prer14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant þ
Filed by the Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
GREEN BANKSHARES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state
how it was determined): |
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Proposed maximum aggregate value of transaction: |
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Total fee paid: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing. |
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Amount Previously Paid: |
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(2 ) Form, Schedule or Registration Statement No.: |
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Filing Party: |
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Date Filed: |
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July ___, 2011
Dear Shareholder:
We invite you to attend a Special Meeting of Shareholders (the Special Meeting) of Green
Bankshares, Inc. (the Company) to be held at the General Morgan Inn, 111 North Main Street,
Greeneville, Tennessee, on August ___, 2011, at ___ a.m., local time.
On May 5, 2011, the Company, GreenBank, and North American Financial Holdings, Inc. (NAFH)
entered into an investment agreement (the Investment Agreement), pursuant to which NAFH has
agreed, subject to certain conditions more fully described in the enclosed proxy statement, to:
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purchase for $217,019,000 in cash, 119,900,000 shares of Common Stock, at a
purchase price of $1.81 per share; and |
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permit the Company to distribute to each Company shareholder as of a certain date
fixed prior to the closing of the transactions contemplated by the Investment
Agreement (the Closing), immediately prior to Closing, one contingent value right
(CVR) per share that would entitle the holder to receive up to $0.75 in cash per CVR
at the end of a five-year period based on the credit performance of GreenBanks
existing loan portfolio. |
In connection with the transaction with NAFH, your shares of Company common stock that you own
will remain outstanding immediately following closing of the transaction and are not being cashed
out as part of the transaction. As a result, unless you buy or sell shares of Company common stock
on the open market, you will continue to own the same number of shares of Company common stock that
you own today. The CVRs that will be issued in connection with the transaction are in addition to
your shares of Company common stock and are not being issued in exchange for these shares.
In connection with the Investment Agreement, we have called a Special Meeting to obtain your
approval of the following matters:
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the original issuance and certain subsequent issuances of shares of the
Companys Common Stock to NAFH under the terms of the Investment Agreement; |
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an amendment to the Companys Amended and Restated Charter (the Charter) to
increase the number of authorized shares of the Companys Common Stock from twenty
million (20,000,000) to three hundred million (300,000,000); |
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an amendment to the Companys Charter to decrease the par value of the
Companys Common Stock from $2.00 per share to $0.01 per share; |
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an amendment to the Companys Charter to expressly exempt NAFH and its
affiliates and associates from the provisions of Section 9 of the Companys Charter; |
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an amendment to the Companys Charter to remove Section 8(j) of the Charter so
that the Tennessee Control Share Acquisition Act will not apply to the Company and its
shareholders; |
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the merger of GreenBank with and into a subsidiary of NAFH; |
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on an advisory and non-binding basis, the compensation to be received by the
Companys named executive officers in connection with the issuance of the shares of
Common Stock to NAFH under the terms of the Investment Agreement; and |
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the grant to the proxy holder of discretionary authority to vote to adjourn the
Special Meeting, if necessary, in order to solicit additional proxies in the event
there are not sufficient affirmative votes present at the Special Meeting to approve
the proposals that may be considered and voted on, at the Special Meeting. |
Enclosed is a proxy statement and a proxy card. Directors and officers of the Company will be
present to respond to any appropriate questions shareholders may have.
Your vote is important, regardless of the number of shares you own. On behalf of the
Board of Directors, we urge you to sign, date and return the enclosed proxy as soon as possible,
even if you currently plan to attend the Special Meeting. We also offer telephone and Internet
voting, as more particularly described in the attached proxy statement. Voting by telephone,
Internet or by returning a proxy in the mail will not prevent you from voting in person at the
Special Meeting, but will assure that your vote is counted if you are unable to attend the Special
Meeting.
Thank you for your cooperation and your continuing support.
Sincerely,
Stephen M. Rownd
Chairman of the Board and
Chief Executive Officer
If you have any questions or need assistance voting
your shares, please call our proxy solicitor:
INNISFREE M&A INCORPORATED
Shareholder may call toll-free at 1 (888) 750-5834
Banks and Brokers may call collect at 1 (212) 750-5833
GREEN BANKSHARES, INC.
Notice of Special Meeting of Shareholders
To Be Held on August __, 2011
Notice is hereby given that a Special Meeting of Shareholders (the Special Meeting) of Green
Bankshares, Inc. (the Company) will be held on August __, 2011 at ___ a.m., local time, at the
General Morgan Inn, 111 North Main Street, Greeneville, Tennessee.
A Proxy Card and a Proxy Statement for the Special Meeting are enclosed.
The Special Meeting is for the purpose of considering and acting upon the following matters:
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to approve the original issuance and certain subsequent issuances of shares of
the Companys Common Stock to North American Financial Holdings, Inc. under the terms
of the Investment Agreement, dated May 5, 2011, among Green Bankshares, Inc., GreenBank
and North American Financial Holdings, Inc. (the Investment Agreement); |
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to vote on an amendment to the Companys Amended and Restated Charter (the
Charter) to increase the number of authorized shares of the Companys Common Stock
from twenty million (20,000,000) to three hundred million (300,000,000); |
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to vote on an amendment to the Companys Charter to decrease the par value of
the Companys Common Stock from $2.00 per share to $0.01 per share; |
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to vote on an amendment to the Companys Charter to expressly exempt North
American Financial Holdings, Inc. and its affiliates and associates from the provisions
of Section 9 of the Companys Charter; |
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to vote on an amendment to the Companys Charter to remove Section 8(j) of the
Charter so that the Tennessee Control Share Acquisition Act will not apply to the
Company and its shareholders; |
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to approve the merger of GreenBank with and into a subsidiary of North American
Financial Holdings, Inc.; |
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to approve, on an advisory and non-binding basis, the compensation to be
received by the Companys named executive officers in connection with the issuance of
the shares of the Companys Common Stock to North American Financial Holdings, Inc.
under the terms of the Investment Agreement; and |
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to grant the proxy holder discretionary authority to vote to adjourn the
Special Meeting, if necessary, in order to solicit additional proxies in the event
there are not sufficient affirmative votes present at the Special Meeting to approve
the proposals that may be considered and voted on, at the Special Meeting. |
NOTE: As of the date hereof, the Board of Directors is not aware of any other business to
come before the Special Meeting.
Any action may be taken on any one of the foregoing proposals at the Special Meeting on the
date specified above or on any date or dates to which, by original or later adjournments, the
Special Meeting may be adjourned. Shareholders of record at the close
of business on July 6, 2011
will be entitled to vote at the Special Meeting and any adjournments thereof.
You are requested to fill in and sign the enclosed proxy card which is solicited by the Board
of Directors and to mail it promptly in the enclosed envelope or, alternatively, vote by telephone
or over the Internet as described in the attached Proxy Statement. The proxy will not be used if
you attend the Special Meeting and choose to vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
Michael J. Fowler
Secretary
Greeneville, Tennessee
July __, 2011
It is important that proxies be returned promptly. Therefore, whether or not you plan to be
present in person at the Special Meeting, please sign, date, and complete the enclosed proxy card
and return it in the enclosed envelope. No postage is required if mailed in the United States.
Alternatively, you can vote over the telephone or on the Internet, as more particularly described
in the attached Proxy Statement. Should you subsequently desire to revoke your proxy, you may do
so as provided in the attached Proxy Statement before it is voted at the Special Meeting.
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS
Important Notice Regarding the Availability of Proxy Materials for the
Special Meeting of Shareholders to be Held on August __, 2011
This
Proxy Statement and a proxy card are available at
https://www.proxyvotenow.com/grnb.
The
Special Meeting of Shareholders will be held August __, 2011 at ___a.m. local time at the
General Morgan Inn, 111 North Main Street, Greeneville, Tennessee. In order to obtain
directions to attend the Special Meeting of Shareholders, please call Michael J. Fowler, our
Corporate Secretary, at (423) 278-3050.
TABLE OF CONTENTS
PROXY STATEMENT
of
GREEN BANKSHARES, INC.
100 North Main Street
P.O. Box 1120
Greeneville, Tennessee 37743
(423) 639-5111
SPECIAL MEETING OF SHAREHOLDERS
August __, 2011
General
This Proxy Statement is being furnished to Green Bankshares, Inc. (the Company) shareholders
in connection with the solicitation of proxies by the Companys Board of Directors (the Board of
Directors) to be used at the Special Meeting of Shareholders of the Company (the Special
Meeting), to be held on August __ 2011, at __ a.m., local time, at General Morgan Inn, 111 North
Main Street, Greeneville, Tennessee. The accompanying Notice of Special Meeting and form of
proxy and this Proxy Statement are first being mailed to shareholders
on or about July __, 2011.
The
Board of Directors has fixed the close of business on
July 6, 2011 as the record date
(the Record Date) for determining the shareholders entitled to receive notice of and to vote at
the Special Meeting. Only holders of record of shares of the Companys common stock (Common
Stock) at the close of business on that date will be entitled to vote at the Special Meeting and
at any adjournment or postponement of that meeting. At the close of business on the Record Date,
there were ______ shares of the Companys Common Stock outstanding,
held by approximately 2,500 holders of
record. Each Company shareholder as of the Record Date will be entitled to one vote for each share
of Common Stock held of record upon each matter properly submitted at the Special Meeting and at
any adjournment or postponement of that meeting.
Overview
On May 5, 2011, the Company, GreenBank (the Bank), and North American Financial Holdings,
Inc. (NAFH) entered into an investment agreement (the Investment Agreement), pursuant to which
NAFH has agreed to purchase, subject to certain conditions, for $217,019,000 in cash, 119,900,000
shares of Common Stock, at a purchase price of $1.81 per share (the Initial Investment), and
under which each Company shareholder as of a certain date fixed prior to the closing of the Initial
Investment (the Closing) shall receive, immediately prior to Closing, one contingent value right
(CVR) per share that would entitle the holder to receive up to $0.75 in cash per CVR at the end
of a five-year period based on the credit performance of GreenBanks existing loan portfolio.
The CVRs that each shareholder will receive are in addition to the
shares of Company Common Stock that the Companys shareholders
own, which shares will continue to be owned by the shareholders
following the Closing. Following consummation of the transactions contemplated by the Investment Agreement, it is
anticipated that NAFH will own approximately 90.1% of the Companys outstanding Common Stock.
The purpose of the Special Meeting is to obtain the shareholder approvals needed to complete
the transactions contemplated by the Investment Agreement.
Conditions to the Completion of the Initial Investment
The obligation of each of NAFH, the Company and GreenBank to complete the Initial Investment
is subject to the satisfaction or waiver of the following conditions:
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the absence of any law, order, injunction or decree by a governmental body
prohibiting (or any lawsuit or formal proceeding by a governmental body seeking to
prohibit) the Initial Investment or NAFHs owning or voting the shares it intends to
purchase in the Initial Investment; |
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receipt of all required regulatory approvals; |
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the approval of Proposals 1, 2, 3, 5 and 6 described in this Proxy Statement; |
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the accuracy of the other partys representations and warranties (subject to the
materiality standard described in the Investment Agreement) and the performance by
the other party in all material respects of its obligations under the Investment
Agreement; and |
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the entry by NAFH and the United States Department of the Treasury (Treasury)
into a binding agreement, on terms previously disclosed to the Company by NAFH,
regarding the NAFHs repurchase of $72.3 million of shares of the Companys Fixed
Rate Cumulative Perpetual Preferred Stock, Series A and warrant to purchase shares of
Common Stock issued to the Treasury in connection with the Companys participation in
the Capital Purchase Program (the CPP) of the Treasurys Troubled Asset Relief
Program (the TARP) (the Repurchase). |
In addition, the obligation of NAFH to complete the Initial Investment is subject to the
satisfaction or waiver of the following conditions:
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either (i) Proposal 4 described in this Proxy Statement is approved by the
Companys shareholders or (ii) the Bank Merger (as defined in Proposal 4) shall have
received all required board and governmental approvals and is reasonably capable of
being consummated within three business days following the Closing; |
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the absence, since December 31, 2010, of any material adverse effect (as defined
in the Investment Agreement) on the Company or its subsidiaries; |
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the appointment of individuals designated by NAFH to the board of directors of the
Company and GreenBank such that the NAFH designees constitute a majority of the board
of directors of the Company and GreenBank; |
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the resignation of certain directors of the Company and GreenBank; |
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the waiver of rights to receive certain change in control and other payments from
certain senior officers; |
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the absence of any requirement imposed by any required regulatory approvals that
materially reduces the economic benefit of the transactions contemplated by the
Investment Agreement for NAFH (a Burdensome Condition), as determined by NAFH in
its good faith judgment; |
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certain limitations on reductions in deposit levels and the amount of charge-offs
at GreenBank between the date of the Investment Agreement and Closing; |
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the declaration of the CVR distribution; and |
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other terms and conditions typical of similar transactions and described in the
Investment Agreement. |
Termination of the Investment Agreement
The Investment Agreement may be terminated in a number of situations, including (i) by the
Company or NAFH if (a) the Closing does not occur within 150 days after the Investment Agreement is
signed or (b) notice from a governmental entity that it will not grant a required approval or if a
governmental entity takes certain actions
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prohibiting, or imposing a Burdensome Condition upon, the transactions contemplated by the
Investment Agreement, (ii) by the Company or NAFH in the event of a breach by the other of a
representation or warranty or a covenant (that is not cured in the time allowed in the Investment
Agreement) that causes the failure of a closing condition to be satisfied, (iii) by the Company or
NAFH if Proposals 1, 2, 3, 5 and 6 described in this Proxy Statement are not approved, or (iv) by
NAFH if, prior to the date of the Special Meeting, the Company breaches the Agreements
exclusivity/non-solicitation provisions or the Board of Directors withdraws its recommendation to
the Companys shareholders with respect to the transactions contemplated by the Investment
Agreement.
Termination Fees Payable by the Company
If an Acquisition Proposal (as defined in the Investment Agreement) is made to the Company or
its subsidiaries and thereafter the Investment Agreement is terminated because (i) the required
approvals of the Companys shareholders are not obtained; (ii) the Company breaches its obligations
under the non-solicitation/exclusivity provisions; or (iii) the Company breaches a covenant of the
Investment Agreement (and fails to cure such breach in the time allowed in the Investment
Agreement) that causes the failure of a closing condition to be satisfied, then the Company will
owe NAFH a $750,000 expense reimbursement immediately and, if an alternative transaction is entered
into within twelve (12) months of the termination of the deal, an $8,000,000 termination fee at the
time the agreement for the new transaction is entered into. If an Acquisition Proposal is made, and
thereafter the Agreement is terminated by NAFH because the Board of Directors has withdrawn its
recommendation that the shareholders approve the transactions or recommended a competing
transaction, a $750,000 expense reimbursement would be payable immediately and $4,000,000 of the
termination fee would be payable immediately, with the remaining $4,000,000 payable if the Company
enters into an agreement for an alternative transaction within 12 months of the termination of the
deal.
In addition, on May 5, 2011, the Company also entered into a Stock Option Agreement (the
Option Agreement) with NAFH, pursuant to which the Company granted an option (the Option) to
purchase up to 2,628,183 shares of Common Stock (not to exceed 19.9% of the issued and outstanding
shares of the Company) at a price equal to the closing price on the first trading day following the
date of the Investment Agreement (the Option Price). Pursuant to the Option Agreement, the Option
will be exercisable under certain circumstances in connection with certain third party acquisitions
or acquisition proposals that occur prior to an Exercise Termination Event.
An Exercise Termination Event means any of the following:
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completion of the Initial Investment; |
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termination of the Investment Agreement in accordance with its terms, before
certain third party acquisitions or acquisition proposals, except a termination of
the Investment Agreement by NAFH based on a breach by the Company of a
representation, warranty, covenant or other agreement contained in the Investment
Agreement (unless the breach is non-volitional) or a termination based on the Company
breaching its obligations under the non-solicitation/exclusivity provisions of the
Investment Agreement or based on the Board of Directors having withdrawn its
recommendation that the Companys shareholders approve the transactions or
recommended a competing transaction; or |
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the passage of 18 months, subject to certain limited extensions described in the
Option Agreement, after termination of the Investment Agreement, if the termination
follows the occurrence of certain third party acquisitions or acquisition proposals
or is a termination of the Investment Agreement by NAFH based on a breach by the
Company of a representation, warranty, covenant or other agreement contained in the
Investment Agreement (unless the breach is non-volitional) or a termination based on
the Company breaching its obligations under the non-solicitation/exclusivity
provisions of the Investment Agreement or based on the Board of Directors having
withdrawn its recommendation that the Companys shareholders approve the transactions
or recommended a competing transaction. |
In addition, upon the occurrence of certain events relating to third party acquisitions, NAFH
may require the Company to repurchase the Option at a price equal to either (i) the number of
shares for which the Option may be exercised multiplied by the amount by which the Market/Offer
Price (as that term is defined in the Option Agreement), exceeds the Option Price or (ii)
$2,500,000, adjusted in the case of clause (ii) for the aggregate
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purchase price previously paid by NAFH with respect to any option shares and gains on sales of
stock purchased under the Option. In no event may NAFHs total profit with respect to the Option
exceed $8,000,000.
Termination Fee Payable by NAFH
If the Investment Agreement is terminated because NAFH breaches a covenant of the Investment
Agreement (and fails to cure such breach in the time allowed in the Investment Agreement) that
causes the failure of a closing condition to be satisfied, then NAFH will owe the Company an amount
equal to $8,000,000 in respect of the Companys and the Banks out-of-pocket expenses incurred in
connection with the Investment Agreement and the transactions contemplated thereby.
Contingent Value Rights
Pursuant to the terms of the Investment Agreement, immediately prior to the closing date of
the Investment, existing shareholders of the Company as of a certain date fixed prior to the
closing date will be issued one CVR for each share of Common Stock owned by the shareholder. Based
on the term sheet for the CVRs which is included as Exhibit A of the Investment Agreement which is
attached as Appendix A to this Proxy Statement, the Company expects that each CVR will
entitle the holder thereof to a cash payment of up to $0.75 per CVR based on the amount of net
charge-offs (Credit Losses) incurred between May 5, 2011 and the five year anniversary of the
Closing (the CVR Measurement Period) on account of any of GreenBanks loans existing as of May
5, 2011. The CVRs will provide that if the amount of Credit Losses during the CVR Measurement
Period is less than $178 million, then NAFH will pay to the Companys shareholders within sixty
(60) days following the five year anniversary of the Closing an amount equal to (1) if the
difference between $178 million and the amount of Credit Losses incurred during the CVR Measurement
Period, expressed on a per CVR basis, is less than or equal to $0.50, then 100% of such difference;
and (2) if the difference between $178 million and the amount of Credit Losses incurred during the
CVR Measurement Period, expressed on per CVR basis, is greater than $0.50, then $0.50 plus 50% of
such amount in excess of $0.50, with an aggregate maximum of $0.75 per CVR. In the event that the
amount of Credit Losses during the CVR Measurement Period equals or exceeds $178 million, then the
CVRs will expire and the holders thereof will receive no payment on account of the CVRs.
Except for modifications of the terms of the CVRs that are adverse to the holders of the CVRs,
the holders of the CVRs will have no voting rights with respect to the CVRs, will have no right to
receive dividends on account of the CVRs and will only be able to transfer the CVRs by will or the
laws of descent or distribution. The Company may redeem the CVRs at any time at a price of $0.75
per share and in the event that the Company experiences a change in control (which means any
transaction resulting in the holders of the equity interests of NAFH immediately prior to such
transaction owning, directly or indirectly, less than 50% of the equity interests of NAFH) the CVRs
shall be redeemed at a price of $0.75 per CVR upon closing of that change in control transaction.
By way of example if the Credit Losses incurred during the CVR Measurement Period total $156
million, each holder of a CVR will receive a cash payment of $0.75 per CVR. Credit Losses during
the CVR Measurement Period of $168 million would result in a cash payment of $0.63 per CVR, while
Credit Losses during the CVR Measurement Period of $174 million would result in a cash payment of
$0.30 per CVR. These payment scenarios are only examples of certain payout scenarios and should
not be viewed as the Companys expectations as to the likely payouts under the CVRs.
The Company is unable to predict whether any amounts will be payable under the CVRs as the
amount of Credit Losses that may be experienced over the CVR Measurement Period is subject to
numerous risks and uncertainties, including, among others, the condition of the economy in the
markets served by GreenBank. By way of example only, the total amount of the
Companys Credit Losses over the five year period ended December 31, 2010 was $156.1 million.
Matters to be Considered
At this Special Meeting, holders of record of the Companys Common Stock as of the Record Date
will be asked to:
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approve the original issuance and certain subsequent issuances of shares of Common
Stock to NAFH under the terms of the Investment Agreement; |
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vote on an amendment to the Companys Charter to increase the number of authorized
shares of Common Stock from twenty million (20,000,000) to three hundred million
(300,000,000); |
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vote on an amendment to the Charter to decrease the par value of the Common Stock
from $2.00 per share to $0.01 per share; |
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vote on an amendment to the Charter to expressly exempt NAFH and its affiliates
and associates from the provisions of Section 9 of the Charter; |
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vote on an amendment to the Charter to remove Section 8(j) of the Charter so that
the Tennessee Control Share Acquisition Act will not apply to the Company and its
shareholders; |
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approve the merger of GreenBank with and into a subsidiary of NAFH; |
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approve, on an advisory and non-binding basis, the compensation to be received by
the Companys named executive officers in connection with the issuance of the shares
of Common Stock to NAFH under the terms of the Investment Agreement; and |
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grant the proxy holder discretionary authority to vote to adjourn the Special
Meeting, if necessary, in order to solicit additional proxies in the event there are
not sufficient affirmative votes present at the Special Meeting to approve the
proposals that may be considered and voted on, at the Special Meeting. |
Proxies
Each copy of this Proxy Statement mailed to Company shareholders is accompanied by a proxy
card with instructions for voting by mail, by telephone or on the Internet. If voting by mail, you
should complete and return the proxy card accompanying this Proxy Statement in the enclosed,
postage paid envelope to ensure that your vote is counted at the Special Meeting, or at any
adjournment or postponement of the Special Meeting, regardless of whether you plan to attend the
Special Meeting. You may also vote your shares by telephone or on the
Internet. Instructions for voting by telephone or on the Internet are set forth in the enclosed proxy
card.
The presence of a shareholder at the Special Meeting will not automatically revoke that
shareholders proxy. However, a shareholder may revoke a proxy at any time prior to its exercise
by:
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submitting a written revocation prior to the meeting to Michael J. Fowler,
Corporate Secretary, Green Bankshares, Inc., 100 North Main Street,
Greeneville, Tennessee 37743-4992; |
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submitting another proxy by mail, Internet or telephone on a later date than
the original proxy; or |
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attending the Special Meeting and voting in person. |
If your shares are held by a broker or bank, you must follow the instructions on the form you
receive from your broker or bank with respect to changing or revoking your proxy.
The shares represented by any proxy card that is properly executed and received by the Company
in time to be voted at the Special Meeting will be voted in accordance with the instructions that
are marked on the proxy card. If you execute your proxy card but do not provide the Company with
any instructions, your shares will be voted FOR the issuance of Common Stock pursuant to the
terms of the Investment Agreement; FOR the amendment to the Companys Charter to increase the
number of authorized shares of Common Stock; FOR the amendment to the Companys Charter to
decrease the par value of the Common Stock; FOR the amendment to the Companys Charter to
expressly exempt NAFH and its affiliates and associates from Section 9 of the Charter; FOR the
amendment to the Companys Charter removing Section 8(j) of the Charter; FOR the approval of the
merger of GreenBank with and into a subsidiary of NAFH; FOR the approval of the compensation to
be received by the Companys named executive officers in connection with the issuance of the
Companys Common Stock to NAFH under the Investment Agreement; and FOR the grant of discretionary
authority to adjourn the Special Meeting, if necessary, in order to solicit additional proxies.
Proxies that are returned to us where brokers have received instructions to vote on one or
more proposals but do not vote on other proposal(s) are referred to as broker non-votes with
respect to the proposal(s) not voted upon. Broker non-votes are included in determining the
presence of a quorum.
Vote Required
In order to have a lawful meeting, a quorum of shareholders must be present at the Special
Meeting. The presence, in person or by proxy, of the holders of a majority of the outstanding
shares of the Companys Common Stock outstanding as of the Record Date will constitute a quorum at
the Special Meeting. A shareholder will be deemed to be present if the shareholder either attends
the Special Meeting or submits a properly executed proxy card by mail, on the Internet or by
telephone that is received at or prior to the Special Meeting (and not revoked). Under the laws of
the State of Tennessee, the Companys state of incorporation, abstentions and broker non-votes are
counted for purposes of determining the presence or absence of a quorum, but are not counted as
votes cast at the meeting. Broker non-votes occur when brokers who hold their customers shares in
street name submit proxies for such shares on some matters, but not others. Generally, this would
occur when brokers have not received any instructions from their customers. In these cases, the
brokers, as the holders of record, are permitted to vote on routine matters, but not on
non-routine matters, such as approval of the issuance of Common Stock to NAFH pursuant to the terms
of the Investment Agreement; approval of the merger of GreenBank with and into a subsidiary of
NAFH; and approval of the compensation to be received by the Companys named executive officers in
connection with the issuance of the Companys Common Stock under the Investment Agreement. As
such, unless you instruct your broker how to vote shares of yours held in a brokers name, those
shares will not be voted on the approval of the issuance of Common Stock to NAFH pursuant to the
terms of the Investment Agreement; approval of the merger of GreenBank with and into a subsidiary
of NAFH; and approval of the compensation to be received by the Companys named executive officers
in connection with the issuance of the Companys Common Stock to NAFH under the Investment
Agreement, but will be counted in determining whether there is a quorum.
If a quorum exists, approval of the amendments to the Companys Charter, other than the
approval of the amendment to expressly exempt NAFH and its affiliates and associates from Section 9
of the Charter; approval of the issuance of Common Stock to NAFH under the terms of the Investment
Agreement; approval
6
of the compensation to be received by the Companys named executive officers in connection
with the issuance of the Companys Common Stock to NAFH under the Investment Agreement; and
approval of the proposal to adjourn the Special Meeting, if necessary, require that the number of
votes cast, in person or by proxy, in favor of such proposals at the Special Meeting exceed the
number of votes cast, in person or by proxy, against the proposals. Approval of the amendment to
the Companys Charter to expressly exempt NAFH and its affiliates and associates from Section 9 of
the Charter requires the affirmative vote of 80% of the outstanding shares of Common Stock entitled
to vote on the matter. Approval of the merger of GreenBank with and into a subsidiary of NAFH
requires the affirmative vote of a majority of the outstanding shares of Common Stock as of the
Record Date entitled to vote at the Special Meeting.
Abstentions and broker non-votes will have no effect on the approval of the amendments to the
Companys Charter (other than the approval of the amendment to expressly exempt NAFH and its
affiliates and associates from Section 9 of the Charter), the approval of the issuance of Common
Stock to NAFH under the terms of the Investment Agreement, the approval of the compensation to be
received by the Companys named executive officers in connection with the issuance of the Companys
Common Stock to NAFH under the Investment Agreement and the approval of the proposal to adjourn the
Special Meeting and will have the effect of a vote against approval of the amendment to the Charter
to expressly exempt NAFH and its affiliates and associates from Section 9 of the Charter and
approval of the merger of GreenBank with and into a subsidiary of NAFH.
Solicitation of Proxies
The Company will pay all expenses incurred in connection with this solicitation, including
postage, printing, handling and the actual expenses incurred by custodians, nominees and
fiduciaries in forwarding proxy materials to beneficial owners. Additionally, the Company has
engaged Innisfree M&A Incorporated to assist in the distribution of proxy materials and the solicitation of
proxies by mail, telephone, facsimile, or personal meetings. The
Company has agreed to pay Innisfree a solicitation fee not to exceed
$20,000 plus expenses. In addition to solicitation by mail, certain of the
Companys officers, directors and regular employees, who will receive no additional compensation
for their services, may solicit proxies by telephone, personal communication or other means. The
Company will also reimburse brokerage firms and other persons representing beneficial owners of
shares for reasonable expenses incurred in forwarding proxy soliciting materials to the beneficial
owners.
PROPOSAL 1 APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK UNDER THE
INVESTMENT AGREEMENT
Subject to the terms of the Investment Agreement, the investment by NAFH in the Company is
conditioned upon shareholder approval of this Proposal No. 1 as well as approval of Proposals No.
2, 3, 5 and 6 and, in certain circumstances, approval of Proposal No. 4. Shareholders who wish to
approve NAFHs investment in the Company should vote to approve this Proposal No. 1 as well as
Proposals No. 2 6. As described below, the Companys Board of Directors also recommends that
shareholders vote to approve Proposals No. 7 and 8.
On May 5, 2011, the Companys Board of Directors approved a resolution to issue shares of
Common Stock under the Investment Agreement, pursuant to which NAFH has agreed to purchase, subject
to certain conditions, for $217,019,000 in cash, 119,900,000 shares of Common Stock at a purchase
price of $1.81 per share, and under which each Company shareholder as of a certain date fixed prior
to the Closing will receive one CVR per share that would entitle the holder to receive up to $0.75
in cash per CVR at the end of a five-year period based on the credit performance of GreenBanks
existing loan portfolio. In addition, pursuant to the Investment Agreement, following the closing
of the Initial Investment and until such time as the Bank is merged with and into a subsidiary of
NAFH, NAFH has the right to purchase, at a price equal to the lesser of (a) $1.81 per share and (b)
the Companys tangible book value per share at the end of the then most recently completed fiscal
quarter, such additional shares of Common Stock necessary to ensure that the Banks tier 1 leverage
ratio is at least 10% (the Top-Up Investment and, collectively with the Initial Investment, the
Investment). A copy of the Investment Agreement is attached as Appendix A to this Proxy
Statement.
Because the Companys Common Stock is listed on the NASDAQ Stock Market LLC (NASDAQ), it is
subject to NASDAQs rules and regulations. NASDAQ Listing Rule 5635(d) requires shareholder
approval prior to
7
the issuance of Common Stock, or securities convertible into or exercisable for Common Stock, equal
to 20% or more of the Common Stock or 20% or more of the voting power outstanding before the
issuance for less than the greater of book value or market value of the stock.
Under NASDAQ Listing Rule 5635(b), companies are required to obtain shareholder approval prior
to the issuance of securities when the issuance or potential issuance would result in a change of
control as defined by NASDAQ. NASDAQ generally characterizes a transaction whereby an investor or
group of investors acquires, or obtains the right to acquire, 20% or more of the voting power of an
issuer on a post-transaction basis as a change of control for purposes of Rule 5635(b).
Assuming the existence of a quorum, this proposal will be approved if the number of shares
voted in favor of the proposal to approve the issuance of shares of Common Stock under the
Investment Agreement exceeds the number of shares voted against the proposal. As such, abstentions
and broker non-votes will not affect the outcome of the vote.
Reasons for this Proposal
As part of its ongoing evaluation of the Companys business, the Companys Board of Directors
and the Companys senior management regularly evaluate the Companys long-term strategic
alternatives and prospects for continued operations. These strategic discussions have included,
among other things, the possibility of business combinations with other entities, continuing the
Companys on-going operation as an independent institution, securities offerings, both public and
private, and the potential sale or recapitalization of the Company.
Beginning in late 2007, the Company, like many financial institutions across the United
States, began to experience financial stress which was primarily attributable to the significant
weaknesses in the U.S. economy that began to surface during the fourth quarter of 2007 which
continued to escalate throughout 2008 and 2009. These deteriorating economic conditions, which
manifested themselves primarily in the Companys residential real estate construction and
development portfolio, continued into 2010 when economic conditions briefly exhibited signs of
improvement in the first half of 2010, and continued to deteriorate again in the second half of the
year. As a result of these weakened economic conditions, the Companys results of operations were
significantly and negatively affected in the fourth quarter of 2007 and throughout each of the
2008, 2009 and 2010 fiscal years.
Beginning in 2008, the Company sought to proactively address its asset quality problems by
seeking to quickly dispose of troubled assets (which were principally in its residential real
estate construction and development portfolio in its Nashville and Knoxville, Tennessee markets)
taking losses on the disposition of those assets as necessary. As a result, the Companys
provision for loan losses in 2008, 2009 and 2010 totaled $52.8 million, $50.2 million and $71.1
million. The Company incurred net charge-offs of $38.1 million, $48.9 million and $54.4 million in
each of those three years. During the first quarter of 2011, the Company continued to experience
increased levels of provision expense and net charge-offs as its asset quality problems continued.
For the first quarter of 2011, the Companys provision for losses totaled $13.9 million and its net
charge-offs totaled $15.6 million.
The impact of the increase in nonperforming assets and the associated increase in credit
expense and other real estate owned expenses has resulted in significant losses over the past three
fiscal years and the first quarter of 2011, which has eroded the Companys shareholders equity and
regulatory capital ratios. The Company reported a net loss available to common shareholders of
$85.7 million in 2010. This compared to a net loss available to common shareholders of $155.7
million in 2009 that included a $143.4 million non-recurring charge for goodwill impairment and a
net loss available to common shareholders of $5.5 million in 2008. For the first quarter of 2011,
the Company recorded a net loss available to common shareholders of $11.6 million.
In December of 2008, the Companys Board of Directors authorized the Company to participate in
the CPP established by the Treasury under the TARP of the Emergency Economic Stabilization Act of
2008 (the EESA). In connection with its participation in the CPP, the Company issued to Treasury
(i) 72,278 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series A,
having a liquidation preference of $1,000 per share (the Series A Preferred Stock), and (ii) a
ten-year warrant to purchase up to 635,504 shares of the Companys Common Stock, at an initial
exercise price of $17.06 per share (the Warrant), for an aggregate purchase price of
approximately $72.3 million in cash. This $72.3 million investment qualified as Tier 1 capital
and significantly
8
improved the regulatory capital ratios of the Company and GreenBank. Although the capital
contributed to GreenBank as a result of the Companys participation in the CPP significantly
improved GreenBanks regulatory capital ratios, which also benefited from the approximately $88.7
million of capital contributed by the Companys trust preferred issuances, the investment did not
strengthen the Companys common shareholders equity, which continued to erode as the Companys
credit quality issues continued into 2009 and 2010.
In November 2010, the Company informally committed to the Federal Reserve Bank of Atlanta that
it would not incur additional indebtedness, pay cash dividends, make payments on the Series A
Preferred Stock or the Companys trust preferred securities or repurchase outstanding stock without
prior regulatory approval. Since that date, the Company has not been given permission to pay
interest on the Companys trust preferred securities or dividends on the Series A Preferred Stock.
As a result of such deferrals, the Company may not pay dividends on any of its common or preferred
stock or trust preferred securities until all accrued and deferred amounts have been paid.
GreenBank has also informally committed to the Federal Deposit Insurance Corporation (FDIC)
and the Tennessee Department of Financial Institutions (TDFI) 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 and first
quarter of 2011, GreenBanks capital levels fell below these required minimum levels at December
31, 2010 and remain below these levels at March 31, 2011.
Beginning in the third quarter of 2010, the Companys Board of Directors began to work closely
with management and the Companys financial advisor to explore the Companys reasonably available
strategic alternatives to address the Companys credit, financial and regulatory challenges,
including maintaining the status quo, selling common or preferred stock in a public or private
offering, disposing of a significant amount of problem assets, a balance sheet restructuring
transaction in which the Series A Preferred Stock was converted to common stock, and merging with a
larger financial institution in a strategic transaction.
In September 2010, the Company formally engaged its financial advisor in connection with its exploration
of these strategic alternatives. Pursuant to the terms of its engagement, the Companys financial advisor will receive a fee
upon the successful consummation of the NAFH recapitalization transaction. During the two years prior to its engagement
on September 16, 2010, the Companys
financial advisor had no formal engagements with either the Company or NAFH.
Following their engagement in September 2010, representatives of the Companys financial
advisor met with various members of the Companys senior management to discuss the Companys near
and longer-term prospects assuming various scenarios.
Throughout the third and fourth quarters of 2010 and into the first quarter of 2011 the
Companys Board of Directors, with the assistance of the Companys financial advisor, engaged in
extensive discussions regarding the Companys strategic alternatives and the Companys Board of
Directors authorized the Companys financial advisor and members of senior management to pursue all
alternatives available to the Company to strengthen the Companys capital position, including
pursuing discussions with Treasury regarding converting the Series A Preferred Stock into Common
Stock and any discount that Treasury might be willing to accept in connection with such a
conversion. The Companys Board of Directors also authorized management to provide financial
information to companies that might be interested in pursuing a transaction with the Company,
subject to those companies executing confidentiality agreements with the Company.
Beginning late in the third quarter
of 2010, on behalf of the Company, the Companys financial advisor began contacting
both potential private equity investors and possible strategic partners and inquiring as
to whether these companies would have interest in pursuing a transaction with the Company. Over
the next six months, on behalf of the Company, the Companys
financial advisor contacted fifty potential private equity
investors and sixteen potential strategic partners. The private equity investors contacted were
chosen because they had generally expressed interest to the Companys financial advisor in pursuing
capital investment transactions like those being considered by the Company. The strategic partners
contacted were chosen because they had generally expressed to the Companys financial advisor a
willingness to consider acquiring financial institutions of a similar
size to the Company or with
operations in the Companys market areas. Of these potential private equity investors and
strategic partners contacted, twenty-one potential private equity investors and seven potential
strategic partners, including both platform companies, like NAFH, and large, regional financial
institutions, entered into a confidentiality agreement with the Company. Subsequent to these
companies executing confidentiality agreements, the Company provided these interested companies
with access to an online data room containing financial information about the Company and provided
these interested companies with information regarding the Companys loan portfolio. Members of the
Companys senior management also held in-person meetings with seventeen of the private equity
sponsors and three of the strategic partners.
During the time that the Companys senior managers were having discussions with these private
equity firms and potential strategic partners, the Companys results of operations continued to be
negatively impacted by credit quality issues and related elevated provision expense and net
charge-offs, and the Companys stock price continued to decline. During the third and fourth
quarters of 2010, equity capital market conditions continued to worsen and it became increasingly
more difficult for bank holding companies, particularly those experiencing significant asset
quality problems like the Company, to successfully consummate public offerings. As a result, the
Companys Board of Directors directed management and the Companys financial advisor to focus their
efforts on
9
raising capital through the sale of common or preferred stock in a private offering rather than a
public offering and in a transaction between the Company and a strategic partner.
Throughout October 2010 and November 2010, management and the Companys financial advisor
continued to have discussions with companies that were interested in making an investment in the
Company or in merging with the Company, and on a regular basis the Companys Board of Directors was
apprised of the results of those discussions. In November 2010, the Company received oral
indications of interest from two potential private equity investors and preliminary written
indications of interest from three potential strategic partners. Each of the indications from the
private equity investors was conditioned on further due diligence, particularly involving the
Companys loan portfolio and potential losses embedded in the
portfolio. Under each proposal, additional investors would have been
required to supplement these lead
investors investment to raise an amount of capital that the investors thought was sufficient to
capitalize the Company and GreenBank in light of the amount of losses these investors believed
remained in the Companys loan portfolio. Neither of these private equity investors ever made a
written offer to the Company. The three indications that the Company received from strategic
partners were also conditioned on further due diligence, particularly involving the Companys loan
portfolio and the potential losses embedded in the portfolio. Following their due diligence review,
none of these strategic partners ever made a definitive offer to acquire the Company.
In December 2010, the Companys senior managers and its financial advisor engaged in
discussions with a private equity investor (PE Firm A) that owned a portion of a community bank
based in the Southeast (PE Firm As Bank) about a transaction that would combine the Companys
bank subsidiary with PE Firm As Bank coupled with a recapitalization of the resulting entity led
by PE Firm A. Over the next four months, the Companys representatives and PE Firm As
representatives had intermittent discussions about a potential transaction and PE Firm A completed
a significant amount of due diligence on the Company, with particular emphasis on the Companys
loan portfolio, and the Companys senior managers completed limited due diligence on PE Firm As
Bank.
During the period from December 2010 to April 2011, the Companys senior management and its
financial advisor continued to engage in discussions with PE Firm A, met with a number of other
private equity investors and explored other alternatives for the Company. On or about April 14,
2011, NAFH submitted a written offer to invest $202 million into the Company at a per share price
of $1.00 per share and requested that the Company negotiate exclusively with NAFH for a period of
thirty days to reach a definitive agreement. This offer was conditioned on, among other things,
NAFH being able to secure a discount of 40% from the Treasury on the repurchase of the Series A
Preferred Stock. The Companys Board of Directors met on April 15, 2011 to consider this written
offer and after discussing the offer, instructed the Companys financial advisor and the Companys
senior managers to notify NAFH that it was rejecting this offer because, among other things, the
Board of Directors believed the per share investment price was inadequate.
The Companys Board of Directors did not convey to NAFH a minimum per share investment price that
would be acceptable to the Board of Directors and did not discuss as a group any such minimum
price.
Around the time that the Company received NAFHs initial written offer, the Company also
received an oral indication from PE Firm A indicating that it was interested in leading a $170
million investment in the Company at a price of up to $2.00 per share, conditioned upon, among
other things, the Company acquiring PE Firm As Bank at 1.5x book value and on Treasury converting
its Series A Preferred Stock to Common Stock at a 70% discount. The Companys Board of Directors
met on April 15, 2011 to consider this oral indication of interest and instructed the Companys
financial advisor to have PE Firm A reduce its offer to writing, which PE Firm A did, delivering a
written offer to the Company on April 18, 2011. PE Firm As written offer confirmed its oral
indication of interest, although it reflected a reduction in the size of the capital investment
from $170 million to $163 million. The written offer continued to be conditioned upon (1) the
Companys agreeing to acquire PE Firm As Banks common stock at 1.5x book value, (2) the
Treasurys willingness to convert the Series A Preferred Stock to Common Stock at a 70% discount
and (3) PE Firm As satisfactory completion of further financial, legal, and operational due
diligence, including accounting and tax-related due diligence. In addition, PE Firm As written
offer was conditioned upon the Company implementing protections designed to ensure that the Company
would be able to utilize its net operating losses and deferred tax assets following closing of the
investment without limitation.
