
|
|
|
|
|
|
1,573 |
|
|
|
968 |
|
|
|
177 |
|
|
|
|
|
Satisfactory tier I |
|
|
2,836 |
|
|
|
978 |
|
|
|
38,623 |
|
|
|
56,221 |
|
|
|
4,246 |
|
Satisfactory tier II |
|
|
14,010 |
|
|
|
34,239 |
|
|
|
102,383 |
|
|
|
130,850 |
|
|
|
17,999 |
|
Acceptable with care |
|
|
69,902 |
|
|
|
47,093 |
|
|
|
62,198 |
|
|
|
159,216 |
|
|
|
45,597 |
|
Management Watch |
|
|
27,383 |
|
|
|
15,259 |
|
|
|
5,298 |
|
|
|
26,415 |
|
|
|
2,965 |
|
Substandard |
|
|
91,845 |
|
|
|
61,388 |
|
|
|
16,289 |
|
|
|
38,037 |
|
|
|
6,817 |
|
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
205,976 |
|
|
|
160,530 |
|
|
|
225,759 |
|
|
|
410,916 |
|
|
|
77,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
Commercial Credit Exposure |
|
|
|
|
Prime |
|
$ |
1,236 |
|
Desirable |
|
|
7,951 |
|
Satisfactory tier I |
|
|
33,859 |
|
Satisfactory tier II |
|
|
91,505 |
|
Acceptable with care |
|
|
72,286 |
|
Management Watch |
|
|
8,511 |
|
Substandard |
|
|
7,579 |
|
Loss |
|
|
|
|
|
|
|
|
Total |
|
|
222,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
|
|
|
|
HELOC |
|
|
Mortgage |
|
|
Subprime |
|
|
Other |
|
Consumer Real
Estate Credit
Exposure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
$ |
188,086 |
|
|
$ |
131,845 |
|
|
$ |
11,692 |
|
|
$ |
29,833 |
|
Management Watch |
|
|
1,017 |
|
|
|
317 |
|
|
|
|
|
|
|
|
|
Substandard |
|
|
2,807 |
|
|
|
5,117 |
|
|
|
50 |
|
|
|
1,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
191,910 |
|
|
|
137,279 |
|
|
|
11,742 |
|
|
|
31,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
76
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 3 LOANS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
Consumer |
|
|
Consumer Auto |
|
|
|
Prime |
|
|
Subprime |
|
|
Subprime |
|
Consumer Credit Exposure |
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
$ |
35,029 |
|
|
$ |
13,093 |
|
|
$ |
18,588 |
|
Management Watch |
|
|
|
|
|
|
|
|
|
|
|
|
Substandard |
|
|
217 |
|
|
|
39 |
|
|
|
474 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
35,246 |
|
|
|
13,132 |
|
|
|
19,062 |
|
|
|
|
|
|
|
|
|
|
|
A substantial portion of commercial real estate loans are secured by real estate in markets in
which the Company is located. These loans are often structured with interest reserves to fund
interest costs during the construction and development period. Additionally, certain of these loans
are structured with interest-only terms. A portion of the consumer mortgage and commercial real
estate portfolios originated through the permanent financing of construction, acquisition and
development loans. The prolonged economic downturn has negatively impacted many borrowers and
guarantors ability to make payments under the terms of the loans as their liquidity has been
depleted. Accordingly, the ultimate collectability of a substantial portion of these loans and the
recovery of a substantial portion of the carrying amount of other real estate owned are susceptible
to changes in real estate values in these areas. Continued economic distress could negatively
impact additional borrowers and guarantors ability to repay their debt which will make more of
the Companys loans collateral dependent.
Age analysis of past due loans by class are presented below as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 |
|
|
60-89 |
|
|
Greater |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded |
|
|
|
Days |
|
|
Days |
|
|
Than |
|
|
Total |
|
|
|
|
|
|
Total |
|
|
Investment > 90 |
|
|
|
Past Due |
|
|
Past Due |
|
|
90 Days |
|
|
Past Due |
|
|
Current |
|
|
Loans |
|
|
Days and Accruing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Speculative 1-4 Family |
|
$ |
22,267 |
|
|
$ |
1,777 |
|
|
$ |
30,802 |
|
|
$ |
54,846 |
|
|
$ |
151,130 |
|
|
$ |
205,976 |
|
|
$ |
1,758 |
|
Construction |
|
|
14,541 |
|
|
|
|
|
|
|
26,915 |
|
|
|
41,456 |
|
|
|
119,074 |
|
|
|
160,530 |
|
|
|
|
|
Owner Occupied |
|
|
8,114 |
|
|
|
1,633 |
|
|
|
4,137 |
|
|
|
13,884 |
|
|
|
211,875 |
|
|
|
225,759 |
|
|
|
|
|
Non-owner Occupied |
|
|
4,014 |
|
|
|
5,961 |
|
|
|
8,814 |
|
|
|
18,789 |
|
|
|
392,127 |
|
|
|
410,916 |
|
|
|
170 |
|
Other |
|
|
116 |
|
|
|
865 |
|
|
|
1,491 |
|
|
|
2,472 |
|
|
|
75,152 |
|
|
|
77,624 |
|
|
|
18 |
|
Residential
real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOC |
|
|
747 |
|
|
|
358 |
|
|
|
644 |
|
|
|
1,749 |
|
|
|
190,161 |
|
|
|
191,910 |
|
|
|
|
|
Mortgage-Prime |
|
|
1,359 |
|
|
|
915 |
|
|
|
1,779 |
|
|
|
4,053 |
|
|
|
133,226 |
|
|
|
137,279 |
|
|
|
8 |
|
Mortgage-Subprime |
|
|
100 |
|
|
|
51 |
|
|
|
98 |
|
|
|
249 |
|
|
|
11,493 |
|
|
|
11,742 |
|
|
|
|
|
Other |
|
|
403 |
|
|
|
176 |
|
|
|
566 |
|
|
|
1,145 |
|
|
|
30,217 |
|
|
|
31,362 |
|
|
|
19 |
|
Commercial |
|
|
2,422 |
|
|
|
593 |
|
|
|
3,922 |
|
|
|
6,937 |
|
|
|
215,990 |
|
|
|
222,927 |
|
|
|
92 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
315 |
|
|
|
86 |
|
|
|
108 |
|
|
|
509 |
|
|
|
34,737 |
|
|
|
35,246 |
|
|
|
29 |
|
Subprime |
|
|
155 |
|
|
|
64 |
|
|
|
6 |
|
|
|
225 |
|
|
|
12,907 |
|
|
|
13,132 |
|
|
|
|
|
Auto-Subprime |
|
|
476 |
|
|
|
166 |
|
|
|
101 |
|
|
|
743 |
|
|
|
18,319 |
|
|
|
19,062 |
|
|
|
18 |
|
Other |
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
73 |
|
|
|
1,840 |
|
|
|
1,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
55,102 |
|
|
|
12,645 |
|
|
|
79,383 |
|
|
|
147,130 |
|
|
|
1,598,248 |
|
|
|
1,745,378 |
|
|
|
2,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
77
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 3 LOANS (Continued)
Non-accrual loans by class as of December 31, 2010 are presented below:
|
|
|
|
|
Commercial real estate: |
|
|
|
|
Speculative 1-4 Family |
|
$ |
63,298 |
|
Construction |
|
|
41,789 |
|
Owner Occupied |
|
|
5,511 |
|
Non-owner Occupied |
|
|
18,772 |
|
Other |
|
|
1,865 |
|
Residential real estate: |
|
|
|
|
HELOC |
|
|
1,668 |
|
Mortgage-Prime |
|
|
3,350 |
|
Mortgage-Subprime |
|
|
254 |
|
Other |
|
|
957 |
|
Commercial |
|
|
5,813 |
|
Consumer: |
|
|
|
|
Prime |
|
|
130 |
|
Subprime |
|
|
107 |
|
Auto-Subprime |
|
|
193 |
|
Other |
|
|
|
|
|
|
|
|
Total |
|
|
143,707 |
|
|
|
|
|
Nonperforming loans at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Loans past due 90 days still on accrual |
|
$ |
2,112 |
|
|
$ |
147 |
|
Nonaccrual loans |
|
|
143,707 |
|
|
|
75,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
145,819 |
|
|
$ |
75,558 |
|
|
|
|
|
|
|
|
Nonperforming loans and impaired loans are defined differently. Nonperforming loans are loans that
are 90 days past due and still accruing interest and nonaccrual loans. Impaired loans are loans
that based upon current information and events it is considered probable that the Company will be
unable to collect all amounts of contractual interest and principal as scheduled in the loan
agreement. Some loans may be included in both categories, whereas other loans may only be included
in one category.
(Continued)
78
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 3 LOANS (Continued)
The Company may elect to formally restructure a loan due to the weakening credit status of a
borrower so that the restructuring may facilitate a repayment plan that minimizes the potential
losses that the Company may have to otherwise incur. At December 31, 2010, the Company had $49,537
of restructured loans of which $9,597 was classified as non-accrual and the remaining were
performing. The Company had taken charge-offs of $843 on the restructured non-accrual loans as of
December 31, 2010. At December 31, 2009, the Company had $16,061 of restructured loans of which
$4,429 was classified as non-accrual and the remaining were performing. The Company had taken
charge-offs of $1,743 on the restructured non-accrual loans as of December 31, 2009.
The aggregate amount of loans to executive officers and directors of the Company and their related
interests was approximately $7,848 and $4,936 at year-end 2010 and 2009, respectively. During 2010
and 2009, new loans aggregating approximately $22,124 and $10,545, respectively, and amounts
collected of approximately $19,212 and $23,964, respectively, were transacted with such parties.
NOTE 4 FAIR VALUE DISCLOSURES
Fair value is defined as the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. Accounting
principles generally accepted in the United States of America (GAAP), also establishes a fair
value hierarchy which requires an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The standard describes three levels of inputs
that may be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities
include debt and equity securities and derivative contracts that are traded in an active exchange
market, as well as certain U.S. Treasury, other U.S. Government and agency mortgage-backed debt
securities that are highly liquid and are actively traded in over-the-counter markets.
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the assets or
liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are
traded less frequently than exchange-traded instruments and derivative contracts whose value is
determined using a pricing model with inputs that are observable in the market or can be derived
principally from or corroborated by observable market data. This category generally includes
certain U.S. Government and agency mortgage-backed debt securities, corporate debt securities,
derivative contracts and residential mortgage loans held-for-sale.
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models, discounted cash flow methodologies, or
similar techniques, as well as instruments for which the determination of fair value requires
significant management judgment or estimation. This category generally includes certain private
equity investments, retained residual interests in securitizations, residential mortgage servicing
rights, and highly structured or long-term derivative contracts.
(Continued)
79
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 4 FAIR VALUE DISCLOSURES (continued)
Following is a description of valuation methodologies used for assets and liabilities recorded at
fair value.
Investment Securities Available-for-Sale
Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair
value measurement is based upon quoted prices of like or similar securities, if available and these
securities are classified as Level 1 or Level 2. If quoted prices are not available, fair values
are measured using independent pricing models or other model-based valuation techniques such as the
present value of future cash flows, adjusted for the securitys credit rating, prepayment
assumptions and other factors such as credit loss assumptions and are classified as Level 3.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or market value. The fair value of loans held
for sale is based on what secondary markets are currently offering for portfolios with similar
characteristics. As such, the Company classifies loans held for sale subjected to nonrecurring fair
value adjustments as Level 2.
Impaired Loans
The Company does not record loans at fair value on a recurring basis. However, from time to time, a
loan is considered impaired and an allowance for loan losses is established. Loans for which it is
probable that payment of interest and principal will not be made in accordance with the contractual
terms of the loan agreement are considered impaired. Once a loan is identified as individually
impaired, management measures impairment in accordance with GAAP. The fair value of impaired loans
is estimated using one of several methods, including collateral value, market value of similar
debt, enterprise value, liquidation value, and discounted cash flows. Those impaired loans not
requiring an allowance represent loans for which the fair value of the expected repayments or
collateral exceed the recorded investments in such loans. At December 31, 2010, substantially all
of the impaired loans were evaluated based on either the fair value of the collateral or its
liquidation value. In accordance with GAAP, impaired loans where an allowance is established based
on the fair value of collateral require classification in the fair value hierarchy. When the fair
value of the collateral is based on an observable market price or a current appraised value, the
Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available
or management determines the fair value of the collateral is further impaired below the appraised
value and there is no observable market price, the Company records the impaired loan as
nonrecurring Level 3.
Other Real Estate
Other real estate, consisting of properties obtained through foreclosure or in satisfaction of
loans and requiring subsequent charge-offs, is reported at fair value, determined on the basis of
current appraisals, comparable sales, and other estimates of value obtained principally from
independent sources, adjusted for estimated selling costs. At the time of foreclosure, any excess
of the loan balance over the fair value of the real estate held as collateral is treated as a
charge against the allowance for loan losses. Gains or losses on sale and any subsequent
adjustments
to the value are recorded as a component of foreclosed real estate expense. Other real estate is
included in Level 3 of the valuation hierarchy.
Loan Servicing Rights
Loan servicing rights are subject to impairment testing. A valuation model, which utilizes a
discounted cash flow analysis using interest rates and prepayment speed assumptions currently
quoted for comparable instruments and a discount rate determined by management, is used in the
completion of impairment testing. If the valuation model reflects a value less than the carrying
value, loan servicing rights are adjusted to fair value through a valuation allowance as determined
by the model. As such, the Company classifies loan servicing rights subjected to nonrecurring fair
value adjustments as Level 3.