On April 18, 2011, the Companys Board of Directors met to consider PE Firm As written offer.
At that meeting, the Board of Directors authorized the Companys senior management and its
financial advisor to pursue
10
further discussions with PE Firm A. Over the next ten days, members of the Companys senior
management and its financial advisor had numerous discussions with representatives of PE Firm A and
representatives of PE Firm As Bank regarding the structure of the proposed transaction and other
transaction-related matters. The Companys senior managers and financial advisor also engaged in discussions with representatives of PE Firm A and PE
Firm As Bank regarding PE Firm As Banks prospects for growth and preliminary views on the
opportunity for the combined banks. The Companys senior managers performed a limited amount of due
diligence on PE Firm As Bank, including a review of publicly available financial information
regarding PE Firms As Banks historical financial performance. Throughout their discussions, the
Companys senior
management and its financial advisor stressed to
PE Firm As representatives that the current transaction proposal had significant execution risk,
particularly the requirement that Treasury convert the Series A Preferred Stock to common stock at
at least a 70% discount. Based on conversations that the Companys senior management had with
Treasurys representatives, the Companys senior management did not believe Treasury would agree to
a discount of that magnitude.
On April 22, 2011, representatives of NAFH asked members of the Companys senior management if
they could make a presentation to the Companys Board of Directors. On April 26, 2011,
representatives of NAFH attended a meeting of the Companys Board of Directors and described the
terms of a revised offer that NAFH was prepared to make to the Company. Pursuant to the terms of
this revised offer, NAFH would acquire 100% of the Companys outstanding Common Stock in a merger
transaction. The consideration paid to the Companys shareholders would be based on the closing
price for the Companys common stock on that date, which was $2.09 per share, and could be paid in
all cash, or in a combination of cash and equity securities of NAFH, or its subsidiary Capital Bank
Corporation, although no more than 20% of the total consideration would be in the form of equity
and only shareholders of the Company that qualified as accredited investors under the SECs rules
and regulations would be entitled to receive NAFH stock. Unlike its earlier offer, this offer was
not conditioned on the Treasury agreeing to sell the $72.3 million of Series A Preferred Stock to
NAFH at a discount although NAFH orally indicated that they continued to seek a discount from
Treasury. This revised offer also included the issuance of contingent value rights to the
Companys shareholders which would entitle the Companys shareholders to cash proceeds of up to
$0.75 per share, based on the credit performance of GreenBanks legacy loan portfolio over the five
years following closing. NAFHs representatives communicated to the Companys Board of Directors
that NAFH had substantially completed its due diligence and that it had a sufficient amount of cash
on hand to effect the transaction and would not require any type of financing contingency or
condition. NAFHs representatives communicated to the Companys Board of Directors that NAFH
needed to move quickly on this transaction and was prepared to devote the resources necessary to
finalizing definitive deal documentation by April 30, 2011.
At this meeting, NAFH was asked, and confirmed, that the recapitalization transaction structure it
has proposed on or about April 14, 2011 was still a transaction structure that it would consider,
but that the investment price under that structure would not be as high as the $2.09 price it had
offered for the merger transaction.
Following NAFHs representatives presentation at the April 26, 2011 board meeting, the
Companys Board of Directors and senior management discussed with the Companys legal and financial
advisors the revised NAFH proposal and the current status of the discussions with PE Firm A. The
Companys Board of Directors authorized management and the Companys financial advisor to pursue
further discussions with NAFH and with PE Firm A.
Between April 26, 2011 and April 29, 2011, NAFH revised its proposals and offered the
Companys Board of Directors the option of a recapitalization transaction, in which NAFH would
acquire approximately $217 million of the Companys Common Stock at a per share purchase price of
$1.81 per share, or alternatively, a transaction in which NAFH would acquire 100% of the Companys
outstanding common stock in a merger transaction at a per share purchase price of $2.15, with the
option of up to 20% of the merger consideration being in the form of Capital Bank Corporation
stock. Each transaction structure included the same offer of contingent value rights. Each
transaction included roughly the same closing conditions, and neither transaction was expressly
conditioned on the Treasury agreeing to sell the $72.3 million of Series A Preferred Stock to NAFH
at a discount. The Companys Board of Directors directed the Companys senior management and its
financial advisor to continue to have discussions with NAFH regarding its proposal, including
requesting that NAFH allow the Companys existing shareholders a chance to invest in the Companys
common stock in a rights offering if the recapitalization transaction was consummated.
On April 29, 2011, the Companys Board of Directors met to consider the three alternatives
then available to the Board of Directors the recapitalization transaction with NAFH; the merger
transaction with NAFH with a per share price now at $2.15 per share; and the recapitalization
transaction without PE Firm A at a per share price of up to $2.00. The Companys Board of Directors
also considered the alternative of continuing to operate the Company on a stand-alone basis with an
injection of new capital. In comparing the three transaction alternatives, the Companys Board of
Directors considered numerous factors, including but not limited to, price, availability of
financing, deal certainty, timing, the amount of capital infusion, likelihood of and timing for
securing regulatory approval, its estimate of the Treasurys
willingness to agree to a repurchase of the Series A Preferred
Stock, and the potential investors different visions for the Company going forward. In evaluating the
investment price being offered in each of the recapitalization transactions and the value of the
merger consideration being offered in the NAFH merger transaction, the Board of Directors
considered that each of those prices was at a discount to the Companys book value per common share
(shareholders equity less preferred stock and common stock warrants) and the trading price of the
Companys common stock. While the per share consideration being offered in each of the proposed
structures was below the Companys book value per common share of $4.88 as of March 31, 2011, the
Companys Board of Directors considered that the Companys book value per common share did not reflect NAFHs or PE Firm As views on the
potential losses embedded in the Companys loan portfolio or the impact of the purchase accounting
adjustments, including the adjustments resulting from marking the loan portfolio to fair value,
that would likely accompany either alternative. When evaluating the discount each alternative
reflected to the current trading price of the Companys common stock, the Companys Board of
Directors also considered that the trading price of the Companys common stock did not reflect
NAFHs or PE Firm As views on the potential losses embedded in the Companys loan portfolio or the
impact of the purchase accounting adjustments, including the adjustments resulting from marking the
loan portfolio to fair value, that would likely accompany either alternative, and did not reflect
the fact that the announcement by the Company that it had consented to the issuance of a cease and
desist order by the FDIC and entered into a written agreement with the TDFI, the possibility of
which is discussed in more detail below, both of which would likely have negatively impacted the
trading price of the Companys Common Stock.
In evaluating the various alternatives, the Companys Board of Directors considered that while
PE Firm A offered the possibility of a higher nominal price per share than the NAFH
recapitalization transaction, its offer was conditioned on further due diligence, Treasury agreeing
to convert the Series A Preferred Stock to common stock on
acceptable terms, and
preservation of the Companys net operating losses and deferred tax asset. The Companys Board of
Directors also believed that while the merger transaction alternative proposed by NAFH offered a
higher nominal price per share than NAFHs recapitalization transaction, the Companys common stock
price would likely trade higher than the value of the consideration being offered in the NAFH
merger transaction, based on the trading history of certain companies that had recently announced
similar recapitalization transactions whose stock
prices were trading, on April 28, 2011, at premiums ranging from
115% of pro forma tangible book
value per share to 270% of pro forma tangible book value per share. In addition, the Companys
Board of Directors believed that the recapitalization transaction could be consummated on a more
accelerated timeline than the merger transaction because the shares of Capital Bank Corporation
common stock to be issued in the merger transaction would have needed to be registered with the
SEC, which would have likely added additional time to the process. The Companys Board of
Directors also believed that the NAFH recapitalization transaction, which offered the Companys
shareholders an opportunity to remain shareholders of the Company and ultimately shareholders of
NAFH, which has now filed a registration statement with the SEC related to its proposed initial
public offering and which the Board of Directors at that time believed would be filing for its
initial public offering before the end of 2011, offered the potential for further improved returns
over the NAFH merger transaction in which only a portion of the consideration that the Companys
shareholders would have received would have been in equity securities. The Companys Board of
Directors also believed that the potential cash value to the CVRs provided a positive benefit over
the recapitalization transaction involving PE Firm A, and that accordingly the NAFH
recapitalization transaction offered a higher value to shareholders than the recapitalization
transaction involving PE Firm A. For these reasons, the Companys Board of Directors instructed the
Companys financial advisor and the senior management to focus their efforts on negotiating a
recapitalization transaction with NAFH.
11
In instructing the Companys senior management and its financial advisor to focus their
efforts on the NAFH recapitalization transaction, the Companys Board of Directors viewed the NAFH
recapitalization transaction as more certain to close over PE Firm As recapitalization transaction
and to provide greater future growth opportunities for the Company and the Companys shareholders
than either of the other two alternative transactions. The financing for the transaction with PE
Firm A was not as secure as NAFHs readily available cash, and regulatory approval for the
transaction with PE Firm A was less certain as to both timing and
likelihood of approval because PE Firm A would require additional
co-investors to fund the full investment. In
addition to being more certain to close, the NAFH recapitalization transaction also entails a much
larger capital infusion than the alternative transaction with PE Firm A, does not require that
Treasury accept a discount on its Series A Preferred Stock (although NAFH indicated that it was
still seeking a discount from Treasury), and is not conditioned on the Company preserving its net
operating losses and deferred tax asset.
Beginning on April 29, 2011 and continuing through May 5, 2011, the Companys senior
management and its legal and financial advisors negotiated the terms of the Investment Agreement
and the ancillary documents thereto with NAFH and its advisors. The Companys legal and financial advisors sought numerous changes to the draft of the Investment
Agreement submitted by NAFH, including, among others, changes to the non-solicitation provisions,
elimination of the Option, and modifications to the closing conditions. The Companys legal
advisor also attempted to negotiate a reduction in the size of the termination fees and a reduction
in the number of situations in which those fees would be payable as well as an increase in the size
of the reverse termination fee.
The Companys advisors
also reiterated the desire of the Companys Board of Directors that NAFH permit the Company to
conduct a rights offering following consummation of the recapitalization transaction to its
existing shareholders at the same per share price that NAFH was paying. NAFH was unwilling to
agree to most of the changes suggested by the Companys advisors, including the request for
a rights offering to be included in the transaction or for the Company being entitled to require
NAFH to specifically perform its obligations under the Investment Agreement, and insisted that the
agreement be signed promptly.
On May 2, 2011, GreenBank received notice from the FDIC and TDFI that, as a result of those
agencies findings in their most recently completed joint safety and soundness examination, the
agencies would be seeking a formal enforcement action against GreenBank aimed at strengthening
GreenBanks operations and its financial condition. Accordingly, the FDIC informed the Company that
it was pursuing the issuance of a consent order against GreenBank and the TDFI was pursuing the
issuance of a written agreement against GreenBank and that these formal enforcement actions would
likely require GreenBank to maintain capital levels at or above those minimum levels that GreenBank had informally committed to maintain (as described above), which were
above those levels
that GreenBank currently met. The
Board of Directors believed that the issuance of this formal enforcement action would negatively
impact the Companys operations and that the prompt consummation of a capital raising transaction
would significantly reduce this negative impact.
On May 5, 2011, the Companys Board of Directors met for the primary purpose of considering
the NAFH recapitalization transaction. Representatives of the Companys legal and financial
advisors attended this meeting, as did certain members of the Companys senior management. At this meeting, the Companys financial advisor advised the Board of Directors that the financial
advisor currently anticipated that it would act as a managing underwriter in connection with NAFHs
potential public offering and that the financial advisor may provide investment banking services to
the Company and NAFH in the future, for which the financial advisor may
receive a fee. The Board of Directors did not believe that this potential conflict of interest
impaired the financial advisors ability to advise the Board of Directors impartially.
Following a discussion of the financial terms of the NAFH recapitalization transaction, a
representative of the Companys legal advisor
12
reviewed with the Companys Board of Directors their applicable fiduciary duties and
responsibilities and described for the Board of Directors in detail the terms of the Investment
Agreement and the ancillary agreements. The Companys Board of Directors considered the $1.81 per
share purchase price proposed by NAFH, together with the CVR, compared to the per share prices
offered in the other two alternatives as well as the potential stock price performance for the
Companys Common Stock on a stand-alone basis (based on managements assumptions as to future
financial performance).
In considering the $1.81 per share purchase price proposed by NAFH, the Companys Board of
Directors discussed that the price was below the current trading price for the Companys common
stock and current book value per share of Common Stock as well as the per share price offered by
NAFH in the merger transaction alternative. Despite the fact that this price was nominally below
these other per share prices, the Board of Directors believed that it was likely that the trading
price of the Companys common stock would trade higher following announcement of the proposed
transaction and that the trading price would likely trade higher than the $2.15 per share price
offered in the merger transaction. The Board of Directors reached this conclusion based on its
review of the stock price performance of the following companies that had entered into
recapitalization transactions similar to the transaction proposed by NAFH since September 30, 2009:
(i) Capital Bank Corporation; (ii) TIB Financial Corp.; (iii) Palmetto Bancshares, Inc.; (iv)
Hampton Roads Bankshares, Inc.; (v) Pacific Capital Bancorp; (vi) Sterling Financial Corporation;
and (vii) West Coast Bancorp. In the case of each of these companies, the price at which the
companys stock was trading at the close of the market on
May 4, 2011 ranged from 115% of the
companys pro forma tangible book value per share to 213% of pro forma tangible book value per
share. Applying these trading multiples to the $1.55 pro forma tangible book value per share
implied by the $1.81 per share purchase price, the Board of Directors believed that it was likely
that the Companys Common Stock would trade at a price higher than the price offered by NAFH in the
merger transaction. The Board of Directors gave particular attention to the trading price of
Capital Bank Corporation, which on May 4, 2011, was trading at 201.8% of pro forma tangible book
value per share. The Board of Directors believed that the Capital Bank Corporation trading price
was particularly relevant to the Companys situation given the similarities between NAFHs
investment in Capital Bank Corporation and its proposed investment in the Company.
At the May 5, 2011 Board of Directors meeting, Mr. Rownd also presented the views of
management regarding the proposed recapitalization transaction with NAFH, concluding with
managements recommendation that the transaction be approved. After discussion, the Companys
Board of Directors adopted and approved the Investment Agreement and the transactions contemplated
by the Investment Agreement, including the Bank Merger described in Proposal 6, and determined that
the Investment Agreement and the transactions contemplated by the Investment Agreement, including
the Bank Merger, are advisable and in the best interests of the Company and its shareholders.
On May 5, 2011, the Company announced the execution of the Investment Agreement with NAFH.
The Company is seeking approval to issue shares of Common Stock under the Investment Agreement to
support the Companys strategic growth opportunities in the future. If the issuance of shares under
the Investment Agreement is approved and the proposed transactions are consummated, the Company
will receive approximately $217 million in gross proceeds from the Investment by NAFH. If the
Company is unable to complete the Investment, it would materially and adversely affect the
Companys business, financial results and prospects.
Projected Financial Information
The Companys senior management does not as a matter of course make public projections as to
future performance or earnings and, especially during this period of economic uncertainty, cautions
against relying on any such projections, including those summarized below. However, the Companys
senior management did provide the Companys 2011 financial plan to NAFH, PE Firm A, and other
potential private equity investors and strategic partners in connection with their consideration of
a possible transaction with the Company. The projections included in the Companys 2011 financial
plan, as well as other projections, were also provided to the Companys Board of Directors. The
Company has included in this Proxy Statement the projections included in the Companys 2011
financial plan that were deemed material by the Companys Board of Directors for purposes of
considering and evaluating the recapitalization transaction proposed by NAFH. The inclusion of
these projections should not be regarded as an indication that the Companys management or Board of
Directors or any other recipient of these or other financial projections considered, or now
consider, these projections, or any other projections provided in connection with the proposed NAFH
recapitalization transaction, to be a reliable prediction of future results and they should not be
relied on as such.
The Company believes that the assumptions the Companys management used as a basis for
preparing projections were reasonable at the time the projections were prepared, given information
the Companys management had at the time. However, the projections do not take into account any
circumstances or events occurring after the date they were prepared and you should not assume that
the projections remain accurate as of the date of this Proxy Statement or that the projections will
continue to be accurate or reflective of the Companys managements view at the time you consider
whether to vote for approval of the proposals included in this Proxy Statement. The internal
financial forecasts upon which these projections were based are subjective in many respects and are
thus susceptible to various interpretations. The projections reflect numerous assumptions with
respect to industry performance, general business, economic, market and financial conditions and
other matters, all of which are difficult to predict and many of which are beyond the Companys
control. The projections are also subject to significant uncertainties in connection with changes
to the Companys business and its financial condition and results of operations, and include
numerous estimates and assumptions related to the Companys business that are inherently subject to
significant economic, political and competitive uncertainties, including those factors described
below under Forward Looking Statements beginning on
page 28, all of which are difficult to
predict and many of which are beyond the Companys control. As a result, although the projections
set forth below were prepared in good faith based upon assumptions believed to be reasonable at the
time the projections were prepared, there can be no assurance that the projected results will be
realized or that actual results will not be significantly higher or lower than projected.
Since
the date of the projections described below, the Company has made publicly available its
actual results of operations for the fiscal year ended December 31, 2010 and the three months ended
March 31, 2011. You should review the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2010 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2011,
together with the information set forth in Appendix F attached hereto. Readers of this
Proxy Statement are cautioned not to place undue reliance on the specific portions of the
financial projections set forth below. No one has made or makes any representation to you regarding
the information included in these projections or the future financial results of the Company.
For the foregoing reasons, as well as the bases and assumptions on which the financial
projections presented below were compiled, the inclusion of these specific portions of the
financial projections in this Proxy Statement should not be regarded as an indication that such
projections will be an accurate prediction of future results or events, and they should not be
relied on as such. Except as required by applicable securities laws, the Company has not updated
and does not intend to update or otherwise revise the financial projections or the specific
portions presented below to reflect circumstances existing after the date when such projections
were made or to reflect the occurrence of future events, even in the event that any or all of the
assumptions underlying the projections are shown to be in error.
A summary of the above-described financial projections is set forth below:
|
|
|
|
|
|
|
Projected |
|
|
as of and for the fiscal year |
|
|
ending December 31, |
|
|
2011 |
|
|
(dollars in thousands) |
Balance Sheet Data: |
|
|
|
|
Investments and cash |
|
$ |
510,865 |
|
Loans |
|
|
1,590,818 |
|
Loan loss reserve |
|
|
(61,662 |
) |
Other real estate owned |
|
|
74,246 |
|
Deposits |
|
|
1,875,876 |
|
Borrowings |
|
|
163,944 |
|
Capital |
|
|
205,848 |
|
|
Income Statement Data: |
|
|
|
|
Net interest income |
|
|
75,637 |
|
Loan loss provision |
|
|
(41,860 |
) |
Non-interest income |
|
|
30,414 |
|
Non-interest expense |
|
|
(89,556 |
) |
Loss before income taxes |
|
|
(25,365 |
) |
Net loss GreenBank |
|
|
(25,365 |
) |
Green Bankshares expenses |
|
|
(7,100 |
) |
Consolidated net loss |
|
|
(32,465 |
) |
|
Capital Ratios: |
|
|
|
|
Tier 1 leverage ratio |
|
|
8.20 |
% |
Total risk-based capital ratio |
|
|
12.88 |
% |
Tangible common equity as a percentage
of tangible assets |
|
|
1.66 |
% |
Effect of this Proposal
The issuance of shares of Common Stock under the Investment Agreement will not affect the
rights of the holders of currently outstanding Common Stock, but the shares issued pursuant to the
Investment will cause substantial dilution to existing shareholders voting power and in the future
earnings per share of their Common Stock. When the additional shares of Common Stock are issued
under the Investment Agreement and assuming approval of the other proposals set forth in this Proxy
Statement, such new shares will have the same voting and other rights and privileges as the
currently issued and outstanding shares of Common Stock, including the right to cast one vote per
share on all matters and to participate in dividends when and to the extent declared and paid.
If this proposal is approved and other closing conditions (including the approval of Proposals
2, 3, 5 and 6) are satisfied, the Company will issue 119,900,000 shares of Common Stock to NAFH,
which will result in NAFH owning approximately 90.1% of the Companys outstanding Common Stock. In
addition, if requested by NAFH, the Company will issue such additional shares following the closing
of the Initial Investment but prior to such time as GreenBank is merged with and into a subsidiary
of NAFH as are necessary to maintain GreenBanks tier l leverage ratio at or above 10%. If the
Closing occurs, no further vote of the Companys shareholders will be required to effect the
Holding Company Merger (as defined in Proposal 4), as NAFH will be able to accomplish that
transaction under the provisions of the Tennessee Business Corporation Act that allows a parent
corporation that owns at least 90% of the outstanding capital stock of a subsidiary to merge that
subsidiary corporation into the parent without requiring a vote of the minority shareholders.
Interests of the Companys Directors and Executive Officers in the Proposal
Certain of the Companys directors and executive officers have an interest in this Proposal
No. 1 as a result of their ownership of shares of Common Stock, as set forth in the section
entitled Security Ownership of Certain Beneficial Owners and Management below. In addition to
their interests in this Proposal No. 1 as a result of their ownership of shares of Common Stock,
certain of the Companys directors and executive officers also have interests in this Proposal No.
1 that differ from, or are in addition to, those of the Company shareholders generally, because the
Initial Investment and the consummation of the related transactions contemplated by the Investment
Agreement will constitute a change in control under certain employment agreements, equity plans
and other benefits plans and programs in which the Companys directors and executive officers
participate. The employment agreements and benefit plans and programs provide the Companys
directors and officers certain additional benefits upon a change in control, subject to any
applicable legal or regulatory restrictions.
13
In addition to the interests and benefits applicable to the Companys named executive officers
as described in Proposal 7 Approval of Executive Compensation the Companys directors and
executive officers have the following additional interests in the transaction with NAFH:
Treatment of Outstanding Equity Awards. Under the terms of the Companys Amended and Restated
2004 Long-Term Incentive Plan (the LTIP), the vesting of the restricted stock and unvested stock
options accelerate immediately prior to a change in control of the Company, including the
Investment, and become fully vested. However, because of the Companys participation in the CPP
any such vesting is prohibited for the Companys SEOs and next five most highly compensated
employees. While the vesting of the unvested equity awards will not accelerate prior to
consummation of the Investment for these individuals, it is anticipated that these unvested equity
awards will accelerate following consummation of the Repurchase. Each of the named executive
officers, except R. Stan Puckett, currently hold unvested equity awards which are anticipated to
vest following the consummation of the Repurchase.
As
of July ___, 2011, Messrs. Vaught, W.
Adams and Ottinger hold 2,000, 476 and 392 unvested stock options, respectively, that are anticipated to vest following consummation of the
Repurchase. None of the unvested stock options have an exercise price that is less than $1.81 and,
therefore, such stock options currently have no intrinsic value.
As
of July ___, 2011, Messrs. Rownd, Fowler,
W. Adams and Ottinger hold 42,537, 30,865, 624
and 1,716 shares of unvested restricted stock, respectively, that are anticipated to
vest following the consummation of the Repurchase.
In addition to the executive officers, the Companys directors also currently hold unvested
equity awards. Unlike the SEOs and next five most highly-compensated employees, these individuals
are not subject to the prohibitions under the CPP on the acceleration of unvested equity awards. As
of July ___, 2011, Messrs. Leonard, Whitfield, Tolsma, Mooningham, Lynch, Daniels and Campbell and Mrs.
Bachman, the Companys non-employee directors, own 655, 529, 405, 759, 192, 582, 13 and 679 shares
of unvested restricted stock, respectively, that will vest immediately prior to consummation of the
Investment.
Potential Payments with Respect to Executive Officers. In addition to those benefits for the
named executive officers described in Proposal 7 Approval of Executive Compensation, Steve D.
Ottinger, the Companys only executive officer who is not a named executive officer, is party to a
Change in Control Protection Plan Participation Agreement, dated October 22, 2004, under the
Companys Change in Control Protection Plan (the CIC Plan) which provides that if Mr. Ottinger is
terminated without cause or resigns with good reason (both as defined in the CIC Plan) within two
years following a change in control, Mr. Ottinger would be entitled to an amount equal to 1.99
times Mr. Ottingers base amount within the meaning of Section 280G(b)(3) of the Internal Revenue
Code of 1986, as amended (the Code), payable in lump sum. If this payment is triggered, Mr.
Ottinger would be entitled to receive a payment equal to $296,898.
The independent members of the Companys Board of Directors were aware of and considered these
interests, among other matters, in evaluating and negotiating the Investment Agreement and in
recommending the approval of this Proposal No. 1. For an additional discussion of the additional
interests of certain officers of the Company in this Proposal No. 1, please see Proposal 7
Approval of Executive Compensation.
No Preemptive Rights
The holders of Common Stock have no preemptive rights to any future issuances of Common Stock.
Regulatory Approval
Board of Governors of the Federal Reserve System. The acquisition of control of a bank
holding company through acquisition of its securities requires the prior approval of the Board of
Governors of the Federal Reserve (the Federal Reserve) pursuant to Section 3 of the Bank Holding
Company Act of 1956, as amended (Section 3). Prior approval under Section 3 also is needed for
NAFH to exercise the Option and acquire the underlying shares. The Federal Reserve generally will
not approve an application under Section 3:
14
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|
|
That would result in a monopoly or that would further a combination or conspiracy to
monopolize banking in the United States; or |
|
|
|
|
That could substantially lessen competition in any in any banking market, that would
tend to create a monopoly in any banking market, or that would be in restraint of trade,
unless the Federal Reserve finds that the public interest in meeting the convenience and
needs of the communities served outweighs the anti-competitive effects of the proposed
transaction. |
The Federal Reserve is also required to consider: (a) the financial condition and future
prospects of NAFH, NAFH Bank, Green Bankshares, and GreenBank, (b) the managerial condition of the
NAFH, NAFH Bank, Green Bankshares and GreenBank, (c) the convenience and needs of the communities
to be served, including the record of performance under the Community Reinvestment Act of 1977, and
(d) the effectiveness of NAFH, NAFH Bank, Green Bankshares and GreenBank in combating money
laundering.
The statutory criteria for an interstate acquisition also must be satisfied to receive Federal
Reserve approval. Such standards include that (i) NAFH is at least well capitalized and well
managed under criteria determined by the Federal Reserve, unless the transaction is approved before
July 21, 2011, in which case the statutory standard is that NAFH must be at least adequately
capitalized and adequately managed, (ii) GreenBank has been in existence for the minimum amount of
time required under state law or five years, whichever period is less, (iii) NAFH will not control
deposits that exceed 10% of all deposits controlled by insured depository institutions in the
United States or 30% of deposits controlled by insured depository institutions in North Carolina
and (iv) certain other requirements. The parties expect to satisfy these standards.
Applicable regulations require publication of notice of a Section 3 application and an
opportunity for the public to comment on the application in writing and to request a hearing. Any
acquisition of the securities of the Company approved by the Federal Reserve may not be completed
until 30 calendar days after such approval, during which time the U.S. Department of Justice may
challenge such acquisition on anti-trust grounds and seek divestiture of certain assets and
liabilities. With the approval of the Federal Reserve and the U.S. Department of Justice, the
waiting period may be reduced to 15 days.
Application. NAFH
is preparing, and expects to file soon, the necessary Section 3
application requesting approval of the Federal Reserve. The application will describe the terms of
the transaction whereby NAFH would acquire the Companys securities, the parties involved, and the
plan to engage in the Bank Merger immediately after the consummation of that transaction.
Recommendation of the Companys Board of Directors
In reaching its decision to adopt and approve the Investment Agreement and the transactions
contemplated thereby, including the Bank Merger, and to recommend that the Companys shareholders
approve the proposals included in this Proxy Statement, the Companys Board of Directors considered
a number of factors, including, without limitation, the following potentially positive factors in
support of the recapitalization transaction with NAFH:
|
|
|
|
its belief that the recapitalization transaction with NAFH was more favorable to
the Companys shareholders than any other alternative reasonably available to the
Company. The Board of Directors considered possible alternatives to the
recapitalization transaction with NAFH, including continuing to operate the Company
on a stand-alone basis, entering into the merger transaction with
NAFH, or pursuing a
recapitalization transaction with PE Firm A, and the risks and uncertain returns
associated with each of these alternatives, each of which the Board of Directors
determined not to pursue when compared to the recapitalization transaction, which the
Companys Board of Directors believed offered the possibility of the highest value to
the Companys shareholders because of the Board of Directors belief that (1) based
on the trading prices of certain comparable recapitalization transactions, the
Companys stock price would trade higher than the value of the merger consideration
being offered by NAFH and (2) unlike in the NAFH merger transaction in
which the Companys shareholders would receive primarily cash in exchange for their
shares of Company Common Stock, the Companys shareholders would remain shareholders
of the Company and as a result they would have the opportunity to participate in the
Companys future earnings or growth, which the Companys Board of Directors believed
would be improved over a stand-alone basis on account of the significant capital
investment by NAFH; |
|
|
|
|
|
|
the Board of Directors belief that if the Companys stock price traded higher
than the per share price offered in the merger transaction the
Companys shareholders
could immediately sell their shares of Common Stock at a price higher than the price
they would receive in the merger transaction without having to wait for the
transaction to close before doing so; |
|
|
|
|
|
|
the results of the extensive review of strategic alternatives conducted by the Company, with
the assistance of its financial and legal advisors over a period of nine months,
which involved the Companys management engaging in discussions
with approximately twenty parties to determine their
potential interest in a business combination or recapitalization transaction with the
Company; |
|
|
|
|
|
|
the conclusion of the Companys Board of Directors that the termination fees,
expense reimbursements and payments potentially owning to NAFH under the Investment
Agreement and the Option (and the circumstances when each such fee or
payment is payable) were reasonable in light of the potential benefits to the Company
and its shareholders of the recapitalization transaction with NAFH and the extensive
sale process conducted by the Company; |
|
|
|
|
|
|
the significant amount of cash on hand at NAFH, and the absence of a financing
condition to NAFHs obligation to consummate the Investment, together with NAFHs
obligation under the Investment Agreement to pay the Company a reverse termination
fee in an amount equal to $8,000,000 if the Investment Agreement is terminated
because NAFH breaches a covenant of the Investment Agreement (and fails to cure such
breach in the time allowed in the Investment Agreement) that causes the failure of a
closing condition to be satisfied; and |
|
|
|
|
|
|
the conclusion by the Companys Board of Directors that consummation of the
recapitalization transaction with NAFH, including the Bank Merger, would aid the
Company and GreenBank in dealing with the formal regulatory enforcement action being
pursued by the FDIC and the TDFI, which the Board of Directors believed would
negatively impact the Companys and GreenBanks operations on a stand-alone basis. |
|
The Board of Directors also considered and balanced against the potentially positive factors
the following potentially negative factors concerning the recapitalization transaction with NAFH:
|
|
|
|
the amount of dilution that the Companys existing shareholders would incur as a
result of consummation of the transactions contemplated by the Investment Agreement; |
|
|
|
|
|
|
the fact that the per share purchase price being paid by NAFH was less than the
trading price for the Companys Common Stock and the book value per share of Common
Stock; |
|
|
|
|
|
|
the risk that the NAFH recapitalization transaction might not be completed,
including the risk that the banking regulators or the Companys shareholders might
not approve the transaction; |
|
|
|
|
|
|
the actual and potential interests of the Companys executive officers and
directors in the recapitalization transaction that may be different than or in
addition to those of the Companys shareholders generally (see Interests of the
Companys Directors and Executive Officers in the Proposal); |
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|
|
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|
|
the restrictions in the Investment Agreement on the Companys ability to solicit
or engage in discussions or negotiations with a third party regarding other proposals
and the restrictions on the ability of the Companys Board of Directors to withdraw
its recommendation that the Companys shareholders vote in favor of the proposals
included in this Proxy Statement; |
|
|
|
|
|
|
the requirements in the Investment Agreement and the Option that the Company pay
NAFH termination fees and expense reimbursement payments of up to $16,750,000 in
certain circumstances (see Overview Termination Fees Payable by the Company );
and |
|
|
|
|
|
|
the possibility of employee and customer disruption associated with the
recapitalization transaction. |
|
After taking into account all of the factors set forth above, as well as others, the Board of
Directors determined that the potentially positive factors outweighed the potentially negative
factors and that the Investment Agreement and the transactions contemplated thereby, including the
Bank Merger, are advisable and in the best interests of the Company and its shareholders. For the
additional factors considered by the Companys Board of Directors in determining whether to
recommend that the Companys shareholders approve the Bank Merger, see PROPOSAL 6 APPROVAL OF
THE MERGER OF GREENBANK WITH AND INTO A SUBSIDIARY OF NORTH AMERICAN FINANCIAL HOLDINGS, INC.
Reasons for the Bank Merger.
This discussion of the information and factors considered by the Companys Board of Directors
is not intended to be exhaustive, but is believed to address the material information and factors
considered by the Companys Board of Directors. In view of the number and variety of these factors,
the Companys Board of Directors did not find it practicable to make specific assessments of, or
otherwise assign relative weights to, the specific factors and analyses considered in reaching its
determination. The determination to adopt and approve the Investment Agreement and the transactions
contemplated thereby, including the Bank Merger, was made after consideration of all of the factors
and analyses as a whole. In deciding to adopt and approve the Investment Agreement and the
transactions contemplated thereby, including the Bank Merger, individual members of the Companys
Board of Directors may have given different weights to the different factors considered by the
Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
ISSUANCE OF SHARES OF COMMON STOCK TO NAFH UNDER THE INVESTMENT AGREEMENT.
PROPOSAL 2 AMENDMENT TO THE COMPANYS CHARTER TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
Subject to the terms of the Investment Agreement, the investment by NAFH in the Company is
conditioned upon shareholder approval of this Proposal No. 2 as well as approval of Proposals No.
1, 3, 5 and 6 and, in certain circumstances, approval of Proposal No. 4. Shareholders who wish to
approve NAFHs investment in the Company should vote to approve this Proposal No. 2 as well as
Proposals No. 1, 3, 4, 5 and 6.
On May 5, 2011, the Board of Directors approved and adopted, subject to shareholder approval,
a proposed amendment to the Companys Charter, providing for an increase in the authorized number
of shares of Common Stock from twenty million (20,000,000) to three hundred million (300,000,000).
In order for this amendment to the Companys Charter to be approved, the number of shares voted in
favor of the amendment must exceed the number of shares voted against the amendment.
15
If this proposal is approved by the Companys shareholders at the Special Meeting, the
amendment to the Charter will become effective upon the filing of Articles of Amendment with the
Secretary of State of Tennessee, which filing is expected to take place shortly after the Special
Meeting. The Board of Directors believes that it is in the best interests of the Company and all of
its shareholders to amend the Charter to increase the authorized number of shares of Common Stock
from twenty million (20,000,000) to three hundred million (300,000,000).
Except as set forth below and elsewhere in this Proxy Statement, the relative rights of the
holders of Common Stock under the Charter would remain unchanged. The text of this proposed
amendment to Companys Charter is set forth in Appendix B to this proxy statement.
Reasons for this Proposal
The reasons for the increase in the authorized shares of Common Stock are (i) to facilitate
the Companys ability to issue shares to NAFH in connection with the Investment Agreement and (ii)
for other corporate purposes. As part of the Companys efforts to increase the resources of
GreenBank, the Company has executed the Investment Agreement, pursuant to which 119,900,000 shares
of the Companys Common Stock will be issued to NAFH at a purchase price of $1.81 per share. The
proposed amendment would increase the number of authorized shares of Common Stock by two hundred
eighty million (280,000,000) shares. Other than with respect to the Initial Investment and the
Top-Up Investment, the Board of Directors has no present agreement, arrangement or commitment to
issue any of the remaining shares for which approval is sought.
The Board of Directors has determined that this proposal to increase the number of authorized
shares of Common Stock is desirable and in the best interest of shareholders because it would
provide the Company with the ability to support its present capital needs and future anticipated
growth. Additionally, an increase in the amount of authorized shares is necessary to ensure that
the Company has an adequate amount of authorized and unissued shares to complete the issuance of
shares of Common Stock to NAFH in connection with the Investment.
Effect of this Proposal
Adoption of this proposal would not affect the rights of current holders of outstanding Common
Stock. If additional authorized shares of Common Stock, or securities that are convertible into or
exchangeable or exercisable for shares of Common Stock, are issued, our existing shareholders
could, depending upon the price realized, experience dilution of book value per share, earnings per
share and percentage ownership. When, and if, additional shares of our Common Stock are issued,
including under the Investment Agreement, these new shares would have the same voting and other
rights and privileges as the currently issued and outstanding shares of Common Stock, including the
right to cast one vote per share and to participate in dividends when and to the extent declared
and paid.
The following table illustrates the effect the proposed amendment would have on the number of
shares of Common Stock available for issuance, if approved by the shareholders:
|
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|
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|
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|
|
|
Upon Effectiveness of |
|
|
As of June 30, 2011 |
|
Amendment |
|
Shares of Common Stock Authorized |
|
|
20,000,000 |
|
|
|
300,000,000 |
|
Shares of Common Stock Outstanding |
|
|
13,240,201 |
|
|
|
13,240,201 |
|
Shares of Common Stock Reserved for Issuance* |
|
|
1,052,152 |
|
|
|
1,052,152 |
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock Available for Future Issuance |
|
|
5,707,647 |
|
|
|
285,707,647 |
|
Shares of Common Stock to be Issued in Connection
with Investment Agreement |
|
|
119,900,000 |
|
|
|
119,900,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The number of shares of Common Stock reserved for issuance includes 979,874 shares of Common
Stock subject to outstanding options at June 30, 2011 and 72,278 shares of Common Stock subject to
the Treasury Warrant. |
16
This proposed amendment is required to effect the Investment and is not intended as an
anti-takeover provision. However, an increase in the authorized number of shares of Common Stock
could make it more difficult, and thereby discourage, attempts to acquire control of the Company in
the future.
No Preemptive Rights
The holders of Common Stock have no preemptive rights to any future issuances of Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE COMPANYS CHARTER TO AUTHORIZE ADDITIONAL SHARES OF COMMON STOCK.
PROPOSAL 3 AMENDMENT TO THE COMPANYS CHARTER TO DECREASE THE PAR VALUE
OF COMMON STOCK
Subject to the terms of the Investment Agreement, the investment by NAFH in the Company is
conditioned upon shareholder approval of this Proposal No. 3 as well as Proposals No. 1, 2, 5 and 6
and, in certain circumstances, approval of Proposal No. 4. Shareholders who wish to approve NAFHs
investment in the Company should vote to approve this Proposal No. 3 as well as Proposals No. 1, 2,
4, 5 and 6.
On May 5, 2011, the Board of Directors approved and adopted, subject to shareholder approval a
proposed amendment to the Companys Charter, providing for a reduction to the par value of Common
Stock from $2.00 per share to $0.01 per share. In order for the amendment to the Companys Charter
to be approved, the number of shares voted in favor of the amendment must exceed the number of
shares voted against the amendment.
If the proposal is approved by the Companys shareholders at the Special Meeting, the
amendment to the Charter and the reduction in par value will become effective upon the filing of
Articles of Amendment with the Secretary of State of Tennessee, which filing is expected to take
place shortly after the Special Meeting. The Board believes it is in the best interest of the
Company and all of its shareholders to amend the Charter to decrease the par value.
Historically, the concept of par value served to protect creditors and senior security holders
by ensuring that a company received at least the par value as consideration for issuance of stock.
Over time, the concept of par value has lost much of its significance. Many companies that
incorporate today use a nominal par value or have no par value. The reduction in the par value of
Companys Common Stock will have no effect on the rights of holders of Company Common Stock except
for the minimum amount per share the Company may receive upon the issuance of authorized but
unissued shares. The reduction in par value, on its own, will not change the number of authorized
shares of Company Common Stock or the value of Common Stock currently issued and outstanding.
Furthermore, under Tennessee law, the setting of a par value for shares does not create a
requirement for a minimum consideration for the issuance of such shares or impose any other
restriction on their issuance. The Board of Directors considers the proposed amendment to be in
the best interests of the Company and its shareholders because it is a condition to the completion
of the Investment and because the it will eliminate any possible confusion over whether the
Investment is permissible since the per share purchase price ($1.81) under the terms of the
Investment Agreement is below the current stated par value per share of Company Common Stock
($2.00). Shareholder approval of this proposed amendment alone will not assure that the Company
will be able to consummate the transaction with NAFH; however, the approval of this amendment is
necessary under the Investment Agreement in order to proceed with the NAFH transaction.
The text of this proposed amendment to the Companys Charter is set forth in Appendix
B to this proxy statement.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE COMPANYS CHARTER TO REDUCE THE PAR VALUE OF SHARES OF COMMON STOCK.
17
PROPOSAL 4 AMENDMENT TO THE COMPANYS CHARTER TO EXEMPT NORTH AMERICAN
FINANCIAL HOLDINGS, INC. AND ITS AFFILIATES AND ASSOCIATES FROM THE PROVISIONS
OF SECTION 9
Subject to the terms of the Investment Agreement, the investment by NAFH in the Company is, in
certain circumstances, conditioned upon shareholder approval of this Proposal No. 4 as well as in
all circumstances approval of Proposals No. 1, 2, 3, 5 and 6. Shareholders who wish to approve
NAFHs investment in the Company should vote to approve this Proposal No. 4 as well as Proposals
No. 1, 2, 3, 5 and 6.
On May 5, 2011, the Board of Directors approved and adopted, subject to shareholder approval,
a proposed amendment to the Companys Charter, expressly exempting NAFH and its affiliates and
associates from the business combination provisions found in Section 9 of the Charter. In order
for the amendment to the Companys Charter to be approved, the proposal must be approved by the
affirmative vote of at least 80% of the outstanding shares of voting stock entitled to vote on the
matter.
If this proposal is approved by the Companys shareholders at the Special Meeting, the
amendment to the Charter will become effective upon the filing of Articles of Amendment with the
Secretary of State of Tennessee, which filing is expected to take place shortly after the Special
Meeting. The Board of Directors believes that it is in the best interests of the Company and its
shareholders to amend the Charter to expressly exempt NAFH and its affiliates and associates from
the provisions of Section 9 of the Charter. Shareholder approval of this proposed amendment alone
will not ensure that the Company will be able to consummate the transaction with NAFH.
The text of this proposed amendment to Companys Charter is set forth in Appendix C to
this Proxy Statement.
Reasons for this Proposal
Section 9 of the Charter currently provides that a business combination (such as a merger,
consolidation, sale of over $1 million of the Companys stock or assets or similar transactions)
with an interested shareholder (defined as a person owning, either directly or indirectly, 10% or
more of the voting stock of the Company) must be approved by (i) the affirmative vote of at least
80% of the outstanding shares of voting stock and (ii) the affirmative vote of a majority of the
outstanding shares of voting stock not including the voting stock beneficially owned by an
interested shareholder. This increased vote, however, is not required if the business combination
is approved by a majority of the disinterested directors or if the business combination meets
certain conditions specified in the Charter. The Charter also provides that this provision may not
be amended or repealed unless approved by both the affirmative vote of at least 80% of the
outstanding shares of voting stock and the affirmative vote of a majority of the outstanding shares
of voting stock not including shares beneficially owned by the interested shareholder.
The Board of Directors has determined that this proposal to expressly exempt NAFH and its
affiliates and associates from the business combination requirements found in Section 9 of the
Charter is desirable and in the best interest of the Companys shareholders because it may
facilitate the consummation of the transactions contemplated by the Investment Agreement. As
described in the Investment Agreement, following the Closing, NAFH intends to merge GreenBank with
and into a subsidiary of NAFH (the Bank Merger). In addition, following the Closing and as
described in the Investment Agreement, NAFH intends to merge the Company into NAFH (the Holding
Company Merger). A majority of disinterested directors on the Board of Directors has already
approved the Companys entering into the Investment Agreement, pursuant to which 119,900,000 shares
of Common Stock will be issued to NAFH at a purchase price of $1.81 per share as well as the Bank
Merger and the Holding Company Merger on the terms described in the Investment Agreement. The
proposed amendment to expressly exempt NAFH and its affiliates and associates from the provisions
of Section 9 of the Charter is being sought to facilitate the Bank Merger and the Holding Company
Merger and avoid the potential delay and expense of NAFH possibly having to comply with the
supermajority voting requirements of Section 9 of the Charter in connection with the Bank Merger
and the Holding Company Merger or future transactions with NAFH, which following the Closing will
own approximately 90.1% of the Companys Common Stock.
18
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE COMPANYS CHARTER TO EXPRESSLY EXEMPT NORTH AMERICAN FINANCIAL HOLDINGS, INC. AND ITS
AFFILIATES AND ASSOCIATES FROM SECTION 9 OF THE CHARTER.
PROPOSAL 5 AMENDMENT TO THE COMPANYS CHARTER TO REMOVE SECTION 8(J) SO
THAT THE TENNESSEE CONTROL SHARE ACQUISITION ACT WILL NOT APPLY TO THE
COMPANY AND ITS SHAREHOLDERS
Subject to the terms of the Investment Agreement, the investment by NAFH in the Company is
conditioned upon shareholder approval of this Proposal No. 5 as well as approval of Proposals No.
1, 2, 3 and 6 and, in certain circumstances, approval of Proposal No. 4. Shareholders who wish to
approve NAFHs investment in the Company should vote to approve this Proposal No. 5 as well as
Proposals No. 1, 2, 3, 4 and 6.
On May 5, 2011, the Board of Directors approved and adopted, subject to shareholder approval,
a proposed amendment to the Companys Charter to remove a provision in the Companys Charter
whereby the Company elected to have the Tennessee Control Share Acquisition Act, Section
48-103-301, et seq. of the Tennessee Business Corporation Act, apply to the Company. In order for
this amendment to the Companys Charter to be approved, the number of shares voted in favor of the
amendment must exceed the number of shares voted against the amendment.
If the proposal is approved by the Companys shareholders at the Special Meeting, this
amendment to the Charter will become effective upon the filing of Articles of Amendment with the
Secretary of State of Tennessee, which filing is expected to take place shortly after the Special
Meeting. The Board of Directors believes it is in the best interest of the Company and all of its
shareholders to amend the Charter to remove the provision by which the Company has elected to be
governed by the Tennessee Control Share Acquisition Act.
The Tennessee Control Share Acquisition Act generally takes away certain voting rights of a
purchaser any time the purchaser acquires shares of certain Tennessee corporations equal to 20%,
33-1/3%, or more than 50% of all voting power in such corporation. The purchasers voting rights
can be maintained or re-established only by a majority vote of all the shares entitled to vote
generally with respect to the election of directors other than those shares owned by the purchaser
and the officers and inside directors of the corporation.
The Companys Board of Directors considers the proposed amendment to be in the best interests
of the Company and its shareholders because it will allow for the issuance and sale of shares of
Common Stock to NAFH pursuant to the terms of the Investment Agreement. The Investment will result
in NAFH owning approximately 90.1% of the Companys outstanding Common Stock. An amendment to the
Companys Charter to eliminate the applicability of the Tennessee Control Share Acquisition Act is
necessary in order for NAFH to maintain voting rights with respect to the shares being purchased.
Shareholder approval of this amendment alone will not ensure that the Company will be able to
consummate the transaction with NAFH; however, the approval of this amendment is necessary in order
to proceed with the NAFH transaction.
The text of this proposed amendment to the Companys Charter is set forth in Appendix
D to this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE COMPANYS CHARTER TO REMOVE SECTION 8(J) FROM THE CHARTER SO THAT THE TENNESSEE CONTROL SHARE
ACQUISITION ACT WILL NOT APPLY TO THE COMPANY AND ITS SHAREHOLDERS.
19
PROPOSAL 6 APPROVAL OF THE MERGER OF GREENBANK WITH AND INTO A SUBSIDIARY
OF NORTH AMERICAN FINANCIAL HOLDINGS, INC.
Subject to the terms of the Investment Agreement, the investment by NAFH in the Company is
conditioned upon shareholder approval of this Proposal No. 6 as well as Proposals No. 1, 2, 3 and 5
and, in certain circumstances, Proposal No. 4. Shareholders who wish to approve NAFHs investment
in the Company should vote to approve this Proposal No. 6 as well as Proposals No. 1, 2, 3, 4 and
5.
On May 5, 2011, the Board of Directors approved and adopted, subject to shareholder
approval, the merger of GreenBank with and into a subsidiary of NAFH, or the Bank Merger. In order
for the Bank Merger to be approved, this proposal must receive the affirmative vote of a majority
of shares of Common Stock outstanding as of the Record Date and entitled to vote thereon.
If the proposal is approved by the Companys shareholders at the Special Meeting, the Bank
Merger will become effective upon the filing of Articles of Merger with the Secretary of State of
Tennessee and the Office of the Comptroller of the Currency, which filing is expected to take place
shortly after the Closing. The Board of Directors believes it is in the best interest of the
Company and all of its shareholders to approve the Bank Merger.
Terms of the Bank Merger
Pursuant to the terms of the Investment Agreement, the Board of Directors of the
Company is requesting that the Companys shareholders approve the merger of GreenBank with and into
NAFH National Bank, a national banking association organized under the laws of the United States
(NAFH Bank) and subsidiary of NAFH pursuant to an Agreement and Plan of Merger (the Merger
Agreement), that was previously approved by the Board of Directors of the Company, GreenBank, NAFH
and NAFH Bank. Pursuant to the Merger Agreement and at the effective time of the Bank Merger, each
share of common stock of GreenBank currently held by the Company will be exchanged for a number of
shares common stock of NAFH Bank equal to the ratio of the tangible book value of GreenBank to the
tangible book value of NAFH Bank, in each case as of the end of the then most recently completed
fiscal quarter and all issued and outstanding shares of GreenBank will be cancelled. At the
effective time of the Bank Merger, NAFH Bank will assume all liabilities of GreenBank and the
separate corporate existence of GreenBank will cease. The Companys shareholders will not receive
any consideration in connection with the Bank Merger and all rights of the Companys shareholders
will remain the same with respect to shares of the Companys common stock owned by the
shareholders. If the Bank Merger is approved and thereafter consummated the Company will own
approximately 36% of the resulting bank, rather than 100% of GreenBank. A copy of the Merger
Agreement is attached to this Proxy Statement as Appendix E.
In connection with the Bank Merger, no shareholder of the Company will have dissenters rights
or any other appraisal rights with respect to the shares of Common Stock owned by them.
Business of GreenBank
GreenBank is a Tennessee-chartered commercial bank established in 1890 which has its principal
executive offices located at 111 North Main Street, Greeneville, Tennessee 37743 and its telephone
number is (423) 639-5111. As of March 31, 2011, GreenBank had assets of approximately $2.39
billion, $1.61 billion in loans and $1.98 billion in deposits. The principal business of GreenBank
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
March 31, 2011, GreenBank 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. GreenBank also operates two other full service
branchesone located in nearby Madison County, North Carolina and the other in nearby Bristol,
Virginia. Further, GreenBank operates a mortgage banking operation in Knox County, Tennessee.
20
Deposits of GreenBank are insured by the Deposit Insurance Fund (DIF) of the FDIC. GreenBank
is subject to comprehensive regulation, examination and supervision by the TDFI, the FRB and the
FDIC.
For additional information relating to GreenBank and the Company, including the financial
condition and results of the Companys operations, please see Appendix F.
Business of NAFH
NAFH is a bank holding company incorporated in late 2009 with the goal of creating a regional banking franchise in the southeastern region of the United States through organic growth and
acquisitions of other banks, including failed, underperforming and undercapitalized banks. NAFH
was founded by a group of experienced bankers with a record of leading, operating, acquiring and
integrating financial institutions. In December 2009 and January 2010, NAFH raised approximately
$900 million to make acquisitions through a series of private placements of its common stock.
On June 24, 2011, NAFH filed a registration statement with the SEC related to its proposed initial
public offering of up to $300 million of its Class A common stock.
Since its founding, NAFH has acquired five depository institutions, including the assets and certain deposits of three failed
banks from the FDIC, and operates branches located in North Carolina, South Carolina and Florida.
In 2010 and 2011, NAFH deployed some of the proceeds from its private offerings in the following
transactions:
|
|
|
|
On July 16, 2010, NAFH commenced banking operations when it purchased approximately $1.2 billion of assets and assumed approximately $960 million of deposits
of three failed banks from the FDIC: First National Bank of the
South of Spartanburg, South Carolina, Metro Bank of Dade County of Miami, Florida and
Turnberry Bank of Aventura, Florida (collectively, the Failed Banks). The transactions
included 13 branches located in South Carolina and 10 branches located in Florida. NAFH
purchased assets of approximately $1.4 billion and assumed deposits of approximately $1.2
billion from the Failed Banks. In connection with the acquisition, NAFH entered into loss-sharing arrangements with the FDIC covering approximately $796 million of loans and real
estate owned of the Failed Banks that NAFH acquired. |
|
|
|
|
|
|
On September 30, 2010, NAFH invested approximately $175 million in TIB Financial, a bank
holding company headquartered in Naples, Florida with approximately $1.7 billion in assets
and 28 branches in southwest Florida at the acquisition date, and acquired approximately 94% of that companys
common stock after giving effect to a subsequent rights offering to legacy TIB Financial
Corp. shareholders. On April 27, 2011, NAFH combined TIB Financial Corp.s banking
subsidiary, TIB Bank, with the Bank in an all stock transaction. |
|
|
|
|
|
|
On January 28, 2011, NAFH invested approximately $181 million in Capital Bank
Corporation, a bank holding company headquartered in Raleigh, North Carolina with
approximately $1.7 billion in assets and 32 branches in central and western North Carolina at the acquisition date,
and acquired approximately 83% of that companys common stock after giving effect to a
subsequent rights offering to legacy Capital Bank Corporation shareholders. |
|
NAFHs primary business is to offer a wide range of commercial and consumer loans and
deposits, as well as ancillary financial services. NAFHs strategy is to build a mid-size regional
bank by operating, integrating and growing its existing operations as well as to acquire other
banks, including failed, underperforming and undercapitalized banks. NAFH seeks to create a
mid-sized regional bank that will be able to realize greater economies of scale compared to
smaller community banks while still providing more personalized, local service than
large-sized banks.
NAFH currently leases office space in Miami, Florida for its principal executive offices. As
of March 31, 2011, NAFH operated 37 branches in Florida, 32 in North Carolina and 13 in South
Carolina.
21
Litigation
Matters
From
time to time NAFH is a party to various litigation matters
incidental to the conduct of its business. NAFH is not presently
party to any such legal proceeding the resolution of which we believe
would have a material adverse effect on its business, operating
results, financial condition or cash flow.
On May 12, 2011, a shareholder of the Company filed a putative class action lawsuit (styled
Betty Smith v. Green Bankshares, Inc. et al., Case No. 11-625-III, Davidson County,
Tennessee, Chancery Court) against the Company, GreenBank, the Companys Board of Directors and
NAFH on behalf of all persons holding common stock of the Company. This lawsuit was filed following
NAFHs public announcement on May 5, 2011 of its entering into the Investment Agreement with the
Company and relates to the proposed investment in the Company by NAFH. The complaint, amended
subsequent to its filing, alleges that the individual defendants breached their fiduciary duties to
the Company by accepting a sale price for the shares to be sold to NAFH that was unfair to the
Companys shareholders and by issuing a proxy statement that contained material omissions. The
complaint, as amended, also alleges that the Company, GreenBank and NAFH aided and abetted these
breaches of fiduciary duty. It seeks an injunction and/or rescission of NAFHs investment in the
Company and fees and expenses in an unspecified amount.
On May 25, 2011, another shareholder of the Company filed a similar putative class action
lawsuit (styled Mark McClinton v. Green Bankshares, Inc. et al., Case No. 11-CV-284ktl,
Greene County Circuit Court, Greeneville, Tennessee) against the Company, the Companys Board of
Directors and NAFH on behalf of all persons holding the Companys common stock. The complaint
similarly alleges that the individual defendants breached their fiduciary duties to the Company by
agreeing to sell shares to NAFH at a price unfair to the Companys shareholders. The complaint
also alleges that the Company and NAFH aided and abetted these breaches of fiduciary duty. It
seeks and injunction and/or rescission of NAFHs investment in the Company and fees and expenses in
an unspecified amount.
On June 16, 2011, another shareholder of the Company filed a putative class action lawsuit
(styled Thomas W. Cook Jr. v. Green Bankshares, Inc. et al., Civil Action No.
2:11-cv-00176, United States District Court for the Eastern District of Tennessee, Greeneville)
against the Company, the Companys Board of Directors and NAFH on behalf of all persons holding the
Companys common stock. The complaint alleges that the individual defendants breached their
fiduciary duties to the Company by failing to maximize shareholder value in the proposed
transaction with NAFH. The complaint also alleges that the Company and the individual defendants
violated the securities laws by issuing a Preliminary Proxy Statement that contains alleged
material misstatements and omissions. The complaint also alleges that the Company and NAFH aided
and abetted the breaches of fiduciary duty. It seeks an injunction and/or rescission of NAFHs
investment in the Company, monetary damages and fees and expenses in an unspecified amount.
NAFH intends to defend these matters vigorously and cannot predict their outcome.
Reasons for the Bank Merger
A condition to the Closing is the approval by the shareholders of the Company of the
Bank Merger. The Company is seeking your approval of the Bank Merger because the Companys results
of operations and financial condition are principally made up of GreenBanks results of operations
and financial condition. The Board of Directors of the Company believes that the Investment and
the Bank Merger are in the best interests of the Companys shareholders and in connection with the
Investment recommends that the Companys shareholders approve the Bank Merger. Each of the Board
of Directors of the Company, GreenBank, NAFH and NAFH Bank believes that the Bank Merger is in the
best interest of their respective entities and shareholders. In arriving at their determination,
each of the respective boards considered a number of factors, including the following:
|
|
|
The Bank Merger is expected to create significant operating efficiencies by
consolidating the loan operations, deposit operations, ALCO and risk management,
budgeting, marketing, financial reporting and compliance functions of the two banks; |
|
|
|
|
The Bank Merger will result in a bank with increased size and scale; |
|
|
|
|
The Bank Merger will expand NAFH Banks and GreenBanks overall geographic
coverage; |
|
|
|
|
The Bank Merger is expected to be a tax free transaction; and |
|
|
|
|
The Bank Merger is expected to mitigate the regulatory burden of operating two
stand alone banks regulated by two different federal regulators. |
In addition to the above factors, the Board of Directors of the Company, in determining
whether to recommend approval of the Bank Merger to the Companys shareholders, also considered
publicly available historical financial information related to NAFHs five completed
acquisitions and the March 31, 2011 financial condition and capital position of NAFH Bank and
NAFHs Capital Bank subsidiary. The Companys Board of Directors also considered, when considering
whether to recommend approval of the Bank Merger to the Companys shareholders, the Companys and
GreenBanks tangible book value and the Companys shareholders tangible common equity ownership in
the Company as of March 31, 2011 and on an estimated pro forma basis after giving effect to NAFHs
investment in the Company, both before and after giving effect to the Bank Merger, and in each case
after giving effect to the estimated purchase accounting adjustments to be made in connection with
the transaction, including as a result of the marking to market of GreenBanks loan portfolio. The
Companys Board of Directors, when considering whether to recommend approval of the Bank Merger to
the Companys shareholders, also considered the fact that the exchange ratio to be utilized in
calculating the number of NAFH Bank common shares to be issued to the Company in connection with
the Bank Merger would be calculated on the basis of GreenBanks and NAFH Banks tangible book value
per share, after giving effect to any purchase accounting adjustments to be made in connection with
the transaction, including as a result of the marking to market of GreenBanks loan portfolio.
The foregoing discussion of the information and factors considered by each of the respective
board of directors is not exhaustive, but includes the material factors considered by such board of
directors. In view of the wide variety of factors considered by each board of directors in
connection with its evaluation of the Bank Merger and the complexity of such matters, each board of
directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise
assign relative weights to the specific factors that it considered in reaching its decision.
Background of the Bank Merger
The Bank Merger is an ancillary step in the Investment and the other transactions
with NAFH. For a background of the Investment and the Companys reasons for seeking to consummate
the Investment, please see Proposal 1 Approval of the Issuance of Shares of Common Stock Under
the Investment Agreement Reasons for this Proposal.
Opinion of the Companys Financial Advisor
The Company did not receive a fairness opinion from its financial advisor regarding whether
the consideration offered by NAFH in the Bank Merger was fair, from a financial point of view, to
GreenBanks shareholder or the Companys shareholders.
22
Unaudited
Historical and Pro Forma Comparative Per Share Data
The following table
shows comparative per share data about the Companys and NAFHs
historical and pro forma net income, cash dividends and book value. The comparative per share data
below provides the Companys shareholders with information about the value of their shares of
Common Stock prior to the Bank Merger as opposed to the value of their shares of Common Stock after
the Bank Merger and once the two companies are combined.
You should not rely on the pro forma information as necessarily indicative of historical
results the Company would have experienced had GreenBank been combined with NAFH Bank or of future
results the Company will have after the Bank Merger. In addition, you should not rely on the
three-month information as indicative of results for the entire year.
This information should be read in conjunction with the historical consolidated financial
statements (and the related notes to these statements) of the Company and NAFH, which are
attached hereto as Appendix F and G, respectively.
The
pro forma data in the table below assumes that the Initial Investment is accounted for using
the acquisition method of accounting and represents a current estimate based on available information
of the combined companys results of operations. The significant pro forma assumptions include
estimates regarding fair value adjustments to the balance sheet as
well as the amortization/accretion impact of those adjustments on
results of operations.
The pro forma information, while helpful in illustrating the financial characteristics of
the combined company under one set of assumptions, does not reflect the impact of possible cost
savings, revenue enhancements, expense efficiencies, asset dispositions and share repurchases,
among other factors that may result as a consequence of the merger and, accordingly, does not
attempt to predict or suggest future results. It also does not necessarily reflect what the
historical results of the combined company would have been had the companies been combined during
these periods. Upon completion of the Bank Merger, a portion of the operating results of the
resulting bank will be reflected in the consolidated financial statements of the Company
on a prospective basis.
Unaudited Historical and Pro Forma Per Share Data
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|
Company |
|
NAFH |
|
Combined |
|
NAFH |
|
|
Per Share |
|
Per Share |
|
Per Share |
|
Per Share |
|
|
Data |
|
Data |
|
Data |
|
Data |
|
|
(As Reported) |
|
(As Reported) |
|
(Pro Forma) |
|
(Pro Forma) |
Three months ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic |
|
$ |
(0.88 |
) |
|
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
0.11 |
|
Net income (loss) per share, diluted |
|
|
(0.88 |
) |
|
|
0.01 |
|
|
|
0.04 |
|
|
|
0.11 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common book value per share |
|
$ |
4.88 |
|
|
$ |
19.56 |
|
|
$ |
1.90 |
|
|
$ |
19.53 |
|
Year ended December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic |
|
|
(6.54 |
) |
|
|
0.32 |
|
|
|
0.13 |
|
|
|
0.72 |
|
Net income (loss) per share, diluted |
|
|
(6.54 |
) |
|
|
0.32 |
|
|
|
0.13 |
|
|
|
0.72 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common book value per share |
|
|
5.75 |
|
|
|
19.49 |
|
|
|
1.98 |
|
|
|
19.45 |
|
Regulatory Approval
Office of the Comptroller of the Currency. The merger of two banks in which the
surviving bank is a national bank requires the approval of the Office of the Comptroller of the
Currency. The Office of the Comptroller of the Currency will review the Bank Merger. The Office of
the Comptroller of the Currency generally will not approve any merger:
23
|
|
|
That would result in a monopoly or
that would further a combination or
conspiracy to monopolize banking in the
United States; or |
|
|
|
|
That could substantially lessen
competition in any banking market, that
would tend to create a monopoly in any
banking market, or that would be in
restraint of trade, unless the Office of
the Comptroller of the Currency finds that
the public interest in meeting the
convenience and needs of the communities
served outweighs the anti-competitive
effects of the proposed transaction. |
The Office of the Comptroller of the Currency is also required to consider the financial and
managerial resources and future prospects of GreenBank and NAFH Bank and the convenience and needs
of the communities to be served. Under the Community Reinvestment Act of 1977, the Office of the
Comptroller of the Currency also must take into account the record of performance of GreenBank and
NAFH Bank in meeting the credit needs of their communities, including low and moderate-income
neighborhoods. The Office of the Comptroller of the Currency also must consider the effectiveness
of GreenBank and NAFH Bank in combating money laundering.
The statutory criteria for an interstate combination also must be satisfied to receive Office
of the Comptroller of the Currency Approval. Such standards include that (i) NAFH Bank is at least
well capitalized and well managed under criteria determined by the Office of the Comptroller of the
Currency, unless the transaction is approved before July 21, 2011, in which case the statutory
standard is that NAFH must be at least adequately capitalized and adequately managed, (ii)
GreenBank has been in existence for the minimum amount of time required under state law or five
years, whichever is less, (iii) NAFH will not control deposits that exceed 10% of all deposits
controlled by insured depository institutions in the United States or 30% of deposits controlled by
insured depository institutions in North Carolina and (iv) certain other requirements. The parties
expect to satisfy these standards.
Applicable regulations require publication of notice of an application for approval of the
Bank Merger and an opportunity for the public to comment on the application in writing and to
request a hearing. Any merger approved by the Office of the Comptroller of the Currency generally
may not be completed until 30 days after such approval, during which time the U.S. Department of
Justice may challenge such transaction on antitrust grounds and seek divestiture of certain assets
and liabilities. With the approval of the Office of the Comptroller of the Currency and the U.S.
Department of Justice, the waiting period may be reduced to 15 days.
Application. GreenBank and NAFH Bank have filed the necessary application with the Office of
the Comptroller of the Currency, requesting approval of the Bank Merger. The application describes
the terms of the Bank Merger, the parties involved, and the activities to be conducted by the
combined companies as a result of the Bank Merger, and contain certain related financial and
managerial information. Copies of the application were provided to the U.S. Department of Justice
and other governmental agencies.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE BANK MERGER.
PROPOSAL 7 APPROVAL OF EXECUTIVE COMPENSATION
Rules recently adopted by the SEC pursuant to the Dodd-Frank Wall Street Reform and Consumer
Protection Act require the Company to submit to a vote of its shareholders, on a non-binding and
advisory basis, the compensation that may be payable to its named executive officers that is based
on or otherwise relates to the Investment. As discussed in more detail below, because of the
Companys participation in the CPP, the Company is currently unable to pay its named executive
officers any such payments. A condition to the Closing, however, is the Repurchase. The following
discussion sets forth the compensation that may be payable to our named executive officers, or
NEOs, that is based on or otherwise relates to the Investment and should be read in conjunction
with the table Golden Parachute Payments below.
Background
On October 14, 2008, the Treasury announced the creation of the CPP, pursuant to which the
Company issued to the Treasury the Series A Preferred Stock and Common Stock warrants of the
Company. As a result of the
24
Companys participation in the CPP, the Company became subject to certain executive
compensation requirements under EESA, Treasury regulations, and the contract pursuant to which the
Company sold such preferred stock. The compensation requirements were modified and strengthened in
February 2009 with the passage of the American Recovery and Reinvestment Act of 2009 (ARRA) and
again in June 2009 when Treasury issued regulations implementing various provisions of EESA, as
modified by ARRA (the June 2009 IFR). As described more specifically below, these requirements
are applicable to our NEOs. Throughout this proxy statement, we refer to EESA to mean EESA as
amended by ARRA and as implemented by the June 2009 IFR.
In connection with the Companys sale of the Series A Preferred Stock our employees that were
our senior executive officers, or SEOs, as defined under EESA, executed letter agreements with the
Company in 2008 in which, among other things, each employee agreed that the Company is prohibited
from paying any golden parachute payment (as originally defined in Section 111(b)(2)(c) of the
EESA) to the individual during any period that the executive is a senior executive officer of the
Company and the Treasury holds any equity or debt securities of the Company issued in the CPP. As
mentioned above, the ARRA and the June 2009 IFR imposed additional restrictions and limits
concerning executive compensation of companies that participated in the CPP, including a provision
prohibiting any payment to any SEO or any of the Companys next five most highly compensated
employees, including the Companys named executive officers, for departure from a company for any
reason, except for payments for services performed or benefits accrued. Under EESA, a payment, or
a right to payment, generally will be treated as a payment for services performed or benefits
accrued only if the payment would be made regardless of whether the employee departs or the change
in control event occurs, or if payment is due upon departure of the employee, regardless of whether
the departure is voluntary or involuntary. EESA also provides exceptions for certain payments made
under benefits plans or deferred compensation plans. In December 2009, the Compensation Committee
of the Board of Directors requested, and subsequently received, additional letter agreements from
each of our SEOs acknowledging the additional limitations on the individuals compensation imposed
under EESA, as modified by the ARRA and the June 2009 IFR during the TARP Period.
In connection with the Closing, NAFH will purchase from the Treasury all of the issued and
outstanding shares of Series A Preferred Stock and Common Stock owned by the Treasury. As such,
the prohibitions on executive compensation under EESA set forth above will no longer apply.
Treatment of Outstanding Equity Awards
As described above in Proposal 1 Approval of the Issuance of Shares of Common
Stock Under the Investment Agreement Interest of the Companys Directors and Executive Officers
in the Proposal it is anticipated that any unvested stock options and unvested shares of
restricted stock owned by the NEOs will vest following the Repurchase.
Potential Payments with Respect to the Named Executive Officers
The following discussion sets forth the potential payments that could become due to
each individual NEO that is based on or otherwise relates to the Investment and taking into
consideration applicable restrictions under EESA as modified by ARRA and the June 2009 IFR, as well
as the closing condition set forth in the Investment Agreement that requires that Kenneth R. Vaught
and Steven L. Droke (as well as two other employees of the Company who are not named executive
officers) waive all compensation and benefits that would be payable following the Investment and
the Repurchase that is not payable due to restrictions under EESA, as modified by ARRA and the June
2009 IFR. Mr. Droke resigned effective June 17, 2011, which resignation eliminated the need to obtain the
waiver from Mr. Droke contemplated by the closing condition set forth in the Investment Agreement.
Steven L. Droke resigned on June 17, 2011, and James E. Adams and Stan R. Puckett retired on May 16, 2011 and March 31, 2010, respectively,
and as such are not included in the following discussion as none of the individuals is entitled to any payments
solely as a result of consummation of the Investment. In addition, neither Stephen M. Rownd nor
Michael J. Fowler are entitled to change in control or severance payments or benefits so they are
also excluded from the discussion below. Under all of the agreements and arrangements discussed
below, the Investment would qualify as a change in control.
A. Kenneth R. Vaught
25
Mr. Vaught is a party to an Employment Agreement, dated December 31, 2007 (the Vaught
Employment Agreement), with respect to his employment by the Company. Under the terms of the
Vaught Employment Agreement, if within 18 months following a change in control the Company or its
successor terminates Mr. Vaught without cause or Mr. Vaught voluntarily resigns following a change
in position, a reduction in title or a significant reduction in the duties which he is to perform
for the Company or its successor, then the Company or its successor shall pay to Mr. Vaught a lump
sum payment equal to 2.99 times Mr. Vaughts annual base salary and bonus for the year immediately
preceding termination. This payment shall be made no earlier than six months following the date of
termination. If payments to Mr. Vaught following a change in control would create an excise tax for
the employee under the excess parachute rules of Section 4999 of the Code, the Company is required
to pay to the employee the amount of such excise tax and all federal and state income or other
taxes with respect to any such additional amounts (the Gross-Up Amount) and such additional
amount as is necessary to offset any tax liability of the employee as a result of the Gross-Up
Amount.
As discussed above, the change in control payment would be due to Mr. Vaught under the terms
of the Vaught Employment Agreement if a change in control occurs and subsequently Mr. Vaught is
terminated. Because the Companys participation in the CPP will terminate at Closing in connection
with the Repurchase resulting in the restrictions of EESA as modified by ARRA and the June 2009 IFR
not applying to the Company after Closing, Mr. Vaught could potentially be eligible to receive the
change in control payment discussed above. However, in order to enter into the Investment
Agreement, NAFH required that its obligation to consummate the Investment be conditioned on Mr.
Vaught entering into a waiver agreement with NAFH waiving any right to the change in control
payment pursuant to any benefit plan in which Mr. Vaught participates, including the Vaught
Employment Agreement. If Mr. Vaught does not execute the requested waiver, or the Company
otherwise fails to effect Mr. Vaught not being entitled to any change in control payments under any
benefit plan in which he participates, NAFH is not obligated to consummate the Investment.
Mr. Vaught has also entered into a Non-Competition Agreement with the Company. In
consideration for entering into this agreement, the Company provided certain deferred compensation
benefits which have been funded by individual insurance policies. The benefits payable range from 7
to 10 years based upon certain events occurring such as age, retirement, disability or death and
are described in more detail below. The benefits payable under the agreement, other than benefits
relating to a change in control, are not prohibited by EESA, as modified by ARRA and the June 2009
IFR, and Mr. Vaught is not required to waive his right to receive the benefits that are not related
to a change in control in order for NAFHs closing condition to be satisfied.
B. William C. Adams, Jr.
26
Mr. W. Adams is a party to a Change in Control Protection Plan Participation Agreement, dated
October 22, 2004 (the Adams CIC Agreement). The terms of the Adams CIC Agreement are subject to
the provisions of the CIC Plan. Pursuant to the terms of the Adams CIC Agreement, if Mr. W. Adams
is terminated without cause or resigns with good reason (both as defined in the CIC Plan) within
two years following a change in control, Mr. W. Adams would be entitled to an amount equal to 1.99
times Mr. W. Adamss base amount within the meaning of Section 280G(b)(3) of the Code, payable in
lump sum.
As discussed above, the change in control payment would be due to Mr. W. Adams under the terms
of the Adams CIC Agreement if a change in control occurs and subsequently Mr. W. Adams is
terminated. Because the Companys participation in the CPP will terminate at Closing in connection
with the Repurchase and the restrictions of EESA will not apply to the Company after Closing, Mr.
W. Adams could still potentially receive the change in control payment discussed above.
Golden Parachute Compensation
The following table should be read in conjunction with the narrative above and sets forth
additional information required by Item 402(t) of Regulation S-K regarding compensation for each
NEO that is based on or otherwise relates to the Investment, assuming the following:
|
|
|
The closing price per share at the time of consummation of the Investment is
$2.58, which is equal to average closing market price of the Companys common stock
over the first five business days following the first public announcement of the
Investment (or May 5, 2011); |
|
|
|
|
|
The Investment closed on July __, 2011, the last practicable date prior to the
filing of this Proxy Statement; |
|
|
|
|
The named executive officers of the Company were terminated without cause
immediately following a change in control on July __, 2011, which is the last
practicable date prior to the filing of this Proxy Statement; and |
|
|
|
|
Mr. Vaught waived his right to receive any change in control
payments based on or otherwise related to the Investment. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
Equity |
|
Pension/ |
|
|
Name |
|
($) |
|
($)(1) |
|
NQDC ($) |
|
Total ($) |
Stephen M. Rownd |
|
|
|
|
|
|
109,745 |
|
|
|
|
|
|
|
109,745 |
|
Michael J. Fowler |
|
|
|
|
|
|
79,632 |
|
|
|
|
|
|
|
79,632 |
|
Kenneth R. Vaught |
|
|
(2 |
) |
|
|
2,655 |
|
|
|
(3 |
) |
|
|
2,655 |
|
James E. Adams(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve L.
Droke(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William C. Adams, Jr. |
|
|
321,266 |
|
|
|
1,604 |
|
|
|
|
|
|
|
322,870 |
|
R. Stan Puckett (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Pursuant to EESA, the accelerated vesting of equity awards upon a change in control is
prohibited. However, it is anticipated that following consummation of the Repurchase the unvested
equity awards of the NEOs will be accelerated. None of the stock options held by the NEOs have
exercise prices that are less than $2.58. Accordingly, no value is ascribed to these stock options
and the value reported is related solely to unvested shares of restricted stock. |
|
|
(2) |
|
If the Company fails to obtain waivers with respect to payments based on or otherwise related
to the Investment from Mr. Vaught and NAFH waives such condition to the Closing, Mr.
Vaught may be entitled to additional payments in the amount of approximately $798,000. |
|
|
(3) |
|
Under the Non-Competition Agreement and in connection with his termination (without regard for
any change in control enhancement), Mr. Vaught would be entitled to receive payments of $84,924 per
year for a period of ten years. Mr. Vaught would not be entitled to receive payments until he
reaches age 50. |
|
(4) |
|
Messrs. J. Adams and Puckett retired on May 16, 2011 and March 31, 2010, respectively, and
neither is entitled to any payments solely as a result of consummation of the Investment. |
|
|
(5) |
|
Mr. Droke resigned effective June 17, 2011 and is not entitled to any payments solely as a
result of consummation of the Investment. |
|
27
The Company is requesting shareholder approval, on a non-binding and advisory basis, of
the compensation that may be payable to the Companys named executive officers that is based on or
otherwise relates to the Investment and therefore is asking stockholders to adopt the following
resolution:
RESOLVED, that the compensation that may be paid or become payable to the Companys
named executive officers that is based on or otherwise relates to the Investment, as disclosed in
the table entitled Golden Parachute Compensation pursuant to Item 402(t) of Regulation S-K
including the associated narrative discussion, and the agreements or understandings pursuant to
which such compensation may be paid or become payable, are hereby APPROVED.
The vote on this Proposal 7 is a vote separate and apart from the vote on the other
proposals. Accordingly, you may vote to approve this Proposal 7 on executive compensation and vote
not to approve the other proposals and vice versa. Because the vote is advisory in nature only, it
will not be binding on either the Company or NAFH regardless of whether the Investment is approved
and subsequently consummated. Accordingly, as the compensation to be paid in connection with the
Investment is contractual with the executives, regardless of the outcome of this advisory vote,
such compensation may be payable, subject only to the conditions and restrictions applicable
thereto, if the Investment is approved.
Assuming the existence of a quorum, this proposal will be approved if the number of
shares voted in favor of the proposal to approve the compensation of the Companys named executive
officers in connection with the Investment exceeds the number of shares voted against such
proposal. As such, abstentions and broker non-votes will not affect the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR PROPOSAL 7 AS TO THE
APPROVAL, ON A NON-BINDING AND ADVISORY BASIS, OF THE COMPENSATION TO BE RECEIVED BY THE COMPANYS
NAMED EXECUTIVE OFFICERS IN CONNECTION WITH THE INVESTMENT.
PROPOSAL 8 APPROVAL OF ADJOURNMENT OF THE SPECIAL MEETING
This proposal would give the proxy holders discretionary authority to vote to adjourn the
Special Meeting if there are not sufficient affirmative votes present at the Special Meeting to
approve the proposals that may be considered and acted upon. Any adjournment of the Special Meeting
may be made without notice, other than by an announcement made at the Special Meeting. Approval of
this proposal will allow the Company, to the extent that shares voted by proxy are required to
approve a proposal to adjourn the Special Meeting, to solicit additional proxies to determine
whether sufficient shares will be voted in favor of or against the proposals. If the Company is
unable to adjourn the Special Meeting to solicit additional proxies, the proposals may fail, not
because shareholders voted against the proposals, but rather because there were not sufficient
shares represented at the Special Meeting to approve the proposals. The Company has no reason to
believe that an adjournment of the Special Meeting will be necessary at this time.
Assuming the existence of a quorum, this proposal will be approved if the number of shares
voted in favor of this proposal exceeds the number of shares voted against the proposal. As such,
abstentions and broker non-votes will not affect the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF A POTENTIAL
ADJOURNMENT OF THE SPECIAL MEETING.
FORWARD LOOKING STATEMENTS
Certain matters discussed in this Proxy Statement are not historical facts but are
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. All forward-looking statements involve risk and uncertainty and actual results could differ
materially from the anticipated results or other expectations expressed in the forward-looking
statements. Risks and uncertainties related to the Companys
business are discussed in the Companys SEC filings, including its Annual Report on Form 10-K for the
year ended
28
December 31, 2010 and its Quarterly Report in Form 10-Q for the three months ended March
31, 2011, and include, but are not limited to, (1) the occurrence of any event, change or other
circumstances that could give rise to the termination of the Investment Agreement, pursuant to
which the Investment is to be consummated; (2) the outcome of any legal proceedings that may be
instituted against the Company and others following announcement of the Investment Agreement; (3)
the inability to complete the transactions contemplated by the Investment Agreement due to the
failure to obtain shareholder approval or the failure to satisfy other conditions to completion of
the transaction, including the receipt of regulatory approval; (4) risks that the proposed
transactions contemplated by the Investment Agreement disrupt current plans and operations and the
potential difficulties in employee retention as a result of the proposed transaction; (5) the
amount of the costs, fees, expenses and charges related to the proposed transaction, including the
expense reimbursement and termination fees that may be payable in the event that the Investment
Agreement is terminated under certain scenarios; (6) deterioration in the financial condition of
borrowers resulting in significant increases in loan losses and provisions for those losses; (7)
continuation of the historically low short-term interest rate environment; (8) changes in loan
underwriting, credit review or loss reserve policies associated with economic conditions,
examination conclusions, or regulatory developments; (9) increased levels of non-performing and
repossessed assets and the ability to resolve these may result in future losses; (10) greater than
anticipated deterioration or lack of sustained growth in the national or local economies; (11)
rapid fluctuations or unanticipated changes in interest rates; (12) the impact of governmental
restrictions on entities participating in the CPP of the Treasury; (13) 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, arising out of current unsettled conditions in the economy, (14) the
results of regulatory examinations including requirements contained in any enforcement action
against the Company or the Bank as a result of such examinations; (15) the remediation efforts
related to the Companys material weakness in its internal control over financial reporting; (16)
increased competition with other financial institutions in the markets that GreenBank serves; (17)
the Company recording a further valuation allowance related to its deferred tax asset; (18)
exploring alternatives available for the future repayment or conversion of the preferred stock
issued in the CPP, including in the transaction contemplated in the Investment Agreement; (19)
further deterioration in the valuation of other real estate owned; (20) 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 (21) the loss
of key personnel. The Company undertakes no obligation to update forward-looking statements.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Persons and groups beneficially owning more than 5% of the Common Stock are required under
federal securities laws to file certain reports with the SEC detailing their ownership. The
following table sets forth the amount and percentage of the Common Stock beneficially owned by any
person or group of persons known to the Company to be a beneficial owner of more than 5% of the
common stock as of the Record Date.
|
|
|
|
|
|
|
|
|
Name and Address of |
|
Amount and Nature of |
|
Percent of Common |
Beneficial Owner |
|
Beneficial Ownership (a) |
|
Stock Outstanding |
Scott M. Niswonger
|
|
|
827,711 |
(b) |
|
|
6.25 |
% |
P.O. Box 938
Greeneville, TN 37744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbia Wagner Assets Management, L.P.
|
|
|
1,183,912 |
(c) |
|
|
8.94 |
% |
227 West Monroe Street, Suite 3000
Chicago, IL 60606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phil M. Bachman
|
|
|
893,280 |
(d) |
|
|
6.75 |
% |
Martha Bachman
100 N. Main Street, P.O. Box 1120
Greeneville, Tennessee 37743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors LP
|
|
|
780,663 |
(e) |
|
|
5.90 |
% |
6300 Bee Cave Road, Building One
Austin, TX 78746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
(a) |
|
For purposes of this table, an individual or entity is considered to
beneficially own any share of Common Stock which he, she or it directly or indirectly,
through any contract, arrangement, understanding, relationship, or otherwise, has or shares:
(1) voting power, which includes the power to vote, or to direct the voting of, such security;
and/or (2) investment power, which includes the power to dispose, or to direct the disposition
of, such security. In addition, an individual or entity is deemed to be the beneficial owner
of any share of Common Stock of which he, she or it has the right to acquire voting or
investment power within 60 days of the Record Date. |
|
(b) |
|
Based upon information set forth in a Schedule 13D/A, filed with the SEC on October
22, 2010 by Mr. Niswonger, who has sole voting and dispositive power with respect to 827,711
shares. |
|
(c) |
|
Based solely on the information contained in a Schedule 13G filed by Columbia
Wagner Asset Management, L.P. with the SEC on February 10, 2011, as of December 31, 2010. |
|
(d) |
|
Martha Bachman is a director and the wife of retired director Phil Bachman.