(Continued)
80
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 4 FAIR VALUE DISCLOSURES (continued)
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Below is a table that presents information about certain assets and liabilities measured at fair
value at year-end 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Fair Value |
|
|
Carrying |
|
|
Assets/Liabilities |
|
|
|
Measurement Using |
|
|
Amount in |
|
|
Measured |
|
Description |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Balance Sheet |
|
|
at Fair Value |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
|
|
|
$ |
83,299 |
|
|
$ |
|
|
|
$ |
83,299 |
|
|
$ |
83,299 |
|
States and political subdivisions |
|
|
|
|
|
|
31,501 |
|
|
|
|
|
|
|
31,501 |
|
|
|
31,501 |
|
Collateralized mortgage obligations |
|
|
|
|
|
|
67,575 |
|
|
|
|
|
|
|
67,575 |
|
|
|
67,575 |
|
Mortgage-backed securities |
|
|
|
|
|
|
17,964 |
|
|
|
|
|
|
|
17,964 |
|
|
|
17,964 |
|
Trust preferred securities |
|
|
|
|
|
|
1,025 |
|
|
|
638 |
|
|
|
1,663 |
|
|
|
1,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
|
|
|
$ |
52,048 |
|
|
$ |
|
|
|
$ |
52,048 |
|
|
$ |
52,048 |
|
States and political subdivisions |
|
|
|
|
|
|
32,192 |
|
|
|
|
|
|
|
32,192 |
|
|
|
32,192 |
|
Collateralized mortgage obligations |
|
|
|
|
|
|
44,677 |
|
|
|
|
|
|
|
44,677 |
|
|
|
44,677 |
|
Mortgage-backed securities |
|
|
|
|
|
|
16,892 |
|
|
|
|
|
|
|
16,892 |
|
|
|
16,892 |
|
Trust preferred securities |
|
|
|
|
|
|
1,277 |
|
|
|
638 |
|
|
|
1,915 |
|
|
|
1,915 |
|
Level 3 Valuations
Financial instruments are considered Level 3 when their values are determined using pricing models,
discounted cash flow methodologies or similar techniques and at least one significant model
assumption or input is unobservable. Level 3 financial instruments also include those for which the
determination of fair value requires significant management judgment or estimation.
Currently the Company has one trust preferred security that is considered Level 3. For more
information on this security please refer to Note 2 Securities.
(Continued)
81
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 4 FAIR VALUE DISCLOSURES (continued)
The following table shows a reconciliation of the beginning and ending balances for assets measured
at fair value for the periods ended December 31, 2010 and 2009 on a recurring basis using
significant unobservable inputs.
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Beginning balance |
|
$ |
638 |
|
|
$ |
|
|
Total gains or (loss) (realized/unrealized) |
|
|
|
|
|
|
|
|
Included in earnings |
|
|
(75 |
) |
|
|
(778 |
) |
Included in other comprehensive income |
|
|
75 |
|
|
|
(112 |
) |
Paydowns and maturities |
|
|
|
|
|
|
|
|
Transfers into Level 3 |
|
|
|
|
|
|
1,528 |
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
638 |
|
|
$ |
638 |
|
|
|
|
|
|
|
|
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain assets at fair value on a
nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of
cost or market that were recognized at fair value below cost at the end of the period. Assets
measured at fair value on a nonrecurring basis are included in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Carrying |
|
|
Assets/Liabilities |
|
|
|
Fair Value Measurement Using |
|
|
Amount in |
|
|
Measured at Fair |
|
Description |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Balance Sheet |
|
|
Value |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate |
|
$ |
|
|
|
$ |
|
|
|
$ |
38,086 |
|
|
$ |
38,086 |
|
|
$ |
38,086 |
|
Impaired loans |
|
|
|
|
|
|
|
|
|
|
129,088 |
|
|
|
129,088 |
|
|
|
129,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
167,174 |
|
|
$ |
167,174 |
|
|
$ |
167,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate |
|
$ |
|
|
|
$ |
|
|
|
$ |
23,508 |
|
|
$ |
23,508 |
|
|
$ |
23,508 |
|
Impaired loans |
|
|
|
|
|
|
|
|
|
|
57,914 |
|
|
|
57,914 |
|
|
|
57,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
81,422 |
|
|
$ |
81,422 |
|
|
$ |
81,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
82
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 4 FAIR VALUE DISCLOSURES (Continued)
The carrying value and estimated fair value of the Companys financial instruments are as follows
at year-end 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
294,214 |
|
|
$ |
294,214 |
|
|
$ |
221,494 |
|
|
$ |
221,494 |
|
Securities available for sale |
|
|
202,002 |
|
|
|
202,002 |
|
|
|
147,724 |
|
|
|
147,724 |
|
Securities held to maturity |
|
|
465 |
|
|
|
467 |
|
|
|
626 |
|
|
|
638 |
|
Loans held for sale |
|
|
1,299 |
|
|
|
1,317 |
|
|
|
1,533 |
|
|
|
1,552 |
|
Loans, net |
|
|
1,678,548 |
|
|
|
1,664,126 |
|
|
|
1,993,646 |
|
|
|
1,950,684 |
|
FHLB and other stock |
|
|
12,734 |
|
|
|
12,734 |
|
|
|
12,734 |
|
|
|
12,734 |
|
Cash surrender value of life insurance |
|
|
31,479 |
|
|
|
31,479 |
|
|
|
30,277 |
|
|
|
30,277 |
|
Accrued interest receivable |
|
|
7,845 |
|
|
|
7,845 |
|
|
|
9,130 |
|
|
|
9,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit accounts |
|
$ |
1,976,854 |
|
|
$ |
1,987,105 |
|
|
$ |
2,084,096 |
|
|
$ |
2,095,611 |
|
Federal funds purchased and repurchase
agreements |
|
|
19,413 |
|
|
|
19,413 |
|
|
|
24,449 |
|
|
|
24,449 |
|
FHLB Advances and notes payable |
|
|
158,653 |
|
|
|
166,762 |
|
|
|
171,999 |
|
|
|
176,602 |
|
Subordinated debentures |
|
|
88,662 |
|
|
|
64,817 |
|
|
|
88,662 |
|
|
|
70,527 |
|
Accrued interest payable |
|
|
2,140 |
|
|
|
2,140 |
|
|
|
2,561 |
|
|
|
2,561 |
|
The following methods and assumptions were used to estimate the fair values for financial
instruments that are not disclosed previously in this note. The carrying amount is considered to
estimate fair value for cash and short-term instruments, demand deposits, liabilities for
repurchase agreements, variable rate loans or deposits that reprice frequently and fully, and
accrued interest receivable and payable. For fixed rate loans or deposits and for variable rate
loans or deposits with infrequent repricing or repricing limits, the fair value is estimated by
discounted cash flow analysis using current market rates for the estimated life and credit risk. No
adjustment has been made for illiquidity in the market on loans as there is no information from
which to reasonably base this estimate. Liabilities for FHLB advances and notes payable are
estimated using rates of debt with similar terms and remaining maturities. The fair value of
off-balance sheet items is based on the current fees or costs that would be charged to enter into
or terminate such arrangements, which is not material. The fair value of commitments to sell loans
is based on the difference between the interest rates at which the loans have been committed to
sell and the quoted secondary market price for similar loans, which is not material.
(Continued)
83
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 5 PREMISES AND EQUIPMENT
Year-end premises and equipment follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Land |
|
$ |
18,372 |
|
|
$ |
18,372 |
|
Premises |
|
|
62,474 |
|
|
|
61,809 |
|
Leasehold improvements |
|
|
3,092 |
|
|
|
3,061 |
|
Furniture, fixtures and equipment |
|
|
28,057 |
|
|
|
25,222 |
|
Automobiles |
|
|
103 |
|
|
|
112 |
|
Construction in progress |
|
|
138 |
|
|
|
2,162 |
|
|
|
|
|
|
|
|
|
|
|
112,236 |
|
|
|
110,738 |
|
Accumulated depreciation |
|
|
(33,442 |
) |
|
|
(28,920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
78,794 |
|
|
$ |
81,818 |
|
|
|
|
|
|
|
|
Annual rent expense for operating leases was $1,013, $1,223, and $1,216, respectively, for the
year-end periods 2010, 2009, and 2008, respectively. Rent commitments under noncancelable
operating leases were as follows, before considering renewal options that generally are present:
|
|
|
|
|
2011 |
|
$ |
1,243 |
|
2012 |
|
|
1,251 |
|
2013 |
|
|
1,043 |
|
2014 |
|
|
793 |
|
2015 |
|
|
433 |
|
Thereafter |
|
|
734 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,497 |
|
|
|
|
|
(Continued)
84
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 6 GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The change in the amount of goodwill is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Beginning of year |
|
$ |
|
|
|
$ |
143,389 |
|
Impairment |
|
|
|
|
|
|
(143,389 |
) |
End of year |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
In conjunction with significant acquisitions, the Company recognized goodwill impairment in 2009 of
$143,389. The Companys goodwill since the 2009 goodwill impairment remains at $0.
Core deposit and other intangible
The change in core deposit and other intangibles is as follows:
|
|
|
|
|
|
|
|
|
Core deposit intangibles |
|
2010 |
|
|
2009 |
|
Gross carrying amount |
|
$ |
19,796 |
|
|
$ |
19,796 |
|
|
|
|
|
|
|
|
|
|
Accumulated amortization, beginning of year |
|
|
(10,803 |
) |
|
|
(8,304 |
) |
Amortization |
|
|
(2,495 |
) |
|
|
(2,499 |
) |
|
|
|
|
|
|
|
Accumulated amortization, end of year |
|
|
(13,298 |
) |
|
|
(10,803 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year |
|
$ |
6,498 |
|
|
$ |
8,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangibles |
|
2010 |
|
|
2009 |
|
Gross carrying amount |
|
$ |
745 |
|
|
$ |
745 |
|
|
|
|
|
|
|
|
|
|
Accumulated amortization, beginning of year |
|
|
(403 |
) |
|
|
(152 |
) |
Amortization |
|
|
(89 |
) |
|
|
(251 |
) |
|
|
|
|
|
|
|
Accumulated amortization, end of year |
|
|
(492 |
) |
|
|
(403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year |
|
$ |
253 |
|
|
$ |
342 |
|
|
|
|
|
|
|
|
Estimated amortization expense for each of the next five years is as follows:
|
|
|
|
|
2011 |
|
$ |
2,531 |
|
2012 |
|
|
2,401 |
|
2013 |
|
|
1,701 |
|
2014 |
|
|
118 |
|
2015 |
|
|
|
|
|
|
|
|
Total |
|
$ |
6,751 |
|
|
|
|
|
(Continued)
85
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 7 DEPOSITS
Deposits at year-end were as follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
$ |
152,752 |
|
|
$ |
177,602 |
|
Interest-bearing demand deposits |
|
|
939,091 |
|
|
|
837,268 |
|
Savings deposits |
|
|
101,925 |
|
|
|
86,166 |
|
Brokered deposits |
|
|
1,399 |
|
|
|
6,584 |
|
Time deposits |
|
|
781,687 |
|
|
|
976,476 |
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
1,976,854 |
|
|
$ |
2,084,096 |
|
|
|
|
|
|
|
|
Brokered and time deposits of $100 or more were $309,701 and $395,595 at year-end 2010 and 2009,
respectively.
Scheduled maturities of brokered and time deposits for the next five years and thereafter were as
follows:
|
|
|
|
|
2011 |
|
$ |
531,829 |
|
2012 |
|
|
139,812 |
|
2013 |
|
|
52,931 |
|
2014 |
|
|
14,822 |
|
2015 |
|
|
40,246 |
|
Thereafter |
|
|
3,446 |
|
The aggregate amount of deposits of executive officers and directors of the Company and their
related interests was approximately $3,679 and $3,611 at year-end 2010 and 2009, respectively.
(Continued)
86
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 8 BORROWINGS
Federal funds purchased, securities sold under agreements to repurchase and treasury tax and loan
deposits are financing arrangements. Securities involved with the agreements are recorded as
assets and are held by a safekeeping agent and the obligations to repurchase the securities are
reflected as liabilities. Securities sold under agreements to repurchase consist of short-term
excess funds and overnight liabilities to deposit customers arising from a cash management program.
Information concerning securities sold under agreements to repurchase at year-end 2010, 2009 and
2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance during the year |
|
$ |
22,342 |
|
|
$ |
28,008 |
|
|
$ |
74,881 |
|
Average interest rate during the year |
|
|
0.10 |
% |
|
|
0.10 |
% |
|
|
1.57 |
% |
Maximum month-end balance during the year |
|
$ |
26,161 |
|
|
$ |
35,935 |
|
|
$ |
98,925 |
|
Weighted average interest rate at year-end |
|
|
0.10 |
% |
|
|
0.10 |
% |
|
|
0.10 |
% |
FHLB advances and notes payable consist of the following at year-end:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Short-term borrowings |
|
|
|
|
|
|
|
|
Fixed rate FHLB advance, 4.44%
Matures December 2011 |
|
$ |
15,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Variable rate FHLB advances at 5.00% to 5.31%
Matured December 2010 |
|
|
|
|
|
|
12,000 |
|
|
|
|
|
|
|
|
Total short-term borrowings |
|
|
15,000 |
|
|
|
12,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings |
|
|
|
|
|
|
|
|
Fixed rate FHLB advances, from 1.50% to 3.36%,
Various maturities through June 2023 |
|
|
51,327 |
|
|
|
50,766 |
|
Fixed rate FHLB advances from 4.18% to 6.35%,
Various maturities through 2020 |
|
|
92,326 |
|
|
|
109,233 |
|
Total long term borrowings |
|
|
143,653 |
|
|
|
159,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
$ |
158,653 |
|
|
$ |
171,999 |
|
|
|
|
|
|
|
|
Each advance is payable at its maturity date; however, prepayment penalties are required if paid
before maturity. The fixed rate advances include $155,000 of advances that are callable by the
FHLB under certain circumstances. The advances are collateralized by a required blanket pledge of
qualifying mortgage, commercial, agricultural and home equity lines of credit loans and securities
totaling $500,354 and $552,721 at year-end 2010 and 2009, respectively.
(Continued)
87
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 8 BORROWINGS (Continued)
Scheduled maturities of FHLB advances and notes payable over the next five years and thereafter are
as follows:
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
2011 |
|
$ |
15,288 |
|
2012 |
|
|
65,278 |
|
2013 |
|
|
288 |
|
2014 |
|
|
10,296 |
|
2015 |
|
|
20,309 |
|
Thereafter |
|
|
47,194 |
|
|
|
|
|
|
|
$ |
158,653 |
|
|
|
|
|
At year-end 2010, the Company had approximately $70,000 of federal funds lines of credit available
from correspondent institutions of which $10,000 was secured.
In September 2003, the Company formed Greene County Capital Trust I (GC Trust I). GC Trust I
issued $10,000 of variable rate trust preferred securities as part of a pooled offering of such
securities. The Company issued $10,310 subordinated debentures to the GC Trust I in exchange for
the proceeds of the offering, which debentures represent the sole asset of GC Trust I. The
debentures pay interest quarterly at the three-month LIBOR plus 2.85% adjusted quarterly (3.14% and
3.13% at year-end 2010 and 2009, respectively). Subject to the limitations on repurchases resulting
from the Companys participation in the CPP, the Company may redeem the subordinated debentures, in
whole or in part, at a price of 100% of face value. The subordinated debentures must be redeemed
no later than 2033.
In June 2005, the Company formed Greene County Capital Trust II (GC Trust II). GC Trust II
issued $3,000 of variable rate trust preferred securities as part of a pooled offering of such
securities. The Company issued $3,093 subordinated debentures to the GC Trust II in exchange for
the proceeds of the offering, which debentures represent the sole asset of GC Trust II. The
debentures pay interest quarterly at the three-month LIBOR plus 1.68% adjusted quarterly (1.98% and
1.93% at year-end 2010 and 2009, respectively). Subject to the limitations on repurchases
resulting from the Companys participation in the CPP, the Company may redeem the subordinated
debentures, in whole or in part, beginning September 2010 at a price of 100% of face value. The
subordinated debentures must be redeemed no later than 2035.
In May 2007, the Company formed GreenBank Capital Trust I (GB Trust I). GB Trust I issued
$56,000 of variable rate trust preferred securities as part of a pooled offering of such
securities. The Company issued $57,732 subordinated debentures to the GB Trust I in exchange for
the proceeds of the offering, which debentures represent the sole asset of GB Trust I. The
debentures pay interest quarterly at the three-month LIBOR plus 1.65% adjusted quarterly (1.95% and
1.90% at year-end 2010 and 2009). Subject to the limitations on repurchases resulting from the
Companys participation in the CPP, the Company may redeem the subordinated debentures, in whole or
in part, beginning June 2012 at a price of 100% of face value. The subordinated debentures must be
redeemed no later than 2037.
Also in May 2007 the Company assumed the liability for two trusts affiliated with the acquisition
of Franklin, Tennessee-based Civitas Bankgroup, Inc. (CVBG) that the Company acquired on May 18,
2007, Civitas Statutory Trust I (CS Trust I) and Cumberland Capital Statutory Trust II (CCS
Trust II).
(Continued)
88
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 8 BORROWINGS (Continued)
In December 2005 CS Trust I issued $13,000 of variable rate trust preferred securities as part of a
pooled offering of such securities. CVBG issued $13,403 subordinated debentures to the CS Trust I
in exchange for the proceeds of the offering, which debentures represent the sole asset of CS Trust
I. The debentures pay interest quarterly at the three-month LIBOR plus 1.54% adjusted quarterly
(1.84% and 1.79% at year-end 2010 and 2009). Subject to the limitations on repurchases resulting
from the Companys participation in the CPP, the Company may redeem the subordinated debentures, in
whole or in part, beginning March 2011 at a price of 100% of face value. The subordinated
debentures must be redeemed no later than March 2036.
In July 2001 CCS Trust II issued $4,000 of variable rate trust preferred securities as part of a
pooled offering of such securities. CVBG issued $4,124 subordinated debentures to the CCS Trust II
in exchange for the proceeds of the offering, which debentures represent the sole asset of CCS
Trust II. The debentures pay interest quarterly at the three-month LIBOR plus 3.58% adjusted
quarterly (3.87% and 3.86% at year-end 2010 and 2009). Subject to the limitations on repurchases
resulting from the Companys participation in the CPP, the Company may redeem the subordinated
debentures, in whole or in part, at a price of 100% of face value. The subordinated debentures
must be redeemed no later than July 2031.
Following consultation with the FRB, the Company gave notice on November 9, 2010 to the U.S.
Treasury Department that the Company is suspending the payment of regular quarterly cash dividends
on the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series A issued to the U.S.
Treasury. Since the dividends are cumulative, the dividends will be reported for the duration of
the deferral period as a preferred dividend requirement that is deducted from net income for
financial statement purposes.
Additionally the Company, following consultation with the FRB, has also exercised its rights to
defer regularly scheduled interest payments on all of its issues of junior subordinated debentures
having an outstanding principal amount of $88,662, relating to outstanding trust preferred
securities (TRUPs). Under the terms of the trust documents associated with these debentures, the
Company may defer payments of interest for up to 20 consecutive quarterly periods without default.
During the period that the Company is deferring payments of interest on these debentures, it may
not pay dividends on its common or preferred stock. The regular scheduled interest payments will
continue to be accrued for payment in the future and reported as an expense for financial statement
purposes.
In accordance with ASC 810, GC Trust I, GC Trust II, GB Trust I, CS Trust I and CCS Trust II are
not consolidated with the Company. Accordingly, the Company does not report the securities issued
by GC Trust I, GC Trust II, GB Trust I, CS Trust I and CCS Trust II as liabilities, and instead
reports as liabilities the subordinated debentures issued by the Company and held by each Trust.
However, the Company has fully and unconditionally guaranteed the repayment of the variable rate
trust preferred securities. These trust preferred securities currently qualify as Tier 1 capital
for regulatory capital requirements of the Company, subject to certain limitations and the Company
expects that a portion of the trust preferred securities will continue to qualify as Tier 1 capital
with the residual qualifying as Tier 2 capital following passage of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the Dodd-Frank Act).
(Continued)
89
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 9 BENEFIT PLANS
The Company has a profit sharing plan which allows employees to contribute from 1% to 20% of their
compensation. The Company contributes an additional amount at a discretionary rate established
annually by the Board of Directors. Company contributions to the Plan were $0, $409 and $1,535 for
2010, 2009 and 2008, respectively. Effective July 2009 the Company suspended contributions to the
profit sharing plan and will reevaluate re-instating these contributions in the future when the
Company returns to a sustained level of profitability.
Directors have deferred some of their fees for future payment, including interest. The amount
accrued for deferred compensation was $2,274 and $2,637 at year-end 2010 and 2009. Amounts
expensed under the Plan were $133, $27 and $207 during 2010, 2009, and 2008, respectively. During
2009 the Company modified the annual earning crediting
rate formula as follows; The annual crediting rate will be 100% of the annual return on
stockholders equity with a 4% floor and a 12% ceiling, for the year then ended, on balances in the
Plan until the director experiences a separation from services, and, thereafter, at a earnings
crediting rate based on 75% of the Companys return on average stockholders equity for the year
then ending with a 3% floor and a 9% ceiling. During 2008 the Company used a formula which
provided an annual earnings crediting rate based on 75% of the annual return on average
stockholders equity, for the year then ended, on balances in the Plan until the director
experiences a separation from service, and, thereafter, at an earnings crediting rate of 56.25% of
the Companys return on average stockholders equity for the year then ending. The return on
annual shareholders equity was negative in 2008 and no earnings were credited for 2008. Also
certain officers of the Company are participants under a Supplemental Executive Retirement Plan.
The amount accrued for future payments under this Plan was $1,568 and $1,409 at year-end 2010 and
2009, respectively. Amounts expensed under the Plan were $259, $312 and $283 during 2010, 2009 and
2008, respectively. Related to these plans, the Company purchased single premium life insurance
contracts on the lives of the related participants. The cash surrender value of these contracts is
recorded as an asset of the Company.
(Continued)
90
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 10 INCOME TAXES
Income tax expense (benefit) is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current federal |
|
$ |
(10,054 |
) |
|
$ |
(12,906 |
) |
|
$ |
(221 |
) |
Current state |
|
|
(1,775 |
) |
|
|
(2,476 |
) |
|
|
(53 |
) |
Deferred federal |
|
|
(13,870 |
) |
|
|
(1,397 |
) |
|
|
(3,649 |
) |
Deferred state |
|
|
(2,846 |
) |
|
|
(257 |
) |
|
|
(725 |
) |
Deferred tax asset valuation allowance |
|
|
43,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,910 |
|
|
$ |
(17,036 |
) |
|
$ |
(4,648 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the effect of temporary differences between values recorded for
assets and liabilities for financial reporting purposes and values utilized for measurement in
accordance with tax laws. The tax effects of the primary temporary differences giving rise to the
Companys net deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
Assets |
|
|
Liabilities |
|
|
Assets |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
26,214 |
|
|
$ |
|
|
|
$ |
19,675 |
|
|
$ |
|
|
Deferred compensation |
|
|
2,129 |
|
|
|
|
|
|
|
1,973 |
|
|
|
|
|
REO basis |
|
|
12,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting adjustments |
|
|
|
|
|
|
(1,424 |
) |
|
|
672 |
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
(1,998 |
) |
|
|
|
|
|
|
(2,129 |
) |
FHLB dividends |
|
|
|
|
|
|
(1,658 |
) |
|
|
|
|
|
|
(1,658 |
) |
Core deposit intangible |
|
|
2,189 |
|
|
|
|
|
|
|
|
|
|
|
(4,860 |
) |
Unrealized (gain) loss on securities |
|
|
|
|
|
|
(645 |
) |
|
|
|
|
|
|
(122 |
) |
NOL carry forward |
|
|
10,192 |
|
|
|
|
|
|
|
|
|
|
|
(122 |
) |
Other |
|
|
|
|
|
|
(1,542 |
) |
|
|
49 |
|
|
|
|
|
Deferred tax asset valuation allowance |
|
|
|
|
|
|
(43,455 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income taxes |
|
$ |
52,899 |
|
|
$ |
(50,722 |
) |
|
$ |
22,369 |
|
|
$ |
(8,769 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
A valuation allowance is recognized for a net DTA if, based on the weight of available evidence, it
is more-likely-than-not that some portion or the entire DTA will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. In making such judgments,
significant weight is given to evidence that can be objectively verified. As a result of the
increased credit losses, the Company entered into a three-year cumulative pre-tax loss position
(excluding the goodwill impairment charge recognized in the second quarter of 2009) as of June 30,
2010.
A cumulative loss position is considered significant negative evidence in assessing the
realizability of a deferred tax asset which is difficult to overcome. The Companys estimate of the
realization of its net DTA was based on the scheduled reversal of deferred tax liabilities and
taxable income available in prior carry back years and tax planning strategies. Based on
managements calculation, a valuation allowance of $43,455, or 95% of the net DTA, was an adequate
estimate as of December 31, 2010. This estimate resulted in a valuation allowance for the net DTA
in the income statement of $43,455 for the period end 2010.
(Continued)
91
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 10 INCOME TAXES (Continued)
A reconciliation of expected income tax expense (benefit) at the statutory federal income tax rate
of 35% with the actual effective income tax rates is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Statutory federal tax rate |
|
|
(35.0 |
%) |
|
|
(35.0 |
%) |
|
|
(35.0 |
%) |
State income tax, net of federal benefit |
|
|
(4.6 |
) |
|
|
(1.1 |
) |
|
|
(5.2 |
) |
Tax exempt income |
|
|
(2.0 |
) |
|
|
(0.5 |
) |
|
|
(8.0 |
) |
Goodwill impairment |
|
|
|
|
|
|
26.4 |
|
|
|
|
|
Deferred tax asset valuation allowance |
|
|
66.1 |
|
|
|
|
|
|
|
|
|
Other |
|
|
(1.8 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.7 |
%) |
|
|
(10.2 |
%) |
|
|
(46.4 |
%) |
|
|
|
|
|
|
|
|
|
|
The Company recognizes accrued interest and penalties related to uncertain tax positions in tax
expense.
The Companys Federal returns are open and subject to examination for the years of 2007, 2008 and
2009. The Companys State returns are open and subject to examination for the years of 2007, 2008,
and 2009.
At December 31, 2010 the Company had gross federal net operating loss carry-forwards of $24,118.
The carry-forwards begin to expire in 2031. At December 31, 2010 the Company had gross state net
operating loss carry-forwards of $41,433. Of the total $41,433 in carry-forwards, $18,490 begin to
expire in 2025 while the remaining $22,943 begin to expire in 2026.
NOTE 11 COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET
RISK
Some financial instruments, such as loan commitments, credit lines, letters of credit, and
overdraft protection, are issued to meet customer-financing needs. These are agreements to provide
credit or to support the credit of others, as long as conditions established in the contract are
met, and usually have expiration dates. Commitments may expire without being used.
Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make such commitments as
are used for loans, including obtaining collateral at exercise of the commitment.
Financial instruments with off-balance-sheet risk were as follows at year-end:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
Commitments to make loans fixed |
|
$ |
3,827 |
|
|
$ |
1,202 |
|
Commitments to make loans variable |
|
|
2,464 |
|
|
|
4,718 |
|
Unused lines of credit |
|
|
201,973 |
|
|
|
239,374 |
|
Letters of credit |
|
|
25,674 |
|
|
|
30,107 |
|
The fixed rate loan commitments have interest rates ranging from 5.49% to 8.75% and maturities
ranging from one to fifteen years. Letters of credit are considered financial guarantees under ASC
460.
(Continued)
92
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 12 CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS
Banks and bank holding companies are subject to regulatory capital requirements administered by
federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt
corrective action regulations involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators. Failure to meet capital
requirements can initiate regulatory action.
Prompt corrective action regulations provide five classifications: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized,
although these terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept
brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required.