Includes 201,417 shares of common stock held directly or indirectly by Martha Bachman, 673,697
shares owned by Phil Bachman individually and 18,166 shares owned by Mr. and Mrs. Bachman
jointly. |
|
(e) |
|
Based solely on the information contained in a Schedule 13G filed by Dimensional
Fund Advisors, L.P. with the SEC on February 11, 2011, as of December 31, 2010. |
|
|
|
The following table sets forth, as of the Record Date, certain information known to
the Company as to Common Stock beneficially owned by each director and named executive officer
of the Company and by all directors and executive officers of the Company as a group. The
address for each of our directors and executive officers listed below is c/o Green Bankshares,
Inc., 100 North Main Street, P.O. Box 1120, Greeneville, Tennessee 37743. As of the Record
Date, there were ______ shares of the
Companys Common Stock outstanding. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Beneficially Owned |
|
|
Common |
|
|
|
|
|
|
|
|
|
|
Shares |
|
Shares |
|
|
|
|
|
Percent of |
|
|
Beneficially |
|
Acquirable in |
|
|
|
|
|
Common Stock |
Name and Position |
|
Owned(a)(b) |
|
60 Days (c) |
|
Total |
|
Outstanding |
|
Stephen M. Rownd,
Chairman of the Board and
Chief Executive Officer |
|
|
47,114 |
|
|
|
|
|
|
|
47,114 |
|
|
|
* |
|
Martha Bachman, Director |
|
|
893,280 |
(d)(e) |
|
|
|
|
|
|
893,280 |
|
|
|
6.75 |
% |
Bruce Campbell, Director |
|
|
10,189 |
|
|
|
|
|
|
|
10,189 |
|
|
|
* |
|
W.T. Daniels, Director |
|
|
14,215 |
|
|
|
|
|
|
|
14,215 |
|
|
|
* |
|
Robert K. Leonard, Director |
|
|
94,153 |
(f)(e) |
|
|
|
|
|
|
94,153 |
|
|
|
* |
|
Samuel Lynch, Director |
|
|
3,850 |
|
|
|
|
|
|
|
3,850 |
|
|
|
* |
|
Bill Mooningham, Director |
|
|
2,396 |
|
|
|
|
|
|
|
2,396 |
|
|
|
* |
|
John Tolsma, Director |
|
|
11,985 |
|
|
|
|
|
|
|
11,985 |
|
|
|
* |
|
Charles H.
Whitfield, Jr.,
Director |
|
|
14,817 |
|
|
|
|
|
|
|
14,817 |
|
|
|
* |
|
Kenneth R. Vaught, Director,
President and Chief
Operating Officer |
|
|
38,834 |
|
|
|
26,800 |
|
|
|
65,634 |
|
|
|
* |
|
William C. Adams,
Senior Vice President and
Chief Information Officer |
|
|
25,870 |
(e) |
|
|
16,391 |
|
|
|
42,261 |
|
|
|
* |
|
Steve L. Droke,
Former Senior Vice President and
Chief Credit Officer |
|
|
18,802 |
|
|
|
7,219 |
|
|
|
26,021 |
|
|
|
* |
|
R. Stan Puckett, Retired
Chairman of the Board and
Chief Executive Officer |
|
|
45,772 |
|
|
|
44,640 |
(g) |
|
|
90,412 |
|
|
|
* |
|
James E. Adams, Retired
Executive Vice President,
Former Chief Financial
Officer and
Secretary |
|
|
25,823 |
|
|
|
4,200 |
|
|
|
30,023 |
|
|
|
* |
|
Michael J. Fowler, Senior
Vice President and Chief
Financial Officer |
|
|
30,865 |
|
|
|
|
|
|
|
30,865 |
|
|
|
* |
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Beneficially Owned |
|
|
Common |
|
|
|
|
|
|
|
|
|
|
Shares |
|
Shares |
|
|
|
|
|
Percent of |
|
|
Beneficially |
|
Acquirable in |
|
|
|
|
|
Common Stock |
Name and Position |
|
Owned(a)(b) |
|
60 Days (c) |
|
Total |
|
Outstanding |
|
All directors and executive
officers as a group (16
persons)(h) |
|
|
1,299,825 |
|
|
|
119,737 |
|
|
|
1,419,562 |
|
|
|
10.63 |
% |
|
|
|
* |
|
Less than 1% of the outstanding Common Stock. |
|
(a) |
|
For the definition of beneficially owned, see Note (a) to the preceding table. |
|
(b) |
|
Includes shares owned directly by directors and executive officers of the Company as well as
shares held by their spouses and children, trust of which certain directors are trustees and
corporations in which certain directors own a controlling interest. |
|
(c) |
|
Represents options to purchase Common Stock which are exercisable within 60 days of the
Record Date. |
|
(d) |
|
Martha Bachman is a director and the wife of retired director Phil Bachman. Includes 201,417
shares of common stock held directly or indirectly by Martha Bachman, 673,697 shares owned by
Phil Bachman individually and 18,166 shares owned by Mr. and Mrs. Bachman jointly. |
|
|
(e) |
|
As of July __, 2011, the following individuals have pledged the following amounts of their
common shares beneficially owned to secure lines of credits or other indebtedness: Martha
Bachman and retired director Phil Bachman 312,899 shares; Robert Leonard 15,000 shares
held in a limited liability partnership; and William C. Adams 5,000 shares. |
|
|
(f) |
|
Includes 41,197 shares of common stock in a limited partnership of which Mr. Leonard is a
limited partner. Mr. Leonard disclaims beneficial ownership of 32,216 of these shares. Also
includes 504 shares of common stock in a limited liability company in which Mr. Leonard has an
interest. Mr. Leonard disclaims beneficial ownership of 363 of these shares. |
|
(g) |
|
Includes options to acquire 36,000 shares of Common Stock currently exercisable (or
exercisable within 60 days of the Record Date) by Mr. Puckett at an exercise price equal to
150% of the book value of the Common Stock at the date of grant (a weighted average price of
approximately $16.27 per share) and options to acquire 19,800 shares of Common Stock currently
exercisable (or exercisable within 60 days of the Record Date) by Mr. Puckett at an exercise
price equal to the fair market value at the date of grant (a weighted average price of
approximately $29.03 per share). |
|
|
(h) |
|
Includes shares held by Mr. Puckett, who served as the Companys Chairman and Chief Executive
Officer until March 31, 2010, shares held by Mr. J. Adams, who served as the Companys
Executive Vice President, Chief Financial Officer and Secretary until
May 16, 2011 and shares held by Mr. Droke, who served as
the Companys Senior Vice President and Chief Credit Officer
until June 17, 2011. |
|
FUTURE SHAREHOLDER PROPOSALS
If a shareholder wishes to have a proposal included in the Companys proxy statement for the
Companys 2012 Annual Meeting of Shareholders, that proposal must be received by the Company at its
executive offices in Greeneville, Tennessee by December 10, 2011. If a shareholder wishes to
present a proposal at the Companys 2012 annual meeting of shareholders and the proposal is not
intended to be included in the Companys proxy statement relating to that meeting, the shareholder
must give advance notice to the Company prior to the deadline for such meeting determined in
accordance with the Companys Charter (the Charter Deadline). Under the Companys Charter, in
order to be deemed properly presented, notice must be delivered to the Companys Secretary at the
Companys principal executive offices no less than forty (40) nor more than sixty (60) days prior
to the scheduled date of the meeting at which such matter is to be acted upon; provided, however,
that if notice or public disclosure of such meeting is given fewer than fifty (50) days before the
meeting, notice by the shareholder must be delivered to the Company not later than the close of
business on the tenth (10th) day following the day on which notice of the meeting was mailed to
shareholders. If a shareholder gives notice of such a proposal after the Charter Deadline, the
shareholder will not be permitted to present the proposal to the shareholders for a vote at the
meeting.
The SEC rules also establish a different deadline for submission of shareholder proposals that
are not intended to be included in the Companys proxy statement with respect to discretionary
voting (the Discretionary Voting Deadline). This deadline for the 2012 annual meeting of
shareholders is February 23, 2012. If a shareholder gives notice of a proposal after this deadline,
the persons named as proxies in the proxy statement for the 2012 annual meeting will be allowed to use their discretionary voting authority to vote against the
shareholder proposal
31
when, and if, the proposal is raised at the 2012 annual meeting. Because the
Charter Deadline is not capable of being determined until the Company gives notice of, or publicly
announces, the date for the 2012 annual meeting of shareholders, it is possible that the Charter
Deadline may occur after the Discretionary Voting Deadline, in which case a proposal received after
the Discretionary Voting Deadline but before the Charter Deadline would be eligible to be presented
at the 2012 annual meeting of shareholders and the Company believes that the persons named as
proxies in the proxy statement would be allowed to use the discretionary authority granted by the
proxy card to vote against the proposal at the meeting without including any disclosures of the
proposal in the proxy statement relating to the meeting.
Shareholder proposals should be addressed to Secretary, Green Bankshares, Inc., 100 North Main
Street, P.O. Box 1120, Greeneville, Tennessee 37743 and must comply with the provisions of the
Companys Charter. Nothing in this paragraph shall be deemed to require the Company to include in
its proxy statement and form of proxy relating to the Companys 2012 Annual Meeting of Shareholders
any shareholder proposal that does not satisfy the requirements for inclusion as established by the
SEC at the time of receipt.
OTHER MATTERS
Discretionary Authority to Vote. As of the date of this document,
the Companys Board of
Directors is not aware of any matters that will be presented for consideration at the Companys
Special Meeting. If any other matters come before either of the meetings or any adjournments or
postponements of the meeting and are voted upon, the enclosed proxy will confer discretionary
authority on the individuals named as proxies to vote the shares represented by the proxy as to any
other matters. The individuals named as proxies intend to vote in accordance with their best
judgment as to any other matters.
Directions to Our Special Meeting at the General Morgan Inn. Requests for directions to
General Morgan Inn should be directed to Michael J. Fowler, 100 North Main Street, Greeneville,
Tennessee 37743 (telephone number (423) 278-3050).
BY ORDER OF THE BOARD OF DIRECTORS
Michael J. Fowler
Secretary
Greeneville, Tennessee
July __, 2011
32
Appendix A
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT
dated as of May 5, 2011
among
GREEN BANKSHARES, INC.,
GREENBANK
and
NORTH AMERICAN FINANCIAL HOLDINGS, INC.
A-i
TABLE OF CONTENTS
|
|
|
ARTICLE I
PURCHASE; CLOSING |
|
|
|
1.1 Purchase
|
|
A-1 |
1.2 Closing
|
|
A-1 |
|
|
|
ARTICLE II
REPRESENTATIONS AND WARRANTIES |
|
|
|
2.1 Disclosure
|
|
A-5 |
2.2 Representations and Warranties of the Company and the Bank
|
|
A-6 |
2.3 Representations and Warranties of Purchaser
|
|
A-23 |
|
|
|
ARTICLE III
COVENANTS |
|
|
|
3.1 Filings; Other Actions
|
|
A-26 |
3.2 Access, Information and Confidentiality
|
|
A-27 |
3.3 Conduct of the Business
|
|
A-28 |
3.4 Acquisition Proposals
|
|
A-31 |
3.5 Repurchase
|
|
A-33 |
3.6 D&O Indemnification
|
|
A-34 |
3.7 Notice of Developments
|
|
A-34 |
|
|
|
ARTICLE IV
ADDITIONAL AGREEMENTS |
|
|
|
4.1 Governance Matters
|
|
A-34 |
4.2 Legend
|
|
A-35 |
4.3 Exchange Listing
|
|
A-35 |
4.4 Registration Rights
|
|
A-35 |
4.5 Employees
|
|
A-35 |
4.6 Reservation for Issuance
|
|
A-35 |
4.7 Additional Investment
|
|
A-35 |
|
|
|
ARTICLE V
TERMINATION |
|
|
|
5.1 Termination
|
|
A-36 |
5.2 Effects of Termination
|
|
A-37 |
5.3 Fees
|
|
A-37 |
|
|
|
ARTICLE VI
MISCELLANEOUS
|
6.1 No Survival
|
|
A-38 |
6.2 Expenses
|
|
A-38 |
|
|
|
A-ii
|
|
|
|
6.3 Amendment; Waiver
|
|
A-38 |
6.4 Counterparts and Facsimile
|
|
A-38 |
6.5 Governing Law
|
|
A-38 |
6.6 Notices
|
|
A-38 |
6.7 Entire Agreement, Assignment
|
|
A-39 |
6.8 Interpretation; Other Definitions
|
|
A-39 |
6.9 Captions
|
|
A-40 |
6.10 Severability
|
|
A-40 |
6.11 No Third Party Beneficiaries
|
|
A-40 |
6.12 Time of Essence
|
|
A-40 |
6.13 Certain Adjustments
|
|
A-41 |
6.14 Public Announcements
|
|
A-41 |
6.15 Specific Performance; Limitation on Damages
|
|
A-41 |
|
|
|
A-iii
|
INDEX OF DEFINED TERMS
|
|
|
Term |
|
Location of Definition |
409A Plan
|
|
2.2(s)(8) |
Acquisition Agreement
|
|
3.4(b) |
Acquisition Proposal
|
|
3.4(c) |
Adverse Recommendation Change
|
|
3.4(b) |
Affiliate
|
|
6.8(a) |
Agency
|
|
2.2(w)(5)(D) |
Agreement
|
|
Preamble |
Authorizations
|
|
2.2(a)(1) |
Bank
|
|
Preamble |
Bank Charter
|
|
2.2(a)(2) |
beneficial owner
|
|
6.8(g) |
beneficially own
|
|
6.8(g) |
Benefit Plan
|
|
2.2(s)(1) |
Burdensome Condition
|
|
1.2(c)(2)(F) |
business day
|
|
6.8(e) |
Capitalization Date
|
|
2.2(b) |
CERCLA
|
|
2.2(v) |
Charge-Offs
|
|
1.2(c)(2)(L) |
Charter
|
|
2.2(a)(1) |
Closing
|
|
1.2(a) |
Closing Date
|
|
1.2(a) |
Closing Expense Reimbursement
|
|
6.2 |
Code
|
|
2.2(j) |
Common Stock
|
|
Recitals |
Company
|
|
Preamble |
Company 10-K
|
|
2.1(c)(2)(A) |
Company Insurance Policies
|
|
2.2(x) |
Company Preferred Stock
|
|
2.2(b) |
Company Recommendation
|
|
3.1(b) |
Company Reports
|
|
2.2(h)(1) |
Company Representatives
|
|
3.2(a) |
Company Significant Agreement
|
|
2.2(m)(i) |
Companys knowledge
|
|
2.1(d) |
Confidentiality Agreement
|
|
3.2(b) |
control
|
|
6.8(a) |
controlled by
|
|
6.8(a) |
CVRs
|
|
Recitals |
Disclosure Schedule
|
|
2.1(a) |
EESA
|
|
2.2(s)(10) |
ERISA
|
|
2.2(s)(1) |
ERISA Affiliate
|
|
2.2(s)(1) |
Exchange Act
|
|
2.2(h)(1) |
Existing D&O Policies
|
|
1.2(c)(2)(H)(i) |
Expense Reimbursement
|
|
5.3(c) |
FDIC
|
|
2.2(a)(2) |
Federal Reserve
|
|
1.2(c)(1)(B) |
GAAP
|
|
2.2(g) |
Governmental Entity
|
|
1.2(c)(1)(A) |
herein
|
|
6.8(d) |
hereof
|
|
6.8(d) |
hereunder
|
|
6.8(d) |
include
|
|
6.8(c) |
|
|
|
A-iv
|
|
|
|
Term |
|
Location of Definition |
included
|
|
6.8(c) |
includes
|
|
6.8(c) |
including
|
|
6.8(c) |
knowledge of the Company
|
|
2.1(d) |
Laws
|
|
2.1(b) |
Liens
|
|
1.2(b)(1) |
Loan Portfolio Committee
|
|
4.1(c) |
Loans
|
|
2.2(w)(1) |
Loan Tape
|
|
2.2(w)(9) |
Material Adverse Effect
|
|
2.1(b) |
NASDAQ
|
|
1.2(c)(2)(I) |
Nominees
|
|
4.1(b) |
Notice of Recommendation Change
|
|
3.4(b) |
or
|
|
6.8(b) |
Option
|
|
Recitals |
Organizational Common Stock
|
|
2.2(b) |
Permits
|
|
2.2(q) |
Permitted Liens
|
|
2.2(i) |
Per Share Purchase Price
|
|
1.2(b)(2) |
person
|
|
6.8(f) |
Pool
|
|
2.2(w)(8) |
Previously Disclosed
|
|
2.1(c) |
Proprietary Rights
|
|
2.2(y) |
Purchased Shares
|
|
1.1 |
Purchaser
|
|
Preamble |
Purchaser Designees
|
|
1.2(c)(2)(G) |
Registration Rights Agreement
|
|
4.4 |
Regulatory Agreement
|
|
2.2(u) |
Resigning Directors
|
|
1.2(c)(2)(G) |
Representatives
|
|
3.4(a) |
Repurchase
|
|
Recitals |
Required Approvals
|
|
2.2(f) |
Sarbanes-Oxley Act
|
|
2.2(h)(2) |
SEC
|
|
2.1(c)(2)(A) |
Securities Act
|
|
2.2(h)(1) |
Series A Preferred
|
|
Recitals |
Shareholder Meeting
|
|
3.1(b) |
Shareholder Proposal
|
|
3.1(b) |
SRO
|
|
2.2(h)(1) |
Subsidiaries
|
|
2.2(a)(1) |
Subsidiary
|
|
2.2(a)(1) |
Superior Proposal
|
|
3.4(c) |
Tax Return
|
|
2.2(j) |
Taxes
|
|
2.2(j) |
Tennessee DFI
|
|
1.2(c)(1)(B) |
Termination Fee
|
|
5.3(c) |
Treasury
|
|
Recitals |
Treasury Warrants
|
|
Recitals |
Trust Preferred Securities
|
|
2.2(d)(2) |
under common control with
|
|
6.8(a) |
VA
|
|
2.2(w)(5) |
Voting Debt
|
|
2.2(b) |
|
|
|
A-v
|
LIST OF SCHEDULES AND EXHIBITS
|
|
|
Schedule A
|
|
List of Subsidiaries |
|
Exhibit A
|
|
Terms of Contingent Value Rights |
Exhibit B
|
|
Terms of Repurchase |
Exhibit C
|
|
Form of Registration Rights Agreement |
A-vi
INVESTMENT AGREEMENT, dated as of May 5, 2011 (this Agreement), among Green
Bankshares, Inc., a corporation organized under the laws of the State of Tennessee (the
Company), GreenBank, a Tennessee state-chartered banking corporation and a banking
subsidiary of the Company (the Bank), and North American Financial Holdings, Inc., a
Delaware corporation (Purchaser).
RECITALS:
WHEREAS, the Company intends to issue and sell to Purchaser, and Purchaser intends to purchase
from the Company, as an investment in the Company, 119,900,000 shares of common stock, $2.00 par
value per share, of the Company (the Common Stock) at a purchase price of $1.81 per share
on the terms and conditions described herein;
WHEREAS, on the date hereof, the Company has granted to the Purchaser an option to acquire up
to 2,628,183 shares of Common Stock (but not to exceed 19.9% of the Companys issued and
outstanding shares of Common Stock without giving effect to any shares subject to or issued
pursuant to such option) at a price per share equal to the closing price on the Nasdaq Global
Select Market for shares of Common Stock on the first trading day following the date hereof (the
Option);
WHEREAS, in addition to the purchase price described above, the Company shall, immediately
prior to the issuance of shares of Common Stock to Purchaser, issue to the holders of its Common
Stock (excluding the Purchaser) contingent value rights (the CVRs) on substantially the
terms set forth in Exhibit A;
WHEREAS, in connection with the investment by Purchaser, the Purchaser shall enter into a
binding definitive agreement with the United States Department of the Treasury
(Treasury), pursuant to which, among other things and subject to the terms and conditions
set forth therein, contemporaneous with the Closing, the Purchaser will purchase from Treasury all
of the outstanding shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series
A (the Series A Preferred) (including all obligations with respect to accrued but unpaid
dividends on the Series A Preferred) and related warrants to purchase shares of Company Common
Stock (the Treasury Warrants) (the Repurchase) (the terms of the Repurchase
being set forth in Exhibit B); and
WHEREAS, the Company intends to amend its Charter and its bylaws, in form and substance
reasonably satisfactory to Purchaser, to permit the transactions contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the representations, warranties,
covenants and agreements set forth herein, the parties agree as follows:
ARTICLE I
PURCHASE; CLOSING
1.1 Purchase. On the terms and subject to the conditions set forth herein, at the Closing, Purchaser will
purchase from the Company, and the Company will issue and sell to Purchaser, 119,900,000 shares of
Common Stock (the Purchased Shares).
1.2 Closing.
(a) The Closing. The closing of the purchase and sale of the Purchased Shares
referred to in Section 1.1 (the Closing) shall occur at 10:00 a.m., New York City
time, on
the third business day after the satisfaction or, if permissible, waiver (by the party
entitled to grant such waiver) of the conditions to the Closing set forth in this Agreement
(other than those conditions that by their nature are to be satisfied at the Closing, but
subject to fulfillment or waiver of those conditions), at the offices of Wachtell, Lipton,
Rosen & Katz, 51 West 52nd Street, New York, New York 10019 or such other date or location
as agreed by the parties. The date of the Closing is referred to as the Closing
Date.
A-1
(b) Closing Deliveries. Subject to the satisfaction or waiver on the Closing
Date of the applicable conditions to the Closing set forth in Section 1.2(c), at the
Closing:
(1) the Company will deliver to Purchaser (A) the Closing Expense Reimbursement
in accordance with Section 6.2 hereof, by wire transfer of immediately available
funds to an account or accounts designated by Purchaser, and (B) the Purchased
Shares, as evidenced by one or more certificates dated the Closing Date and bearing
the appropriate legends as set forth herein and free and clear of all liens,
charges, encumbrances and security interests of any kind or nature whatsoever (other
than restrictions on transfer imposed by applicable securities Laws) (collectively,
Liens); and
(2) Purchaser will deliver to the Company, by wire transfer of immediately
available funds to an account or accounts designated by the Company, an amount equal
to the product of $1.81 per share (the Per Share Purchase Price)
multiplied by the number of Purchased Shares.
(c) Closing Conditions. (1) The obligation of Purchaser, on the one hand, and
the Company and the Bank, on the other hand, to effect the Closing is subject to the
fulfillment or written waiver by Purchaser, the Company and the Bank prior to the Closing of
the following conditions:
(A) no provision of any applicable Law and no judgment, injunction,
order or decree of any court, administrative agency or commission or other
governmental authority or instrumentality, whether federal, state, local or
foreign (each, a Governmental Entity) shall prohibit the Closing
or shall prohibit or restrict Purchaser or its Affiliates from owning or
voting any Purchased Shares, and no lawsuit or formal administrative
proceeding shall have been commenced by any Governmental Entity seeking to
effect any of the foregoing;
(B) any Required Approvals of the Tennessee Department of Financial
Institutions (the Tennessee DFI), Office of the Comptroller of the
Currency and the Board of Governors of the Federal Reserve System (the
Federal Reserve) required to consummate the transactions
contemplated by this Agreement shall have been made or obtained and shall be
in full force and effect as of the Closing Date; and
(C) the holders of shares of Common Stock of the Company shall have
approved the Shareholder Proposal (other than the proposal set forth in
clause (1)(iii) of the definition of Shareholder Proposal) by the
requisite vote of such holders and the corresponding amendments to the
Charter shall have become effective.
(2) The obligation of Purchaser to purchase the Purchased Shares at the Closing
is also subject to the fulfillment or written waiver by Purchaser prior to the
Closing of each of the following conditions:
(A) all representations and warranties of the Company and the Bank
contained in this Agreement shall be true and correct (without regard to
materiality or Material Adverse Effect qualifiers contained therein), both
individually and in the aggregate, except where the failure of such
representations and warranties to be so true
and correct, individually or in the aggregate, has not had and would
not be reasonably expected to have a Material Adverse Effect (other than the
representations and warranties set forth in Sections 2.2(b), (d)(1), (o),
(z), and (bb), which shall be true and correct in all material respects
(subject to materiality or Material Adverse Effect qualifiers contained
therein)) as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent any such
representation and warranty expressly relates to a specified date, in which
case such representation and warranty need only be true and correct as of
such specified date);
A-2
(B) each of the Company and the Bank shall have performed in all
material respects all obligations required to be performed by it at or prior
to the Closing;
(C) Purchaser shall have received a certificate signed on behalf of
each of the Company and the Bank by a senior executive officer certifying to
the effect that the conditions set forth in Sections 1.2(c)(2)(A) and
1.2(c)(2)(B) have been satisfied;
(D) since December 31, 2010, except as set forth in any section of the
Company Disclosure Schedule corresponding to Section 2.2 of this Agreement,
no fact, event, change, condition, development, circumstance or effect shall
have occurred that, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect;
(E) (i) The Treasury shall have entered into a binding definitive
agreement with Purchaser providing for, contemporaneous with the Closing,
the sale to Purchaser of all of the issued and outstanding shares of the
Series A Preferred (including all obligations with respect to accrued but
unpaid dividends on the Series A Preferred) and the Treasury Warrants in
accordance with the terms set forth in Exhibit B and such agreement
shall remain in full force and effect; and (ii) the Company shall have
received from each employee of the Company listed on Schedule 1.2(c)(2)(E)
who has waived any compensation or benefits in connection with the Companys
issuance of the Series A Preferred and Treasury Warrants pursuant to the
interim final rule issued by Treasury or who would be prohibited from
receiving compensation or benefits under the interim final rule issued by
Treasury, a binding waiver (in a form acceptable to Purchaser) stipulating
that such compensation and benefits that are not payable as of the date of
this Agreement will not become payable at or following the Closing;
(F) no Required Approval issued by any Governmental Entity shall impose
or contain any restraint, condition or requirement, that, individually or in
the aggregate, is adverse to Purchaser or any of its Affiliates in any
material respect (in the case this clause, adverse shall mean reducing the
economic benefit or increasing the economic burden of the transactions
contemplated hereby), as determined by Purchaser in its reasonable good
faith judgment (any restraint, condition, or requirement of the type
described in this clause (F), a Burdensome Condition);
(G) each of the individuals designated by the Purchaser in its sole
discretion prior to the Closing (the Purchaser Designees) shall
have been appointed to the Board of Directors of the Company and of the
Bank, and an equal number of individuals shall have resigned from the Board
of Directors of the Company and of the Bank (the Resigning
Directors), in each case effective as of the Closing, such that
immediately after the Closing, the Purchaser Designees constitute a majority
of the Board of Directors of each of the Company and the Bank; provided,
however, in no event shall the Board of Directors of the Company contain
fewer than two of the members of the Companys Board of Directors as of the
date hereof, which members shall also be appointed to the board of directors
of Purchaser immediately following the Closing;
(H) either (i) the existing directors and officers liability and errors
and omissions insurance policies of the Company, the Bank and any Subsidiary
(the Existing D&O Policies) shall remain in full force and effect
as of the date of this Agreement and shall continue in full force and effect
until they expire upon the expiration dates set forth in Section 2.2(x) of
the Company Disclosure Schedule and the insurers thereunder shall have
provided to the Company an endorsement in writing to the effect that neither
the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated by this Agreement shall result in a termination of
such policies, or a reduction in coverage of any such policies; or (ii) the
Company shall have obtained a policy (or policies) of directors and officers
liability and errors and omissions insurance
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coverage with insurance
carriers believed to be financially sound and reputable with coverage
substantially identical to the coverage provided by the Existing D&O
Policies;
(I) the shares of Common Stock included in the Purchased Shares shall
have been authorized for listing on the NASDAQ Stock Market
(NASDAQ) or such other market on which the Common Stock is then
listed or quoted, subject to official notice of issuance;
(J) the Company shall have entered into the Registration Rights
Agreement pursuant to Section 4.4, having the terms set forth in Exhibit
C;
(K) as measured immediately prior to the Closing and excluding any
deposits withdrawn by Purchaser or its controlled Affiliates, core deposits
(i.e., money market, demand, checking, savings and transactional accounts
for retail customers) of the Bank shall not have decreased by more than
twenty percent (20%) from the amount thereof as of March 31, 2011;
(L) excluding Charge-Offs made at the written direction of Purchaser or
any controlled Affiliate of Purchaser, (i) the Charge-Offs in any completed
calendar fiscal quarter commencing after March 31, 2011 shall not exceed
$40,000,000 and (ii) the Charge-Offs in the most recent interim quarterly
period commencing after the date hereof and ending five calendar days prior
to the Closing Date shall not exceed an amount equal to $40,000,000
pro-rated by the number of days in such interim quarterly period; for the
purposes of this Section 1.2(c)(2)(L), Charge-Offs shall mean the
loans charged-off as reflected in the Company Reports, if then publicly
filed, and otherwise derived from the books and records of the Bank in a
manner consistent with past practice, with the preparation of the financial
statements in the Company Reports and with the Companys or Banks written
policies in effect as of the date of this Agreement; and three calendar days
prior to the Closing Date, the Company shall provide Purchaser with a
schedule reporting Charge-Offs for the periods referred to in clauses (i)
and (ii);
(M) The Board of Directors of the Company shall have declared a
distribution of the CVRs, effective immediately prior to the Closing,
pursuant to a contingent value right agreement substantially on the terms
set forth on Exhibit A and in form and substance reasonably
acceptable to the Purchaser;
(N) Either (i) the holders of shares of Common Stock of the Company
shall have approved the proposal set forth in clause (1)(iii) of the
definition of Shareholder Proposal by the requisite vote of such holders
and the corresponding amendment to the Charter shall have become effective
or (ii) the merger of the Bank with and into a Subsidiary of the Purchaser
on terms reasonably satisfactory to Purchaser and consistent with
Exhibit D shall have been approved by the Boards of Directors of the
Company and the Bank and by any Governmental Entity the approval of which is
required, and such merger is reasonably capable of being consummated not
later than three (3) business days following the Closing; and
(3) The obligations of the Company and the Bank to effect the Closing are
subject to the fulfillment or written waiver by both of the Company and the Bank
prior to the Closing of the following additional conditions:
(A) all representations and warranties of Purchaser contained in this
Agreement shall be true and correct (without regard to materiality or
material adverse effect qualifiers contained therein) in all material
respects as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except to the extent any such
representation and warranty expressly relates to a specified earlier date,
in which case such representation and warranty need only be true and correct
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as of such specified earlier date, and except where the failure of any such
representation or warranty to be true and correct would not, individually or
in the aggregate, impair in any material respect the ability of Purchaser to
consummate the transactions contemplated by this Agreement;
(B) Purchaser shall have performed in all material respects all
obligations required to be performed by it at or prior to the Closing;
(C) the Company and the Bank each shall have received a certificate
signed on behalf of Purchaser by a senior executive officer certifying to
the effect that the conditions set forth in Sections 1.2(c)(3)(A) and (B)
have been satisfied; and
(D) Purchaser and the Treasury shall have entered into a binding
definitive agreement reflecting Purchasers agreement to repurchase all of
the issued and outstanding Series A Preferred (including all obligations
with respect to accrued but unpaid dividends on the Series A Preferred) and
the Treasury Warrants in accordance with the terms set forth in Exhibit
B and such agreement shall remain in full force and effect.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Disclosure. (a) On or prior to the date hereof, the Company and the Bank delivered to Purchaser and
Purchaser delivered to the Company and the Bank a schedule (a Disclosure Schedule)
setting forth, among other things, items the disclosure of which is necessary or appropriate either
in response to an express disclosure requirement contained in a provision hereof or as an exception
to one or more representations or warranties contained in Section 2.2 with respect to the Company
or the Bank, or in Section 2.3 with respect to Purchaser, or to one or more covenants contained in
Article III.
(b) Material Adverse Effect means any fact, event, change, development,
circumstance or effect that, individually or in the aggregate, (1) is or would be reasonably
likely to be material and adverse to the business, assets, liabilities, results of
operations or condition (financial or otherwise) of the Company, the Bank and the
Subsidiaries, taken as a whole (provided, however, that with respect to this clause (1), a
Material Adverse Effect shall not be deemed to include any fact, event, change, condition,
development, circumstance or effect to the extent resulting from actions or omissions by the
Company taken or not taken with the prior written consent or at the written direction of
Purchaser or as expressly required by this Agreement), or (2) materially impairs or would be
reasonably likely to materially impair the ability of the Company or the Bank to perform its
obligations under this Agreement or to consummate the Closing. Notwithstanding the
foregoing, any adverse change, event or effect to the extent arising from: (i) conditions
generally affecting the United States economy or generally affecting the banking industry
except to the extent the Company and the Bank, taken as a whole, are affected in a
materially disproportionate manner as compared to other community banks in the southeastern
United States; (ii) national or international political or social conditions, including
terrorism or
the engagement by the United States in hostilities or acts of war except to the extent
the Company and the Bank, taken as a whole, are affected in a materially disproportionate
manner as compared to other community banks in the southeastern United States; (iii) changes
in any federal, state, local or foreign Laws, any rule or regulation of any SRO, statutes,
regulations, rules, ordinances and judgments, decrees, orders, writs and injunctions
(collectively, Laws) issued by any Governmental Entity; (iv) any action taken by
Purchaser prior to or at the Closing; (v) any failure, in and of itself, by the Company or
the Bank to meet any internal or disseminated projections, forecasts or revenue or earnings
predictions for any period (provided that any underlying causes of such failure shall not be
excluded in determining whether a Material Adverse Effect has occurred or would reasonably
be expected to occur); (vi) any natural disaster except to the extent the Company and the
Bank, taken as a whole, are affected in a materially disproportionate manner as compared to
other community banks in the southeastern United States (vii) any compliance by the Company
or the Bank with any express written request made by Purchaser; (viii) a decline in the
price, or a change in the
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trading volume, of the Common Stock on the NASDAQ (provided that
any underlying causes of such decline or change shall not be excluded in determining whether
a Material Adverse Effect has occurred or would reasonably be expected to occur); or (ix)
the public announcement, pendency or completion of the transactions contemplated by this
Agreement, including any action taken in response thereto by any person with which the
Company or the Bank does business shall not, in any such case, be taken into account in
determining whether a Material Adverse Effect has occurred or would reasonably be expected
to occur.
(c) Previously Disclosed with regard to (1) a party means information set
forth in its Disclosure Schedule, and (2) the Company or the Bank means information publicly
disclosed by the Company in (A) its Annual Report on Form 10-K for the fiscal year ended
December 31, 2010, as filed by it with the Securities and Exchange Commission
(SEC) on March 15, 2010 (including all exhibits included or incorporated by
reference therein) (the Company 10-K), or (B) any Current Report on Form 8-K filed
or furnished by it with the SEC since January 1, 2011 and publicly available prior to the
date of this Agreement (excluding any risk factor disclosures contained in such documents
under the heading Risk Factors and any disclosure of risks included in any
forward-looking statements disclaimer or other statements that are similarly non-specific
and are predictive or forward-looking in nature).
(d) To the knowledge of the Company, to the knowledge of the Bank,
or any similar phrase means, (i) with respect to any fact or matter, the actual knowledge of
Stephen M. Rownd or James E. Adams, and (ii) with respect to facts or matters relating to
representations and warranties set forth in Section 2.2(w), Stephen M. Rownd, James E. Adams
or Steve Droke, in the case of each of clauses (i) and (ii) without any duty to investigate.
2.2 Representations and Warranties of the Company and the Bank. The Company and the Bank, jointly and severally, represent and warrant to Purchaser, as of the
date of this Agreement and as of the Closing Date (except to the extent made only as of a specified
date in which case as of such date), that, except as Previously Disclosed:
(a) Organization and Authority. (1) The Company is, and at the Closing Date
will be, a corporation duly organized, validly existing and in good standing under the laws
of the State of Tennessee. The Company is a bank holding company duly registered under the
Bank Holding Company Act of 1956, as amended. The Company has, and at the Closing Date will
have, the power and authority (corporate, governmental, regulatory and otherwise) and has or
will have all necessary approvals, orders, licenses, certificates, permits and other
governmental authorizations (collectively, the Authorizations) to own or lease all
of the assets owned or leased by it and to conduct its business in all material respects in
the manner Previously Disclosed, and has the corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted except where
the failure to have such power and authority or such Authorizations has not had,
individually or in the aggregate, a Material Adverse Effect. The Company is, and at the
Closing Date will be, duly licensed or qualified to do business and in good standing as a
foreign corporation in all jurisdictions in which the
nature of the activities conducted by the Company requires such qualification except
for jurisdictions in which the failure to be so qualified or authorized has not had,
individually or in the aggregate, a Material Adverse Effect. The Charter, as amended, of
the Company (the Charter) complies in all material respects with applicable Law.
A complete and correct copy of the Charter and bylaws of the Company, as amended and as
currently in effect, has been delivered or made available to Purchaser. The Companys
direct and indirect subsidiaries (other than the Bank) (each a Subsidiary and
collectively the Subsidiaries) are listed on Schedule A to this Agreement.
(2) The Bank is a wholly owned subsidiary of the Company and is a corporation
and state chartered bank duly organized, validly existing and in good standing under
the Laws of the State of Tennessee. The deposit accounts of the Bank are insured up
to applicable limits by the Deposit Insurance Fund, which is administered by the
Federal Deposit Insurance Corporation (the FDIC); all premiums and
assessments required to be paid in connection therewith have been paid when due; and
no proceedings for the termination or revocation of such insurance are pending or,
to the knowledge of the Company, threatened. The Bank has the power and authority
(corporate, governmental, regulatory and otherwise) and has or will have all
necessary Authorizations to own or lease all of the assets owned or leased by it and
to conduct its business in
A-6
all material respects in the manner Previously Disclosed,
except where the failure to have such power and authority or such Authorizations has
not had, individually or in the aggregate, a Material Adverse Effect. The Bank is
duly licensed or qualified to do business and in good standing in all jurisdictions
in which the nature of the activities conducted by the Bank requires such
qualification except for jurisdictions in which the failure to be so qualified or
authorized has not had, individually or in the aggregate, a Material Adverse Effect.
The charter (Bank Charter) of the Bank complies in all material respects
with applicable Law. A complete and correct copy of the Bank Charter and the bylaws
of the Bank, as amended and as currently in effect, has been delivered or made
available to Purchaser.
(3) Each of the Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing under the Laws of its jurisdiction
of organization. Each such Subsidiary has the power and authority (corporate,
governmental, regulatory and otherwise) and has or will have all necessary
Authorizations to own or lease all of the assets owned or leased by it and to
conduct its business in all material respects as Previously Disclosed, except where
the failure to have such power and authority or such Authorizations has not had,
individually or in the aggregate, a Material Adverse Effect. Each such Subsidiary
is duly licensed or qualified to do business and in good standing as a foreign
corporation or other legal entity in all jurisdictions in which the nature of the
activities conducted by such Subsidiary requires such qualification except for
jurisdictions in which the failure to be so qualified or authorized has not had,
individually or in the aggregate, a Material Adverse Effect. The charter, articles
or certificate of incorporation, certificate of trust or other organizational
document of each Subsidiary comply in all material respects with applicable Law. A
complete and correct copy of the charter, articles or certificate of incorporation
or certificate of trust and bylaws of each Subsidiary (or similar governing
documents), as amended and as currently in effect, has been delivered or made
available to Purchaser.
(b) Capitalization. The authorized capital stock of the Company consists of
130 shares of organizational common stock, par value $10.00 per share, of the Company (the
Organizational Common Stock), 20,000,000 shares of Common Stock and 1,000,000
shares of preferred stock, no par value, of the Company (the Company Preferred
Stock). As of the close of business on May 2, 2011 (the Capitalization
Date), there were no shares of Organizational Common Stock and no more than 13,206,952
shares of Common Stock outstanding (which includes restricted shares) and 72,278 shares of
Series A Preferred and no other shares of Company Preferred Stock outstanding. Since the
Capitalization Date and through the date of this Agreement, except in connection with this
Agreement and the transactions contemplated hereby, and as set forth in Section 2.2(b) of
the Company Disclosure Schedule, the Company has not (1) issued or authorized the issuance
of any shares of Organizational Common Stock, Common Stock or Company Preferred Stock,
or any securities convertible into or exchangeable or exercisable for shares of
Organizational Common Stock, Common Stock or Company Preferred Stock, (2) reserved for
issuance any shares of Organizational Common Stock, Common Stock or Company Preferred Stock
or (3) repurchased or redeemed, or authorized the repurchase or redemption of, any shares of
Organizational Common Stock, Common Stock or Company Preferred Stock. As of the close of
business on the Capitalization Date, other than in respect of shares of Common Stock
reserved for issuance in connection with the Treasury Warrants, any stock option or other
equity incentive plan in respect of which an aggregate of no more than 146,169 shares of
Common Stock have been reserved for issuance and under the Companys Dividend Reinvestment
Plan, no shares of Organizational Common Stock, Common Stock or Company Preferred Stock were
reserved for issuance. All of the issued and outstanding shares of Organizational Common
Stock, Common Stock and Company Preferred Stock have been duly authorized and validly issued
and are fully paid and nonassessable, and have been issued in compliance with all federal
and state securities laws, and were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities. All shares of
Organizational Common Stock are callable by the Company at any time at a price of $10.00 per
share by the Company. No bonds, debentures, notes or other indebtedness having the right to
vote on any matters on which the shareholders of the Company may vote (Voting
Debt) are issued and outstanding. As of the date of this Agreement, except (A)
pursuant to any cashless exercise provisions of any Company stock options or pursuant to the
surrender of shares to the Company or the withholding of shares by the Company to cover tax
withholding
A-7
obligations under the Benefit Plans, (B) the warrant to purchase up to 635,504
shares of Common Stock sold by the Company to the Treasury pursuant to that certain Letter
Agreement and Securities Purchase Agreement dated as of December 23, 2008 or (C) as set
forth elsewhere in this Section 2.2(b) or on the Company Disclosure Schedule, the Company
does not have and is not bound by any outstanding subscriptions, options, calls, commitments
or agreements of any character calling for the purchase or issuance of, or securities or
rights convertible into or exchangeable for, any shares of Organizational Common Stock,
Common Stock or Company Preferred Stock or any other equity securities of the Company or
Voting Debt or any securities representing the right to purchase or otherwise receive any
shares of capital stock of the Company (including any rights plan or agreement). Section
2.2(b) of the Company Disclosure Schedule sets forth a table listing the outstanding series
of trust preferred and subordinated debt securities of the Company and the Bank and certain
information with respect thereto, including the holders of such securities as of the date of
this Agreement if known to the Company, and all such information is accurate and complete to
the knowledge of the Company and the Bank.
(c) Subsidiaries. With respect to the Bank and each of the Subsidiaries, (1)
all the issued and outstanding shares of such entitys capital stock have been duly
authorized and validly issued, are fully paid and nonassessable, have been issued in
compliance with all federal and state securities Laws, and were not issued in violation of
or subject to any preemptive rights or other rights to subscribe for or purchase securities,
and (2) there are no outstanding options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations convertible into or
exchangeable for, or any contracts or commitments to issue or sell, shares of such entitys
capital stock, any other equity security or any Voting Debt, or any such options, rights,
convertible securities or obligations. Except as set forth in Section 2.2(c) of the Company
Disclosure Schedule, the Company owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of each of the Bank and the Subsidiaries, free and clear
of all Liens. Except as set forth in Section 2.2(c) of the Company Disclosure Schedule, the
Company does not own, directly or indirectly, any capital stock or other equity securities
of any person that is not a Subsidiary or the Bank.
(d) Authorization. (1) Each of the Company and the Bank has the full legal
right, corporate power and authority to enter into this Agreement and the other agreements
referenced herein to which it will be a party and to carry out its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and the other
agreements referenced herein to which each of the Company and the Bank will be a party and
the consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Boards of Directors of each of the Company and the Bank. This Agreement
has been, and the other agreements referenced herein to which they will be a party, when
executed, will be, duly and validly executed and delivered by the Company and the Bank and,
assuming due authorization, execution and delivery by Purchaser, is and will be a valid and
binding obligation of
each of the Company and the Bank enforceable against each of the Company and the Bank
in accordance with its terms (except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors rights or by general equity principles).
No other corporate proceedings are necessary for the execution and delivery by the Company
or the Bank of this Agreement and the other agreements referenced herein to which it will be
a party, the performance by them of their obligations hereunder and thereunder or the
consummation by them of the transactions contemplated hereby, subject to receipt of the
approval by the Companys shareholders of the Shareholder Proposal. Except as set forth in
Section 2.2(d) of the Company Disclosure Schedule, the only vote of the shareholders of the
Company required in connection with the approval of the Shareholder Proposal is the
affirmative vote of the holders of not less than a majority of the outstanding Common Stock
entitled to vote at the meeting at which such a vote is taken. All shares of Common Stock
outstanding on the record date for a meeting at which a vote is taken with respect to the
Shareholder Proposal shall be eligible to vote on such proposal.
(2) Neither the execution and delivery by the Company or the Bank of this
Agreement, nor the consummation of the transactions contemplated hereby, nor
compliance by the Company or the Bank with any of the provisions hereof, will (A)
violate, conflict with, or result in a breach of any provision of, or constitute a
default (or an event that, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or result in the loss of
A-8
any benefit or creation of any right on the part of any third party under, or accelerate
the performance required by, or result in a right of termination or acceleration of,
or result in the creation of any Liens upon any of the material properties
or assets of the Company, the Bank or any Subsidiary under any of the terms,
conditions or provisions of (i) its charter or bylaws (or similar governing
documents) or the certificate of incorporation, charter, bylaws or other governing
instrument of any Subsidiary or (ii) except as set forth in Section 2.2(d) of the
Company Disclosure Schedule, and except for defaults that would not have nor
reasonably be expected to have a Material Adverse Effect, any material note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which the Company, the Bank or any Subsidiary is a party or by which
it may be bound, including without limitation the trust preferred securities issued
by Greene County Capital Trust I, Greene County Capital Trust II, GreenBank Capital
Trust I, Civitas Statutory Trust I, Cumberland Capital Statutory Trust II or the
related indentures (collectively, the Trust Preferred Securities), or to
which the Company, the Bank or any Subsidiary or any of the properties or assets of
the Company, the Bank or any Subsidiary may be subject, or (B) except for violations
that would not have nor reasonably be expected to have a Material Adverse Effect,
assuming the consents referred to in Section 2.2(f) are duly obtained, violate any
Law applicable to the Company, the Bank or any Subsidiary or any of their respective
properties or assets.
(e) Accountants. Dixon Hughes PLLC, who has expressed its opinion with respect
to the consolidated financial statements contained in the Company 10-K, is as of the date of
such opinion a registered independent public accountant, within the meaning of the Code of
Professional Conduct of the American Institute of Certified Public Accountants, as required
by the Securities Act and the rules and regulations promulgated thereunder and by the rules
of the Public Accounting Oversight Board.
(f) Consents. Schedule 2.2(f) of the Company Disclosure Schedule lists all
governmental and any other material consents, approvals, authorizations, applications,
registrations and qualifications that are required to be obtained in connection with or for
the consummation of the transactions contemplated by this Agreement (the Required
Approvals). Other than the securities or blue sky laws of the various states and the
Required Approvals, no material notice to, registration, declaration or filing with,
exemption or review by, or authorization, order, consent or approval of, any Governmental
Entity or SRO, or expiration or termination of any statutory waiting period, is necessary
for the consummation by the Company or the Bank of the transactions contemplated by this
Agreement.
(g) Financial Statements. The Company has previously made available to
Purchaser copies of the consolidated statements of financial condition of the Company, the
Bank and the Subsidiaries as of
December 31 for the fiscal years 2008, 2009 and 2010, and the related consolidated
statements of operations, of comprehensive income, of changes in shareholders equity, and
of cash flows for the fiscal years 2008 through 2010, inclusive, as reported in the Company
10-K, in each case accompanied by the audit report of Dixon Hughes PLLC. The December 31,
2010 consolidated statement of financial condition of the Company (including the related
notes, where applicable) fairly presents in all material respects the consolidated financial
position of the Company, the Bank and the Subsidiaries as of the date thereof, and the other
financial statements referred to in this Section 2.2(g) (including the related notes, where
applicable) fairly present in all material respects, and the financial statements to be
filed by the Company with the SEC after the date of this Agreement will fairly present in
all material respects (subject, in the case of the unaudited statements, to recurring audit
adjustments normal in nature and amount), the results of the consolidated operations,
comprehensive income, changes in shareholders equity, cash flows and the consolidated
financial position of the Company, the Bank and the Subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth; each of such statements (including
the related notes, where applicable) in all material respects complies, and the financial
statements to be filed by the Company with the SEC after the date of this Agreement will
comply, with applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto; and each of such statements (including the related notes,
where applicable) has been, and the financial statements to be filed by the Company with the
SEC after the date of this Agreement will be, prepared in accordance with generally accepted
accounting principles (GAAP) consistently applied during the periods involved,
except as indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q. There is
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no transaction, arrangement or other relationship between
the Company, the Bank or any Subsidiary and an unconsolidated or other Affiliated entity
that is not reflected on the financial statements specified in this Section 2.2(g). The
books and records of the Company, the Bank and the Subsidiaries in all material respects
have been, and are being, maintained in accordance with applicable Law and GAAP accounting
requirements and reflect only actual transactions. Dixon Hughes PLLC has not resigned or
been dismissed as independent public accountants of the Company as a result of or in
connection with any disagreements with the Company on a matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
(h) Reports. (1) Since December 31, 2008, the Company, the Bank and each
Subsidiary has timely filed all material reports, registrations, documents, filings,
statements and submissions, together with any amendments thereto, that it was required to
file with any Governmental Entity or self-regulatory organization having jurisdiction over
the Company (SRO) (the foregoing, collectively, the Company Reports) and
has paid all material fees and assessments due and payable in connection therewith. As of
their respective dates of filing, the Company Reports complied in all material respects with
all statutes and applicable rules and regulations of the applicable Governmental Entities or
SROs. Except as set forth in Section 2.2(h)(1) of the Company Disclosure Schedule, to the
knowledge of the Company, as of the date of this Agreement, there are no outstanding
comments from the SEC or any other Governmental Entity or any SRO with respect to any
Company Report. In the case of each such Company Report filed with or furnished to the SEC,
such Company Report did not, as of its date or if amended prior to the date of this
Agreement, as of the date of such amendment, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in order to make
the statements made in it, in light of the circumstances under which they were made, not
misleading and complied as to form in all material respects with the applicable requirements
of the Securities Act of 1933, as amended (the Securities Act), and the Securities
Exchange Act of 1934, as amended (the Exchange Act). With respect to all other
Company Reports, the Company Reports were complete and accurate in all material respects as
of their respective dates, or the dates of their respective amendments. No executive
officer of the Company, the Bank or any Subsidiary has failed in any respect to make the
certifications required of him or her under Section 302 or 906 of the Sarbanes-Oxley Act.
Copies of all Company Reports not otherwise publicly filed have, to the extent allowed by
applicable Law, been made available to Purchaser by the Company. Except for normal
examinations conducted by a Governmental Entity or SRO in the regular course of the business
of the Company, the Bank and the Subsidiaries, no Governmental Entity or SRO has initiated
any proceeding or, to the knowledge of the Company, investigation into the business or
operations of the Company, the Bank or any Subsidiary since December 31, 2008. Except as
set forth in Section 2.2(h)(1) of the Company Disclosure Schedule, to the
knowledge of the Company and the Bank, there is no unresolved violation, criticism or
exception by any Governmental Entity or SRO with respect to any report or statement relating
to any examinations of the Company, the Bank or any of the Subsidiaries.
(2) The Company (i) keeps books, records and accounts that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company, the Bank and the Subsidiaries, and (ii) maintains a system of
internal accounting controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with managements general or specific
authorization, (B) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain accountability for
assets, (C) access to assets is permitted only in accordance with managements
general or specific authorization and (D) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences. The Company (A) has implemented and
maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the
Exchange Act) to ensure that material information relating to the Company, including
the Bank and the Subsidiaries, is made known to the chief executive officer and the
chief financial officer of the Company by others within those entities, and (B) has
disclosed, based on its most recent evaluation prior to the date hereof, to the
Companys outside auditors and the audit committee of the Board of Directors (x) any
significant deficiencies and material weaknesses in the design or operation of
internal controls over financial reporting (as defined in Rule 13a-15(f) of the
Exchange Act) that are reasonably likely to adversely affect the Companys ability
to record, process, summarize and report financial information and (y) any
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fraud, whether or not material, that involves management or other employees who have a
significant role in the Companys internal controls over financial reporting. Since
December 31, 2008, (A) none of the Company, the Bank or any Subsidiary or, to the
knowledge of the Company or the Bank, any director, officer, employee, auditor,
accountant or representative of the Company, the Bank or any Subsidiary has received
or otherwise had or obtained knowledge of any material complaint, allegation,
assertion or claim, whether written or oral, regarding the accounting or auditing
practices, procedures, methodologies or methods of the Company, the Bank or any
Subsidiary or their respective internal accounting controls, including any material
complaint, allegation, assertion or claim that the Company, the Bank or any
Subsidiary has engaged in questionable accounting or auditing practices, and (B) no
attorney representing the Company, the Bank or any Subsidiary, whether or not
employed by the Company, the Bank or any Subsidiary, has reported evidence of a
material violation of securities laws, breach of fiduciary duty or similar violation
by the Company or any of its officers, directors, employees or agents to the
Companys Board of Directors or any committee thereof or to any director or officer
of the Company. The Company is otherwise in compliance in all material respects
with all applicable provisions of the Sarbanes-Oxley Act of 2002 (the
Sarbanes-Oxley Act), as amended and the rules and regulations promulgated
thereunder and as of the date of this Agreement, the Company has no knowledge of any
reason that its outside auditors and its chief executive officer and chief financial
officer shall not be able to give the certifications and attestations required
pursuant to the rules and regulations adopted pursuant to Section 404 of the
Sarbanes-Oxley Act, without qualification, when next due.
(i) Properties and Leases. The Company, the Bank and the Subsidiaries have
good and marketable title to all real properties and transferable title to all other
properties and assets, tangible or intangible, owned by them (other than any assets or
properties classified as other real estate owned) that are material to the operation of
their businesses, in each case free from Liens (other than (i) Liens for current taxes and
assessments not yet past due or being contested in good faith, (ii) inchoate Liens for
construction in progress, (iii) mechanics, materialmens, workmens, repairmens,
warehousemens and carriers Liens arising in the ordinary course of business of the
Company, the Bank or such Subsidiary consistent with past practice for sums not yet
delinquent or being contested in good faith by appropriate proceedings and (iv) Liens with
respect to tenant personal property, fixtures and/or leasehold improvements at the subject
premises arising under state statutes and/or principles of common law (collectively,
Permitted Liens)) that would impair in any material respect the value thereof or
interfere with the use made or to be made thereof by them in any material respect. The
Company, the Bank and the Subsidiaries own, lease or
otherwise have valid easement rights to use all properties as are necessary to their
operations as now conducted. To the knowledge of the Company, the Company, the Bank and the
Subsidiaries hold all leased real or personal property under valid and enforceable leases
with no exceptions that would interfere with the use made or to be made thereof by them in
any material respect. None of the Company, the Bank or any Subsidiary or, to the knowledge
of the Company, any other party thereto is in default in any material respect under any
lease described in the immediately preceding sentence. There are no condemnation or eminent
domain proceedings pending or, to the knowledge of the Company, threatened in writing, with
respect to any of the real properties owned, or to the Companys knowledge, any of the real
properties leased, by the Company, the Bank or any of the Subsidiaries. None of the
Company, the Bank or any of the Subsidiaries has, within the last two (2) years, made any
material title claims, or has outstanding any material title claims, under any policy of
title insurance respecting any parcel of real property.
(j) Taxes. Except as set forth in Section 2.2(j) of the Company Disclosure
Schedule, (1) each of the Company, the Bank and the Subsidiaries has duly and timely filed
(including, pursuant to applicable extensions granted without penalty) all material Tax
Returns required to be filed by it and all such Tax Returns are correct and complete in all
material respects. Each of the Company, the Bank and the Subsidiaries have paid in full, or
made adequate provision in the financial statements of the Company (in accordance with GAAP)
for, all Taxes shown as due on such Tax Returns; (2) no material deficiencies for any Taxes
have been proposed, asserted or assessed against or with respect to any Taxes due by, or Tax
Returns of, the Company, the Bank or any of the Subsidiaries which deficiencies have not
since been resolved; and (3) there are no material Liens for Taxes upon the assets of either
the Company, the Bank or the Subsidiaries except for statutory Liens for Taxes not yet due
or that are being contested in good faith by
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appropriate proceedings and for which adequate
reserves in accordance with GAAP have been provided. None of the Company, the Bank or any
of the Subsidiaries has been a distributing corporation or a controlled corporation in
any distribution occurring during the last two years in which the parties to such
distribution treated the distribution as one to which Section 355 of the U.S. Internal
Revenue Code of 1986, as amended and the Treasury Regulations promulgated thereunder (the
Code) is applicable. None of the Company, the Bank or any Subsidiary has engaged
in any transaction that is the same as or substantially similar to a listed transaction
for United States federal income tax purposes within the meaning of Treasury Regulations
section 1.6011-4. None of the Company, the Bank or any of the Subsidiaries has engaged in a
transaction of which it made disclosure to any taxing authority to avoid penalties under
Section 6662(d) or any comparable provision of state, foreign or local Law. None of the
Company, the Bank or any of the Subsidiaries has participated in any tax amnesty or
similar program offered by any taxing authority to avoid the assessment of penalties or
other additions to Tax. The Company, the Bank and each of the Subsidiaries have complied in
all material respects with all requirements to report information for Tax purposes to any
individual or taxing authority, and have collected and maintained all requisite
certifications and documentation in valid and complete form with respect to any such
reporting obligation, including, without limitation, valid Internal Revenue Service Forms
W-8 and W-9. No claim has been made by a Tax Authority in writing to the Company, the Bank
or any of the Subsidiaries in a jurisdiction where the Company, the Bank or any of the
Subsidiaries, as the case may be, does not file Tax Returns that the Company, the Bank or
any of such Subsidiaries, as the case may be, is or may be subject to Tax by that
jurisdiction. None of the Company, the Bank or any of the Subsidiaries has granted any
waiver, extension or comparable consent regarding the application of the statute of
limitations with respect to any Taxes or Tax Return that is outstanding, nor has any request
for any such waiver or consent been made. None of the Company, the Bank or any of the
Subsidiaries has been or is in violation (or with notice or lapse of time or both, would be
in violation) of any applicable Law relating to the payment or withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of
the Code or any similar provisions of state, local or foreign Law). Each of the Company,
the Bank and its Subsidiaries has duly and timely withheld from employee salaries, wages and
other compensation and paid over to the appropriate taxing authority all amounts required to
be so withheld and paid over for all periods under all applicable Laws. No audits or
material investigations by any taxing authority relating to any Tax Returns of any of the
Company, the Bank or any of the Subsidiaries is in progress, nor has the Company, the Bank
or any of the Subsidiaries received notice from any taxing authority of the commencement of
any audit not yet in progress. There are no outstanding powers of attorney enabling any
person or entity not a party to this Agreement to represent the Company, the Bank or any
Subsidiary with respect to Tax matters. None of the Company, the Bank or any of the
Subsidiaries has applied for, been
granted, or agreed to any accounting method change for which it will be required to
take into account any adjustment under Code Section 481 or any similar provision. There are
no material elections regarding Taxes affecting the Company, the Bank or any of the
Subsidiaries. None of the Company, the Bank or any of the Subsidiaries has undergone an
ownership change within the meaning of Code
Section 382(g) provided that the
Company makes no representations as to whether the execution of this Agreement or the
consummation of the transactions contemplated hereby will constitute an ownership change
under Code Section 382(g). For purposes of this Agreement, Taxes shall mean all
taxes, charges, levies, penalties or other assessments imposed by any United States federal,
state, local or foreign taxing authority, including any income, excise, property, sales,
transfer, franchise, payroll, withholding, social security, abandoned or unclaimed property
or other taxes, together with any interest, penalties or additions to tax attributable
thereto, and any payments made or owing to any other person measured by such taxes, charges,
levies, penalties or other assessment, whether pursuant to a tax indemnity agreement, tax
sharing payment or otherwise (other than pursuant to commercial agreements or Benefit
Plans). For purposes of this Agreement, Tax Return shall mean any return, report,
information return or other document (including any related or supporting information)
required to be filed with any taxing authority with respect to Taxes, including, without
limitation, all information returns relating to Taxes of third parties, any claims for
refunds of Taxes and any amendments or supplements to any of the foregoing.
(k) Absence of Certain Changes. Since December 31, 2010, except as Previously
Disclosed, (1) the Company, the Bank and the Subsidiaries have conducted their respective
businesses in all material respects in the ordinary and usual course of business and
consistent with prior practice, (2) none of the Company, the Bank or any Subsidiary has
issued any securities or incurred any liability or obligation,
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direct or contingent, for
borrowed money, except borrowings in the ordinary course of business, (3) except for
publicly disclosed ordinary dividends on the Common Stock and outstanding Company Preferred
Stock or as contemplated by Section 2.2(b) of this Agreement, the Company has not made or
declared any distribution in cash or in kind to its shareholders or issued or repurchased
any shares of its capital stock or other equity interests, (4) no fact, event, change,
condition, development, circumstance or effect has occurred that has had or would reasonably
be expected to have a Material Adverse Effect and (5) no material default (or event that,
with notice or lapse of time, or both, would constitute a material default) exists on the
part of the Company, the Bank or any Subsidiary or, to their knowledge, on the part of any
other party, in the due performance and observance of any term, covenant or condition of any
Company Significant Agreement that would, individually or in the aggregate, constitute a
Material Adverse Effect.
(l) No Undisclosed Liabilities. Except as set forth in Section 2.2(l) of the
Company Disclosure Schedule, none of the Company, the Bank or any of the Subsidiaries has
any liabilities or obligations of any nature and is not an obligor under any guarantee,
keepwell or other similar agreement (absolute, accrued, contingent or otherwise) except for
(1) liabilities or obligations reflected in or reserved against in the Companys
consolidated balance sheet as of December 31, 2010, (2) current liabilities that have arisen
since December 31, 2010 in the ordinary and usual course of business and consistent with
past practice and that have either been Previously Disclosed or would not have, individually
or in the aggregate, a material impact on the Company, the Bank or any Subsidiary and (3)
contractual liabilities under (other than liabilities arising from any breach or violation
of) agreements made in the ordinary and usual course of business and consistent with past
practice and that have either been Previously Disclosed or would not have, individually or
in the aggregate, a material impact on the Company, the Bank or any Subsidiary.
(m) Commitments and Contracts. (i) The Company has Previously Disclosed or
made available to Purchaser or its representatives true, correct and complete copies of,
each of the following written contracts to which the Company, the Bank or any Subsidiary is
a party (each, a Company Significant Agreement):
(1) any contract or agreement which is a material contract within the meaning
of Item 601(b)(10) of Regulation S-K to be performed in whole or in part after the
date of this Agreement;
(2) any contract or agreement with respect to the employment or service of any
current or former directors, officers, or consultants of the Company, the Bank or
any of the Subsidiaries;
(3) any contract or agreement with any director, officer, or Affiliate of the
Company, the Bank or any of the Subsidiaries;
(4) any contract or agreement materially limiting the freedom of the Company,
the Bank or any Subsidiary to engage in any line of business or to compete with any
other person or prohibiting the Company, the Bank or any Subsidiary from soliciting
customers, clients or employees, in each case whether in any specified geographic
region or business or generally;
(5) any contract or agreement with a labor union or guild (including any
collective bargaining agreement);
(6) any contract or agreement which grants any person a right of first refusal,
right of first offer or similar right with respect to any material properties,
assets or businesses of the Company, the Bank or the Subsidiaries other than other
real estate owned;
(7) any trust indenture, mortgage, promissory note, loan agreement or other
contract, agreement or instrument for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP, in each case, where the Company,
the Bank or any
A-13
Subsidiary is a lender, borrower or guarantor other than those
entered into in the ordinary course of business;
(8) any contract or agreement entered into since January 1, 2005 (and any
contract or agreement entered into at any time to the extent that material
obligations remain as of the date hereof) relating to the acquisition or disposition
of any material business or material assets (whether by merger, sale of stock or
assets or otherwise), which acquisition or disposition is not yet complete or where
such contract contains continuing material obligations, including continuing
material indemnity obligations, of the Company, the Bank or any of the Subsidiaries;
(9) any agreement of guarantee, support or indemnification by the Company, the
Bank or any Subsidiary, assumption or endorsement by the Company, the Bank or any
Subsidiary of, or any similar commitment by the Company, the Bank or any Subsidiary
with respect to, the obligations, liabilities (whether accrued, absolute, contingent
or otherwise) or indebtedness of any other person other than those entered into in
the ordinary course of business;
(10) any alliance, cooperation, joint venture, stockholders partnership or
similar agreement involving a sharing of profits or losses relating to the Company,
the Bank or any Subsidiary;
(11) any agreement, option or commitment or right with, or held by, any third
party to acquire, use or have access to any assets or properties, or any interest
therein, of the Company, the Bank or any Subsidiary; and
(12) any material contract or agreement that would require any consent or
approval of a counterparty as a result of the consummation of the transactions
contemplated by this Agreement.
(ii) (A) Each of the Company Significant Agreements has been duly and validly
authorized, executed and delivered by the Company, the Bank or any Subsidiary and is binding
on the Company, the Bank and the Subsidiaries, as applicable, and to the Companys
knowledge, is in full force and effect; (B) the Company, the Bank and each of the
Subsidiaries, as applicable, are in all material respects in compliance with and
have in all material respects performed all obligations required to be performed by them to
date under each Company Significant Agreement; (C) as of the date hereof, none of the
Company, the Bank or any of the Subsidiaries has received notice of any material violation
or default (or any condition that with the passage of time or the giving of notice would
cause such a violation of or a default) by any party under any Company Significant
Agreement; and (D) no other party to any Company Significant Agreement is, to the knowledge
of the Company, in default in any material respect thereunder.
(n) Offering of Purchased Shares. Neither the Company nor any person acting on
its behalf has taken any action (including any offering of any securities of the Company)
under circumstances that would require the integration of such offering with the offering of
any of the Purchased Shares, the shares underlying the Option or CVRs to be issued pursuant
to this Agreement, in each case under the Securities Act, and the rules and regulations of
the SEC promulgated thereunder, which might subject the offering, issuance or sale of any of
the Purchased Shares or the shares underlying the Option to Purchaser or the CVRs to the
Companys shareholders (excluding the Purchaser) pursuant to this Agreement to the
registration requirements of the Securities Act.
(o) Status of Purchased Shares. The Purchased Shares to be issued pursuant to
this Agreement have been duly authorized by all necessary corporate action, in each case
subject to the approval of the Shareholder Proposal. When issued, delivered and sold
against receipt of the consideration therefor as provided in this Agreement, the Purchased
Shares will be validly issued, fully paid and nonassessable, will not be issued in violation
of or subject to preemptive rights of any other shareholder of the Company and will not
result in the violation or triggering of any price-based antidilution adjustments under any
agreement to which the Company, the Bank or any Subsidiary is a party. The voting rights of
the
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holders of the Purchased Shares will be enforceable in accordance with the terms of the
Charter, the bylaws of the Company and applicable Law.
(p) Litigation and Other Proceedings. Except as set forth in Section 2.2(p) of
the Company Disclosure Schedule, none of the Company, the Bank or any Subsidiary is a party
to any, and there are no pending or, to the Companys knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental or regulatory
investigations of any nature (1) against the Company, the Bank or any Subsidiary (excluding
those of the type contemplated by the following clause (2)) that, if adversely determined,
would reasonably be expected to result in damages, costs or any other liability owed by the
Company, the Bank or such Subsidiary, as applicable, in excess of $1,000,000 individually or
$5,000,000 in the aggregate or (2) as of the date hereof, challenging the validity or
propriety of the transactions contemplated by this Agreement. There is no material
injunction, order, judgment, decree or regulatory restriction (other than regulatory
restrictions of general application that apply to similarly situated companies) imposed upon
the Company, the Bank, any Subsidiary or the assets of the Company, the Bank or any
Subsidiary. There is no material unresolved violation, criticism or exception by any
Governmental Entity with respect to any report or relating to any examinations or
inspections of the Company, the Bank or any Subsidiary.
(q) Compliance with Laws. (1) The Company, the Bank and each Subsidiary have
all material permits, licenses, franchises, authorizations, orders and approvals of
(Permits), and have made all filings, applications and registrations with,
Governmental Entities and SROs that are required in order to permit them to own or lease
their properties and assets and to carry on their business as presently conducted, except
where the failure to have, or the suspension or cancellation of, any Permit has not had a
Material Adverse Effect. Except as has not had a Material Adverse Effect, each of the
Company, the Bank and each Subsidiary is and has been in compliance with and is not in
default or violation of, and none of them is, to the knowledge of the Company, under
investigation with respect to or, to the knowledge of the Company, has been threatened to be
charged with or given notice of any material violation of, any applicable material domestic
(federal, state or local) or foreign Law or order, demand, writ, injunction, decree or
judgment of any Governmental Entity or SRO. Except for statutory or regulatory restrictions
of general application, no Governmental Entity or SRO has placed any material restriction on
the business or properties of the Company, the Bank or any Subsidiary. Except as set forth
in Section 2.2(q) of the Company Disclosure Schedule, since December 31, 2009, none of the
Company, the Bank or any Subsidiary has received any written notification or communication
from any Governmental Entity or SRO
(A) asserting that the Company, the Bank or any Subsidiary is not in material
compliance with any applicable Law, (B) threatening to revoke any permit, license,
franchise, authorization, order or approval, or (C) threatening or contemplating revocation
or limitation of, or which would have the effect of revoking or limiting, FDIC deposit
insurance.
(2) Except as would not be material to the Company, the Bank and the
Subsidiaries, taken as a whole, the Bank and each Subsidiary have properly
administered all accounts for which the Bank or any Subsidiary acts as a fiduciary,
including accounts for which the Bank or any Subsidiary serves as a trustee, agent,
custodian, personal representative, guardian, conservator or investment adviser, in
accordance with the terms of the governing documents, applicable state and federal
law and regulation and common law in all material respects. None of the Bank or any
Subsidiary, or any director, officer or employee of the Bank or any Subsidiary, has
committed any breach of trust with respect to any such fiduciary account that would
be material to the Bank and the Subsidiaries, taken as a whole, and the accountings
for each such fiduciary account are true and correct in all material respects and
accurately reflect in all material respects the assets of such fiduciary account.
(r) Labor. Employees of the Company, the Bank and the Subsidiaries are not
represented by any labor union nor are any collective bargaining agreements otherwise in
effect with respect to such employees. No labor organization or group of employees of the
Company, the Bank or any Subsidiary has made a pending demand for recognition or
certification, and there are no representation or certification proceedings or petitions
seeking a representation proceeding presently pending or threatened to be brought or filed
with the National Labor Relations Board or any other labor relations tribunal or authority. There
A-15
are no organizing activities (to the Companys knowledge), strikes, work stoppages,
slowdowns, lockouts, material arbitrations or material grievances, or other material labor
disputes pending or to the Companys knowledge threatened against or involving the Company,
the Bank or any Subsidiary. The Company, the Bank and each Subsidiary believe that their
relations with their employees are good. As of the date hereof, no executive officer of the
Company, the Bank or any Subsidiary has notified the Company, the Bank or any Subsidiary
that such officer intends to leave the employ of the Company, the Bank or any Subsidiary or
otherwise terminate such executive officers employment with the Company, the Bank or any
Subsidiary. To the knowledge of the Company, no executive officer of the Company, the Bank
or any Subsidiary is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other agreement or any restrictive covenant, and to the
knowledge of Company the continued employment of each such executive officer does not
subject the Company, the Bank or any Subsidiary to any liability with respect to any of the
foregoing matters. The Company, the Bank and the Subsidiaries are in compliance with all
notice and other requirements under the Worker Adjustment and Retraining Notification Act of
1988, and any other similar applicable foreign, state, or local Laws relating to facility
closings and layoffs.
(s) Company Benefit Plans.
(1) (A) Section 2.2(s)(1)(A) of the Company Disclosure Schedule sets forth a
complete list of the Companys Benefit Plans. With respect to each Benefit Plan,
except as set forth in Section 2.2(s)(1)(A) of the Company Disclosure Schedule, the
Company, the Bank and the Subsidiaries have complied, and are now in compliance, in
both instances in all material respects, with all provisions of the Employee
Retirement Income Security Act of 1974, as amended (ERISA), the Code and
all Laws and regulations applicable to such Benefit Plan; and (B) each Benefit Plan
has been administered in all material respects in accordance with its terms.
Benefit Plan means any employee welfare benefit plan within the meaning of
Section 3(1) of ERISA, any employee pension benefit plan within the meaning of
Section 3(2) of ERISA, and any bonus, incentive, deferred compensation, vacation,
stock purchase, stock option, severance, employment, change of control, fringe
benefit, or other compensation or employee benefit plan, program, agreement,
arrangement or policy sponsored, maintained or contributed to or required to be
contributed to by the Company or by any trade or business, whether or not
incorporated (an ERISA Affiliate), that together with the Company would be
deemed a single employer
within the meaning of section 4001(b) of ERISA, or to which the Company, the
Bank, any Subsidiary or any of their respective ERISA Affiliates is party, whether
written or oral, for the benefit of any director, former director, consultant,
former consultant, employee or former employee of the Company, the Bank or any
Subsidiary.
(2) With respect to each Benefit Plan, the Company has heretofore delivered or
made available to Purchaser or Previously Disclosed true and complete copies of each
of the following documents, to the extent applicable: (A) a copy of the Benefit
Plan and any amendments thereto (or if the Benefit Plan is not a written Benefit
Plan, a description thereof); (B) a copy of the two most recent annual reports and
actuarial reports, and the most recent report prepared with respect thereto in
accordance with Statement of Financial Accounting Standards No. 87; (C) a copy of
the most recent summary plan description required under ERISA with respect thereto;
(D) if the Benefit Plan is funded through a trust or any third party funding
vehicle, a copy of the trust or other funding agreement and the latest financial
statements thereof; and (E) the most recent determination or opinion letter received
from the Internal Revenue Service with respect to each Benefit Plan intended to
qualify under section 401 of the Code.
(3) Except as set forth in Section 2.2(s)(3) of the Company Disclosure
Schedule, no claim has been made, or to the knowledge of the Company threatened,
against the Company, the Bank or any of the Subsidiaries related to the employment
and compensation of employees or any Benefit Plan, including, without limitation,
any claim related to the purchase of employer securities or to expenses paid under
any defined contribution pension plan other than ordinary course claims for
benefits.
A-16
(4) No Benefit Plans are subject to Title IV or described in Section 3(37) of
ERISA, and none of the Company, the Bank or its Subsidiaries has at any time within
the past six (6) years sponsored or contributed to, or has or had within the past
six (6) years any liability or obligation in respect of, any plan subject to Title
IV or described in Section 3(37) of ERISA. Except as set forth in Section 2.2(s)(4)
of the Company Disclosure Schedule, neither the Company, the Bank, nor any
Subsidiary has incurred any current or projected liability in respect of
post-retirement health, medical or life insurance benefits for Company Employees,
except as required to avoid an excise tax under Section 4980B of the Code or
comparable State benefit continuation laws.
(5) Each Benefit Plan intended to be qualified within the meaning of section
401(a) of the Code is so qualified and the trusts maintained thereunder are exempt
from taxation under section 501(a) of the Code, and, to the knowledge of the
Company, no condition exists that could reasonably be expected to jeopardize any
such qualification or exemption.
(6) None of the Company, the Bank or any Subsidiary, any Benefit Plan, any
trust created thereunder, or any trustee or administrator thereof has engaged in a
transaction in connection with which the Company, the Bank or any Subsidiary, any
Benefit Plan, any such trust, or any trustee or administrator thereof, or any party
dealing with any Benefit Plan or any such trust could be subject to either a civil
penalty assessed pursuant to section 409 or 502(i) of ERISA or a tax imposed
pursuant to section 4975 or 4976 of the Code.
(7) There has been no material failure of a Benefit Plan that is a group health
plan (as defined in section 5000(b)(1) of the Code) to meet the requirements of
section 4980B(f) of the Code with respect to a qualified beneficiary (as defined in
section 4980B(g) of the Code).
(8) Except as set forth in Section 2.2(s)(8) of the Company Disclosure
Schedule, each Benefit Plan that is a non-qualified deferred compensation plan
within the meaning of Section 409A(d)(1) of the Code (a 409A Plan)
complies in all material respects with the requirements of Section 409A of the Code
and the guidance promulgated thereunder. From January 1, 2005 through December 31,
2008, each 409A Plan and any award thereunder was maintained in good faith
operational compliance with the requirements of (i) Section 409A of the Code and
(ii) (x) the proposed regulations issued thereunder, (y) the
final regulations issued thereunder or (z) Internal Revenue Service Notice
2005-1. From and after January 1, 2009, each 409A Plan and any award thereunder has
been maintained in operational compliance with the requirements of Section 409A of
the Code the final regulations issued thereunder. Except as set forth in Section
2.2(s)(8) of the Company Disclosure Schedule, as of and since December 31, 2008,
each 409A Plan and any award thereunder has been in documentary compliance with the
requirements of Section 409A of the Code and the final regulations issued
thereunder. Except as set forth in Section 2.2(s)(8) of the Company Disclosure
Schedule, no payment to be made under any 409A Plan is or will be subject to the
interest and additional tax payable pursuant to Section 409A(a)(1)(B) of the Code.
None of the Company, the Bank or any Subsidiary is party to, or otherwise obligated
under, any contract, agreement, plan or arrangement that provides for the gross-up
of taxes imposed by Section 409A(a)(1)(B) of the Code.
(9) (A) Except as set forth in Section 2.2(s)(9) of the Company Disclosure
Schedule or as required by applicable Law, neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including severance, unemployment compensation, excess
parachute payment (within the meaning of Section 280G of the Code), forgiveness of
indebtedness or otherwise) becoming due to any current or former employee, officer
or director of the Company, the Bank or any Subsidiary from the Company, the Bank or
any Subsidiary under any Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any Benefit Plan, (iii) result in any acceleration of the
time of payment or vesting of any such benefits, (iv) require the funding or
increase in the funding of any such benefits or (v) result in any limitation on the
right of the Company, the Bank or any Subsidiary to amend, merge, terminate or
receive a reversion of assets from any Benefit Plan or related trust and (B) except
as set forth in Section 2.2(s)(9) of the Company Disclosure Schedule
A-17
or as required
by applicable Law, none of the Company, the Bank or any Subsidiary has taken, or
permitted to be taken, any action that required, and no circumstances exist that
will require the funding, or increase in the funding, of any benefits, or will
result, in any limitation on the right of the Company, the Bank or any Subsidiary to
amend, merge, terminate any Benefit Plan or receive a reversion of assets from any
Benefit Plan or related trust. Except as set forth in Section 2.2(s)(9) of the
Company Disclosure Schedule, none of the Company, the Bank or any Subsidiary is
party to, or otherwise obligated under, any contract, agreement, plan or arrangement
that provides for the gross-up of excise taxes imposed by Section 4999 of the Code.
(10) The Company, the Bank and the Subsidiaries will be in compliance, as of
the Closing Date, with Sections 111 and 302 of the Emergency Economic Stabilization
Act of 2008, as amended by the U.S. American Recovery and Reinvestment Act of 2009,
including all guidance issued thereunder by a Governmental Entity (collectively
EESA). Except as set forth in Section 2.2(s)(10) of the Company
Disclosure Schedule, without limiting the generality of the foregoing, each employee
of the Company, the Bank, and the Subsidiaries who is subject to the limitations
imposed under EESA has executed a waiver of claims against the Company, the Bank and
the Subsidiaries with respect to limiting or reducing rights to compensation for so
long as the EESA limitations are required to be imposed.
(t) Risk Management Instruments. All material derivative instruments,
including, swaps, caps, floors and option agreements, whether entered into for the Companys
own account, or for the account of the Bank or one or more of the Subsidiaries, were entered
into (1) only in the ordinary and usual course of business and consistent with past
practice, (2) in accordance with commercially reasonable banking practices and in all
material respects with all applicable laws, rules, regulations and regulatory policies and
(3) with counterparties believed to be financially responsible at the time; and each of them
constitutes the valid and legally binding obligation of the Company, the Bank or one of the
Subsidiaries, enforceable in accordance with its terms. None of the Company, the Bank or
the Subsidiaries, or, to the knowledge of the Company, any other party thereto, is in breach
of any of its material obligations under any such agreement or arrangement.
(u) Agreements with Regulatory Agencies. Except as set forth in Section 2.2(u)
of the Company Disclosure Schedule, none of the Company, the Bank or any Subsidiary is
subject to any cease-and-desist or other similar order or enforcement action issued by, or is a party to any
written agreement, consent agreement or memorandum of understanding with, or is a party to
any commitment letter or similar undertaking to, or is subject to any capital directive by,
or has adopted any board resolutions at the request of, any Governmental Entity or SRO (each
item in this sentence, a Regulatory Agreement), nor has the Company, the Bank or
any Subsidiary been advised since December 31, 2008 by any Governmental Entity or SRO that
it is considering issuing, initiating, ordering, or requesting any such Regulatory
Agreement. Except as set forth in Section 2.2(u) of the Company Disclosure Schedule, the
Company, the Bank and each Subsidiary are in compliance in all material respects with each
Regulatory Agreement to which it is a party or subject, and none of the Company, the Bank or
any Subsidiary has received any notice from any Governmental Entity or SRO indicating that
either the Company, the Bank or any Subsidiary is not in compliance in all material respects
with any such Regulatory Agreement.