Based on the most recent notifications from its regulators, the Bank is well capitalized under the
regulatory framework for prompt corrective action. However, the Bank has informally committed to
its primary regulators that it will maintain a Tier 1 leverage ratio (Tier 1 Capital to Average
Assets) in excess of 10% and a Total risk-based capital ratio (Total Capital to Risk Weighted
Assets) in excess of 14%.
During the third quarter of 2010, the Bank was subject to a joint examination by the FDIC and
the TDFI. Based on initial findings presented to the Banks management, the Bank expects that
either the FDIC or the TDFI or both will require the Bank to agree to certain improvements in its
operations, particularly in relation to asset quality matters. We also believe that the Bank will
be required to agree to maintain or increase capital to levels above those required to be
considered well capitalized. We do not know at this time what minimum levels of capital the
regulators will require. If the requirement to maintain higher capital levels than those required
to be well capitalized under the prompt corrective action provisions of the FDICIA is contained in
a formal enforcement action of the FDIC, the Bank may be subject to additional limitations on its
operations including its ability to pay interest on deposits above proscribed rates, which could
adversely affect the Banks liquidity and/or operating results. The terms of any such supervisory
action that goes beyond the steps we have already taken may have a significant negative effect on our business,
operating flexibility and results of operations. Failure by the Bank to meet applicable capital
guidelines or to satisfy certain other regulatory requirements could subject the Bank to a variety
of enforcement remedies available to the federal regulatory authorities.
(Continued)
93
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 12 CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS (continued)
As reflected in the table below, the Bank did not satisfy these higher ratio requirements at
December 31, 2010. Actual capital levels and minimum required levels (in millions) were as follows. Because the Banks capital levels
at December 31, 2010 were below those that the Bank had informally committed to its primary regulators that it would
maintain, the Bank was required to submit a Capital Action Plan to its primary regulators.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Amounts to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
be Well Capitalized |
|
|
|
|
|
|
|
|
|
|
|
Minimum Required |
|
|
Under Prompt |
|
|
|
|
|
|
for Capital |
|
|
Corrective |
|
|
|
Actual |
|
|
Adequacy Purposes |
|
|
Action Provisions |
|
|
|
Actual |
|
|
Ratio (%) |
|
|
Actual |
|
|
Ratio (%) |
|
|
Actual |
|
|
Ratio (%) |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
239.7 |
|
|
|
13.2 |
|
|
$ |
145.2 |
|
|
|
8.0 |
|
|
$ |
181.6 |
|
|
|
10.0 |
|
Bank |
|
|
239.6 |
|
|
|
13.2 |
|
|
|
145.0 |
|
|
|
8.0 |
|
|
|
181.3 |
|
|
|
10.0 |
|
Tier 1 Capital (to Risk Weighted
Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
216.5 |
|
|
|
11.9 |
|
|
$ |
72.6 |
|
|
|
4.0 |
|
|
$ |
108.9 |
|
|
|
6.0 |
|
Bank |
|
|
216.4 |
|
|
|
11.9 |
|
|
|
72.5 |
|
|
|
4.0 |
|
|
|
108.8 |
|
|
|
6.0 |
|
Tier 1 Capital (to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
216.5 |
|
|
|
8.9 |
|
|
$ |
97.6 |
|
|
|
4.0 |
|
|
$ |
122.0 |
|
|
|
5.0 |
|
Bank |
|
|
216.4 |
|
|
|
8.9 |
|
|
|
97.5 |
|
|
|
4.0 |
|
|
|
121.8 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
318.5 |
|
|
|
14.9 |
|
|
$ |
171.0 |
|
|
|
8.0 |
|
|
$ |
213.8 |
|
|
|
10.0 |
|
Bank |
|
|
317.4 |
|
|
|
14.9 |
|
|
|
170.7 |
|
|
|
8.0 |
|
|
|
213.4 |
|
|
|
10.0 |
|
Tier 1 Capital (to Risk Weighted
Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
291.5 |
|
|
|
13.6 |
|
|
$ |
85.5 |
|
|
|
4.0 |
|
|
$ |
128.3 |
|
|
|
6.0 |
|
Bank |
|
|
290.4 |
|
|
|
13.6 |
|
|
|
85.4 |
|
|
|
4.0 |
|
|
|
128.0 |
|
|
|
6.0 |
|
Tier 1 Capital (to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
291.5 |
|
|
|
10.7 |
|
|
$ |
108.6 |
|
|
|
4.0 |
|
|
$ |
135.8 |
|
|
|
5.0 |
|
Bank |
|
|
290.4 |
|
|
|
10.7 |
|
|
|
108.6 |
|
|
|
4.0 |
|
|
|
135.7 |
|
|
|
5.0 |
|
(Continued)
94
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 12 CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS (continued)
The Companys primary source of funds to pay dividends to shareholders is the dividends it receives
from the Bank. Applicable state laws and the regulations of the Federal Reserve Bank and the
Federal Deposit Insurance Corporation regulate the payment of dividends. Under the state
regulations, the amount of dividends that may be paid by the Bank to the Company without prior
approval of the Commissioner of the Tennessee Department of Financial Institutions is limited in
any one year to an amount equal to the net income in the calendar year of declaration plus retained
net income for the preceding two years; however, future dividends will be dependent on the level of
earnings, capital and liquidity requirements and considerations of the Bank and Company.
In general, the Bank may not declare or pay a dividend to the Company in excess of 100% of its net
retained profits for the current year combined with its net retained profits for the preceding two
calendar years without prior approval of the Commissioner of the Tennessee Department of Financial
Institutions. The Banks ability to make capital distributions in the future may require regulatory
approval and may be restricted by its regulatory authorities. The Banks ability to make any such
distributions will also depend on its earnings and ability to meet minimum regulatory capital
requirements in effect during future periods. These capital adequacy standards may be higher in the
future than existing minimum regulatory capital requirements. The FDIC also has the authority to
prohibit the payment of dividends by a bank when it determines such payments would constitute an
unsafe and unsound banking practice. In addition, income tax considerations may limit the ability
of the Bank to make dividend payments in excess of its current and accumulated tax earnings and
profits (E&P). Annual dividend distributions in excess of E&P could result in a tax liability
based on the amount of excess earnings distributed and current tax rates. The Company has
informally committed to the FRB-Atlanta that it will not pay dividends on its common or preferred
stock (or interest on its subordinated debentures) without the prior approval of the FRB-Atlanta.
The Company also informally committed to the FRB-Atlanta that it will not incur any indebtedness
without the prior approval of the FRB-Atlanta.
On November 9, 2010, the Company following consultation with the FRB announced that it had
suspended preferred stock dividends and interest payments on its junior subordinated debentures
associated with its trust preferred securities in order to preserve capital.
On December 23, 2008 the Company entered into a definitive agreement (the Agreement) with the
U.S. Treasury to participate in the Capital Purchase Program (CPP). Pursuant to the Agreement,
the Company sold 72,278 shares of Series A preferred stock with an attached warrant to purchase
635,504 shares of our common stock priced at $17.06 per common share, to the U.S. Treasury for an
aggregate consideration of $83 million.
NOTE 13 STOCK-BASED COMPENSATION
The Company maintains a 2004 Long-Term Incentive Plan, as amended (the Plan), whereby a maximum
of 500,000 shares of common stock may be issued to directors and employees of the Company and the
Bank. The Plan provides for the issuance of awards in the form of stock options, stock
appreciation rights, restricted shares, restricted share units, deferred share units and
performance awards. Stock options granted under the Plan are typically granted at exercise prices
equal to the fair market value of the Companys common stock on the date of grant and typically
have terms of ten years and vest at an annual rate of 20%. Shares of restricted stock awarded
under the Plan have restrictions that expire within the vesting period of the award which range
from 12 months to 60 months. At December 31, 2010, 170,324 shares remained available for future
grant. The compensation cost related to options that has been charged against income for the Plan
was approximately $295, $387 and $456 for the years ended December 31, 2010, 2009 and 2008,
respectively. The compensation cost related to restricted stock that has been charged against
income for the Plan was approximately $331, $299, and $303 for the years ended December 31, 2010,
2009, and 2008, respectively. As of December 31, 2010, there was $678 of total unrecognized
compensation cost related to non-vested share-based compensation arrangements, which is expected to
be recognized over a weighted-average period of 2.3 years.
(Continued)
95
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 13 STOCK-BASED COMPENSATION (Continued)
Stock Options
The fair market value of each option award is estimated on the date of grant using the
Black-Scholes option pricing model. The Company did not grant any incentive stock options for
2010, 2009, or 2008.
A summary of stock option activity under the Plan for the three years ended December 31, 2010 is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Stock |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Options |
|
|
Price |
|
|
Term |
|
|
Value |
|
Outstanding at January 1, 2008 |
|
|
452,077 |
|
|
$ |
25.72 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(9,759 |
) |
|
|
12.63 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(1,565 |
) |
|
|
30.65 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(16,310 |
) |
|
|
23.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
424,443 |
|
|
$ |
26.10 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(1,374 |
) |
|
|
32.05 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(34,875 |
) |
|
|
25.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
388,194 |
|
|
$ |
26.14 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(6,484 |
) |
|
|
33.12 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010 |
|
|
381,710 |
|
|
$ |
25.96 |
|
|
3.6 years |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2010 |
|
|
344,029 |
|
|
$ |
25.17 |
|
|
3.4 years |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years-ended December 31, 2010 and 2009, there were no exercised stock options. The
total fair value of stock options vesting during the years ended December 31, 2010 and 2009 was
$376 and $450, respectively.
(Continued)
96
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 13 STOCK-BASED COMPENSATION (Continued)
Stock options outstanding at year-end 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
|
|
|
|
|
Remaining |
|
|
Average |
|
|
|
|
|
|
Remaining |
|
|
Average |
|
Range of |
|
Number |
|
|
Contractual |
|
|
Exercise |
|
|
Number |
|
|
Contractual |
|
|
Exercise |
|
Exercise Prices |
|
Outstanding |
|
|
Life |
|
|
Price |
|
|
Outstanding |
|
|
Life |
|
|
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$12.41 $15.00 |
|
|
24,142 |
|
|
|
1.8 |
|
|
$ |
12.95 |
|
|
|
24,142 |
|
|
|
1.8 |
|
|
$ |
12.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$15.01 $20.00 |
|
|
77,698 |
|
|
|
1.8 |
|
|
$ |
17.63 |
|
|
|
77,698 |
|
|
|
1.8 |
|
|
$ |
17.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$20.01 $25.00 |
|
|
50,635 |
|
|
|
3.1 |
|
|
$ |
23.36 |
|
|
|
50,635 |
|
|
|
3.1 |
|
|
$ |
23.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$25.01 $30.00 |
|
|
135,476 |
|
|
|
4.7 |
|
|
$ |
28.00 |
|
|
|
122,137 |
|
|
|
4.6 |
|
|
$ |
27.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$30.01 $36.32 |
|
|
93,759 |
|
|
|
4.4 |
|
|
$ |
34.80 |
|
|
|
69,417 |
|
|
|
3.8 |
|
|
$ |
34.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
381,710 |
|
|
|
|
|
|
|
|
|
|
|
344,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
97
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 13 STOCK-BASED COMPENSATION (Continued)
Restricted Stock
A summary of restricted stock activity under the Plan for the year ended December 31, 2010, 2009,
and 2008 is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Price Per |
|
|
|
Shares |
|
|
Share |
|
|
Balance at January 1, 2008 |
|
|
|
|
|
$ |
|
|
Granted: |
|
|
|
|
|
|
|
|
Non-employee Directors |
|
|
7,852 |
|
|
|
16.56 |
|
Executive officers & management |
|
|
62,015 |
|
|
|
19.20 |
|
Cancelled: |
|
|
|
|
|
|
|
|
Non-employee Directors |
|
|
|
|
|
|
|
|
Executive officers & management |
|
|
(8,960 |
) |
|
|
19.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
60,907 |
|
|
|
18.83 |
|
Granted: |
|
|
|
|
|
|
|
|
Non-employee Directors |
|
|
7,060 |
|
|
|
7.08 |
|
Non-executive officers & management |
|
|
56,934 |
|
|
|
7.08 |
|
Vested: |
|
|
|
|
|
|
|
|
Non-employee Directors |
|
|
(7,852 |
) |
|
|
16.56 |
|
Executive officers, non-executive officers & management |
|
|
(10,584 |
) |
|
|
19.16 |
|
Cancelled: |
|
|
|
|
|
|
|
|
Non-employee Directors |
|
|
|
|
|
|
|
|
Non-executive officers & management |
|
|
(5,207 |
) |
|
|
14.98 |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
101,258 |
|
|
$ |
11.74 |
|
Granted: |
|
|
|
|
|
|
|
|
Non-employee Directors |
|
|
6,548 |
|
|
|
6.11 |
|
Executive officers |
|
|
18,382 |
|
|
|
8.16 |
|
Vested: |
|
|
|
|
|
|
|
|
Non-employee Directors |
|
|
(7,060 |
) |
|
|
7.08 |
|
Executive officers, non-executive officers & management |
|
|
(20,335 |
) |
|
|
12.77 |
|
Cancelled: |
|
|
|
|
|
|
|
|
Executive officers |
|
|
(1,543 |
) |
|
|
16.56 |
|
Non-executive officers & management |
|
|
(5,968 |
) |
|
|
11.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
91,282 |
|
|
$ |
10.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of nonvested stock awards
granted during the year ended December 31, |
|
|
|
|
|
|
|
|
2010 |
|
$ |
7.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
$ |
7.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
$ |
18.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
98
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 13 STOCK-BASED COMPENSATION (Continued)
Cash Settled Stock Appreciation Rights
During 2010, only non-employee Directors received cash-settled stock appreciation rights (SARs).