(v) Environmental Liability. The Company, the Bank and the Subsidiaries have,
and at the Closing Date will have, complied in all material respects with all laws,
regulations, ordinances and orders relating to public health, safety or the environment
(including without limitation all laws, regulations, ordinances and orders relating to
releases, discharges, emissions or disposals to air, water, land or groundwater, to the
withdrawal or use of groundwater, to the use, handling or disposal of polychlorinated
biphenyls, asbestos or urea formaldehyde, to the treatment, storage, disposal or management
of hazardous substances, pollutants or contaminants, or to exposure to toxic, hazardous or
other controlled, prohibited or regulated substances), the violation of which would or might
have a material impact on the Company, the Bank or any Subsidiary or the consummation of the
transactions contemplated by this Agreement. There is no legal, administrative, arbitral or
other proceeding, claim, action or notice of any nature seeking to impose, or that could
result in the imposition of, on the Company, the Bank or any Subsidiary, any liability or
obligation of the Company, the Bank or any Subsidiary with respect to any environmental
health or
A-18
safety matter or any private or governmental, environmental health or safety
investigation or remediation activity of any nature arising under common law or under any
local, state or federal environmental, health or safety statute, regulation or ordinance,
including the Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended (CERCLA), pending or, to the Companys knowledge, threatened against
the Company, the Bank or any Subsidiary or any property in which the Company, the Bank or
any Subsidiary has taken a security interest the result of which has had or would reasonably
be expected to have a Material Adverse Effect; to the Companys knowledge, there is no
reasonable basis for, or circumstances that could reasonably be expected to give rise to,
any such proceeding, claim, action, investigation or remediation; and to the Companys
knowledge, none of the Company, the Bank or any Subsidiary is subject to any agreement,
order, judgment, decree, letter or memorandum by or with any Governmental Entity or third
party that could impose any such environmental obligation or liability.
(w) Loan Portfolio.
(1) Except as set forth in Section 2.2(w)(1) of the Company Disclosure
Schedule, as of April 29, 2011, none of the Company, the Bank or any Subsidiary is a
party to (A) any written or oral loan, loan agreement, note or borrowing arrangement
(including leases, credit enhancements, commitments, guarantees and interest-bearing
assets) (collectively, Loans), other than any Loan the unpaid principal
balance of which does not exceed $50,000, under the terms of which the obligor was,
as of March 31, 2011, over 90 days delinquent in payment of principal or interest or
in default of any other provision, or (B) Loan in excess of $100,000 with any
director, executive officer or five percent or greater shareholder of the Company,
the Bank or any Subsidiary, or to the knowledge of the Company, any person,
corporation or enterprise controlling, controlled by or under common control with
any of the foregoing. Section 2.2(w) of the Company Disclosure Schedule sets forth
(x) all of the Loans in original principal amount in excess of $100,000 of the
Company, the Bank or any of the Subsidiaries that as of March 31, 2011 were
classified by the Company or the Bank or any regulatory examiner as Other Loans
Specially Mentioned, Special Mention, Substandard, Doubtful, Loss,
Classified, Criticized, Credit Risk Assets, Concerned Loans, Watch List or
words of similar import, together with the principal amount of and accrued and
unpaid
interest on each such Loan as of March 31, 2011 and the identity of the
borrower thereunder, (y) by category of Loan (i.e., commercial, consumer, etc.), all
of the other Loans of the Company, the Bank and the Subsidiaries that as of March
31, 2011 were classified as such, together with the aggregate principal amount of
and accrued and unpaid interest on such Loans by category as of March 31, 2011 and
(z) each asset of the Company or the Bank that as of March 31, 2011 was classified
as Other Real Estate Owned and the book value thereof.
(2) Each Loan of the Company, the Bank or any of the Subsidiaries (A) is
evidenced by notes, agreements or other evidences of indebtedness that are true,
genuine and what they purport to be, (B) to the extent secured, has been secured by
valid Liens which have been perfected and (C) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent conveyance and other laws of general
applicability relating to or affecting creditors rights and to general equity
principles.
(3) Each outstanding Loan (including Loans held for resale to investors) has
been solicited and originated and is administered and serviced (to the extent
administered and serviced by the Company, the Bank or any Subsidiary), and the
relevant Loan files are being maintained in all material respects in accordance with
the relevant loan documents, the Companys and the Banks underwriting standards
(and, in the case of Loans held for resale to investors, the underwriting standards,
if any, of the applicable investors) and in material compliance with all applicable
requirements of federal, state and local Laws, regulations and rules.
(4) Except as set forth in Section 2.2(w)(4) of the Company Disclosure
Schedule, none of the agreements pursuant to which the Company, the Bank or any of
the Subsidiaries has
A-19
sold Loans or pools of Loans or participations in Loans or
pools of Loans contains any obligation to repurchase such Loans or interests
therein.
(5) Each of the Company, the Bank and the Subsidiaries, as applicable, is
approved by and is in good standing: (A) as a supervised mortgagee by the Department
of Housing and Urban Development to originate and service Title I FHA mortgage
loans; (B) as a GNMA I and II Issuer by the Government National Mortgage
Association; (C) by the Department of Veterans Affairs (VA) to originate
and service VA loans; and (D) as a seller/servicer by the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation to originate and service
conventional residential mortgage Loans (each such entity being referred to herein
as an Agency).
(6) Except as set forth in Section 2.2(w)(6) of the Company Disclosure
Schedule, none of the Company, the Bank or any of the Subsidiaries is now nor has it
ever been since December 31, 2008 subject to any fine, suspension, settlement or
other agreement or other administrative agreement or sanction by, or any reduction
in any loan purchase commitment from, any Agency or any federal or state agency
relating to the origination, sale or servicing of mortgage or consumer Loans. None
of the Company, the Bank or any of the Subsidiaries has received any notice, nor
does it have any reason to believe as of the date of this Agreement, that any Agency
proposes to limit or terminate the underwriting authority of the Company, the Bank
or any of the Subsidiaries or to increase the guarantee fees payable to any such
Agency.
(7) Each of the Company, the Bank and the Subsidiaries is in compliance in all
material respects with all applicable federal, state and local Laws, rules and
regulations, including the Truth-In-Lending Act and Regulation Z, the Equal Credit
Opportunity Act and Regulation B, the Real Estate Settlement Procedures Act and
Regulation X, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act
and all Agency and other investor and mortgage insurance company requirements
relating to the origination, sale and servicing of mortgage and consumer Loans.
(8) To the knowledge of the Company, each Loan included in a pool of Loans
originated, acquired or serviced by the Company, the Bank or any of the Subsidiaries
(a Pool) meets all eligibility requirements (including all applicable
requirements for obtaining mortgage insurance certificates and loan guaranty
certificates) for inclusion in such Pool. All such Pools have been finally certified
or, if required, recertified in accordance with all applicable Laws, rules and
regulations, except where the time for certification or recertification has not yet
expired. To the knowledge of the Company, no Pools have been improperly certified,
and no Loan has been bought out of a Pool without all required approvals of the
applicable investors.
(9) The information with respect to each Loan set forth in the Loan Tape, and,
to the knowledge of the Company, any third party information set forth in the Loan
Tape is true, correct and accurate as of the dates specified therein, or, if no such
date is indicated therein, as of December 31, 2010. As used herein, Loan
Tape means a data storage disk produced by the Company from its management
information systems regarding the Loans.
(x) Insurance. The Company, the Bank and each of the Subsidiaries maintain,
and have maintained for the two years prior to the date of this Agreement, insurance
underwritten by insurers of recognized financial responsibility, of the types and in the
amounts that the Company, the Bank and the Subsidiaries reasonably believe are adequate for
their respective businesses and as constitute reasonably adequate coverage against all risks
customarily insured against by banking institutions and their subsidiaries of comparable
size and operations, including, but not limited to, insurance covering all real and personal
property owned or leased by the Company, the Bank and any Subsidiary against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against, with such
deductibles as are customary for companies in the same or similar business. True, correct
and complete copies of all policies and binders of insurance currently maintained in respect
of the assets, properties, business, operations, employees, officers or directors of the
Company, the Bank and the Subsidiaries, excluding such policies
A-20
pursuant to which the
Company, the Bank, any Subsidiary or an Affiliate of any them acts as the insurer and that
are identified with respective expiration dates on Section 2.2(x) of the Company Disclosure
Schedule (collectively, the Company Insurance Policies), and all correspondence
relating to any material claims under the Company Insurance Policies, have been previously
made available to Purchaser. All of the Company Insurance Policies are in full force and
effect, the premiums due and payable thereon have been timely paid, and there is no breach
or default (and no condition exists or event has occurred which, with the giving of notice
or lapse of time or both, would constitute such a breach or default) by the Company, the
Bank or any of the Subsidiaries under any of the Company Insurance Policies or, to the
knowledge of the Company, by any other party to the Company Insurance Policies, except for
any such breach or default that would not reasonably be expected to have, individually or in
the aggregate, a material impact on the Company, the Bank or any Subsidiary. None of the
Company, the Bank or any of the Subsidiaries has received any written notice of cancellation
or non-renewal of any Company Insurance Policy nor, to the knowledge of the Company, is the
termination of any such policies threatened, and, except as set forth in Section 2.2(x) of
the Company Disclosure Schedule, there is no claim for coverage by the Company, the Bank or
any of the Subsidiaries, pending under any of such Company Policies as to which coverage has
been questioned, denied or disputed by the underwriters of such Company Policies or in
respect of which such underwriters have reserved their rights.
(y) Intellectual Property. The Company, the Bank and the Subsidiaries own, or
are licensed or otherwise possess rights to use free and clear of all Liens all patents,
patent rights, licenses, inventions, copyrights, know-how (including trade secrets,
applications and other unpatented or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names (collectively,
Proprietary Rights) used in the conduct of the business of the Company, the Bank
and the Subsidiaries as now conducted, except where the failure to own such Proprietary
Rights would not have any material impact on the Company, the Bank or any Subsidiary. The
Company, the Bank and the Subsidiaries have the right to use all Proprietary Rights used in
or necessary for the conduct of their respective businesses without infringing the rights of
any person or violating the terms of any licensing or other agreement to which the Company,
the Bank or any Subsidiary
is a party, except for such infringements or violations that have not had a Material
Adverse Effect, and, to the Companys knowledge, no person is infringing upon any of the
Proprietary Rights, except where the infringement of or lack of a right to use such
Proprietary Rights would not have any material impact on the Company, the Bank or any
Subsidiary. Except as Previously Disclosed, no charges, claims or litigation have been
asserted or, to the Companys knowledge, threatened against the Company, the Bank or any
Subsidiary contesting the right of the Company, the Bank or any Subsidiary to use, or the
validity of, any of the Proprietary Rights or challenging or questioning the validity or
effectiveness of any license or agreement pertaining thereto or asserting the misuse
thereof, and, to the Companys knowledge, no valid basis exists for the assertion of any
such charge, claim or litigation. All licenses and other agreements to which the Company,
the Bank or any Subsidiary is a party relating to Proprietary Rights are in full force and
effect and constitute valid, binding and enforceable obligations of the Company, the Bank or
such Subsidiary, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar Laws of general applicability relating to or affecting creditors
rights and to general equity principles, as the case may be, and there have not been and
there currently are not any defaults (or any event that, with notice or lapse of time, or
both, would constitute a default) by the Company, the Bank or any Subsidiary under any
license or other agreement affecting Proprietary Rights used in or necessary for the conduct
of the business of the Company, the Bank or any Subsidiary, except for defaults, if any,
which would not have any material impact on the Company, the Bank or any Subsidiary. The
validity, continuation and effectiveness of all licenses and other agreements relating to
the Proprietary Rights and the current terms thereof will not be affected by the
transactions contemplated by this Agreement.
(z) Anti-takeover Provisions Not Applicable. The Company has taken all action
required to be taken by it in order to exempt this Agreement, the purchase of the Purchased
Shares, the merger of the Bank into a depository subsidiary of the Purchaser and the other
transactions to be consummated pursuant to the express terms of this Agreement from, and
this Agreement and the transactions contemplated hereby are exempt from, any anti-takeover
or similar provisions of the Charter, and its bylaws and the requirements of any
moratorium, control share, fair price, affiliate transaction, business
A-21
combination
or other antitakeover Laws and regulations of any state, including the Tennessee Business
Corporation Act.
(aa) Knowledge as to Conditions. As of the date of this Agreement, each of the
Company and the Bank knows of no reason why any regulatory approvals and, to the extent
necessary, any other approvals, authorizations, filings, registrations and notices required
for the consummation of the transactions contemplated by this Agreement will not be obtained
or that any Required Approval will not be granted without the imposition of a Burdensome
Condition, provided, however, that neither the Company nor the Bank makes
any representation or warranty with respect to the management, capital or ownership
structure of Purchaser or any of its Affiliates.
(bb) Brokers and Finders. Except as set forth in Section 2.2(bb) of the
Company Disclosure Schedule, none of the Company, the Bank or any Subsidiary or any of their
respective officers, directors, employees or agents has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees, commissions or
finders fees, and no broker or finder has acted directly or indirectly for the Company, the
Bank or any Subsidiary, in connection with this Agreement or the transactions contemplated
hereby.
(cc) Related Party Transactions.
(1) Except as set forth in Section 2.2(cc) of the Company Disclosure Schedule
or as part of the normal and customary terms of an individuals employment or
service as a director, none of the Company, the Bank or any of the Subsidiaries is
party to any extension of credit (as debtor, creditor, guarantor or otherwise),
contract for goods or services, lease or other agreement with any (A) affiliate, (B)
insider or related interest of an insider, (C) shareholder owning 5% or more of the
outstanding Common Stock or related interest of such a shareholder, or (D) to the
knowledge of the Company, and other than credit and consumer banking transactions in
the ordinary course of business, employee who is not an executive officer. For
purposes of the preceding sentence, the term affiliate shall have the meaning
assigned in Regulation W issued
by the Federal Reserve, as amended, and the terms insider, related
interest, and executive officer shall have the meanings assigned in the Federal
Reserves Regulation O, as amended.
(2) Except as set forth in Section 2.2(cc) of the Company Disclosure Schedule,
the Bank is in compliance with, and has since December 31, 2008, complied with,
Sections 23A and 23B of the Federal Reserve Act, its implementing regulations, and
the Federal Reserves Regulation O.
(dd) Foreign Corrupt Practices. None of the Company, the Bank or any
Subsidiary, or, to the knowledge of the Company, any director, officer, agent, employee or
other person acting on behalf of the Company, the Bank or any Subsidiary has, in the course
of its actions for, or on behalf of, the Company, the Bank or any Subsidiary (A) used any
corporate funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (B) made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate funds; (C) violated
or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or (D) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or employee.
(ee) Customer Relationships.
(1) Each trust or wealth management customer of the Company, the Bank or any
Subsidiary has been in all material respects originated and serviced (A) in
conformity with the applicable policies of the Company, the Bank and the
Subsidiaries, (B) in accordance with the terms of any applicable instrument or
agreement governing the relationship with such customer, (C) in accordance with any
instructions received from such customers, (D) consistent with each customers risk
profile and (E) in compliance with all applicable laws and the Companys, the Banks
and the Subsidiaries constituent documents, including any policies and procedures
A-22
adopted thereunder. Each instrument or agreement governing a relationship with a
trust or wealth management customer of the Company, the Bank or any Subsidiary has
been duly and validly executed and delivered by the Company, the Bank and each
Subsidiary and, to the knowledge of the Company, the other contracting parties, each
such instrument of agreement constitutes a valid and binding obligation of the
parties thereto, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium and other similar Laws affecting creditors rights generally
and by general principles of equity, and the Company, the Bank and the Subsidiaries
and the other parties thereto have duly performed in all material respects their
obligations thereunder and the Company, the Bank and the Subsidiaries and such other
person is in compliance with each of the terms thereof.
(2) No instrument or agreement governing a relationship with a trust or wealth
management customer of the Company, the Bank or any Subsidiary provides for any
material reduction of fees charged (or in other compensation payable to the Company,
the Bank or any Subsidiary thereunder) at any time subsequent to the date of this
Agreement.
(3) None of the Company, the Bank or any Subsidiary or any of their respective
directors or senior officers (A) is the beneficial owner of any interest in any of
the accounts maintained on behalf of any trust or wealth management customer of the
Company, the Bank or any Subsidiary or (B) is a party to any contract pursuant to
which it is obligated to provide service to, or receive compensation or benefits
from, any of the trust or wealth management customers of the Company, the Bank or
any Subsidiary after the Closing Date.
(4) Each account opening document, margin account agreement, investment
advisory agreement and customer disclosure statement with respect to any trust or
wealth management customer of the Company, the Bank or any Subsidiary conforms in
all material respects to the forms provided to Purchaser prior to the Closing Date.
(5) Except as would not have any material impact on the Company, the Bank or
any Subsidiary, all other books and records primarily related to the trust and
wealth management businesses of the Company, the Bank and each Subsidiary include
documented risk profiles signed by each such customer.
(ff) Investment Company; Investment Adviser. Neither the Company, the Bank nor
any Subsidiary is required to be registered as, and is not an affiliate of, and immediately
following the Closing will not be required to register as, an investment company within
the meaning of the Investment Company Act of 1940, as amended. Neither the Company, the
Bank nor any Subsidiary is required to be registered, licensed or qualified as an investment
adviser under the Investment Advisers Act of 1940, as amended, or in another capacity
thereunder with the SEC or any other Governmental Entity.
2.3 Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to the Company and the Bank, as of the date of this
Agreement and as of the Closing Date (except to the extent made only as of a specified date, in
which case as of such date), that, except as Previously Disclosed:
(a) Organization and Authority. Purchaser is duly organized, validly existing
and in good standing under the Laws of the jurisdiction of its organization, is duly
qualified to do business and is in good standing in all jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to be so qualified, and
Purchaser has the power and authority and governmental authorizations to own its properties
and assets and to carry on its business in all material respects as it is now being
conducted.
(b) Authorization. (1) Purchaser has the power and authority to enter into
this Agreement and the other agreements referenced herein to which it will be a party and to
carry out its obligations hereunder and thereunder. The execution, delivery and performance
of this Agreement and the other agreements referenced herein to which it will be a party by
Purchaser and the consummation of the transactions contemplated hereby and thereby have been
duly authorized by Purchasers board of directors,
A-23
and no further approval or authorization
by any of its shareholders or other equity owners, as the case may be, is required. This
Agreement has been, and the other agreements referenced herein to which it will be a party,
when executed, will be, duly and validly executed and delivered by Purchaser and assuming
due authorization, execution and delivery by both the Company and the Bank, is and will be a
valid and binding obligation of Purchaser enforceable against Purchaser in accordance with
its terms (except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general applicability
relating to or affecting creditors rights or by general equity principles).
(2) Neither the execution, delivery and performance by Purchaser of this
Agreement, nor the consummation of the transactions contemplated hereby, nor
compliance by Purchaser with any of the provisions hereof, will (A) violate,
conflict with, or result in a breach of any provision of, or constitute a default
(or an event that, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required by,
or result in a right of termination or acceleration of, or result in the creation of
any Lien upon any of the properties or assets of Purchaser under any of the terms,
conditions or provisions of (i) its certificate of incorporation or similar
governing documents or (ii) any material note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
Purchaser is a party or by which it may be bound, or to which Purchaser or any of
the properties or assets of Purchaser may be subject, or (B) subject to compliance
with the statutes and regulations referred to in Section 2.3(b)(3), violate any Law,
statute, ordinance, rule or regulation, permit, concession, grant, franchise or any
judgment, ruling, order, writ, injunction or decree applicable to Purchaser or any
of its properties or assets except in the case of clauses (A)(ii) and (B) for such
violations, conflicts and breaches as would not reasonably be expected to
materially and adversely affect Purchasers ability to perform its obligations
under this Agreement or consummate the transactions contemplated hereby.
(3) Assuming the Companys and the Banks representations contained in Section
2.2(f) are true and correct and other than the securities or blue sky Laws of the
various states or as set forth in Section 2.3(b)(3) of the Purchaser Disclosure
Schedule, no material notice to, registration, declaration or filing with, exemption
or review by, or authorization, order, consent or approval of, any Governmental
Entity, or expiration or termination of any statutory waiting period, is necessary
for the consummation by Purchaser of the transactions contemplated by this
Agreement.
(c) Restricted Securities; Limitation on Resale. Purchaser acknowledges that
the Purchased Shares have not been registered under the Securities Act or under any state
securities Laws and Purchaser understands that the Purchased Shares are restricted
securities under applicable federal and state securities Laws and that, pursuant to these
Laws, the Purchaser must hold the Purchased Shares indefinitely unless they are registered
with the SEC and qualified by state authorities, or an exemption from such registration and
qualification requirements is available.
(d) Purchase for Investment. Purchaser (1) is acquiring the Purchased Shares
pursuant to an exemption from registration under the Securities Act solely for investment
with no present intention to resell or distribute any of the Purchased Shares to any person,
(2) will not sell or otherwise dispose of any of the Purchased Shares, except in compliance
with the registration requirements or exemption provisions of the Securities Act and any
other applicable securities Laws, (3) has such knowledge, sophistication and experience in
financial and business matters and in investments of this type that it is capable of
evaluating the merits and risks of its investment in the Purchased Shares, of making an
informed investment decision and of bearing the economic risk of such investment for an
indefinite period of time, and (4) is an accredited investor (as that term is defined by
Rule 501 of the Securities Act ). Purchaser has not been formed for the specific purpose of
acquiring the Purchased Shares. Purchaser has had an opportunity to discuss the business,
management, financial affairs of the Company and of the Bank and the terms and conditions of
the offering of the Purchased Shares with management of the Company and of the Bank and has
had an opportunity to review the facilities of the Company and the Bank. The foregoing,
however, does
A-24
not limit or modify the representations and warranties of the Company or of
the Bank in Section 2.2 of this Agreement or the right of Purchaser to rely thereon.
(e) Financial Capability. Purchaser currently has, and at the Closing will
have, available funds necessary to pay the funds described in Section 1.2(b)(2) and to
consummate the Closing on the terms and conditions contemplated by this Agreement.
(f) No General Solicitation. Neither Purchaser, nor any of its officers,
directors, employees, agents, stockholders or partners has either directly or indirectly,
including through a broker or finder (i) engaged in any general solicitation, or (ii)
published any advertisement in connection with the offer and sale of the Purchased Shares.
(g) Brokers and Finders. Neither Purchaser nor its Affiliates, any of their
respective officers, directors, employees or agents has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees, commissions or
finders fees, and no broker or finder has acted directly or indirectly for Purchaser, in
connection with this Agreement or the transactions contemplated hereby, in each case, whose
fees the Company, the Bank or any Subsidiary would be required to pay (other than pursuant
to the reimbursement of expenses provisions of Section 6.2).
(h) Litigation and Other Proceedings. Neither Purchaser nor any Affiliate of
Purchaser is a party to any, and there are no pending or, to Purchasers knowledge,
threatened, legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature (i) against Purchaser or any
Affiliate of Purchaser (excluding those of the type contemplated by the following clause
(ii)) that, if adversely determined, would reasonably be expected to have a material adverse
effect on Purchaser or (ii) challenging the validity or propriety of the transactions
contemplated by this Agreement.
There is no material injunction, order, judgment, decree or regulatory restriction
(other than regulatory restrictions of general application that apply to similarly situated
companies) imposed upon Purchaser or any of its Affiliates or their respective assets.
There is no material unresolved violation, criticism or exception by any Governmental Entity
with respect to any report or relating to any examinations or inspections of Purchaser or
any of its Affiliates.
(i) Compliance with Laws. Each of Purchaser and its Affiliates is and has been
in compliance in all material respects with and is not in default or violation in any
material respect of, and none of them is, to the knowledge of Purchaser, under investigation
with respect to or, to the knowledge of Purchaser, has been threatened to be charged with or
given notice of any material violation of, any applicable material domestic (federal, state
or local) or foreign Law, statute, ordinance, license, rule, regulation, policy or
guideline, order, demand, writ, injunction, decree or judgment of any Governmental Entity,
except for such noncompliance that has not had nor reasonably would be expected to have a
material adverse effect on Purchaser.
(j) Agreements with Regulatory Agencies. None of Purchaser or any of its
Affiliates is subject to any Regulatory Agreement, nor has Purchaser or any of its
Affiliates been advised since December 31, 2009 by any Governmental Entity or SRO that it is
considering issuing, initiating, ordering, or requesting any such Regulatory Agreement.
Purchaser and its Affiliates are in compliance in all material respects with each Regulatory
Agreement to which it is a party or subject, and none of Purchaser and its Affiliates has
received any notice from any Governmental Entity or SRO indicating that either Purchaser or
its Affiliates is not in compliance in all material respects with any such Regulatory
Agreement.
(k) Information in the Proxy Statement. The information supplied in writing by
Purchaser expressly for inclusion in the Proxy Statement will not contain at the time it is
first mailed to the shareholders of the Company or at the time of the Shareholder Meeting,
any untrue statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the light of
the circumstances under which they were made, not misleading.
(l) Knowledge as to Conditions. As of the date of this Agreement, Purchaser
knows of no reason why any regulatory approvals and, to the extent necessary, any other
approvals, authorizations,
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filings, registrations, and notices required for the consummation
of the transactions contemplated by this Agreement will not be obtained.
ARTICLE III
COVENANTS
3.1 Filings; Other Actions.
(a) Subject to the conditions set forth in this Agreement and the last sentence of this
Section 3.1(a), Purchaser, on the one hand, and the Company and the Bank, on the other hand,
will cooperate and consult with the other and use reasonable best efforts to prepare and
file all necessary documentation, to effect all necessary applications, notices, petitions,
filings and other documents, and to obtain all necessary permits, consents, orders,
approvals and authorizations of, or any exemption by, all third parties and Governmental
Entities, including, without limitation, the Required Approvals, and the expiration or
termination of any applicable waiting period, necessary or advisable to consummate the
transactions contemplated by this Agreement, at the earliest practicable date, and to
perform the covenants contemplated by this Agreement. Each party shall execute and deliver
both before and after the Closing such further certificates, agreements and other documents
and take such other actions as the other party may reasonably request to consummate or
implement such transactions or to evidence such events or matters. In furtherance (but not
in limitation) of the foregoing, Purchaser shall use reasonable best efforts to file any
required applications, notices or other filings with the Federal Reserve Board and the
Tennessee
DFI within twenty (20) calendar days of the date hereof. Purchaser, the Company and
the Bank will have the right to review in advance, and to the extent practicable, each will
consult with the others with respect to, in each case subject to applicable Laws relating to
the exchange of information, all the information relating to such other party, and any of
their respective Affiliates, which appears in any filing made with, or written materials
submitted to, any third party or any Governmental Entity in connection with the transactions
to which it will be party contemplated by this Agreement. In exercising the foregoing
right, each of the parties hereto agrees to act reasonably and as promptly as practicable.
Each party hereto agrees to keep the other party apprised of the status of matters referred
to in this Section 3.1(a). Purchaser shall promptly furnish the Company and the Bank, and
the Company and the Bank shall promptly furnish Purchaser, to the extent permitted by
applicable Law, with copies of written communications received by it or their subsidiaries
from, or delivered by any of the foregoing to, any Governmental Entity in respect of the
transactions contemplated by this Agreement. Notwithstanding anything in this Agreement to
the contrary, Purchaser shall not be required to furnish the Company with any (1) personal
biographical or financial information of any of the directors, officers, employees, managers
or partners of Purchaser or any of its present of former Affiliates (other than the personal
biographical information of any of the directors, officers, employees, managers, investors
or partners of Purchaser or any of its present of former Affiliates required to be disclosed
by the Company by reason of the fact that such person will be appointed or elected to the
Companys Board of Directors) or (2) proprietary and non-public information related to the
organizational terms of, or investors in, Purchaser or any of its present or former
Affiliates. Notwithstanding anything to the contrary herein, nothing contained in this
Agreement shall require Purchaser or any of its present or former Affiliates to take or
refrain from taking or agree to take or refrain from taking any action or suffer to exist
any condition, limitation, restriction or requirement that individually or in the aggregate
with any other actions, conditions, limitations, restrictions or requirements would or would
be reasonably likely to result in a Burdensome Condition.
(b) The Company shall call and hold a special meeting of its shareholders (the
Shareholder Meeting), as promptly as practicable following the date hereof to vote
on a proposal (the Shareholder Proposal) to (1) amend the Charter to (i) increase
the number of authorized shares of Common Stock to at least 300,000,000 shares, (ii) reduce
the par value per share of Common Stock to an amount equal to or less than $0.01 and (iii)
expressly exempt Purchaser, its Affiliates and associates and their respective successors
and assigns from the provisions Section 9 of the Charter (the form of such amendment being
acceptable to the Purchaser in its sole discretion), (2) approve the issuance and sale of
the Purchased Shares and any shares purchased pursuant to Section 4.7, (3) approve the
merger of the Bank with and into a subsidiary of
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Purchaser on terms consistent with
Exhibit D and (4) remove Section 8(j) from the Charter. The Board of Directors of
the Company shall recommend to the Companys shareholders that such shareholders vote in
favor of the Shareholder Proposal (subject to any legally required abstentions and subject
to Section 3.4(b)) (such recommendation, the Company Recommendation) and Purchaser
shall, to the extent permitted by applicable Law, vote all shares owned by it in favor of
the Shareholder Proposal. In connection with such meeting, the Company shall promptly
prepare (and Purchaser will reasonably cooperate with the Company to prepare) and file with
the SEC a preliminary proxy statement, shall use its reasonable best efforts to respond to
any comments of the SEC or its staff and to cause a definitive proxy statement related to
such shareholders meeting to be mailed to the Companys shareholders not more than five
business days after clearance thereof by the SEC, and shall use its reasonable best efforts
to solicit proxies for such shareholder approval. The Company shall notify Purchaser
promptly of the receipt of any comments from the SEC or its staff with respect to the proxy
statement and of any request by the SEC or its staff for amendments or supplements to such
proxy statement or for additional information and will supply Purchaser with copies of all
correspondence between the Company or any of its representatives, on the one hand, and the
SEC or its staff, on the other hand, with respect to such proxy statement. If at any time
prior to the Shareholder Meeting there shall occur any event that should, upon the advice of
the Companys outside legal counsel, be set forth in an amendment or supplement to the Proxy
Statement so that the Proxy Statement shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they are made, not
misleading, the Company shall as promptly as practicable prepare and mail to its
shareholders such an amendment or supplement. Each of Purchaser and the Company agrees
promptly to correct any information provided by it or on its behalf for use in the proxy
statement if and to the extent that such information shall have become false or
misleading in any material respect, and the Company shall, as promptly as practicable,
prepare and mail to its shareholders an amendment or supplement to correct such information
to the extent required by applicable Laws and regulations. The Company shall consult with
Purchaser prior to filing any proxy statement, or any amendment or supplement thereto, and
provide Purchaser with a reasonable opportunity to comment thereon. For the avoidance of
doubt, the obligations of the Company to call and hold the Shareholder Meeting and to file,
finalize and mail the proxy statement related thereto shall not be affected by the receipt
of any Acquisition Proposal or by any Adverse Recommendation Change.
3.2 Access, Information and Confidentiality.
(a) From the date hereof until the Closing Date, the Company and the Bank will permit
Purchaser and Purchasers officers, directors, employees, accountants, counsel, financial
advisors, agents and other representatives to visit and inspect, at Purchasers expense
(subject to Section 6.2), the properties of the Company, the Bank and the Subsidiaries, to
examine the corporate books and records and to discuss the affairs, finances and accounts of
the Company, the Bank and the Subsidiaries with the officers, directors, employees,
accountants, counsel, financial advisors, agents and other representatives of the Company
(the Company Representatives), all upon reasonable advance notice and at such
reasonable times and as often as Purchaser may reasonably request. Any investigation
pursuant to this Section 3.2 shall be conducted during normal business hours and in such
manner as not to interfere unreasonably with the conduct of the business of the Company, the
Bank or any Subsidiary, and nothing herein shall require any Company Representative to
disclose any information to the extent (1) prohibited by applicable Law or regulation, or
(2) that such disclosure would reasonably be expected to cause a violation of any agreement
to which the Company, the Bank or such Company Representative is a party as of the date of
this Agreement or would cause a material risk of a loss of privilege to the Company, the
Bank or any Subsidiary (provided that the Company and the Bank shall use
commercially reasonable efforts to make appropriate substitute disclosure arrangements that
would not cause such a violation under circumstances where such restrictions apply).
(b) All information furnished by the Company, the Bank or any Subsidiary to Purchaser
or any of its representatives pursuant hereto shall be subject to, and Purchaser shall hold
all such information in confidence in accordance with, the provisions of the confidentiality
agreement between North American Financial Holdings, Inc. and the Company dated September
28, 2010 (the Confidentiality Agreement).
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3.3 Conduct of the Business. Each of the Company and the Bank agree that, prior to the earlier of the Closing Date and the
termination of this Agreement pursuant to Section 5.1, except as Previously Disclosed in Section
3.3 of the Company Disclosure Schedule or as otherwise expressly permitted or required by this
Agreement, without the prior written consent of Purchaser (not to be unreasonably withheld,
conditioned or delayed), it will not, and will cause each of the Subsidiaries not to:
(1) Ordinary Course. Fail to carry on its business in the ordinary and
usual course of business and in all material respects consistent with past practice
or fail to use reasonable best efforts to maintain and preserve its business
(including its organization, assets, properties, goodwill and insurance coverage)
and to preserve its current business relationships with customers, strategic
partners, suppliers, distributors and others with whom it has significant business
dealings.
(2) Operations. Enter into any new line of business or materially
change its lending, investment, underwriting, risk and asset liability management,
and other banking and operating policies in effect as of December 31, 2010, except
as required by applicable Law or policies imposed by any Governmental Entity.
(3) Deposits. Alter materially its interest rate or fee pricing
policies with respect to depository accounts of the Bank or waive any material fees
with respect thereto, in each case except as required by applicable Law or policies
imposed by any Governmental Entity.
(4) Capital Expenditures. Make any capital expenditures on information
technology or systems or in excess of $100,000 individually or $1,000,000 in the
aggregate in any fiscal quarter, other than as required pursuant to Previously
Disclosed commitments already entered into.
(5) Material Contracts. Except as permitted by Section 4.5(a),
terminate, enter into, amend, modify (including by way of interpretation) or renew
any contract that would be a Company Significant Agreement if entered into prior to
the date hereof, other than in the ordinary course of business and consistent with
past practice.
(6) Capital Stock. Issue, sell or otherwise permit to become
outstanding, or dispose of or encumber or pledge, or authorize or propose the
creation of, any additional shares of its stock or any additional options or other
rights, grants or awards with respect to the Common Stock, and any shares of Common
Stock issued pursuant to the exercise of stock options, warrants or vesting of
restricted stock, in each case only to the extent outstanding as of the date of this
Agreement and set forth in Section 2.2(b) of the Company Disclosure Schedule.
(7) Dividends, Distributions, Repurchases. Make, declare, pay or set
aside for payment any dividend on or in respect of, or declare or make any
distribution on any shares of its capital stock (other than dividends from its
wholly owned Subsidiaries to it or another of its wholly owned Subsidiaries) or
directly or indirectly adjust, split, combine, redeem, reclassify, purchase or
otherwise acquire, any shares of its stock or any options or other rights, grants or
awards with respect to the Common Stock or other securities other than (i) the
repurchase or cancellation of restricted stock or other shares of Common Stock in
accordance with the terms of the applicable award agreements or similar arrangements
to satisfy withholding obligations upon the vesting of restricted stock, stock
appreciation rights or the exercise of options or (ii) the acceptance of shares of
Common Stock as payment of the exercise price of options or for withholding taxes
incurred in connection with the exercise of options provided that nothing
herein shall prohibit the making, declaration, payment, or setting aside for payment
of dividends or distributions with respect to the Series A Preferred or the Trust
Preferred Securities in accordance with the terms thereof.
(8) Dispositions. Sell, transfer, mortgage, encumber or otherwise
dispose of or discontinue any of its material assets, deposits, business or
properties, except for sales, transfers,
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mortgages, encumbrances or other
dispositions or discontinuances (including without limitation dispositions of
problem assets or mortgage loans held for sale which are sold at or above the value
reflected for such assets or loans on the Companys books as of the date hereof) in
the ordinary and usual course of business consistent with past practice and in a
transaction that individually or taken together with all other such transactions is
not material to it and the Subsidiaries, taken as a whole.
(9) Incurrence of Indebtedness. Incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse, or otherwise
become responsible for the obligations of, any other person, except in the ordinary
and usual course of business and consistent with past practice.
(10) Extensions of Credit and Interest Rate Instruments. Make, renew
or amend (except in the ordinary and usual course of business and consistent with
past practice where there has been no material change in the relationship with the
borrower or in an attempt to mitigate loss with respect to the borrower) any
extension of credit in excess of $2,500,000 for any new extension of credit and
$7,500,000 for any renewal of an existing extension of credit in accordance with the
Banks policies (except for commitments in writing made prior to the date of this
Agreement and disclosed to Purchaser prior to the execution of this Agreement)
or enter into, renew or amend any interest rate swaps, caps, floors or option
agreements or other interest rate risk management arrangements, whether entered into
for the account of it or for the account of a customer of it or one of the
Subsidiaries, except in the ordinary and usual course of business and consistent
with past practice.
(11) Acquisitions. Acquire (other than by way of foreclosures, deeds
in lieu of foreclosure, acquisitions of control in a fiduciary or similar capacity,
acquisitions of loans or participation interests, or in satisfaction of debts
previously contracted in good faith, in each case in the ordinary and usual course
of business and consistent with past practice) all or any portion of the assets,
business, deposits or properties of any other person.
(12) Banking Offices. File any application to establish, or to
relocate or terminate the operations of, any banking office.
(13) Constituent Documents. Except for such amendments as have been
proposed in the Companys proxy statement on Form DEF14A filed with the SEC on April
8, 2011, amend its certificate of incorporation or bylaws or similar organizational
documents.
(14) Accounting Practices. Implement or adopt any change in its
accounting principles, practices or methodologies, other than as may be required by
GAAP (or any interpretation thereof), or applicable accounting requirements of a
Governmental Entity or by Law.
(15) Tax Matters. Make, change or revoke any Tax accounting method or
Tax election, prepare any Tax Returns inconsistent in any material respect with past
practice, file any amended Tax Return, consent to any extension or waiver of any
statute of limitations with respect to Tax, enter into any closing agreement, settle
any material Tax claim or assessment, or surrender any right to claim a refund of
Taxes.
(16) Claims. Settle any action, suit, claim or proceeding against it,
except for an action, suit, claim or proceeding that is settled in the ordinary and
usual course of business and consistent with past practice in an amount or for
consideration not in excess of $150,000 individually or $1,500,000 in the aggregate
and that would not impose any material restriction on the business of the Company,
the Bank or the Subsidiaries or, after the Closing, Purchaser or any of its
Affiliates.
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(17) Compensation. Terminate, enter into, amend, modify (including by
way of interpretation) or renew any employment, officer, consulting, severance,
change in control or similar contract, agreement or arrangement with any director,
officer, employee or consultant, or grant any salary or wage increase or increase
any employee benefit, including incentive or bonus payments (or, with respect to any
of the preceding, communicate any intention to take such action) or pay to any such
individual any amount or benefit not due, except to make changes that are required
by applicable Law or by the terms of a Benefit Plan existing as of the date hereof
and disclosed on Section 2.2(s)(1)(A) of the Company Disclosure Schedule.
(18) Benefit Arrangements. Terminate, enter into, establish, adopt,
amend, modify (including by way of interpretation), make new grants or awards under
or renew any Benefit Plan (or any arrangement that would following the applicable
action be a Benefit Plan), amend the terms of any outstanding equity-based award,
take any action to accelerate the vesting, exercisability or payment (or fund or
secure the payment) of stock options, restricted stock or other compensation or
benefits payable thereunder or add any new participants to any non-qualified
retirement plans (or, with respect to any of the preceding, communicate any
intention to take such action), except as required by applicable Law or by the terms
of a Benefit Plan existing as of the date hereof and disclosed on Section
2.2(s)(1)(A) of the Company Disclosure Schedule.
(19) Labor Matters. Effectuate (1) a plant closing (as defined in the
Worker Adjustment and Retraining Notification Act of 1988, and any other similar
applicable foreign, state, or local Laws relating to plant closings and
layoffs)affecting any site of employment or one or more facilities or operating
units within any site of employment of the Company, the Bank or any of the
Subsidiaries; (2) a mass layoff as defined in such Laws affecting any site of
employment of the Company, the Bank or any of the Subsidiaries; or (3) any similar
action under such Laws requiring notice to employees in the event of an employment
loss or layoff.
(20) Intellectual Property. (1) Grant, extend, amend (except as
required in the diligent prosecution of the Proprietary Rights owned (beneficially,
and of record where applicable) by or developed for the Company, the Bank and the
Subsidiaries), waive, or modify any material rights in or to, sell, assign, lease,
transfer, license, let lapse, abandon, cancel, or otherwise dispose of, or extend or
exercise any option to sell, assign, lease, transfer, license, or otherwise dispose
of, any Proprietary Rights, or (2) fail to exercise a right of renewal or extension
under any material agreement under which the Company, the Bank or any of the
Subsidiaries is licensed or otherwise permitted by a third party to use any
Proprietary Rights (other than shrink wrap or click through licenses).
(21) Communication. Make any written or oral communications to the
officers or employees of the Company, the Bank or any of the Subsidiaries pertaining
to compensation or benefit matters that are affected by the transactions
contemplated by this Agreement without providing Purchaser with a copy or written
description of the intended communication and a reasonable period of time to review
and comment on such communication; provided, however, that the
foregoing shall not prevent senior management or human resources personnel of the
Company, the Bank or any Subsidiary from orally answering questions of individual
employees pertaining to compensation or benefit matters with respect to such
individual employee that are affected by the transactions contemplated by this
Agreement on an individual basis with such employee.