During the years ended December 31, 2009 and 2008 the Company granted SARs awards to non-employee
Directors, executive officers and select employees. During the year ended December 31, 2007 only
select employees received SARs. Each award, when granted, provides the participant with the right
to receive payment in cash, upon exercise of each SAR, for the difference between the appreciation
in market value of a specified number of shares of the Companys Common Stock over the awards
exercise price. The SARs vest over the same period as the stock option awards issued and the
restricted stock grants and can only be exercised in tandem with the stock option awards or vesting
of the restricted stock grants. The per-share exercise price of an SAR is equal to the closing
market price of a share of the Companys common stock on the date of grant. For the year ended
December 31, 2010 the Company recorded an expense of $15 and for the year ended December 31, 2009
the Company recognized a recovery in expense of $24 related to outstanding awarded SARs. As of
December 31, 2010, there was no unrecognized compensation cost related to SARs. The cost is
measured at each reporting period until the award is settled. As of December 31, 2010, no cash
settled SARs had been exercised and as such, no share-based liabilities were paid.
A summary of the SAR activity during years ended December 31, 2010, 2009, and 2008 is presented
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Price Per |
|
|
|
SARs |
|
|
Share |
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2008 |
|
|
19,000 |
|
|
|
34.63 |
|
Granted: |
|
|
|
|
|
|
|
|
Non-employee Directors |
|
|
7,852 |
|
|
|
16.56 |
|
Executive officers & management |
|
|
62,015 |
|
|
|
19.20 |
|
Cancelled/Expired: |
|
|
|
|
|
|
|
|
Non-employee Directors |
|
|
|
|
|
|
|
|
Executive officers & management |
|
|
(8,960 |
) |
|
|
19.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
79,907 |
|
|
$ |
22.58 |
|
Granted: |
|
|
|
|
|
|
|
|
Non-employee Directors |
|
|
7,060 |
|
|
|
7.08 |
|
Non-executive officers & management |
|
|
56,934 |
|
|
|
7.08 |
|
Cancelled/Expired: |
|
|
|
|
|
|
|
|
Non-employee Directors |
|
|
(7,852 |
) |
|
|
16.56 |
|
Non-executive officers & management |
|
|
(15,817 |
) |
|
|
17.78 |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
120,232 |
|
|
$ |
15.36 |
|
Granted: |
|
|
|
|
|
|
|
|
Non-employee Directors |
|
|
6,548 |
|
|
|
6.11 |
|
Non-executive officers & management |
|
|
|
|
|
|
|
|
Cancelled/Expired: |
|
|
|
|
|
|
|
|
Non-employee Directors |
|
|
(7,060 |
) |
|
|
7.08 |
|
Non-executive officers & management |
|
|
(27,777 |
) |
|
|
12.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
91,943 |
|
|
$ |
16.12 |
|
|
|
|
|
|
|
|
(Continued)
99
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
Note 13 Stock-Based Compensation (CONTINUED)
|
|
|
|
|
|
|
|
|
Weighted-average fair value of cash-settled SARs granted during the year ended December 31, |
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
$ |
6.11 |
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
$ |
7.08 |
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
$ |
18.93 |
|
|
|
|
|
|
|
|
|
The following table illustrates the assumptions for the Black-Scholes model used in determining the
fair value of the SARs at the time of grant for the periods ending December 31.
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
2008 |
Risk-free interest rate |
|
|
0.307% |
|
|
0.67% 1.89% |
|
3.81% 3.85% |
|
|
|
|
|
|
|
|
|
Volatility |
|
|
57.06% |
|
|
40.18% |
|
29.46% 32.81% |
Expected life |
|
|
1 year |
|
|
1 5 years |
|
1 5 years |
Dividend yield |
|
|
0.00% |
|
|
7.34% |
|
3.54% |
Cash-settled SARs awarded in stock-based payment transactions are accounted for under ASC 718
which classifies these awards as liabilities. Accordingly, the Company records these awards as a
component of other non-current liabilities on the balance sheet. For liability awards, the fair
value of the award, which determines the measurement of the liability on the balance sheet, is
remeasured at each reporting period until the award is settled. Fluctuations in the fair value of
the liability award are recorded as increases or decreases in compensation cost, either immediately
or over the remaining service period, depending on the vested status of the award.
The risk-free interest rate is based upon a U.S. Treasury instrument with a life that is similar to
the expected life of the SAR. Expected volatility is based upon the historical volatility of the
Companys common stock based upon prior years trading history. The expected term of the SAR is
based upon the average life of previously issued stock options and restricted stock grants. The
expected dividend yield is based upon current yield on the date of grant. These SARs can only be
settled in tandem with the vesting of restricted stock awards and only if the value at settlement
date is greater than the value at award date.
(Continued)
100
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 14 EARNINGS (LOSS) PER SHARE
A reconciliation of the numerators and denominators of the earnings (loss) per common share and
earnings (loss) per common share assuming dilution computations are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Basic Earnings (Loss) Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(80,695 |
) |
|
$ |
(150,694 |
) |
|
$ |
(5,360 |
) |
Less: preferred stock dividends and accretion of discount on
warrants |
|
|
5,001 |
|
|
|
4,982 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
(85,696 |
) |
|
$ |
(155,676 |
) |
|
$ |
(5,452 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
13,093,847 |
|
|
|
13,068,407 |
|
|
|
12,932,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
(6.54 |
) |
|
$ |
(11.91 |
) |
|
$ |
(0.42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(80,695 |
) |
|
$ |
(150,694 |
) |
|
$ |
(5,360 |
) |
Less: preferred stock dividends and accretion of discount on
warrants |
|
|
5,001 |
|
|
|
4,982 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
(85,696 |
) |
|
$ |
(155,676 |
) |
|
$ |
(5,452 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
13,093,847 |
|
|
|
13,068,407 |
|
|
|
12,932,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Dilutive effects of assumed conversions of restricted stock
and exercises of stock options and warrants |
|
|
|
|
|
|
|
|
|
|
58,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and dilutive potential
common shares outstanding(1) (2) |
|
|
13,093,847 |
|
|
|
13,068,407 |
|
|
|
12,990,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share(1) (2) |
|
$ |
(6.54 |
) |
|
$ |
(11.91 |
) |
|
$ |
(0.42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Diluted weighted average shares outstanding for 2010 and 2009 excludes 92,979 and
96,971 shares of unvested restricted stock because they are anti-dilutive and is equal to weighted
average common shares outstanding. |
|
2 |
|
Stock options and warrants of 1,017,645, 1,058,992 and 387,121 were excluded from the
2010, 2009 and 2008 diluted earnings per share because their impact was anti-dilutive. |
(Continued)
101
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 15 PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
BALANCE SHEETS
Years ended December 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from financial institutions |
|
$ |
1,707 |
|
|
$ |
3,081 |
|
Investment in subsidiary |
|
|
228,590 |
|
|
|
308,831 |
|
Other |
|
|
4,795 |
|
|
|
4,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
235,092 |
|
|
$ |
316,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Subordinated debentures |
|
$ |
88,662 |
|
|
$ |
88,662 |
|
Other liabilities |
|
|
2,533 |
|
|
|
1,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
91,195 |
|
|
|
89,835 |
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
143,897 |
|
|
|
226,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
235,092 |
|
|
$ |
316,604 |
|
|
|
|
|
|
|
|
STATEMENTS OF INCOME
Years ended December 31, 2010, 2009, and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiary |
|
$ |
2,500 |
|
|
$ |
3,000 |
|
|
$ |
13,600 |
|
Other income |
|
|
96 |
|
|
|
180 |
|
|
|
241 |
|
Interest expense |
|
|
(1,980 |
) |
|
|
(2,577 |
) |
|
|
(4,555 |
) |
Other expense |
|
|
(2,002 |
) |
|
|
(1,718 |
) |
|
|
(2,022 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(1,386 |
) |
|
|
(1,115 |
) |
|
|
7,264 |
|
Income tax benefit |
|
|
(743 |
) |
|
|
(1,488 |
) |
|
|
(2,330 |
) |
Equity in undistributed net income (loss) of subsidiary |
|
|
(80,052 |
) |
|
|
(151,067 |
) |
|
|
(14,954 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(80,695 |
) |
|
|
(150,694 |
) |
|
|
(5,360 |
) |
Preferred stock dividends and accretion of discount on
warrants |
|
|
5,001 |
|
|
|
4,982 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
(85,696 |
) |
|
$ |
(155,676 |
) |
|
$ |
(5,452 |
) |
|
|
|
|
|
|
|
|
|
|
(Continued)
102
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 15 PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENTS OF CASH FLOWS
Years ended December 31, 2010, 2009, and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(80,695 |
) |
|
$ |
(150,694 |
) |
|
$ |
(5,360 |
) |
Adjustments to reconcile net income to net
cash provided (used) by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed (net income) loss of subsidiaries |
|
|
80,052 |
|
|
|
151,067 |
|
|
|
14,954 |
|
Stock compensation expense |
|
|
626 |
|
|
|
686 |
|
|
|
759 |
|
Change in other assets |
|
|
104 |
|
|
|
1,868 |
|
|
|
(1,413 |
) |
Change in liabilities |
|
|
1,250 |
|
|
|
(412 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities |
|
|
1,337 |
|
|
|
2,515 |
|
|
|
8,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment in bank subsidiary |
|
|
|
|
|
|
|
|
|
|
(77,278 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
|
|
|
|
(77,278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends paid |
|
|
(2,711 |
) |
|
|
(3,232 |
) |
|
|
|
|
Common stock dividends paid |
|
|
|
|
|
|
(1,713 |
) |
|
|
(6,779 |
) |
Proceeds from issuance of preferred stock |
|
|
|
|
|
|
|
|
|
|
72,278 |
|
Proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit resulting from stock options |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used in) financing activities |
|
|
(2,711 |
) |
|
|
(4,945 |
) |
|
|
65,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(1,374 |
) |
|
|
(2,430 |
) |
|
|
(2,737 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
|
3,081 |
|
|
|
5,511 |
|
|
|
8,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
1,707 |
|
|
$ |
3,081 |
|
|
$ |
5,511 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 16 OTHER COMPREHENSIVE INCOME
Other comprehensive income components were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Unrealized holding gains and (losses) on securities available
for sale, net of tax of $523, $1,105 and ($357), respectively |
|
$ |
810 |
|
|
$ |
1,712 |
|
|
$ |
(553 |
) |
Reclassification adjustment for losses (gains) realized in net
income, net of tax of $0, ($555) and ($1,044), respectively |
|
|
|
|
|
|
(860 |
) |
|
|
(1,617 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
$ |
810 |
|
|
$ |
852 |
|
|
$ |
(2,170 |
) |
|
|
|
|
|
|
|
|
|
|
(Continued)
103
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 17 SEGMENT INFORMATION
The Companys operating segments include banking, mortgage banking, consumer finance, subprime
automobile lending and title insurance. The reportable segments are determined by the products and
services offered, and internal reporting. Loans, mortgage banking, investments, and deposits
provide the revenues in the banking operation, loans and fees provide the revenues in consumer
finance and subprime lending and insurance commissions provide revenues for the title insurance
company. Consumer finance, subprime automobile lending and title insurance do not meet the
quantitative threshold for disclosure on an individual basis, and are therefore shown below in
other. All operations are domestic.
The accounting policies used are the same as those described in the summary of significant
accounting policies. Segment performance is evaluated using net interest income and noninterest
income. Income taxes are allocated based on income before income taxes and indirect expenses
(includes management fees) are allocated based on time spent for each segment. Transactions among
segments are made at fair value. Information reported internally for performance assessment
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Holding |
|
|
|
|
|
|
Total |
|
2010 |
|
Banking |
|
|
Segments |
|
|
Company |
|
|
Eliminations |
|
|
Segments |
|
Net interest income |
|
$ |
77,246 |
|
|
$ |
8,327 |
|
|
$ |
(1,980 |
) |
|
$ |
|
|
|
$ |
83,593 |
|
Provision for loan losses |
|
|
69,568 |
|
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
71,107 |
|
Noninterest income |
|
|
31,467 |
|
|
|
1,899 |
|
|
|
96 |
|
|
|
(918 |
) |
|
|
32,544 |
|
Noninterest expense |
|
|
105,088 |
|
|
|
4,643 |
|
|
|
2,002 |
|
|
|
(918 |
) |
|
|
110,815 |
|
Income tax expense (benefit) |
|
|
14,068 |
|
|
|
1,585 |
|
|
|
(743 |
) |
|
|
|
|
|
|
14,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss) |
|
$ |
(80,011 |
) |
|
$ |
2,459 |
|
|
$ |
(3,143 |
) |
|
$ |
|
|
|
$ |
(80,695 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
$ |
2,356,543 |
|
|
$ |
42,995 |
|
|
$ |
6,502 |
|
|
$ |
|
|
|
$ |
2,406,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Holding |
|
|
|
|
|
|
Total |
|
2009 |
|
Banking |
|
|
Segments |
|
|
Company |
|
|
Eliminations |
|
|
Segments |
|
Net interest income |
|
$ |
74,628 |
|
|
$ |
8,474 |
|
|
$ |
(2,577 |
) |
|
$ |
|
|
|
$ |
80,525 |
|
Provision for loan losses |
|
|
47,483 |
|
|
|
2,763 |
|
|
|
|
|
|
|
|
|
|
|
50,246 |
|
Noninterest income |
|
|
30,258 |
|
|
|
2,127 |
|
|
|
180 |
|
|
|
(987 |
) |
|
|
31,578 |
|
Noninterest expense |
|
|
223,989 |
|
|
|
4,868 |
|
|
|
1,717 |
|
|
|
(987 |
) |
|
|
229,587 |
|
Income tax expense (benefit) |
|
|
(16,712 |
) |
|
|
1,164 |
|
|
|
(1,488 |
) |
|
|
|
|
|
|
(17,036 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss) |
|
$ |
(149,874 |
) |
|
$ |
1,806 |
|
|
$ |
(2,626 |
) |
|
$ |
|
|
|
$ |
(150,694 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
$ |
2,568,926 |
|
|
$ |
42,251 |
|
|
$ |
7,962 |
|
|
$ |
|
|
|
$ |
2,619,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Holding |
|
|
|
|
|
|
Total |
|
2008 |
|
Banking |
|
|
Segments |
|
|
Company |
|
|
Eliminations |
|
|
Segments |
|
Net interest income |
|
$ |
91,900 |
|
|
$ |
7,680 |
|
|
$ |
(4,555 |
) |
|
$ |
|
|
|
$ |
95,025 |
|
Provision for loan losses |
|
|
50,074 |
|
|
|
2,736 |
|
|
|
|
|
|
|
|
|
|
|
52,810 |
|
Noninterest income |
|
|
32,012 |
|
|
|
2,231 |
|
|
|
241 |
|
|
|
(870 |
) |
|
|
33,614 |
|
Noninterest expense |
|
|
79,548 |
|
|
|
5,137 |
|
|
|
2,022 |
|
|
|
(870 |
) |
|
|
85,837 |
|
Income tax expense (benefit) |
|
|
(3,118 |
) |
|
|
800 |
|
|
|
(2,330 |
) |
|
|
|
|
|
|
(4,648 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss) |
|
$ |
(2,592 |
) |
|
$ |
1,238 |
|
|
$ |
(4,006 |
) |
|
$ |
|
|
|
$ |
(5,360 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
$ |
2,895,163 |
|
|
$ |
39,846 |
|
|
$ |
9,662 |
|
|
$ |
|
|
|
$ |
2,944,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
104
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 17 SEGMENT INFORMATION (continued)
Asset Quality Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the period ended December 31, 2010 |
|
Bank |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as percentage of total loans, net of unearned income |
|
|
8.40 |
% |
|
|
1.30 |
% |
|
|
8.35 |
% |
Nonperforming assets as a percentage of total assets |
|
|
8.52 |
% |
|
|
1.34 |
% |
|
|
8.56 |
% |
Allowance for loan losses as a percentage of total loans, net of
unearned income |
|
|
3.68 |
% |
|
|
7.33 |
% |
|
|
3.83 |
% |
Allowance for loan losses as a percentage of nonperforming loans |
|
|
43.80 |
% |
|
|
562.24 |
% |
|
|
45.83 |
% |
Net charge-offs to average total loans, net of unearned income |
|
|
2.76 |
% |
|
|
4.20 |
% |
|
|
2.84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the period ended December 31, 2009 |
|
Bank |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as percentage of total loans, net of unearned income |
|
|
3.69 |
% |
|
|
1.50 |
% |
|
|
3.70 |
% |
Nonperforming assets as a percentage of total assets |
|
|
5.04 |
% |
|
|
2.02 |
% |
|
|
5.07 |
% |
Allowance for loan losses as a percentage of total loans, net of
unearned income |
|
|
2.30 |
% |
|
|
8.05 |
% |
|
|
2.45 |
% |
Allowance for loan losses as a percentage of nonperforming loans |
|
|
62.29 |
% |
|
|
538.31 |
% |
|
|
66.39 |
% |
Net charge-offs to average total loans, net of unearned income |
|
|
2.15 |
% |
|
|
5.88 |
% |
|
|
2.25 |
% |
(Continued)
105
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
NOTE 18 SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Presented below is a summary of the consolidated quarterly financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
Summary of Operations |
|
3/31/10 |
|
|
6/30/10 |
|
|
9/30/10 |
|
|
12/31/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
21,659 |
|
|
$ |
21,473 |
|
|
$ |
20,747 |
|
|
$ |
19,714 |
|
Provision for loan losses |
|
|
3,889 |
|
|
|
4,749 |
|
|
|
36,823 |
|
|
|
25,646 |
|
Noninterest income |
|
|
7,686 |
|
|
|
8,771 |
|
|
|
9,029 |
|
|
|
7,058 |
|
Noninterest expense |
|
|
20,546 |
|
|
|
21,274 |
|
|
|
27,009 |
|
|
|
41,986 |
|
Income tax expense (benefit) |
|
|
1,714 |
|
|
|
1,410 |
|
|
|
1,098 |
|
|
|
10,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
3,196 |
|
|
$ |
2,811 |
|
|
$ |
(35,154 |
) |
|
$ |
(51,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common
shareholders |
|
$ |
1,946 |
|
|
$ |
1,561 |
|
|
$ |
(36,405 |
) |
|
$ |
(52,798 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
4,166 |
|
|
$ |
3,705 |
|
|
$ |
(34,583 |
) |
|
$ |
(53,173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share |
|
$ |
0.15 |
|
|
$ |
0.12 |
|
|
$ |
(2.78 |
) |
|
$ |
(4.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share |
|
$ |
0.15 |
|
|
$ |
0.12 |
|
|
$ |
(2.78 |
) |
|
$ |
(4.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
Average common shares outstanding |
|
|
13,082,347 |
|
|
|
13,097,611 |
|
|
|
13,097,611 |
|
|
|
13,097,611 |
|
Average common shares outstanding diluted |
|
|
13,172,727 |
|
|
|
13,192,648 |
|
|
|
13,097,611 |
|
|
|
13,097,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
Summary of Operations |
|
3/31/09 |
|
|
6/30/09 |
|
|
9/30/09 |
|
|
12/31/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
19,429 |
|
|
$ |
20,180 |
|
|
$ |
20,338 |
|
|
$ |
20,578 |
|
Provision for loan losses |
|
|
985 |
|
|
|
24,384 |
|
|
|
18,475 |
|
|
|
6,402 |
|
Noninterest income |
|
|
6,943 |
|
|
|
7,541 |
|
|
|
9,189 |
|
|
|
8,134 |
|
Noninterest expense |
|
|
17,831 |
|
|
|
169,143 |
|
|
|
22,365 |
|
|
|
20,477 |
|
Income tax expense (benefit) |
|
|
2,776 |
|
|
|
(15,656 |
) |
|
|
(4,815 |
) |
|
|
659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,780 |
|
|
$ |
(150,150 |
) |
|
$ |
(6,498 |
) |
|
$ |
1,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common
shareholders |
|
$ |
3,548 |
|
|
$ |
(151,400 |
) |
|
$ |
(7,748 |
) |
|
$ |
(76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
5,668 |
|
|
$ |
(150,557 |
) |
|
$ |
(5,073 |
) |
|
$ |
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share |
|
$ |
0.27 |
|
|
$ |
(11.58 |
) |
|
$ |
(0.59 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share |
|
$ |
0.27 |
|
|
$ |
(11.58 |
) |
|
$ |
(0.59 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share |
|
$ |
0.13 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
Average common shares outstanding |
|
|
13,062,881 |
|
|
|
13,070,216 |
|
|
|
13,070,216 |
|
|
|
13,070,216 |
|
Average common shares outstanding diluted |
|
|
13,141,840 |
|
|
|
13,070,216 |
|
|
|
13,070,216 |
|
|
|
13,070,216 |
|
(Continued)
106
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
|
|
|
ITEM 9A. |
|
CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
The Company, with the participation of its management, including the Companys Chief Executive
Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design
and operation of its disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15
under the Exchange Act) as of the end of the period covered by this Report.
Based upon that evaluation and as of the end of the period covered by this Report, the
Companys Chief Executive Officer and Chief Financial Officer concluded that, as a result of the
deficiencies identified in internal controls that when evaluated in combination give rise to a
material weakness as described above under the caption entitled Managements Report on Internal
Control Over Financial Reporting in Item 8 of this Report, the Companys disclosure controls and
procedures were not effective to ensure that information required to be disclosed in its reports
that the Company files or submits to the Securities and Exchange Commission under the Exchange Act
is recorded, processed, summarized and reported on a timely basis. In light of this material
weakness, in preparing the Companys Consolidated Financial Statements included in this Report, the
Company performed a thorough review of credit quality, focusing especially on the timely receipt
and review of updated appraisals from outside independent third parties and internal supporting
documentation to ensure that the Companys Consolidated Financial Statements included in this
Report have been prepared in accordance with U.S. GAAP.
The Companys Chief Executive Officer and Chief Financial Officer have certified that, based on
their knowledge, the Companys Consolidated Financial Statements included in this Report fairly
present in all material respects the Companys financial condition, results of operations and cash
flows for the periods presented in this Report.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company has included a report
of managements assessment of the design and operating effectiveness of its internal controls as
part of this Report.
Changes In Internal Control Over Financial Reporting
Managements assessment of the Companys internal control over financial reporting identified
deficiencies in the Companys internal control over financial reporting at December 31, 2010
related to: 1) the timely receipt and review of updated appraisals received from outside
independent third parties. The increased volume of impaired and nonperforming assets requiring
updated valuations during the second half of 2010 resulted in an internal control deficiency
related to the timely acquisition and review of these appraisals. 2) A new process was implemented
with the establishment of the Special Assets Group where appraisals, once received, are sent to an
independent external appraisal review service. Controls surrounding this process in regards to the
potential impairment of an asset prior to the completion of our review process are in the process
of being documented. 3) Documentation and review of supporting documentation relating to impaired
loans and other real estate owned. Areas were identified where the documentation supporting certain
impaired loans and other real estate owned charge-offs were lacking in sufficient detail and did
not provide adequate evidence of secondary review. Other than the remediation plan identified
below for these deficiencies, there were no changes in the Companys internal control over
financial reporting that occurred during the fourth quarter that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over financial reporting.
107
Remediation plan for significant deficiencies in internal control over financial reporting:
Prior to and subsequent to December 31, 2010, and following managements identification of the
above-referenced deficiencies, management began taking steps to remediate those identified. These
ongoing efforts that commenced during 2010 and continuing on in 2011 included the following:
|
|
|
During the fourth quarter and as of December 31, 2010 all
appraisals on impaired assets are, and will continue to
be, ordered 90 days prior to the annual appraisal date, or
when evidence of impairment has
occurred, and submitted to the independent third party for
review upon completion, in order to assure that all
appraisals on impaired assets are received in accordance
with the Companys internal policies; |
|
|
|
|
Pre-reviewed appraisals indicating evidence that
impairment has occurred will be separately reviewed and
discussed in the monthly valuation meeting held between
the Special Assets Group, Loan Review and Accounting to
ensure that there is adequate documentation of the
consideration for recording a potential impairment when
the review process is not 100% complete but it is probable
that a loss has been incurred; and |
|
|
|
|
Controls evidencing adequate secondary review and approval
of impaired loan valuations and other real estate owned
will be appropriately documented and evident within the
Special Assets Group. |
Management anticipates that these remedial actions will strengthen the Companys internal
control over financial reporting and will address the individual deficiencies identified as of
December 31, 2010. Because some of these remedial actions will take place on a quarterly basis,
their successful implementation will continue to be evaluated before management is able to conclude
that the deficiencies have been remediated.
Management Report on Internal Control Over Financial Reporting
The report of the Companys management on the effectiveness of the Companys internal control
over financial reporting is set forth on page 56 of this Annual Report on Form 10-K. The
attestation of the Companys independent registered public accounting firm related to the Companys
internal control over financial reporting is set forth on pages 57 and 58 of this Annual Report on
Form 10-K.
|
|
|
ITEM 9B. |
|
OTHER INFORMATION. |
None.
108
PART III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The information required by this item is incorporated herein by reference to the sections
captioned Proposal 2 Election of Directors; Corporate Governance Section 16(a) Beneficial
Ownership Reporting Compliance; Corporate Governance Code of Conduct; Corporate Governance
Meetings and Committees of the Board; and Executive Officers of Green Bankshares in the
Companys definitive Proxy Statement for the 2011 Annual Meeting of Shareholders (the Proxy
Statement).
|
|
|
ITEM 11. |
|
EXECUTIVE COMPENSATION. |
The information required by this item is incorporated herein by reference to the sections
captioned Executive Compensation and Corporate Governance Compensation Committee Interlocks
and Insider Participation of the Proxy Statement.
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
(a) |
|
Security Ownership of Certain Beneficial Owners. |
|
|
Information required by this item is incorporated herein by reference to the section captioned
Security Ownership of Certain Beneficial Owners and Management in the Proxy Statement. |
(b) |
|
Security Ownership of Management. |
|
|
Information required by this item is incorporated herein by reference to the section captioned
Security Ownership of Certain Beneficial Owners and Management in the Proxy Statement. |
|
|
Management of the Company knows of no arrangements, including any pledge by any person of
securities of the Company, the operation of which may at a subsequent date result in a change in
control of the registrant. |
(d) |
|
Equity Compensation Plan Information. |
|
|
The following table sets forth certain information with respect to securities to be issued under
the Companys equity compensation plans as of December 31, 2010. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
Number of securities |
|
|
Weighted-average |
|
|
remaining available for |
|
|
|
to be issued upon |
|
|
exercise price of |
|
|
future issuance under |
|
|
|
exercise of |
|
|
outstanding |
|
|
equity compensation plans |
|
|
|
outstanding options, |
|
|
options, warrants |
|
|
(excluding securities |
|
Plan Category |
|
warrants and rights |
|
|
and rights |
|
|
reflected in column (a)) |
|
Equity compensation plans approved by
security holders |
|
|
345,710 |
|
|
$ |
27.13 |
|
|
|
170,324 |
|
Equity compensation plans not approved by
security holders |
|
|
36,000 |
|
|
$ |
16.33 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
381,710 |
|
|
$ |
25.96 |
|
|
|
170,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
R. Stan Puckett, was the sole participant under this plan, which was a part of Mr. Pucketts
employment agreement. This employment
agreement was amended during 2005 to provide that future option grants to the key executive
would be made at no less than fair market
value on the date of grant in order to comply with Section 409A of the Internal Revenue Code
of 1986, as amended. |
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE. |
The information required by this item is incorporated herein by reference to the sections
captioned Proposal 2 Election of Directors and Corporate Governance Certain Transactions
in the Proxy Statement.
109
|
|
|
ITEM 14. |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
The responses to this Item are incorporated herein by reference to the section captioned
Proposal 5 Ratification of the Appointment of the Independent Registered Public Accounting
Firm in the Proxy Statement.