(22) Related Party Transactions. Engage in (or modify in a manner
adverse to the Company, the Bank or the Subsidiaries) any transactions (except for
any ordinary course banking relationships permitted under applicable Law) with any
Affiliate of the Company or any director or officer (senior vice president or above)
of the Company, the Bank or the Subsidiaries (or any Affiliate of any such person).
(23) Receivership or Liquidation. Commence a voluntary procedure for
reorganization, arrangement, adjustment, relief or composition of indebtedness or
bankruptcy,
A-30
receivership or a similar proceeding, or consent to the entry of an
order for relief in an involuntary procedure for reorganization, arrangement,
adjustment, relief or composition of indebtedness or bankruptcy, receivership or a
similar proceeding or consent to the appointment of a receiver, liquidator,
custodian or trustee, in each case, with respect to the Company, the Bank or any of
the Subsidiaries, or any other liquidation or dissolution of the Company, the Bank
or any of the Subsidiaries.
(24) Credit Policy; Underwriting. Make or permit any material
exceptions or changes to the Companys or the Banks credit, underwriting, lending,
investment, risk and asset-liability management and other material banking or
operating policies in effect as of the date hereof except as to update these
policies to conform to recent regulatory or accounting guidance or to update these
policies to address recently identified internal audit or regulatory examination
deficiencies, in each case to reduce the Banks risk exposure.
(25) Adverse Actions. Notwithstanding any other provision hereof,
knowingly take any action that is reasonably likely to materially impair its ability
to perform its obligations under this Agreement or to consummate the transactions
contemplated hereby, except as required by applicable Law or this Agreement.
(26) Commitments. Enter into any contract with respect to, or
otherwise agree or commit to do, any of the foregoing.
3.4 Acquisition Proposals.
(a) No Solicitation or Negotiation. The Company and the Bank agree that none
of the Company, the Bank or any of the Subsidiaries or any of the officers or directors of
the Company, the Bank or any of the Subsidiaries shall, and that they shall instruct and use
their reasonable best efforts to cause their and the Subsidiaries employees, investment
bankers, attorneys, accountants and other advisors or representatives (such directors,
officers, employees, investment bankers, attorneys, accountants and other advisors or
representatives, collectively, Representatives) not to (it being understood and
agreed that any violation of the restrictions set forth in this Section 3.4 by a
Representative, whether or not such Representative is so authorized and whether or not such
Representative is purporting to act on behalf of the Company, the Bank or any Subsidiary or
otherwise, shall be deemed to be a breach of this Agreement by the Company and the Bank),
directly or indirectly:
(1) initiate, solicit or knowingly facilitate or encourage any inquiries or the
making of any proposal or offer that constitutes, or could reasonably be expected to
lead to, any Acquisition Proposal;
(2) make or authorize any statement, recommendation or solicitation in support
of any Acquisition Proposal;
(3) engage in, continue or otherwise participate in any discussions or
negotiations or enter into an agreement regarding, or provide any non-public
information or data to any person relating to, any Acquisition Proposal; or
(4) otherwise knowingly facilitate any effort or attempt to make an Acquisition
Proposal.
Notwithstanding the foregoing, at any time prior to obtaining the approval of the
Shareholder Proposal (other than the proposal set forth in clause (1)(iii) of the definition
of Shareholder Proposal), in response to a bona fide written Acquisition Proposal that the
Board of Directors of the Company determines in good faith (after consultation with outside
counsel and a financial advisor of nationally recognized reputation) constitutes or is
reasonably likely to lead to a Superior Proposal, and which Acquisition Proposal was not
solicited after the date of this Agreement and was made after the date of this Agreement and
prior to the
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Shareholder Meeting and did not otherwise result from a breach of this Section
3.4(a), the Company and the Bank may, subject to compliance with Section 3.4(f), (x) furnish
information with respect to the Company and the Bank to the person making such Acquisition
Proposal (provided that all such information has previously been provided to the Purchaser
or is provided to the Purchaser prior to or substantially concurrent with the time it is
provided to such person) pursuant to a customary confidentiality agreement not less
restrictive of such person than the Confidentiality Agreement (other than with respect to
standstill provisions), and (y) participate in discussions regarding the terms of such
Acquisition Proposal and the negotiation of such terms with, and only with, the person
making such Acquisition Proposal.
(b) Change in Recommendation. Except as set forth below, neither the Board of
Directors of the Company nor any committee thereof shall (i) (A) withdraw (or modify in any
manner adverse to the Purchaser), or propose publicly to withdraw (or modify in any manner
adverse to the Purchaser), the Company Recommendation or any other approval, recommendation
or declaration of advisability by the Board of Directors of the Company or any such
committee thereof with respect to this Agreement or (B) approve, recommend or declare
advisable, or propose publicly to approve, recommend or declare advisable, any Acquisition
Proposal (any action in this clause (i) being referred to as a Adverse Recommendation
Change) or (ii) approve, recommend or declare advisable, or propose publicly to
approve, recommend or
declare advisable, or allow the Company, the Bank, or any of their Affiliates to
execute or enter into, any letter of intent, memorandum of understanding, agreement in
principle, merger agreement, acquisition agreement, option agreement, joint venture
agreement, alliance agreement, partnership agreement or other agreement or arrangement (an
Acquisition Agreement) constituting or related to, or that is intended to or would
reasonably be expected to lead to, any Acquisition Proposal, or requiring, or reasonably
expected to cause, the Company or the Bank to abandon, terminate, delay or fail to
consummate, or that would otherwise impede, interfere with or be inconsistent with, the
transactions contemplated by this Agreement, or requiring, or reasonably expected to cause,
the Company or the Bank to fail to comply with this Agreement (other than a confidentiality
agreement referred to in Section 3.4(a)). Notwithstanding the foregoing, at any time prior
to obtaining the approval of the Shareholder Proposal (other than the proposal set forth in
clause (1)(iii) of the definition of Shareholder Proposal), the Board of Directors of the
Company may make an Adverse Recommendation Change in favor of a Superior Proposal if the
Board of Directors of the Company determines in good faith (after consultation with outside
counsel and a financial advisor of nationally recognized reputation) that the failure to do
so would be a breach of its fiduciary duties under applicable Law; provided, however, that
the Company shall not be entitled to exercise its right to make an Adverse Recommendation
Change until after the second Business Day following the Purchasers receipt of written
notice (a Notice of Recommendation Change) from the Company advising the Purchaser
that the Board of Directors of the Company intends to take such action and specifying the
reasons therefor, including the terms and conditions of the Superior Proposal that is the
basis of the proposed action by the Board of Directors of the Company (it being understood
and agreed that any amendment to any material term of such Superior Proposal shall require a
new Notice of Recommendation Change and a new two business-day period). In determining
whether to make an Adverse Recommendation Change, the Board of Directors of the Company
shall take into account any changes to the terms of this Agreement proposed by the Purchaser
in response to a Notice of Recommendation Change or otherwise.
(c) Definitions. For purposes of this Agreement, the term Acquisition
Proposal means (1) any proposal or offer with respect to a merger, joint venture,
partnership, consolidation, dissolution, liquidation, tender offer, recapitalization,
reorganization, rights offering, share exchange, business combination or similar transaction
involving the Company, the Bank or any of the Subsidiaries and (2) any acquisition by any
person resulting in, or proposal or offer, that, if consummated, would result in any person
becoming the beneficial owner, directly or indirectly, in one or a series of related
transactions, of ten percent (10%) or more of the total voting power of any class of equity
securities of the Company or the Bank or those of any of the Subsidiaries, or ten percent
(10%) or more of the consolidated total assets (including, without limitation, equity
securities of any subsidiaries) of the Company, in each case other than the transactions
contemplated by this Agreement. For purposes of this Agreement, the term Superior
Proposal means any bona fide written proposal or offer made by a third party or group
pursuant to which such third party or group would acquire, directly or indirectly more than
50% of the Common Stock or assets of the Company, the Bank, or their Subsidiaries (i) on
terms which the Board of Directors of the Company determines in good faith (after
consultation with the Companys outside legal counsel and its
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financial advisor) to be
superior from a financial point of view to the holders of Common Stock than the transactions
contemplated by this Agreement (including any changes proposed by the Purchaser to the terms
of this Agreement) and (ii) that is reasonably likely to be completed, on a timely basis,
taking into account all material financial, regulatory, legal and other aspects of such
proposal on or before the date that the transactions contemplated by this Agreement are
reasonably likely to be completed.
(d) Federal Securities Laws. Nothing contained in this Section 3.4 shall
prohibit the Company from (i) taking and disclosing to its shareholders a position required
by Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act or (ii) making any
disclosure to its shareholders if the Board of Directors of the Company has determined in
good faith, after consultation with outside legal counsel, that the failure to do so would
be inconsistent with any applicable Law; provided, that the Board of Directors of the
Company may not effect an Adverse Recommendation Change unless permitted to do so by Section
3.4(b); provided, however, that compliance with such Rule 14e-2(a) or Rule
14d-9 shall not in any way limit or modify the effect that any action taken pursuant to
such rules has under any other provision of this Agreement, including under Article V
hereof.
(e) Existing Discussions. The Company and the Bank each agrees that it will
immediately cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any Acquisition Proposal
and, between the date hereof and the Closing, take such action as is necessary to enforce
any standstill provisions or provisions of similar effect to which the Company is a party
or of which the Company is a beneficiary. The Company and the Bank each agrees that it will
take the necessary steps to promptly inform the individuals or entities referred to in the
first sentence hereof of the obligations undertaken in this Section 3.4. The Company and
the Bank each also agrees that it will promptly request each person that has heretofore
executed a confidentiality agreement in connection with its consideration of acquiring the
Company, the Bank or any of the Subsidiaries to return or destroy all confidential
information heretofore furnished to such person by or on behalf of it or any of the
Subsidiaries.
(f) Notice; Specific Performance. The Company and the Bank each agrees that it
will promptly (and, in any event, within 24 hours) notify Purchaser if any inquiries,
proposals or offers with respect to an Acquisition Proposal are received by, any such
information is requested from, or any such discussions or negotiations are sought to be
initiated or continued with, the Company, the Bank or any Subsidiary or any of their
respective Representatives indicating, in connection with such notice, the name of such
person and the material terms and conditions of any proposals or offers (including, if
applicable, copies of any written requests, proposals or offers, including proposed
agreements) and thereafter shall keep Purchaser informed, on a current basis, of the status
and terms of any such proposals or offers (including any amendments thereto) and the status
of any such discussions or negotiations, including any change in the Companys or the Banks
intentions as previously notified. Notwithstanding anything contained herein to the
contrary, each of the Company and the Bank agrees that a non-exclusive right and remedy for
noncompliance with this Section 3.4 is to have such provision specifically enforced by any
court having equity jurisdiction; it being acknowledged and agreed that any such breach will
cause irreparable injury to Purchaser and that money damages may not provide an adequate
remedy to Purchaser.
3.5 Repurchase. The Company and the Bank shall use reasonable best efforts to facilitate the entry into and
maintenance in effect of a definitive agreement with the Treasury providing for the Repurchase on
the terms set forth in Exhibit B prior to the Closing; provided that Purchaser from and
after the date hereof shall be responsible for all communications and/or negotiations with the
Treasury in respect of such definitive agreement and neither the Company nor the Bank shall,
without the prior written consent of Purchaser, contact or communicate with the Treasury in respect
of the Repurchase. Purchaser shall provide the Company and the Bank with the reasonable
opportunity to participate in substantive telephone conversations and meetings that Purchaser or
its representatives may have from time to time with the Treasury with respect to the Repurchase and
shall advise the Company and the Bank of the material terms of any discussions between Purchaser
and the Treasury. Subject to the foregoing, Purchaser will permit the Company to review in
advance, and to the extent practicable, will consult with the Company with respect to, in each case
subject to applicable Laws relating to the exchange of information, all the information and
documentation relating to the Repurchase.
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3.6 D&O Indemnification.
(a) On or before the Closing, the Company shall offer to enter into a Directors &
Officers Indemnification Agreement, containing terms no less favorable than those set out in
the Charter and the Companys bylaws as of the date hereof, with each director serving on
its Board of Directors, including each of the Purchaser Designees and any other directors or
officers of the Company, the Bank or any of the Subsidiaries designated by or affiliated
with Purchaser in form and substance reasonably satisfactory to such individuals.
(b) From and after the Closing, to the extent permitted by applicable Law and in
accordance with the Charter in effect as of the date hereof and the Companys bylaws in
effect as of the date hereof, the Company (and any successor or assign thereof) shall and
from and after any merger of the Company into
Purchaser, to the extent permitted by applicable Law and in accordance with the Amended
and Restated Articles of Incorporation of Purchaser and Amended and Restated Bylaws of
Purchaser (which shall provide for indemnification and advancement rights no less favorable
than those contained in the Charter in effect as of the date hereof and the Companys bylaws
in effect as of the date hereof), the Purchaser (and any successor or assign thereof) shall,
indemnify, defend and hold harmless, and provide advancement of defense costs and other
expenses (including attorneys fees) to, each person who is now, or has been at any time
prior to the date hereof or who becomes prior to the Closing, an officer or director of the
Company or any of its subsidiaries against all losses, claims, damages, costs, expenses
(including attorneys fees), liabilities or judgments or amounts that are paid in settlement
of or in connection with any claim, action, suit, proceeding or investigation based in whole
or in part on or arising in whole or in part out of the fact that such person is or was a
director or officer of the Company, the Bank or any of its Subsidiaries, and pertaining to
any matter existing or occurring, or any acts or omissions occurring, at or prior to the
Closing, whether asserted or claimed prior to, at or after the Closing (including matters,
acts or omissions occurring in connection with the approval of this Agreement and the
consummation of the transactions contemplated hereby). Notwithstanding anything in this
Agreement to the contrary, prior to the Closing, the Company may purchase tail insurance
coverage under its current policies of directors and officers liability insurance or a
comparable policy from another insurer for a term not to exceed six years from the Closing
with respect to claims arising from facts or events which occurred prior to the Closing;
provided, however, that the total premium payment for such insurance shall
not exceed three times the amount of the last premium paid by the Company in respect of such
insurance prior to the date hereof; provided further that if the Company is
unable to maintain such policy (or any substitute policy) as a result of the preceding
proviso, the Company shall obtain as much comparable insurance as is available for such
annual premium amount.
3.7 Notice of Developments. Each party to this Agreement will give prompt written notice to each of the other parties of any
adverse development causing a breach of any of its own representations and warranties contained in
Article II of this Agreement. No disclosure by any party pursuant to this Section 3.7 shall be
deemed to amend or supplement the Disclosure Schedules or to prevent or cure any misrepresentation
or breach of warranty.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Governance Matters.
(a) Prior to the Closing, the Company and the Bank shall use reasonable best efforts to
cause the Resigning Directors to resign from their respective Boards of Directors and, if
such Resigning Directors do not resign, the Company and the Bank shall take all requisite
corporate action to remove such Resigning Directors or increase the size of their respective
Boards of Directors to accommodate the appointment of each of the Purchaser Designees to
their respective Boards of Directors effective as of the Closing, to elect or appoint each
of the Purchaser Designees to their respective Boards of Directors effective as of the
Closing, and to permit the Purchaser Designees to constitute a majority of each of their
respective Boards of Directors immediately after the Closing.
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(b) Following the Closing, the Purchaser, the Company and the Bank shall take all
requisite action to re-elect two members of the Companys board as of the date hereof
designated by the Purchaser (the Nominees) to the Companys, the Banks and the
Purchasers Boards of Directors until the consolidation of the Company and the Bank with the
other bank holding companies and banks controlled by the Purchaser, at which time the
Purchaser shall take all requisite action to elect the Nominees to such consolidated bank
and bank holding company Boards of Directors.
(c) Following the Closing, the Purchaser, the Company and the Bank shall take all
requisite action to (i) establish a Loan Portfolio Committee (the Loan Portfolio
Committee) as a committee of the
Board of Directors of the Bank, which Loan Portfolio Committee shall monitor and review
the status of the Banks loan portfolio and any the level of credit losses, payments,
collections and savings realized in such portfolio and (ii) elect or appoint Stephen M.
Rownd as the chairman of the Loan Portfolio Committee.
4.2 Legend. (a) Purchaser agrees that all certificates or other instruments representing the Purchased
Shares will bear a legend substantially to the following effect:
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT
RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.
(b) Upon request of Purchaser, upon receipt by the Company of an opinion of counsel
reasonably satisfactory to the Company to the effect that such legend is no longer required
under the Securities Act and applicable state Laws, the Company shall promptly cause the
legend set forth above to be removed from any certificate for any securities purchased
pursuant to this Agreement (or issued upon exercise thereof).
4.3 Exchange Listing. The Company shall promptly use its reasonable best efforts to cause the Purchased Shares to be
approved for listing on the NASDAQ or such other nationally recognized securities exchange on which
the Common Stock may be listed, if any, subject to official notice of issuance, as promptly as
practicable, and in any event before the Closing if permitted by the rules of the NASDAQ.
4.4 Registration Rights. Prior to the Closing, the Company shall enter into the Registration Rights Agreement with
Purchaser in substantially the form attached as Exhibit C (the Registration Rights
Agreement).
4.5 Employees. It is the intention of Purchaser to maintain in place the management team of the Bank,
subject to the establishment of, and acceptance of, performance criteria in accordance with the
Purchasers anticipated business plan. Notwithstanding the foregoing, nothing in this Agreement,
including this Section 4.5, shall be construed to guarantee or extend any offer of employment to,
or to prevent the termination of employment of any employee or the amendment or termination of any
particular Benefit Plan to the extent permitted by its terms.
4.6 Reservation for Issuance. The Company will reserve that number of shares of Common Stock sufficient for issuance of the
Purchased Shares; provided that solely to the extent the Company is unable to reserve such
number of shares under the Charter the Company will reserve such sufficient number of shares of
Common Stock following the approval of the Shareholder Proposal (other than the proposal set forth
in clause (1)(iii) of the definition of Shareholder Proposal) pursuant to Section 3.1(b).
4.7 Additional Investment. Following the Closing and until the Bank is combined with another bank controlled by the
Purchaser, in the event that the tier 1 leverage ratio of either the Company or the Bank falls
below 10% (or such other capital ratio as may be required to be maintained by applicable
Governmental Entities), the Purchaser will be permitted to purchase a sufficient quantity of shares
of Common Stock from the Company to cause the Company or the Bank (as applicable) to meet such
capital ratio. The purchase price for any shares of Common Stock purchased pursuant to the
preceding sentence shall be equal to the lesser of (i) $1.81 per share of
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Common Stock and (ii) the
Companys tangible book value per share of Common Stock as of end of the then most recently
completed fiscal quarter.
ARTICLE V
TERMINATION
5.1 Termination. This Agreement may be terminated prior to the Closing:
(a) by mutual written agreement of the Company, the Bank and Purchaser;
(b) by Purchaser, upon written notice to the Company and the Bank, or by the Company,
upon written notice to Purchaser, in the event that the Closing Date does not occur on or
before the date that is 150 calendar days from the date hereof; provided,
however, that the respective rights to terminate this Agreement pursuant to this
Section 5.1(b) shall not be available to any party whose failure, in any material respect,
(or, in the case of the Company, the failure of the Bank) to fulfill any obligation under
this Agreement shall have been the proximate cause of, or shall have resulted in, the
failure of the Closing Date to occur on or prior to such date;
(c) by the Company or Purchaser, upon written notice to the other, in the event that
any Governmental Entity shall have issued any order, decree or injunction or taken any other
action restraining, enjoining or prohibiting any of the transactions contemplated by this
Agreement, and such order, decree, injunction or other action shall have become final and
nonappealable;
(d) by Purchaser or the Company, if Purchaser or any of its Affiliates, or the Company,
receives written notice from or is otherwise advised by a Governmental Entity that it will
not grant (or intends to rescind or revoke if previously approved) any Required Approval or
receives written notice from such Governmental Entity that it will not grant such Required
Approval on the terms contemplated by this Agreement without imposing any Burdensome
Condition, provided that, (A) prior to Purchaser terminating this Agreement, Purchaser shall
have complied with its obligations under Section 3.1(a) in all material respects, and (B)
prior to the Company terminating this Agreement, the Company shall have complied with its
obligations under Section 3.1(a) in all material respects;
(e) by the Company, if neither the Company nor the Bank is in material breach of any of
the terms of this Agreement, and there has been a breach of any representation, warranty,
covenant or agreement made by Purchaser in this Agreement, or any such representation and
warranty shall have become untrue after the date of this Agreement, such that the condition
set forth in Section 1.2(c)(3)(A) or (B) would not be satisfied and such breach is not
curable or, if curable, is not cured within thirty (30) days after written notice thereof is
given by the Company to Purchaser;
(f) by Purchaser, if Purchaser is not in material breach of any of the terms of this
Agreement, and there has been a breach of any representation, warranty, covenant or
agreement made by the Company or the Bank in this Agreement, or any such representation and
warranty shall have become untrue after the date of this Agreement, such that the condition
set forth in Section 1.2(c)(2)(A) or (B) would not be satisfied and such breach is not
curable or, if curable, is not cured within thirty (30) days after written notice thereof is
given by Purchaser to the Company and the Bank;
(g) by Purchaser on or prior to the day before the date of the Shareholder Meeting (as
may be adjourned or postponed), if the Company or the Bank shall have breached the covenants
contained in Section 3.4 hereof or if the Companys Board of Directors shall have made any
Adverse Recommendation Change; and
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(h) by Purchaser or the Company, if the approval of the Shareholder Proposal (other
than the proposal set forth in clause (1)(iii) of the definition of Shareholder Proposal)
is not obtained at the Shareholder Meeting.
5.2 Effects of Termination. In the event of any termination of this Agreement as provided in Section 5.1, subject to Section
5.3, this Agreement (other than Section 3.2(b) and Articles V and VI, which shall remain in full
force and effect) shall forthwith become wholly void and of no further force and effect;
provided that nothing herein shall relieve any party from liability (x) for fraud or (y)
except to the extent set forth in the third sentence of Section 5.3(d) in the case an expense
reimbursement is payable by Purchaser, for intentional breach of this Agreement.
5.3 Fees.
(a) If, after the date hereof, an Acquisition Proposal is made to the Company, the
Bank, any Subsidiary, or the Companys shareholders generally, or becomes public and
thereafter this Agreement is terminated pursuant to Section 5.1(f) on the basis of a breach
of a covenant or agreement made by the Company or the Bank in this Agreement, Section 5.1(g)
or Section 5.1(h), the Company and the Bank shall be jointly and severally obligated to pay
to Purchaser (1) an amount equal to the Expense Reimbursement and, in the case of such a
termination pursuant to Section 5.1(g) because the Companys Board of Directors shall have
made any Adverse Recommendation Change, 50% of the Termination Fee, promptly, but in any
event not later than two (2) business days, following such termination and (2), in the case
of a termination referred to in this subsection, if within twelve months after such
termination the Company and/or the Bank enters into a definitive agreement to effect, or
consummates, an Acquisition Proposal, an amount equal to the Termination Fee minus the
portion of the Termination Fee already paid by the Company to Purchaser pursuant to the
preceding clause (1) promptly, but in any event not later than two (2) business days,
following the consummation of such Acquisition Proposal.
(b)
(1) If this Agreement is terminated pursuant to Section 5.1(e) due to a breach
of a covenant, Purchaser shall be obligated to pay to the Company an amount equal to
eight million dollars ($8,000,000) in respect of the Companys and the Banks
out-of-pocket expenses incurred in connection with this Agreement and the
transactions contemplated hereby promptly, but in any event not later than two (2)
business days, following such termination.
(2) If this Agreement is terminated pursuant to Section 5.1(f) due to a breach
of a covenant other than in circumstances where fees are payable pursuant to 5.3(a),
the Company and the Bank shall be jointly and severally obligated to pay to
Purchaser an amount equal to the Expense Reimbursement promptly, but in any event no
later than two (2) business days, following such termination.
(c) Termination Fee means an amount in cash equal to eight million dollars
($8,000,000), which Termination Fee shall be paid by wire transfer of immediately available
funds to the account or accounts designated by Purchaser at the time specified in this
Section 5.3. Expense Reimbursement means an amount in cash equal to seven hundred
and fifty thousand dollars ($750,000) in respect of Purchasers out-of-pocket expenses
incurred in connection with due diligence, the negotiation and preparation of this
Agreement. To the extent not paid when due, any amount payable
pursuant to this Section 5.3 shall accrue interest at a rate equal to eighteen percent
(18%) per annum or, if lower, the maximum rate allowable by Law.
(d) Each of the Company, the Bank and Purchaser acknowledges that the agreements
contained in this Section 5.3 are an integral part of the transactions contemplated by this
Agreement. The amounts payable pursuant to Section 5.3 hereof constitute liquidated damages
and not a penalty and shall be the sole monetary remedy in the event a Termination Fee or
Expense Reimbursement paid in connection with a termination of this Agreement on the bases
specified in Section 5.3 hereof. The amounts payable pursuant to Section 5.3 hereof
constitute liquidated damages and not a penalty and shall be the sole remedy
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in the event an
expense reimbursement by Purchaser is paid in connection with a termination of this
Agreement on the bases specified in Section 5.3 hereof. In the event that the Company or
the Bank shall fail to make any payment pursuant to this Section 5.3 when due, the Company
and the Bank shall be jointly and severally obligated to reimburse Purchaser for all
reasonable expenses actually incurred or accrued by Purchaser (including reasonable expenses
of counsel) in connection with the collection under and enforcement of this Section 5.3. In
the event Purchaser fails to make any payment pursuant to this Section 5.3 when due,
Purchaser shall be obligated to reimburse the Company and the Bank for all reasonable
expenses actually incurred or accrued by the Company and the Bank (including reasonable
expenses of counsel) in connection with the collection under and enforcement of this Section
5.3.
ARTICLE VI
MISCELLANEOUS
6.1 No Survival. None of the representations and warranties set forth in this Agreement shall survive the
Closing. Except as otherwise provided herein, all covenants and agreements contained herein, other
than those which by their terms are to be performed in whole or in part after the Closing Date,
shall terminate as of the Closing Date.
6.2 Expenses. Subject to Section 5.3, each of the parties will bear and pay all other costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated pursuant to this
Agreement; except that if the Closing occurs, the Company and the Bank shall jointly and severally
be obligated to reimburse Purchaser, without duplication, for all of its reasonable out-of-pocket
expenses incurred in connection with due diligence, the negotiation and preparation of this
Agreement and undertaking of the transactions contemplated pursuant to this Agreement (including
all stamp and other Taxes payable with respect to the issuance of the Purchased Stock, the Option
and CVRs, filing fees, fees and expenses of attorneys, consultants and accounting and financial
advisers incurred by or on behalf of Purchaser or its Affiliates in connection with the
transactions contemplated pursuant to this Agreement) (the Closing Expense
Reimbursement).
6.3 Amendment; Waiver. No amendment or waiver of any provision of this Agreement will be effective with respect to any
party unless made in writing and signed by an officer or a duly authorized representative of such
party. No failure or delay by any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or privilege. The
conditions to each partys obligation to consummate the Closing are for the sole benefit of such
party and may be waived by such party in whole or in part to the extent permitted by applicable
Law. No waiver of any party to this Agreement, as the case may be, will be effective unless it is
in a writing signed by a duly authorized officer of the waiving party that makes express reference
to the provision or provisions subject to such waiver. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by Law.
6.4 Counterparts and Facsimile. For the convenience of the parties hereto, this Agreement may be executed in any number of
separate counterparts, each such counterpart being deemed to be an original instrument, and all
such counterparts will together constitute the same agreement. Executed signature pages to this
Agreement may be delivered by facsimile or pdf and such facsimiles or pdfs will be deemed as
sufficient as if actual signature pages had been delivered.
6.5 Governing Law. This Agreement will be governed by and construed in accordance with the Laws of the State of
Delaware applicable to contracts made and to be performed entirely within such State. The parties
hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the
federal courts of the United States of America located in the State of Delaware, or, if
jurisdiction in such federal courts is not available, the courts of the State of Delaware, for any
actions, suits or proceedings arising out of or relating to this Agreement and the transactions
contemplated hereby.
6.6 Notices. Any notice, request, instruction or other document to be given hereunder by any party to another
will be in writing and will be deemed to have been duly given (a) on the date of delivery if
delivered personally or by telecopy or facsimile, upon confirmation of receipt, (b) on the first
business day following the date
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of dispatch if delivered by a recognized next-day courier service,
or (c) on the second business day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All notices hereunder shall be
delivered as set forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice.
|
(a) |
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If to Purchaser: |
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|
|
|
North American Financial Holdings, Inc.
4725 Piedmont Row Drive
Charlotte, North Carolina 28210
Attention: Christopher G. Marshall
Telephone: (704) 554-5901
Fax: (704) 964-2442 |
|
|
|
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with a copy to (which copy alone shall not constitute notice): |
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|
|
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Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: David E. Shapiro
Telephone: (212) 403-1000
Fax: (212) 403-2000 |
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|
(b) |
|
If to the Company or the Bank: |
|
|
|
|
Green Bankshares, Inc.
100 North Main Street
Greeneville, Tennessee 37743
Attention: Stephen M. Rownd
Telephone: (423) 278-3323
Fax: (866) 550-2336 |
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|
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with a copy to (which copy alone shall not constitute notice): |
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|
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Bass, Berry & Sims PLC
150 Third Avenue South, Suite 2800
Nashville, Tennessee 37201
Attention: D. Scott Holley
Telephone: (615) 742-7721
Fax: (615) 742-2813 |
6.7
Entire Agreement, Assignment.
(a) This Agreement (including the Exhibits, Schedules and Disclosure Schedules hereto)
constitutes the entire agreement, and except for the Confidentiality Agreement, supersedes all
other prior agreements, understandings, representations and warranties, both written and oral,
among the parties, with respect to the subject matter hereof; and (b) this Agreement will not be
assignable by operation of Law or otherwise (any attempted assignment in contravention hereof being
null and void); provided that Purchaser may assign its rights and obligations under this
Agreement to any person, but only if immediately after the Closing, North American Financial
Holdings, Inc. and/or its Affiliates shall collectively own at least a majority of the pro forma
outstanding Common Stock of the Company; provided further, that no such assignment shall
relieve Purchaser of its obligations hereunder.
6.8 Interpretation; Other Definitions. Wherever required by the context of this Agreement, the singular shall include the plural and
vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa,
and references to any agreement, document or instrument shall be deemed to refer to such agreement,
document or instrument as amended, supplemented or modified from time to time. All article,
section, paragraph or clause references not attributed to a particular document shall be references
to such parts of this Agreement, and all exhibit, annex and schedule references not attributed to a
particular document shall be references to such exhibits,
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annexes and schedules to this Agreement.
The disclosure of any matter or item in the Company Disclosure Schedule shall not be deemed to
constitute an acknowledgement that such matter or item is required to be disclosed therein or is a
material exception to a representation, warranty, covenant or condition set forth in this Agreement
and shall not be used as a basis for interpreting the terms material, materially,
materiality, Material Adverse Effect or any word or phrase of similar import and does not mean
that such matter or item would, with any other matter or item, have or be reasonably expected,
individually or in the aggregate, to have a Material Adverse Effect. Certain matters have been
disclosed in the Company Disclosure Schedule for informational purposes only. In addition, the
following terms are ascribed the following meanings:
(a) the term Affiliate means, with respect to any person, any person directly
or indirectly controlling, controlled by or under common control with, such other person.
For purposes of this definition, control (including, with correlative meanings,
the terms controlled by and under common control with) when used with
respect to any person, means the possession, directly or indirectly, of the power to cause
the direction of management or policies of such person, whether through the ownership of
voting securities by contract or otherwise;
(b) the word or is not exclusive;
(c) the words including, includes, included and
include are deemed to be followed by the words without limitation; and
(d) the terms herein, hereof and hereunder and other
words of similar import refer to this Agreement as a whole and not to any particular
section, paragraph or subdivision;
(e) business day means any day except Saturday, Sunday and any day that shall
be a legal holiday or a day on which banking institutions in the State of New York or in the
State of Tennessee generally are authorized or required by Law or other governmental action
to close;
(f) person has the meaning given to it in Section 3(a)(9) of the Exchange Act
and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act; and
(g) a person shall be deemed to beneficially own any securities of which such
person is considered to be a beneficial owner under Rule 13d-3 under the Exchange
Act.
6.9 Captions. The article, section, paragraph and clause captions herein are for convenience of reference
only, do not constitute part of this Agreement and will not be deemed to limit or otherwise affect
any of the provisions hereof.
6.10 Severability. If any provision of this Agreement or the application thereof to any person (including the
officers and directors of the parties hereto) or circumstance is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the
application of such provision to persons or circumstances other than those as to which it has been
held invalid or unenforceable, will remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially adverse to any party.
Upon such determination, the parties shall negotiate in good faith in an effort to agree upon a
suitable and equitable substitute provision to effect the original intent of the parties.
6.11 No Third Party Beneficiaries. Nothing contained in this Agreement, express or implied, including Section 4.5 hereof, is
intended to confer upon any person other than the parties hereto, any benefit, right or remedies,
except that the provisions of Sections 3.6, 4.1(b) and 4.1(c) shall inure to the benefit of the
persons referred to in such Sections.
6.12 Time of Essence. Time is of the essence in the performance of each and every term of this Agreement.
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6.13 Certain Adjustments. Without limiting the generality of Purchasers rights and remedies under this Agreement, if the
representations and warranties set forth in Section 2.2(b) shall not be true and correct as of the
Closing Date, the number of shares of Common Stock to be purchased hereunder, and the number of
shares of Common Stock for which the Option is exercisable, shall be, at Purchasers option,
proportionately adjusted to provide Purchaser the same economic effect as contemplated by this
Agreement in the absence of such failure to be true and correct.
6.14 Public Announcements. Subject to each partys disclosure obligations imposed by Law or the rules of any stock exchange
upon which its securities are listed, the parties hereto will cooperate with each other in the
development and distribution of all news releases and other public information disclosures with
respect to this Agreement and any of the transactions contemplated by this Agreement, and none of
the Company, the Bank or Purchaser will make any such news release or public disclosure without
first consulting with the other two parties, and, in each case, also receiving the others consent
(which shall not be unreasonably withheld or delayed) and each party shall coordinate with the
party whose consent is required with respect to any such news release or public disclosure.
6.15 Specific Performance; Limitation on Damages.
(a) The Company and the Bank agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed by them in accordance with
their specific terms. It is accordingly agreed that Purchaser shall be entitled to specific
performance of the terms hereof, this being in addition to any other remedies to which
Purchaser is entitled at law or equity. Notwithstanding anything to the contrary herein, in
no event shall Purchaser be responsible to the Company or the Bank for any consequential,
special or punitive damages or any fees or expenses other than pursuant to Section
5.3(b)(1).
(b) Notwithstanding anything to the contrary in this Agreement, the parties acknowledge
that neither the Company nor the Bank shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by Purchaser or any remedy to enforce specifically the
terms and provisions of this Agreement.
[Remainder of Page Intentionally Left Blank]
A-41
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized
officers of the parties hereto as of the date first herein above written.
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GREEN BANKSHARES, INC.
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By: |
/s/ Stephen M. Rownd
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Name: |
Stephen M. Rownd |
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Title: |
Chairman and CEO |
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GREENBANK
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By: |
/s/ Stephen M. Rownd
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Name: |
Stephen M. Rownd |
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Title: |
Chairman and CEO |
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[Signature Page to Investment Agreement]
A-42
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized
officers of the parties hereto as of the date first herein above written.
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NORTH AMERICAN FINANCIAL HOLDINGS, INC.
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By: |
/s/ Christopher G. Marshall
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Name: |
Christopher G. Marshall |
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Title: |
EVP, CFO |
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[Signature Page to Investment Agreement]
A-43
Schedule A
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State or Other Jurisdiction of |
Name of Subsidiary |
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Incorporation/Organization |
Company Subsidiaries |
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Greene County Capital Trust I
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Delaware |
Greene County Capital Trust II
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Delaware |
GreenBank Capital Trust I
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Delaware |
Civitas Statutory Trust I
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Delaware |
Cumberland Capital Statutory Trust II
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Connecticut |
Bank Subsidiaries |
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Superior Financial Services, Inc.
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Tennessee |
GCB Acceptance Corporation
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Tennessee |
Fairway Title Company
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Tennessee |
GB Holdings, LLC
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Tennessee |
Schedule A
Exhibit A
Form of Contingent Value Rights
Exhibit A
Term Sheet for Contingent Value Rights
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Recipients
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Immediately prior to the Closing, existing shareholders of the Company
as of a predetermined record date mutually agreeable to the Purchaser
and the Company will be issued one right (a CVR) for each share of
Common Stock owned by such shareholder. Each CVR would entitle the
holder to a cash payment based on the amount of Credit Losses (as
defined below) prior to the Maturity Date up to a maximum of $0.75 per
CVR in the aggregate. |
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Maturity Date
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5 years from the Closing Date |
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Settlement
Obligation at
Maturity
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If the amount of Credit Losses is less than the Stipulated Amount, the
Issuer will pay to holders of the CVRs, within 60 days of the Maturity
Date, an amount equal to: |
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(A) If the difference between the Stipulated Amount and the amount of
Credit Losses expressed on a per CVR basis (such difference, the Loss
Shortfall) is less than or equal to $0.50, then 100% of the Loss
Shortfall; and |
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(B) If the Loss Shortfall is greater than $0.50, then $0.50 plus 50% of
the excess of the Loss Shortfall over $0.50 with a maximum of $0.75 per
CVR. |
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If the amount of Credit Losses equals or exceeds the Stipulated Amount
(as defined below), the CVRs will expire and the Company shall not be
required to make any payment with respect to them. |
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Credit Losses
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Credit Losses means the Charge-Offs for any loans existing as of the
date hereof for the period commencing on the date hereof and ending on
the Maturity Date less any recoveries in respect of such Charge-Offs. |
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Stipulated Amount
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$178,000,000. |
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Determinations
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All determinations with respect to Credit Losses calculations for
purposes of the CVRs and amounts payable in respect of the CVRs shall
be made by the Loan Portfolio Committee of the Companys Board of
Directors in its sole discretion. |
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Early Redemption
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The Company may redeem the CVRs at any time at a price of $0.75 per CVR. |
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Voting rights
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Any modifications of the terms of the CVRs that are adverse to the
holders will require the consent of the holders of a majority of the
CVRs. Otherwise, no voting rights attach to the CVRs. |
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Dividend rights
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None. |
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Merger, Acquisition
or Change in
Control
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In the event that the Company experiences a Change in Control, all
rights under the CVRs shall be redeemed upon closing at $0.75 per CVR. |
Exhibit A-1
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Change in Control
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A Change in Control shall mean any transaction resulting in the
holders of the equity interests of the Parent immediately prior to such
transaction owning, directly or indirectly, less than 50% of the equity
interests of the Parent immediately following such transaction. For
purposes of the preceding sentence, the Parent shall mean the
ultimate holder that directly or indirectly owns or controls, by share
ownership, contract or otherwise, a majority of the equity interests of
the Company. |
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Transferability;
Attachment; Death
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The rights of a holder of a CVR may not be assigned or transferred
except by will or the laws of descent or distribution. The CVR shall
not be subject, in whole or in part, to attachment, execution, or levy
of any kind, and any attempt to sell, pledge, assign, hypothecate,
transfer or otherwise dispose of the CVR shall be void. If a holder of
a CVR should die, the designee, legal representative, or legatee, the
successor trustee of such holders inter vivos trust or the person who
acquired the right to the CVR by reason of the death of such holder
(individually, a Successor) shall succeed to such holders rights
with respect to the CVR. |
Exhibit A-2
Exhibit B
Terms of Repurchase
Purchaser shall have entered into a binding definitive agreement with the Treasury to purchase
substantially contemporaneous with the Closing, on terms and conditions consistent with those
disclosed to the Companys Board of Directors by Purchasers representatives on April 26, 2011, all
of the outstanding shares of the Series A Preferred (including all obligations with respect to
accrued but unpaid dividends on the Series A Preferred) and the Treasury Warrants. For the
avoidance of doubt, at the Closing, such agreement shall remain in full force and effect.
Exhibit B
Exhibit C
Form of Registration Rights Agreement
Exhibit C
Exhibit D
Subsequent Transactions
Merger of the Bank
The Bank and a Subsidiary of the Purchaser (the Purchaser Entity) propose to engage
in a merger transaction pursuant to an agreement and plan of merger on terms and conditions
reasonably satisfactory to Purchaser, the Company and the Bank in which merger transaction each
share of capital stock of the Bank will be exchanged for shares of capital stock of the Purchaser
Entity at an exchange ratio that is equal to the ratio of the tangible book value per share of the
Bank to the tangible book value per share of the Purchaser Entity. In the event that the financial
terms of such merger transaction are materially different than as set forth in the preceding
sentence such that they are not within the approval of the Board of Directors of the Bank and the
Company as of the date hereof, the Board of Directors of the Bank and the Board of Directors of the
Company following the Closing shall approve the terms of such merger prior to its consummation.
Merger of the Company
Subsequent to the merger of the Bank and the Purchaser Entity, the Purchaser intends to cause
the Company to merge with and into Purchaser in a stock-for-stock transaction on terms and
conditions reasonably satisfactory to Purchaser in which transaction the Purchaser expects the
merger to be effected based on the ratio of the relative tangible book values per share of the
Purchaser and the Company. In the event that the financial terms of such merger transaction are
materially different than as set forth in the preceding sentence such that they are not within the
approval of the Board of Directors of the Company as of the date hereof, the Board of Directors of
the Company after the Closing shall approve the terms of such merger prior to its consummation.