PART IV
|
|
|
ITEM 15. |
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
(a)(1) |
|
The following consolidated financial statements of the Company included in the
Companys 2010 Annual Report to the Shareholders (the Annual Report) are incorporated herein
by reference from Item 8 of this Form 10-K. The remaining information appearing in the Annual
Report is not deemed to be filed as part of this Form 10-K, except as expressly provided
herein. |
|
1. |
|
Report of Independent Registered Public Accounting Firm. |
|
2. |
|
Consolidated Balance Sheets December 31, 2010 and 2009. |
|
3. |
|
Consolidated Statements of Income for the Years Ended December 31, 2010, 2009
and 2008. |
|
4. |
|
Consolidated Statements of Changes in Shareholders Equity for the Years Ended
December 31, 2010, 2009 and 2008. |
|
5. |
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010,
2009 and 2008. |
|
6. |
|
Notes to Consolidated Financial Statements. |
(a)(2) |
|
All schedules for which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are not required under the related instructions or are
inapplicable and therefore have been omitted. |
(a)(3) |
|
The following exhibits either are filed as part of this Report or are incorporated herein by
reference: |
|
|
|
|
|
|
2.1 |
|
|
Merger Agreement, dated as of January 25, 2007, by and between Greene County
Bancshares, Inc. and Civitas Bankgroup, Inc. (Pursuant to Item 601(b)(2) of
Regulation S-K the schedules and exhibits to this agreement have been omitted from this
filing) incorporated herein by reference to the Companys Current Report on Form 8-K
filed January 26, 2007. |
|
|
|
|
|
|
3.1 |
|
|
Amended and Restated Charter incorporated herein by reference to the
Companys Current Report on Form 8-K12G3/A filed on January 22, 2009. |
|
|
|
|
|
|
3.2 |
|
|
Amended and Restated Bylaws incorporated herein by reference to the
Companys Current Report on Form 8-K filed on November 20, 2007. |
|
|
|
|
|
|
4.1 |
|
|
Form of Certificate for the Series A Preferred Stock incorporated herein by
reference to the Companys Current Report on Form 8-K filed on December 23, 2008. |
|
|
|
|
|
|
4.2 |
|
|
Warrant for Purchase of Shares of Common Stock dated December 23, 2008
incorporated herein by reference to the Companys Current Report on Form 8-K filed on
December 23, 2008. |
|
|
|
|
|
|
10.1 |
|
|
Employment Agreement and Amendment to Employment Agreement between the Company
and R. Stan Puckett incorporated herein by reference to the Companys Current Report
on Form 8-K filed on January 7, 2008.* |
110
|
|
|
|
|
|
10.2 |
|
|
Employment Agreement between the Company and Kenneth R. Vaught incorporated
herein by reference to the Companys Current Report on Form 8-K filed on January 7,
2008.* |
|
|
|
|
|
|
10.3 |
|
|
Employment Agreement between the Company and Ronald E. Mayberry incorporated
herein by reference to the Companys Annual Report on Form 10-K for the year ended
December 31, 2003.* |
|
|
|
|
|
|
10.4 |
|
|
Non-competition Agreement between the Company and R. Stan Puckett
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2003.* |
|
|
|
|
|
|
10.5 |
|
|
Non-competition Agreement between the Company and Kenneth R. Vaught
incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004.* |
|
|
|
|
|
|
10.6 |
|
|
Green Bankshares, Inc. Amended and Restated 2004 Long-Term Incentive Plan.
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2008.* |
|
|
|
|
|
|
10.7 |
|
|
Greene County Bancshares, Inc. Amended and Restated Deferred Compensation Plan
for Non-employee Directors incorporated herein by reference to the Companys Current
Report on Form 8-K filed on December 17, 2004.* |
|
|
|
|
|
|
10.8 |
|
|
Form of Stock Option Award Agreement incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.* |
|
|
|
|
|
|
10.9 |
|
|
Deferred Fee Agreement between the Bank and John Tolsma dated December 13, 2004
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2004.* |
|
|
|
|
|
|
10.10 |
|
|
Amendment and Restatement of the Greene County Bank Deferred Compensation
Agreements dated March 11, 1997, March 1, 1999 and November 15, 2004 between the Bank
and Philip M. Bachman dated March 11, 2005 incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.* |
|
|
|
|
|
|
10.11 |
|
|
Amendment and Restatement of the Greene County Bank Deferred Compensation
Agreement dated March 1, 1999 between the Bank and W.T. Daniels dated March 11, 2005
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2004.* |
|
|
|
|
|
|
10.12 |
|
|
Amendment and Restatement of the Greene County Bank Deferred Compensation
Agreement dated March 1, 1999 between the Bank and Terry Leonard dated March 11, 2005
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2004.* |
|
|
|
|
|
|
10.13 |
|
|
Amendment and Restatement of the Greene County Bank Deferred Compensation
Agreement dated May 1, 1999 between the Bank and Charles S. Brooks dated March 11, 2005
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2004.* |
|
|
|
|
|
|
10.14 |
|
|
Amendment and Restatement of the Greene County Bank Deferred Compensation
Agreement dated May 1, 1999 between the Bank and Jerald K. Jaynes dated March 11, 2005
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2004.* |
|
|
|
|
|
|
10.15 |
|
|
Amendment and Restatement of the Greene County Bank Deferred Compensation
Agreement dated May 1, 2003 between the Bank and Charles H. Whitfield, Jr. dated March
11, 2005
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2004.* |
111
|
|
|
|
|
|
10.16 |
|
|
Greene County Bank Executive Deferred Compensation Agreement between the Bank
and R. Stan Puckett dated March 11, 2005 incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.* |
|
|
|
|
|
|
10.17 |
|
|
Greene County Bank Executive Deferred Compensation Agreement between the Bank
and Kenneth R. Vaught dated March 11, 2005 incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.* |
|
|
|
|
|
|
10.18 |
|
|
Greene County Bank Executive Deferred Compensation Agreement between the Bank
and Ronald E. Mayberry dated March 11, 2005 incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.* |
|
|
|
|
|
|
10.19 |
|
|
Greene County Bancshares, Inc. Change in Control Protection Plan
incorporated herein by reference to the Companys Current Report on Form 8-K filed on
October 26, 2004.* |
|
|
|
|
|
|
10.20 |
|
|
Greene County Bancshares, Inc. Change in Control Protection Plan Participation
Agreement between the Company and Steve L. Droke incorporated herein by reference to
the Companys Current Report on Form 8-K filed on October 26, 2004.* |
|
|
|
|
|
|
10.21 |
|
|
Greene County Bancshares, Inc. Change in Control Protection Plan Participation
Agreement between the Company and Ronald E. Mayberry incorporated herein by
reference to the Companys Current Report on Form 8-K filed on October 26, 2004.* |
|
|
|
|
|
|
10.22 |
|
|
Summary of Compensation Arrangement for James E. Adams incorporated herein
by reference to the Companys Current Report on Form 8-K filed on November 15, 2005.* |
|
|
|
|
|
|
10.23 |
|
|
Amended and Restated Deferred Compensation Plan for Nonemployee Directors
incorporated herein by reference to the Companys Current Report on Form 8-K filed on
December 21, 2005.* |
|
|
|
|
|
|
10.24 |
|
|
Greene County Bancshares, Inc. Change in Control Protection Plan Participation
Agreement between the Company and James E. Adams incorporated by reference to the
Companys Current Report on Form 8-K filed March 12, 2007.* |
|
|
|
|
|
|
10.25 |
|
|
Form of Stock Appreciation Right Award Agreement incorporated by reference
to the Companys Current Report on Form 8-K filed March 23, 2007.* |
|
|
|
|
|
|
10.26 |
|
|
Amended and Restated Trust Agreement of GreenBank Capital Trust I (GB Trust
I) dated as of May 16, 2007 by and among the Greene County Bancshares, Inc., as
Depositor, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as
Delaware Trustee and the Administrative Trustees named therein (the GB Capital Trust
Agreement) incorporated by reference to the Companys Quarterly Report on Form 10-Q
for the quarter ended June 30, 2007. |
|
|
|
|
|
|
10.27 |
|
|
Form of Certificate for Common Securities of GB Trust I included as Exhibit B
to the GB Capital Trust Agreement incorporated by reference to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
|
|
|
|
|
|
10.28 |
|
|
Form of Certificate for Preferred Securities of GB Trust I included as Exhibit
C to the GB Capital Trust Agreement incorporated by reference to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
|
|
|
|
|
|
10.29 |
|
|
Junior Subordinated Indenture dated as of May 16, 2007 between the Company and
Wilmington Trust Company, as Trustee included as Exhibit D to the GB Capital Trust
Agreement (the Junior Subordinated Indenture) incorporated by reference to the
Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
112
|
|
|
|
|
|
10.30 |
|
|
Form of Certificate for $57,732,000 Note issued pursuant to the Junior
Subordinated Indenture included as Sections 2.1 and 2.2 to the Junior Subordinated
Indenture incorporated by reference to the Companys Quarterly Report on Form 10-Q
for the quarter ended June 30, 2007. |
|
|
|
|
|
|
10.31 |
|
|
Guarantee Agreement dated as of May 16, 2007 between Greene County Bancshares,
Inc., as Guarantor and Wilmington Trust Company, as Guarantee Trustee incorporated
by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended June
30, 2007. |
|
|
|
|
|
|
10.32 |
|
|
Form of Restricted Stock Agreement incorporated by reference to the
Companys Current Report on Form 8-K filed January 23, 2008.* |
|
|
|
|
|
|
10.33 |
|
|
Form of Stock Appreciation Right Agreement incorporated by reference to the
Companys Current Report on Form 8-K filed February 29, 2008.* |
|
|
|
|
|
|
10.34 |
|
|
Letter agreement, dated December 23, 2008, between the Company and the United
States Department of Treasury, including Securities Purchase Agreement Standard
Terms with respect to the issuance and sale of the Series A preferred shares and the
Warrant incorporated by reference to the Companys Current Report on Form 8-K filed
December 23, 2008. |
|
|
|
|
|
|
10.35 |
|
|
Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and R. Stan Puckett dated December 23, 2008 incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2008.* |
|
|
|
|
|
|
10.36 |
|
|
Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and Kenneth R. Vaught dated December 23, 2008 incorporated herein by reference
to the Companys Annual Report on Form 10-K for the year ended December 31, 2008.* |
|
|
|
|
|
|
10.37 |
|
|
Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and James E. Adams dated December 23, 2008 incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2008.* |
|
|
|
|
|
|
10.38 |
|
|
Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and Steve L. Droke dated December 23, 2008 incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2008.* |
|
|
|
|
|
|
10.39 |
|
|
Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and William C. Adams dated December 23, 2008 incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2008.* |
|
|
|
|
|
|
10.40 |
|
|
Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and R. Stan Puckett dated December 3, 2009* incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2009.* |
|
|
|
|
|
|
10.41 |
|
|
Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and Kenneth R. Vaught dated December 4, 2009 incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2009.* |
|
|
|
|
|
|
10.42 |
|
|
Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and James E. Adams dated December 1, 2009 incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2009.* |
|
|
|
|
|
|
10.43 |
|
|
Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and Steve L. Droke December 3, 2009 incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31, 2009.* |
113
|
|
|
|
|
|
10.44 |
|
|
Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and William C. Adams dated December 2, 2009 incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2009.* |
|
|
|
|
|
|
10.45 |
|
|
Greene County Bancshares, Inc. Change in Control Protection Plan Participation
Agreement between the Company and William C. Adams incorporated herein by reference
to the Companys Annual Report on Form 10-K for the year ended December 31, 2008.* |
|
|
|
|
|
|
10.46 |
|
|
Letter Agreement, effective March 15, 2010, by and among Green Bankshares,
Inc., GreenBank and Stephen M. Rownd incorporated herein by reference to the
Companys Current Report on Form 8-K filed March 18, 2010.* |
|
|
|
|
|
|
10.47 |
|
|
Consulting Agreement by and among Green Bankshares, Inc., GreenBank and R.
Stan Puckett, dated April 1, 2010 incorporated herein by reference to the Companys
Current Report on Form 8-K filed April 1, 2010.* |
|
|
|
|
|
|
10.48 |
|
|
Form of TARP CPP Executive Officer Restricted Stock Award Agreement
incorporated herein by reference to the Companys Current Report on Form 8-K filed
April 2, 2010.* |
|
|
|
|
|
|
10.49 |
|
|
R. Stan Puckett First Amendment to the Greene County Bank Executive
Deferred Compensation Agreement incorporated herein by reference to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.* |
|
|
|
|
|
|
10.50 |
|
|
R. Stan Puckett Second Amendment to the Greene County Bancshares, Inc.
Non-Competition Agreement incorporated herein by reference to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.* |
|
|
|
|
|
|
10.51 |
|
|
Director and Named Executive Officer Compensation Summary.* |
|
|
|
|
|
|
11.1 |
|
|
Statement re
Computation of Per Share Earnings incorporated by reference to Note 14 of the Notes
to Consolidated Financial Statements herein. |
|
|
|
|
|
|
21.1 |
|
|
Subsidiaries of the Company. |
|
|
|
|
|
|
23.1 |
|
|
Consent of Dixon Hughes PLLC. |
|
|
|
|
|
|
31.1 |
|
|
Chief Executive Officer Certification Pursuant to Rule 13a-14(a)/15d-14(a). |
|
|
|
|
|
|
31.2 |
|
|
Chief Financial Officer Certification Pursuant to Rule 13a-14(a)/15d-14(a). |
|
|
|
|
|
|
32.1 |
|
|
Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.2 |
|
|
Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
99.1 |
|
|
Certification of Chief Executive Officer under the Capital Purchase Program of
the Troubled Assets Relief Program. |
|
|
|
|
|
|
99.2 |
|
|
Certification of Chief Financial Officer under the Capital Purchase Program of
the Troubled Assets Relief Program. |
|
|
|
* |
|
Management contract or compensatory plan. |
114
The Company is a party to certain agreements entered into in connection with the offering by
Greene County Capital Trust I, Greene County Capital Trust II, GreenBank Capital Trust I, Civitas
Statutory Trust I and Cumberland Capital Statutory Trust II of an aggregate of $86 million of
variable rate trust preferred securities, as more fully described in this Annual Report on Form
10-K. In accordance with Item 601(b)(4)(iii) of Regulation S-K, and because the total amount of
the trust preferred securities is not in excess of 10% of the Companys total
assets, the Company has not filed the various documents and agreements associated with certain
of these trust preferred securities herewith. The Company has, however, agreed to furnish copies
the various documents and agreements associated with the trust preferred securities to the SEC upon
request.
|
(b) |
|
Exhibits. The exhibits required by Item 601 of Regulation S-K are
either filed as part of this Annual Report on Form 10-K or incorporated herein by
reference. |
|
(c) |
|
Financial Statements and Financial Statement Schedules Excluded From Annual
Report. There are no financial statements and financial statement schedules which
were excluded from the Annual Report pursuant to Rule 14a-3(b)(1) which are required to
be included herein. |
115
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
|
|
|
GREEN BANKSHARES, INC. |
|
|
|
|
|
|
|
|
|
Date: March 15, 2011
|
|
By:
|
|
/s/ Stephen M. Rownd
Stephen M. Rownd
|
|
|
|
|
|
|
Chairman of the Board and |
|
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
(Duly Authorized Representative) |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
SIGNATURE AND TITLE: |
|
DATE: |
|
|
|
/s/ Stephen M. Rownd
Stephen M. Rownd
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
|
|
March 15, 2011 |
|
|
|
/s/ Kenneth R. Vaught
Kenneth R. Vaught
President, Chief Operating Officer, and Director
|
|
March 15, 2011 |
|
|
|
/s/ James E. Adams
James E. Adams
Executive Vice President, Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
|
|
March 15, 2011 |
|
|
|
/s/ Martha M. Bachman
Martha Bachman
Director
|
|
March 15, 2011 |
|
|
|
/s/ Bruce Campbell
Bruce Campbell
Director
|
|
March 15, 2011 |
|
|
|
/s/ W. T. Daniels
W.T. Daniels
Director
|
|
March 15, 2011 |
|
|
|
/s/ Robert K. Leonard
Robert K. Leonard
Director
|
|
March 15, 2011 |
|
|
|
/s/ Samuel E. Lynch
Samuel E. Lynch
Director
|
|
March 15, 2011 |
|
|
|
/s/ Bill Mooningham
Bill Mooningham
Director
|
|
March 15, 2011 |
|
|
|
/s/ John Tolsma
John Tolsma
Director
|
|
March 15, 2011 |
|
|
|
/s/ Charles H. Whitfield, Jr.
Charles H. Whitfield, Jr.
Director
|
|
March 15, 2011 |
116
EXHIBIT INDEX
|
|
|
|
|
|
2.1 |
|
|
Merger Agreement, dated as of January 25, 2007, by and between Greene County
Bancshares, Inc. and Civitas Bankgroup, Inc. (Pursuant to Item 601(b)(2) of
Regulation S-K the schedules and exhibits to this agreement have been omitted from this
filing) incorporated herein by reference to the Companys Current Report on Form 8-K
filed January 26, 2007. |
|
|
|
|
|
|
3.3 |
|
|
Amended and Restated Charter incorporated herein by reference to the
Companys Current Report on Form 8-K12G3/A filed on January 22, 2009. |
|
|
|
|
|
|
3.4 |
|
|
Amended and Restated Bylaws incorporated herein by reference to the
Companys Current Report on Form 8-K filed on November 20, 2007. |
|
|
|
|
|
|
4.1 |
|
|
Form of Certificate for the Series A Preferred Stock incorporated herein by
reference to the Companys Current Report on Form 8-K filed on December 23, 2008. |
|
|
|
|
|
|
4.2 |
|
|
Warrant for Purchase of Shares of Common Stock dated December 23, 2008
incorporated herein by reference to the Companys Current Report on Form 8-K filed on
December 23, 2008. |
|
|
|
|
|
|
10.1 |
|
|
Employment Agreement and Amendment to Employment Agreement between the Company
and R. Stan Puckett incorporated herein by reference to the Companys Current Report
on Form 8-K filed on January 7, 2008.* |
|
|
|
|
|
|
10.2 |
|
|
Employment Agreement between the Company and Kenneth R. Vaught incorporated
herein by reference to the Companys Current Report on Form 8-K filed on January 7,
2008.* |
|
|
|
|
|
|
10.3 |
|
|
Employment Agreement between the Company and Ronald E. Mayberry incorporated
herein by reference to the Companys Annual Report on Form 10-K for the year ended
December 31, 2003.* |
|
|
|
|
|
|
10.4 |
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Non-competition Agreement between the Company and R. Stan Puckett
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2003.* |
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10.5 |
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Non-competition Agreement between the Company and Kenneth R. Vaught
incorporated herein by reference to the Companys Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004.* |
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10.6 |
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Green Bankshares, Inc. Amended and Restated 2004 Long-Term Incentive Plan.
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2008.* |
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10.7 |
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Greene County Bancshares, Inc. Amended and Restated Deferred Compensation Plan
for Non-employee Directors incorporated herein by reference to the Companys Current
Report on Form 8-K filed on December 17, 2004.* |
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10.8 |
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Form of Stock Option Award Agreement incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.* |
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10.9 |
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Deferred Fee Agreement between the Bank and John Tolsma dated December 13, 2004
- incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2004.* |
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10.10 |
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Amendment and Restatement of the Greene County Bank Deferred Compensation
Agreements dated March 11, 1997, March 1, 1999 and November 15, 2004 between the Bank
and Philip M. Bachman dated March 11, 2005 incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.* |
117
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10.11 |
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Amendment and Restatement of the Greene County Bank Deferred Compensation
Agreement dated March 1, 1999 between the Bank and W.T. Daniels dated March 11, 2005
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2004.* |
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10.12 |
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Amendment and Restatement of the Greene County Bank Deferred Compensation
Agreement dated March 1, 1999 between the Bank and Terry Leonard dated March 11, 2005
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2004.* |
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10.13 |
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Amendment and Restatement of the Greene County Bank Deferred Compensation
Agreement dated May 1, 1999 between the Bank and Charles S. Brooks dated March 11, 2005
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2004.* |
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10.14 |
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Amendment and Restatement of the Greene County Bank Deferred Compensation
Agreement dated May 1, 1999 between the Bank and Jerald K. Jaynes dated March 11, 2005
incorporated herein by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2004.* |
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10.15 |
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Amendment and Restatement of the Greene County Bank Deferred Compensation
Agreement dated May 1, 2003 between the Bank and Charles H. Whitfield, Jr. dated March
11, 2005 incorporated herein by reference to the Companys Annual Report on Form 10-K
for the year ended December 31, 2004.* |
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10.16 |
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Greene County Bank Executive Deferred Compensation Agreement between the Bank
and R. Stan Puckett dated March 11, 2005 incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.* |
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10.17 |
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Greene County Bank Executive Deferred Compensation Agreement between the Bank
and Kenneth R. Vaught dated March 11, 2005 incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.* |
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10.18 |
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Greene County Bank Executive Deferred Compensation Agreement between the Bank
and Ronald E. Mayberry dated March 11, 2005 incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.* |
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10.19 |
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Greene County Bancshares, Inc. Change in Control Protection Plan
incorporated herein by reference to the Companys Current Report on Form 8-K filed on
October 26, 2004.* |
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10.20 |
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Greene County Bancshares, Inc. Change in Control Protection Plan Participation
Agreement between the Company and Steve L. Droke incorporated herein by reference to
the Companys Current Report on Form 8-K filed on October 26, 2004.* |
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10.21 |
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Greene County Bancshares, Inc. Change in Control Protection Plan Participation
Agreement between the Company and Ronald E. Mayberry incorporated herein by
reference to the Companys Current Report on Form 8-K filed on October 26, 2004.* |
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10.22 |
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Summary of Compensation Arrangement for James E. Adams incorporated herein
by reference to the Companys Current Report on Form 8-K filed on November 15, 2005.* |
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10.23 |
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Amended and Restated Deferred Compensation Plan for Nonemployee Directors
incorporated herein by reference to the Companys Current Report on Form 8-K filed on
December 21, 2005.* |
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10.24 |
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Greene County Bancshares, Inc. Change in Control Protection Plan Participation
Agreement between the Company and James E. Adams incorporated by reference to the
Companys Current Report on Form 8-K filed March 12, 2007.* |
118
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10.25 |
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Form of Stock Appreciation Right Award Agreement incorporated by reference
to the Companys Current Report on Form 8-K filed March 23, 2007.* |
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10.26 |
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Amended and Restated Trust Agreement of GreenBank Capital Trust I (GB Trust
I) dated as of May 16, 2007 by and among the Greene County Bancshares, Inc., as
Depositor, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as
Delaware Trustee and the Administrative Trustees named therein (the GB Capital Trust
Agreement) incorporated by reference to the Companys Quarterly Report on Form 10-Q
for the quarter ended June 30, 2007. |
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10.27 |
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Form of Certificate for Common Securities of GB Trust I included as Exhibit B
to the GB Capital Trust Agreement incorporated by reference to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
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10.28 |
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Form of Certificate for Preferred Securities of GB Trust I included as Exhibit
C to the GB Capital Trust Agreement incorporated by reference to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
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10.29 |
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Junior Subordinated Indenture dated as of May 16, 2007 between the Company and
Wilmington Trust Company, as Trustee included as Exhibit D to the GB Capital Trust
Agreement (the Junior Subordinated Indenture) incorporated by reference to the
Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
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10.30 |
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Form of Certificate for $57,732,000 Note issued pursuant to the Junior
Subordinated Indenture included as Sections 2.1 and 2.2 to the Junior Subordinated
Indenture incorporated by reference to the Companys Quarterly Report on Form 10-Q
for the quarter ended June 30, 2007. |
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10.31 |
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Guarantee Agreement dated as of May 16, 2007 between Greene County Bancshares,
Inc., as Guarantor and Wilmington Trust Company, as Guarantee Trustee incorporated
by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended June
30, 2007. |
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10.32 |
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Form of Restricted Stock Agreement incorporated by reference to the
Companys Current Report on Form 8-K filed January 23, 2008.* |
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10.33 |
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Form of Stock Appreciation Right Agreement incorporated by reference to the
Companys Current Report on Form 8-K filed February 29, 2008.* |
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10.34 |
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Letter agreement, dated December 23, 2008, between the Company and the United
States Department of Treasury, including Securities Purchase Agreement Standard
Terms with respect to the issuance and sale of the Series A preferred shares and the
Warrant incorporated by reference to the Companys Current Report on Form 8-K filed
December 23, 2008. |
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10.35 |
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Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and R. Stan Puckett dated December 23, 2008 incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2008 .* |
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10.36 |
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Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and Kenneth R. Vaught dated December 23, 2008 incorporated herein by reference
to the Companys Annual Report on Form 10-K for the year ended December 31, 2008 .* |
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10.37 |
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Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and James E. Adams dated December 23, 2008 incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2008 .* |
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10.38 |
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Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and Steve L. Droke dated December 23, 2008 incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2008 .* |
119
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10.39 |
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Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and William C. Adams dated December 23, 2008 incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2008.* |
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10.40 |
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Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and R. Stan Puckett dated December 3, 2009* incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2009.* |
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10.41 |
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Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and Kenneth R. Vaught dated December 4, 2009 incorporated herein by reference
to the Companys Annual Report on Form 10-K for the year ended December 31, 2009.* |
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10.42 |
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Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and James E. Adams dated December 1, 2009 incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2009.* |
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10.43 |
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Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and Steve L. Droke December 3, 2009 incorporated herein by reference to the
Companys Annual Report on Form 10-K for the year ended December 31, 2009.* |
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10.44 |
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Senior Executive Officer Letter Agreement by and between Green Bankshares,
Inc. and William C. Adams dated December 2, 2009 incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2009.* |
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10.45 |
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Greene County Bancshares, Inc. Change in Control Protection Plan Participation
Agreement between the Company and William C. Adams incorporated herein by reference
to the Companys Annual Report on Form 10-K for the year ended December 31, 2008.* |
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10.46 |
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Letter Agreement, effective March 15, 2010, by and among Green Bankshares,
Inc., GreenBank and Stephen M. Rownd incorporated herein by reference to the
Companys Current Report on Form 8-K filed March 18, 2010.* |
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10.47 |
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Consulting Agreement by and among Green Bankshares, Inc., GreenBank and R.
Stan Puckett, dated April 1, 2010 incorporated herein by reference to the Companys
Current Report on Form 8-K filed April 1, 2010.* |
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10.48 |
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Form of TARP CPP Executive Officer Restricted Stock Award Agreement
incorporated herein by reference to the Companys Current Report on Form 8-K filed
April 2, 2010.* |
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10.49 |
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R. Stan Puckett First Amendment to the Greene County Bank Executive
Deferred Compensation Agreement incorporated herein by reference to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.* |
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10.50 |
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R. Stan Puckett Second Amendment to the Greene County Bancshares, Inc.
Non-Competition Agreement incorporated herein by reference to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.*. |
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10.51 |
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Director and Named Executive Officer Compensation Summary.* |
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11.1 |
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Statement re Compuation of Per Share Earnings incorporated by reference to Note 14 of the Notes to Consolidated Financial Statements herein.
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21.1 |
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Subsidiaries of the Company. |
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23.1 |
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Consent of Dixon Hughes PLLC. |
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31.1 |
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Chief Executive Officer Certification Pursuant to Rule 13a-14(a)/15d-14(a). |
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31.2 |
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Chief Financial Officer Certification Pursuant to Rule 13a-14(a)/15d-14(a). |
120
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32.1 |
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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. |
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32.2 |
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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. |
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99.1 |
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Certification of Chief Executive Officer under the Capital Purchase Program of
the Troubled Assets Relief Program. |
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99.2 |
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Certification of Chief Financial Officer under the Capital Purchase Program of
the Troubled Assets Relief Program. |
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* |
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Management contract or compensatory plan. |
121