Exhibit D
Appendix B
ARTICLES OF AMENDMENT
TO THE CHARTER
OF
GREEN BANKSHARES, INC.
In accordance with the provisions of Section 48-20-106 of the Tennessee Business Corporation
Act, the undersigned corporation adopts the following Articles of Amendment (the Articles of
Amendment) to its Charter (the Charter):
1. Name of Corporation. The name of the Corporation is Green Bankshares, Inc.
2. Section 6 of the Charter is hereby deleted in its entirety and replaced with the following:
6. The maximum number of shares which the Corporation shall have the authority to issue is:
a) One Hundred Thirty (130) shares of Organizational Common Stock with a par value of Ten
Dollars ($10.00) per share, which stock shall be callable by the Corporation at any time at the
par value thereof by action of a majority of the Board of Directors.
b) Three hundred million (300,000,000) shares of Common Stock, with a par value of $0.01 per
share. Each share of Common Stock shall be entitled to one vote. No holder of any Common Stock of
the Corporation, now or hereafter authorized, shall have any right, as such holder, to purchase,
subscribe for or otherwise acquire any shares of stock of the Corporation, or any securities or
obligations convertible into, or exchangeable for, or any right, warrant or option to purchase,
any shares of any class which the Corporation may at any time hereafter issue or sell, whether now
or hereafter authorized, but any and all such stock, securities, obligations, rights, warrants or
options may be issued and disposed of by the Board of Directors to such persons, firms or
corporations, and for such lawful consideration and on such terms as the Board of Directors in its
discretion may, from time to time, determine, without first offering the same to the shareholders
of the Corporation.
c) One million (1,000,000) shares of preferred stock, no par value per share. The preferred
stock may be issued by the Corporation from time to time in one or more series and in such amounts
as may be determined by the Board of Directors. The designations, voting rights, amounts of
preference upon distribution of assets, rates of dividends, premiums of redemption, conversion
rights and other variations, if any, the qualifications, limitations or restrictions thereof, if
any, of the preferred stock, and of each series thereof, shall be such as are fixed by the Board
of Directors, authority so to do being hereby expressly granted, and as are stated and expressed
in a resolution or resolutions adopted by the Board of Directors providing for the issue of such
series of preferred stock.
3. Except as amended by these Articles of Amendment, the Charter of the Corporation shall remain in
full force and effect.
4. Adoption. These Articles of Amendment were duly adopted by the Board of Directors on May 5,
2011, and by the shareholders of the Corporation on ________, 2011.
5. Effective Date. These Articles of Amendment will be effective when filed with the Secretary of
State.
Date: , 2011
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GREEN BANKSHARES, INC.
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By: |
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Name: |
Stephen M. Rownd |
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Title: |
Chief Executive Officer |
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B-1
Appendix C
ARTICLES OF AMENDMENT
TO THE CHARTER
OF
GREEN BANKSHARES, INC.
In accordance with the provisions of Section 48-20-106 of the Tennessee Business Corporation
Act, the undersigned corporation adopts the following Articles of Amendment (the Articles of
Amendment) to its Charter (the Charter):
1. Name of Corporation. The name of the Corporation is Green Bankshares, Inc.
2. Article 9 of the Amended and Restated Charter is amended to replace Section 9(c)(4) with the
following:
(4) Interested Shareholder means any Person (as defined herein) or member of a Group of
Persons (as defined herein) who or which, together with any Affiliate or Associate (as defined
herein) of such Person or member, Beneficially Owns (within the meaning of Subsection c(3) above)
ten percent or more of the outstanding Voting Stock of the Corporation; provided,
that, neither North American Financial Holdings, Inc., its Subsidiaries, Affiliates,
Associates nor any of their respective successors or assigns, shall at any time be deemed to be an
Interested Shareholder for purposes of this Section 9.
3. Except as amended by these Articles of Amendment, the Charter of the Corporation shall remain in
full force and effect.
4. Adoption. These Articles of Amendment were duly adopted by the Board of Directors on May 5,
2011, and by the shareholders of the Corporation on ________, 2011.
5. Effective Date. These Articles of Amendment will be effective when filed with the Secretary of
State.
Date: , 2011
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GREEN BANKSHARES, INC.
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By: |
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Name: |
Stephen M. Rownd |
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Title: |
Chief Executive Officer |
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C-1
Appendix D
ARTICLES OF AMENDMENT
TO THE CHARTER
OF
GREEN BANKSHARES, INC.
In accordance with the provisions of Section 48-20-106 of the Tennessee Business Corporation
Act, the undersigned corporation adopts the following Articles of Amendment (the Articles of
Amendment) to its Charter (the Charter):
1. Name of Corporation. The name of the Corporation is Green Bankshares, Inc.
2. Section 8(j) of the Charter is hereby deleted in its entirety and replaced with the following:
(j). (Intentionally omitted)
3. Except as amended by these Articles of Amendment, the Charter of the Corporation shall remain in
full force and effect.
4. Adoption. These Articles of Amendment were duly adopted by the Board of Directors on May 5,
2011, and by the shareholders of the Corporation on ________, 2011.
5. Effective Date. These Articles of Amendment will be effective when filed with the Secretary of
State.
Date: , 2011
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GREEN BANKSHARES, INC.
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By: |
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Name: |
Stephen M. Rownd |
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Title: |
Chief Executive Officer |
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D-1
Appendix E
MERGER AGREEMENT
AGREEMENT OF MERGER OF
GREENBANK
WITH AND INTO
NAFH NATIONAL BANK
This Agreement of Merger (the Agreement) dated as of ________, 2011, adopted and
made by and between NAFH NATIONAL BANK (NAFH Bank), a national banking association with
its main office located in Miami, Florida, and GREENBANK (GreenBank), a Tennessee state
chartered nonmember bank, each acting pursuant to resolutions adopted by the vote of a majority of
its directors in accordance with 12 U.S.C. § 215a.
WITNESSETH:
WHEREAS, GreenBank is a Tennessee state chartered nonmember bank, the authorized capital stock
of which consists of 129,000 shares of common stock, with a par value of $10.00 each, and all of
the issued and outstanding shares of which are owned as of the date hereof directly by Green
Bankshares, Inc. (Green); and
WHEREAS, NAFH is a national banking association organized and existing under the laws of the
United States, the authorized capital stock of which consists of 1,000 shares of common stock, with
a par value of $1.00 each, and all of the issued and outstanding shares of which are owned as of
the date hereof by North American Financial Holdings, Inc. (NAFH) and its subsidiary, TIB
Financial Corp.; and
WHEREAS, NAFH and Green have entered into an Investment Agreement, dated as of May 5, 2011
(the Investment Agreement), pursuant to which NAFH will acquire approximately 90.09% of
the outstanding common stock of Green (the Acquisition); and
WHEREAS, the shareholders of each of NAFH Bank and GreenBank wish to merge GreenBank into NAFH
Bank (the Bank Merger) subsequent to the Acquisition; and
WHEREAS, the respective Boards of Directors of GreenBank and NAFH Bank deem the merger of
GreenBank with and into NAFH Bank, which shall occur simultaneously with the Acquisition, under and
pursuant to the terms and conditions herein set forth or referred to, desirable and in the best
interest of the respective banks, and the Boards of Directors of GreenBank and NAFH Bank have
authorized and approved the execution and delivery of this Agreement by their respective officers;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein
contained, the parties hereto do hereby agree as follows:
I. BANK MERGER
Subject to the terms and conditions of this Agreement, on the Effective Date (as hereinafter
defined), following the Acquisition, on a date to be determined by NAFH Bank, GreenBank shall be
merged with and into NAFH Bank pursuant to the provisions of, and with the effect provided in, 12
U.S.C. § 215a. On the Effective Date, the separate existence of GreenBank shall cease, and NAFH
Bank, as the surviving entity, shall continue unaffected and unimpaired by the Bank Merger, and
shall be liable for all of the liabilities of GreenBank, including liabilities arising from the
operation of a trust department, existing at the Effective Date (NAFH Bank being hereinafter
sometimes referred to as the Surviving Bank). The business of the Surviving Bank shall
be that of a national banking association and shall be conducted at its main office and legally
established branches.
II. ARTICLES OF ASSOCIATION AND BY-LAWS
The Articles of Association and the By-Laws of NAFH Bank in effect immediately prior to the
Effective Date shall be the Articles of Association and the By-Laws of the Surviving Bank, in each
case until amended in
E-1
accordance with applicable law. The Articles of Association of NAFH Bank as
in effect immediately prior to the Effective Date are set forth as Exhibit A hereto and
incorporated by reference.
III. BOARD OF DIRECTORS
On the Effective Date, the Board of Directors of the Surviving Bank shall consist of those
persons serving as directors of NAFH Bank immediately prior to the Effective Date as well as two
individuals who are currently directors of GreenBank will also join the board of NAFH Bank. These
individuals have not yet been designated.
IV. CAPITAL
The shares of capital stock of NAFH Bank issued and outstanding immediately prior to the
Effective Date shall, on and after the Effective Date, continue to be issued and outstanding.
The shares of capital stock of GreenBank issued and outstanding immediately prior to the
Effective Date shall, on the Effective Date, be converted into the right to receive [] fully paid
and nonassessable shares of capital stock of NAFH Bank (the Merger Consideration). As of
the Effective Date, all such shares of GreenBank capital stock shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist. Promptly following the
Effective Date, the Surviving Bank shall deliver certificates representing the Merger Consideration
to the former holder(s) of outstanding shares of GreenBank capital stock.
V. EFFECTIVE DATE OF THE BANK MERGER
The Bank Merger shall be effective at the time and on the date specified in the certificate
issued by the Office of the Comptroller of the Currency with respect thereto or, if such
certificate cannot theretofore be obtained, on the date of consummation determined by NAFH Bank
(such date and time being herein referred to as the Effective Date).
VI. MAIN OFFICE
The main office of the Surviving Bank shall be 9366 South Dixie Highway, Miami, Florida
33156.
VII. FURTHER ASSURANCES
If at any time the Surviving Bank shall consider or be advised that any further assignments,
conveyances or assurances are necessary or desirable to vest, perfect or confirm in the Surviving
Bank title to any property or rights of GreenBank, or otherwise carry out the provisions hereof,
the proper officers and directors of GreenBank, as of the Effective Date, and thereafter the
officers of the Surviving Bank acting on behalf of GreenBank shall execute and deliver any and all
proper assignments, conveyances and assurances, and do all things necessary or desirable
to vest, perfect or confirm title to such property or rights in the Surviving Bank and
otherwise carry out the provisions hereof. This Agreement shall be ratified and confirmed by the
shareholders of GreenBank and NAFH Bank.
VIII. TERMINATION
Anything contained in this Agreement to the contrary notwithstanding, this Agreement may be
terminated by the mutual consent of the parties hereto and shall terminate automatically with no
further action by either party in the event that the Investment Agreement is terminated in
accordance with its terms.
IX. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument.
E-2
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in
counterparts by their duly authorized officers and attested by their officers thereunto duly
authorized, all as of the day and year first above written.
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ATTEST:
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NAFH NATIONAL BANK |
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Name:
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Name: |
Title:
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Title: |
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ATTEST:
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GREENBANK |
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Name:
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Name: |
Title:
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Title: |
E-3
Appendix F
CERTAIN INFORMATION REGARDING GREEN BANKSHARES, INC. AND GREENBANK
BUSINESS
Presentation of Amounts
All dollar amounts set forth below, other than share and per-share amounts, are in thousands
unless otherwise noted. Unless this Appendix F 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 F-5 of this Appendix F.
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
F-1
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.
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
F-2
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.
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
F-3
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Commercial real estate |
|
$ |
1,080,805 |
|
|
$ |
1,306,398 |
|
|
$ |
1,430,225 |
|
|
$ |
1,549,457 |
|
|
$ |
921,190 |
|
Residential real estate |
|
|
378,783 |
|
|
|
392,365 |
|
|
|
397,922 |
|
|
|
398,779 |
|
|
|
281,629 |
|
Commercial |
|
|
222,927 |
|
|
|
274,346 |
|
|
|
315,099 |
|
|
|
320,264 |
|
|
|
258,998 |
|
Consumer |
|
|
75,498 |
|
|
|
83,382 |
|
|
|
89,733 |
|
|
|
97,635 |
|
|
|
87,111 |
|
Other |
|
|
1,913 |
|
|
|
2,117 |
|
|
|
4,656 |
|
|
|
3,871 |
|
|
|
2,203 |
|
Unearned interest |
|
|
(14,548 |
) |
|
|
(14,801 |
) |
|
|
(14,245 |
) |
|
|
(13,630 |
) |
|
|
(11,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned interest |
|
$ |
1,745,378 |
|
|
$ |
2,043,807 |
|
|
$ |
2,223,390 |
|
|
$ |
2,356,376 |
|
|
$ |
1,539,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
(66,830 |
) |
|
$ |
(50,161 |
) |
|
$ |
(48,811 |
) |
|
$ |
(34,111 |
) |
|
$ |
(22,302 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Speculative 1-4 family residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition and development |
|
$ |
131,669 |
|
|
$ |
185,087 |
|
|
$ |
242,343 |
|
|
$ |
285,592 |
|
|
$ |
159,760 |
|
Lot warehouse |
|
|
42,796 |
|
|
|
66,104 |
|
|
|
79,555 |
|
|
|
104,201 |
|
|
|
64,429 |
|
Commercial 1-4 family residential |
|
|
31,511 |
|
|
|
70,434 |
|
|
|
160,786 |
|
|
|
279,680 |
|
|
|
134,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
205,976 |
|
|
|
321,625 |
|
|
|
482,684 |
|
|
|
669,473 |
|
|
|
358,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial vacant land |
|
|
77,081 |
|
|
|
101,679 |
|
|
|
103,160 |
|
|
|
69,298 |
|
|
|
37,461 |
|
Commercial construction non-owner occupied |
|
|
63,881 |
|
|
|
164,887 |
|
|
|
144,344 |
|
|
|
157,374 |
|
|
|
80,032 |
|
Commercial construction owner
occupied |
|
|
5,407 |
|
|
|
28,213 |
|
|
|
55,305 |
|
|
|
58,814 |
|
|
|
37,515 |
|
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Consumer residential construction |
|
|
14,161 |
|
|
|
19,073 |
|
|
|
27,632 |
|
|
|
38,231 |
|
|
|
25,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
160,530 |
|
|
|
313,852 |
|
|
|
330,441 |
|
|
|
323,717 |
|
|
|
180,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total speculative and construction |
|
$ |
366,506 |
|
|
$ |
635,477 |
|
|
$ |
813,125 |
|
|
$ |
993,190 |
|
|
$ |
538,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in One |
|
|
Due After One Year |
|
|
Due After |
|
|
|
|
|
|
Year or Less |
|
|
Through Five Years |
|
|
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.
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.
F-5
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.
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.
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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
F-7
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.
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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-8
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 |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
of loans |
|
|
|
|
|
|
loans in |
|
|
|
|
|
|
loans in |
|
|
|
|
|
|
of loans |
|
|
|
|
|
|
of loans |
|
|
|
|
|
|
|
in each |
|
|
|
|
|
|
each |
|
|
|
|
|
|
each |
|
|
|
|
|
|
in each |
|
|
|
|
|
|
in 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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
F-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-10
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:
|
|
|
|
|
Maturity Period |
|
Certificates of 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 |
|
|
|
|
|
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. |
F-11
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.
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; |
|
|
|
|
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; |
|
|
|
|
Repealing the federal prohibition on payment of interest on demand deposits, thereby
permitting depositing institutions to pay interest on business transaction and other
accounts; |
|
|
|
|
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; |
|
|
|
|
Restricting the preemption of state law by federal law and disallowing national bank
subsidiaries from availing themselves of such preemption; |
|
|
|
|
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; |
|
|
|
|
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; |
F-12
|
|
|
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; |
|
|
|
|
Imposing new limits on affiliated transactions and causing derivative transactions
to be subject to lending limits; and |
|
|
|
|
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. |
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:
|
|
|
The bank holding company has registered securities under Section 12 of the Securities
Exchange Act of 1934; or |
|
|
|
|
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.
F-13
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.
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
F-14
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.
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.
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
F-15
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.
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:
|
|
|
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; |
F-16
|
|
|
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; |
|
|
|
|
Not make any bonus, incentive or retention payment to any of the Companys five most
highly compensated employees, except as permitted under the IFR; |
|
|
|
|
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 |
|
|
|
|
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.
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
F-17
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.
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 Appendix F.
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
F-18
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 Appendix F. 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.
PROPERTIES
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.
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.
F-19
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. On February 11, 2011, the Court appointed
movant Jeffrey Blomgren as lead plaintiff. On May 3, 2011, Plaintiff filed an amended and
consolidated complaint alleging a class period of January 19, 2010 to November 9, 2010. Defendants
have until July 11, 2011 to file a response to this amended complaint.
The Company and the individual named defendants collectively intend to vigorously defend themselves
against these allegations.
On May 12, 2011, a shareholder of the Company filed a putative class action lawsuit (styled
Betty Smith v. Green Bankshares, Inc. et al., Case No. 11-625-III, Davidson County, Tennessee,
Chancery Court) against the Company, the Bank, the Companys Board of Directors (Steven M. Rownd,
Robert K. Leonard, Martha M. Bachman, Bruce Campbell, W.T. Daniels, Samuel E. Lynch, Bill
Mooningham, John Tolsma, Kenneth R. Vaught, and Charles E. Whitfield, Jr.), and North American on
behalf of all persons holding common stock of the Company. This
complaint, which has been subsequently amended, was filed following the Companys public announcement on May 5, 2011 of its entering
into the Investment Agreement with North American and relates to the proposed investment in the
Company by North American.
The
complaint, amended subsequent to its filing, alleges
that the individual defendants breached their fiduciary duties by
accepting a sale price for the shares to be sold to North American that was unfair to the Companys
shareholders and by issuing a proxy statement that contained material
omissions. The complaint also alleges that the Company, the Bank and North American aided and
abetted these breaches of fiduciary duty. It seeks injunctive relief and/or rescission of the
proposed investment by North American and fees and expenses in an unspecified amount.
On May 25, 2011, another shareholder of the Company filed a similar putative class action
lawsuit (styled Mark McClinton v. Green Bankshares, Inc. et al., Case No. 11-CV-284ktl, Greene
County Circuit Court, Greeneville, Tennessee) against the Company, the Companys board of directors
and North American on behalf of all persons holding the Companys common stock. The complaint
similarly alleges that the individual defendants breached their fiduciary duties to the Company by
agreeing to sell shares to North American at a price unfair to the Companys shareholders. The
complaint also alleges that the Company and North American aided and abetted these breaches of
fiduciary duty. It seeks and injunction and/or rescission of North Americans investment in the
Company and fees and expenses in an unspecified amount.
On
June 16, 2011, another shareholder of the Company filed a putative class action lawsuit
(styled Thomas W. Cook Jr. v. Green Bankshares, Inc. et al., Civil Action No. 2:11-cv-00176, United
States District Court for the Eastern District of Tennessee, Greeneville) against the Company, the
Companys board of directors and NAFH on behalf of all persons holding the Companys common stock.
The complaint alleges that the individual defendants breached their fiduciary duties to the Company
by failing to maximize shareholder value in the proposed transaction with NAFH. The complaint also
alleges that the Company and the individual defendants violated the securities laws by issuing a
Preliminary Proxy Statement that contains alleged material misstatements and omissions. The complaint also alleges that the Company and
NAFH aided and abetted the breaches of fiduciary duty. It seeks an injunction and/or rescission of
NAFHs investment in the Company, monetary damages and fees and expenses in an unspecified amount.
The Company and the individual defendants collectively intend to vigorously defend themselves
against these class action 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.
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.
F-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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 Appendix F. 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.
F-21
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 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. |
F-22
|
|
|
2 |
|
Common shareholders equity is shareholders equity less preferred stock. |
|
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.
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 |
|
|
$ |
1 64,650 |
|
|
$ |
145,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
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 |
|
F-24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
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 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 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
F-26
allowance for loan losses and a detailed description of the methodology management uses in
determining the adequacy of the allowance, see Business Lending Activities Allowance for
Loan Losses located above, and Changes in Results of Operations Provision for Loan Losses
located below.
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 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.
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
F-27
(please see 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.
F-28
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. |
F-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
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.
F-31
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.
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
F-32
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 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 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.
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
F-33
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.
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
F-34
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.
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
F-35
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.
|
|
|
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. |
|
|
|
|
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. |
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.
F-36
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%.
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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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to be Well |
|
|
|
|
|
|
|
|
|
|
Minimum Required |
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
for Capital |
|
Prompt 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 |
|
F-37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to be Well |
|
|
|
|
|
|
|
|
|
|
Minimum Required |
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
for Capital |
|
Prompt Corrective |
|
|
Actual |
|
Adequacy Purposes |
|
Action Provisions |
|
|
Actual |
|
Ratio (%) |
|
Actual |
|
Ratio (%) |
|
Actual |
|
Ratio (%) |
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 |
|
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.
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.
F-38
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.
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
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.
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.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
F-40
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.
F-41
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
F-42
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
F-43
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.
F-44
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.
F-45
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.
F-46
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.
F-47
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)
F-48
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)
F-49
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)
F-50
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)
F-51
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)
F-52
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)
F-53
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)
F-54
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)
F-55
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, 2010 |
|
|
December 31, 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)
F-56
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)
F-57
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.
(Continued)
F-58
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)
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.
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)
F-59
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 |
|
|
|
|
|
|
Owner |
|
|
Non-Owner |
|
|
|
|
|
|
Family |
|
|
Construction |
|
|
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)
F-60
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 Auto |
|
|
|
Consumer 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60-89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 |
|
|
Days |
|
|
Greater |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded |
|
|
|
Days |
|
|
Past |
|
|
Than |
|
|
Total |
|
|
|
|
|
|
Total |
|
|
Investment > 90 |
|
|
|
Past Due |
|
|
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 |
|
(Continued)
F-61
GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60-89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 |
|
|
Days |
|
|
Greater |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded |
|
|
|
Days |
|
|
Past |
|
|
Than |
|
|
Total |
|
|
|
|
|
|
Total |
|
|
Investment > 90 |
|
|
|
Past Due |
|
|
Due |
|
|
90 Days |
|
|
Past Due |
|
|
Current |
|
|
Loans |
|
|
Days and Accruing |
|
|
|
|
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)
F-62
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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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 |
|
|
|
|
|
|
|
|
|
|
Minimum Required |
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
for Capital |
|
Prompt 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)
F-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 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)
F-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 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)
F-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 13 STOCK-BASED COMPENSATION (CONTINUED)
Stock options outstanding at year-end 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
Exercisable |
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
|
Average |
|
Average |
|
|
|
|
|
Average |
|
Average |
Range of |
|
Number |
|
Remaining |
|
Exercise |
|
Number |
|
Remaining |
|
Exercise |
Exercise Prices |
|
Outstanding |
|
Contractual Life |
|
Price |
|
Outstanding |
|
Contractual 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)
F-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 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)
F-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 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)
F-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 13 STOCK-BASED COMPENSATION (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Price Per |
|
|
|
SARs |
|
|
Share |
|
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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-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 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)
F-91
GREEN BANKSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2011 and December 31, 2010
(Amounts in thousands, except share and per share data)
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010* |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
323,485 |
|
|
$ |
289,358 |
|
Federal funds sold |
|
|
7,931 |
|
|
|
4,856 |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
331,416 |
|
|
|
294,214 |
|
Interest earning deposits in other banks |
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
226,732 |
|
|
|
202,002 |
|
Securities held to maturity (with a market value of $115 and $467) |
|
|
115 |
|
|
|
465 |
|
Loans held for sale |
|
|
960 |
|
|
|
1,299 |
|
Loans, net of unearned interest |
|
|
1,680,249 |
|
|
|
1,745,378 |
|
Allowance for loan losses |
|
|
(65,109 |
) |
|
|
(66,830 |
) |
Other real estate owned and repossessed assets |
|
|
60,033 |
|
|
|
60,095 |
|
Premises and equipment, net |
|
|
77,814 |
|
|
|
78,794 |
|
FHLB and other stock, at cost |
|
|
12,734 |
|
|
|
12,734 |
|
Cash surrender value of life insurance |
|
|
31,758 |
|
|
|
31,479 |
|
Core deposit and other intangibles |
|
|
6,125 |
|
|
|
6,751 |
|
Deferred tax asset ( net of valuation allowance of $47,563 and $43,455) |
|
|
6,339 |
|
|
|
2,177 |
|
Other assets |
|
|
23,528 |
|
|
|
37,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,392,694 |
|
|
$ |
2,406,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
$ |
165,927 |
|
|
$ |
152,752 |
|
Interest bearing deposits |
|
|
1,808,309 |
|
|
|
1,822,703 |
|
Brokered deposits |
|
|
1,399 |
|
|
|
1,399 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
1,975,635 |
|
|
|
1,976,854 |
|
Repurchase agreements |
|
|
18,712 |
|
|
|
19,413 |
|
FHLB advances and notes payable |
|
|
158,588 |
|
|
|
158,653 |
|
Subordinated debentures |
|
|
88,662 |
|
|
|
88,662 |
|
Accrued interest payable and other liabilities |
|
|
18,267 |
|
|
|
18,561 |
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
2,259,864 |
|
|
$ |
2,262,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Preferred stock: no par, 1,000,000 shares authorized, 72,278 shares
outstanding |
|
$ |
68,468 |
|
|
$ |
68,121 |
|
Common stock: $2 par, 20,000,000 shares authorized, 13,182,797 and
13,188,896 shares outstanding |
|
|
26,366 |
|
|
|
26,378 |
|
Common stock warrants |
|
|
6,934 |
|
|
|
6,934 |
|
Additional paid-in capital |
|
|
189,022 |
|
|
|
188,901 |
|
Accumulated Deficit |
|
|
(158,997 |
) |
|
|
(147,436 |
) |
Accumulated other comprehensive income |
|
|
1,037 |
|
|
|
999 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
132,830 |
|
|
|
143,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,392,694 |
|
|
$ |
2,406,040 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Derived from the audited consolidated balance sheet, as filed in the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 2010. |
See notes to condensed consolidated financial statements.
F-92
GREEN BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2011 and 2010
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Unaudited) |
|
Interest income |
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
24,600 |
|
|
$ |
30,060 |
|
Taxable securities |
|
|
1,401 |
|
|
|
1,288 |
|
Nontaxable securities |
|
|
305 |
|
|
|
312 |
|
FHLB and other stock |
|
|
138 |
|
|
|
138 |
|
Federal funds sold and other |
|
|
181 |
|
|
|
94 |
|
|
|
|
|
|
|
|
Total interest income |
|
|
26,625 |
|
|
|
31,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
Deposits |
|
|
5,330 |
|
|
|
8,061 |
|
Federal funds purchased and repurchase agreements |
|
|
4 |
|
|
|
6 |
|
FHLB advances and notes payable |
|
|
1,543 |
|
|
|
1,694 |
|
Subordinated debentures |
|
|
481 |
|
|
|
472 |
|
|
|
|
|
|
|
|
Total interest expense |
|
|
7,358 |
|
|
|
10,233 |
|
|
|
|
|
|
|
|
Net interest income |
|
|
19,267 |
|
|
|
21,659 |
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
13,897 |
|
|
|
3,889 |
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
5,370 |
|
|
|
17,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
5,830 |
|
|
|
5,940 |
|
Other charges and fees |
|
|
430 |
|
|
|
356 |
|
Trust and investment services income |
|
|
515 |
|
|
|
582 |
|
Mortgage banking income |
|
|
87 |
|
|
|
118 |
|
Other income |
|
|
765 |
|
|
|
690 |
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
7,627 |
|
|
|
7,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense |
|
|
|
|
|
|
|
|
Employee compensation |
|
|
8,131 |
|
|
|
7,665 |
|
Employee benefits |
|
|
977 |
|
|
|
977 |
|
Occupancy expense |
|
|
1,794 |
|
|
|
1,699 |
|
Equipment expense |
|
|
877 |
|
|
|
708 |
|
Computer hardware/software expense |
|
|
919 |
|
|
|
824 |
|
Professional services |
|
|
788 |
|
|
|
607 |
|
Advertising |
|
|
719 |
|
|
|
598 |
|
OREO maintenance expense |
|
|
1,155 |
|
|
|
445 |
|
Collection and repossession expense |
|
|
547 |
|
|
|
1,287 |
|
Loss on OREO and repossessed assets |
|
|
2,101 |
|
|
|
509 |
|
FDIC Insurance |
|
|
1,086 |
|
|
|
851 |
|
Core deposit and other intangibles amortization |
|
|
626 |
|
|
|
651 |
|
Other expenses |
|
|
3,307 |
|
|
|
3,725 |
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
|
23,027 |
|
|
|
20,546 |
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(10,030 |
) |
|
|
4,910 |
|
|
|
|
|
|
|
|
|
|
Provision for income/(loss) taxes |
|
|
281 |
|
|
|
1,714 |
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(10,311 |
) |
|
$ |
3,196 |
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends and accretion of discount |
|
|
1,250 |
|
|
|
1,250 |
|
|
|
|
|
|
|
|
Net income/(loss) available to common shareholders |
|
$ |
(11,561 |
) |
|
$ |
1,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share of common stock: |
|
|
|
|
|
|
|
|
Basic earnings |
|
$ |
(0.88 |
) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
Diluted earnings |
|
|
(0.88 |
) |
|
|
0.15 |
|
|
|
|
|
|
|
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
13,108,598 |
|
|
|
13,082,347 |
|
|
|
|
|
|
|
|
Diluted |
|
|
13,108,598 |
|
|
|
13,172,727 |
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
F-93
GREEN BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
For the Three Months Ended March 31, 2011
(Unaudited)
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
Preferred |
|
|
Common Stock |
|
|
Common |
|
|
Paid-in |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Shareholders |
|
|
|
Stock |
|
|
Shares |
|
|
Amount |
|
|
Stock |
|
|
Capital |
|
|
(Deficit) |
|
|
Income |
|
|
Equity |
|
Balance, December 31, 2010 |
|
$ |
68,121 |
|
|
|
13,188,896 |
|
|
$ |
26,378 |
|
|
$ |
6,934 |
|
|
$ |
188,901 |
|
|
$ |
(147,436 |
) |
|
$ |
999 |
|
|
$ |
143,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of preferred stock discount |
|
|
347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(347 |
) |
|
|
|
|
|
|
|
|
Preferred stock dividends accrued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(903 |
) |
|
|
|
|
|
|
(903 |
) |
Common stock transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of restricted common shares |
|
|
|
|
|
|
(6,099 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
(64 |
) |
Compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
50 |
|
Restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
123 |
|
Comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,311 |
) |
|
|
|
|
|
|
(10,311 |
) |
Change in unrealized gains,
net of reclassification and taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income/(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011 |
|
$ |
68,468 |
|
|
|
13,182,797 |
|
|
$ |
26,366 |
|
|
$ |
6,934 |
|
|
$ |
189,022 |
|
|
$ |
(158,997 |
) |
|
$ |
1,037 |
|
|
$ |
132,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
F-94
GREEN BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2011 and 2010
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Unaudited) |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(10,311 |
) |
|
$ |
3,196 |
|
Adjustments to reconcile net income / (loss) to net cash provided by operating
activities |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
13,897 |
|
|
|
3,889 |
|
Depreciation and amortization |
|
|
1,736 |
|
|
|
1,828 |
|
Security amortization and accretion, net |
|
|
129 |
|
|
|
59 |
|
Net gain on sale of mortgage loans |
|
|
(78 |
) |
|
|
(110 |
) |
Originations of mortgage loans held for sale |
|
|
(7,421 |
) |
|
|
(8,741 |
) |
Proceeds from sales of mortgage loans |
|
|
7,838 |
|
|
|
9,794 |
|
Increase in cash surrender value of life insurance |
|
|
(279 |
) |
|
|
(265 |
) |
Net losses from sales of fixed assets |
|
|
203 |
|
|
|
3 |
|
Stock-based compensation expense |
|
|
109 |
|
|
|
156 |
|
Net loss on other real estate and repossessed assets |
|
|
2,099 |
|
|
|
509 |
|
Deferred tax benefit |
|
|
|
|
|
|
(303 |
) |
Net changes: |
|
|
|
|
|
|
|
|
Other assets |
|
|
9,769 |
|
|
|
4,970 |
|
Accrued interest payable and other liabilities |
|
|
(1,196 |
) |
|
|
(5,895 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
16,495 |
|
|
|
9,090 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchase of securities available for sale |
|
|
(35,782 |
) |
|
|
(51,525 |
) |
Proceeds from maturities of securities available for sale |
|
|
10,985 |
|
|
|
27,072 |
|
Proceeds from maturities of securities held to maturity |
|
|
350 |
|
|
|
10 |
|
Net change in loans |
|
|
43,266 |
|
|
|
28,763 |
|
Proceeds from sale of other real estate |
|
|
4,322 |
|
|
|
2,368 |
|
Improvements to other real estate |
|
|
(113 |
) |
|
|
(332 |
) |
Proceeds from sale of fixed assets |
|
|
7 |
|
|
|
|
|
Premises and equipment expenditures |
|
|
(342 |
) |
|
|
(566 |
) |
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
22,693 |
|
|
|
5,790 |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net change in core deposits |
|
|
(1,219 |
) |
|
|
(41,046 |
) |
Net change in brokered deposits |
|
|
|
|
|
|
(5,185 |
) |
Net change in repurchase agreements |
|
|
(702 |
) |
|
|
(619 |
) |
Repayments of FHLB advances and notes payable |
|
|
(65 |
) |
|
|
(80 |
) |
Preferred stock dividends paid |
|
|
|
|
|
|
(903 |
) |
Common stock dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) in financing activities |
|
|
(1,986 |
) |
|
|
(47,833 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
37,202 |
|
|
|
(32,953 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
294,214 |
|
|
|
210,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
331,416 |
|
|
$ |
177,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures cash and noncash |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
7,044 |
|
|
$ |
10,523 |
|
Loans converted to other real estate |
|
|
6,616 |
|
|
|
18,540 |
|
Unrealized gain on available for sale securities, net of tax |
|
|
38 |
|
|
|
970 |
|
Loans Originated to finance / sell other real estate |
|
|
1,020 |
|
|
|
1,417 |
|
See notes to condensed consolidated financial statements.
F-95
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 1 PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements of Green Bankshares, Inc.
(the Company) and its wholly owned subsidiary, GreenBank (the Bank), have been prepared in
accordance with accounting principles generally accepted in the United States of America for
interim information and in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X as promulgated by the Securities and Exchange Commission (SEC). Accordingly, they
do not include all the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months ended March 31, 2011
are not necessarily indicative of the results that may be expected for the year ending December 31,
2011. For further information, refer to the consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010. Certain
amounts from prior period financial statements have been reclassified to conform to the current
years presentation.
NOTE 2 SECURITIES
Securities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
93,966 |
|
|
$ |
138 |
|
|
$ |
(1,031 |
) |
|
$ |
93,073 |
|
States and political subdivisions |
|
|
30,225 |
|
|
|
845 |
|
|
|
(271 |
) |
|
|
30,799 |
|
Collateralized mortgage obligations |
|
|
78,300 |
|
|
|
1,861 |
|
|
|
(395 |
) |
|
|
79,766 |
|
Mortgage-backed securities |
|
|
20,685 |
|
|
|
749 |
|
|
|
(30 |
) |
|
|
21,404 |
|
Trust preferred securities |
|
|
1,850 |
|
|
|
|
|
|
|
(160 |
) |
|
|
1,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
225,026 |
|
|
$ |
3,593 |
|
|
$ |
(1,887 |
) |
|
$ |
226,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions |
|
$ |
115 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
115 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions |
|
$ |
215 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
216 |
|
Other securities |
|
|
250 |
|
|
|
1 |
|
|
|
|
|
|
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
465 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-96
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 2 SECURITIES (Continued)
Contractual maturities of securities at March 31, 2011 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 |
|
$ |
989 |
|
|
$ |
115 |
|
|
$ |
115 |
|
Due after one year through five years |
|
|
4,723 |
|
|
|
|
|
|
|
|
|
Due after five years through ten years |
|
|
64,980 |
|
|
|
|
|
|
|
|
|
Due after ten years |
|
|
54,870 |
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations |
|
|
79,766 |
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
21,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total maturities |
|
$ |
226,732 |
|
|
$ |
115 |
|
|
$ |
115 |
|
|
|
|
|
|
|
|
|
|
|
There were no realized gross gains or (losses) from sales of investment securities for the three
month periods ended March 31, 2011 and 2010.
Securities with a carrying value of $164,457 and $135,692 at March 31, 2011 and December 31, 2010,
respectively, 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 $19,381 and $7,983 at March 31, 2011 and December 31, 2010, respectively.
Securities with unrealized losses at March 31, 2011 and December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. government agencies |
|
$ |
66,950 |
|
|
$ |
(1,031 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
66,950 |
|
|
$ |
(1,031 |
) |
States and political subdivisions |
|
|
3,798 |
|
|
|
(58 |
) |
|
|
1,749 |
|
|
|
(213 |
) |
|
|
5,547 |
|
|
|
(271 |
) |
Collateralized mortgage
obligations |
|
|
19,893 |
|
|
|
(383 |
) |
|
|
2,790 |
|
|
|
(12 |
) |
|
|
22,683 |
|
|
|
(395 |
) |
Mortgage-backed securities |
|
|
2,986 |
|
|
|
(27 |
) |
|
|
6 |
|
|
|
(3 |
) |
|
|
2,992 |
|
|
|
(30 |
) |
Trust preferred securities |
|
|
|
|
|
|
|
|
|
|
1,690 |
|
|
|
(160 |
) |
|
|
1,690 |
|
|
|
(160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired |
|
$ |
93,627 |
|
|
$ |
(1,499 |
) |
|
$ |
6,235 |
|
|
$ |
(388 |
) |
|
$ |
99,862 |
|
|
$ |
(1,887 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-97
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
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. 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 March 31, 2011 no other communications between the bank
holding company and the Federal Reserve Bank of St. Louis have been made public. Our estimated fair
value implies a modest unrealized loss of $37, related primarily to illiquidity. The Company did
not recognize other-than-temporary impairment on the security during the quarter ended March 31,
2011.
The Company holds a private label class A21 collateralized mortgage obligation that was
analyzed for the quarter ended March 31, 2011 with multiple stress scenarios using conservative
assumptions for underlying collateral defaults, loss severity, and prepayments. The securitys
estimated fair value implies an unrealized loss of $12, an improvement of $91 compared to December
31, 2010. The Company did not recognize a write-down through non-interest income representing
other-than-temporary impairment on the security for the quarter ended March 31, 2011.
F-98
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 2 SECURITIES (Continued)
The following table presents more detail on selective Company security holdings as of March 31,
2011. These details are listed separately due to the inherent level of risk for OTTI on these
securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
Credit |
|
Book |
|
Fair |
|
Unrealized |
Description |
|
Cusip# |
|
Rating |
|
Value |
|
Value |
|
Loss |
Collateralized mortgage
obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo 2007 - 4 A21 |
|
94985RAW2 |
|
Caa2 |
|
$ |
2,802 |
|
|
$ |
2,790 |
|
|
$ |
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Tennessee Bancshares, Inc. |
|
956192AA6 |
|
N/A |
|
|
675 |
|
|
|
638 |
|
|
|
(37 |
) |
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 March 31, 2011 and
2010. There were no credit losses on the Companys investment securities recognized in earnings
during the quarter ended March 31, 2011 or the quarter ended March 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
First Quarter |
|
|
|
2011 |
|
|
2010 |
|
Beginning balance of credit losses at January 1, 2011 and 2010 |
|
$ |
1,069 |
|
|
$ |
976 |
|
Other-than-temporary impairment credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of cumulative credit losses recognized in earnings |
|
$ |
1,069 |
|
|
$ |
976 |
|
|
|
|
|
|
|
|
F-99
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 3 LOANS
Loans at March 31, 2011 and December 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Commercial real estate |
|
$ |
1,028,903 |
|
|
$ |
1,080,805 |
|
Residential real estate |
|
|
379,616 |
|
|
|
378,783 |
|
Commercial |
|
|
208,496 |
|
|
|
222,927 |
|
Consumer |
|
|
75,379 |
|
|
|
75,498 |
|
Other |
|
|
3,139 |
|
|
|
1,913 |
|
Unearned income |
|
|
(15,284 |
) |
|
|
(14,548 |
) |
|
|
|
|
|
|
|
Loans, net of unearned income |
|
$ |
1,680,249 |
|
|
$ |
1,745,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
(65,109 |
) |
|
$ |
(66,830 |
) |
|
|
|
|
|
|
|
Activity in the allowance for loan losses is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Beginning balance |
|
$ |
66,830 |
|
|
$ |
50,161 |
|
Add (deduct): |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
13,897 |
|
|
|
3,889 |
|
Loans charged off |
|
|
(16,404 |
) |
|
|
(4,733 |
) |
Recoveries of loans charged off |
|
|
786 |
|
|
|
850 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
65,109 |
|
|
$ |
50,167 |
|
|
|
|
|
|
|
|
F-100
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 3 LOANS (Continued)
Activity in the allowance for loan losses and recorded investment in loans by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real |
|
|
Residential Real |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estate |
|
|
Estate |
|
|
Commercial |
|
|
Consumer |
|
|
Other |
|
|
Total |
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
54,203 |
|
|
$ |
4,431 |
|
|
$ |
5,080 |
|
|
$ |
3,108 |
|
|
$ |
8 |
|
|
$ |
66,830 |
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
(14,919 |
) |
|
|
(312 |
) |
|
|
(728 |
) |
|
|
(445 |
) |
|
|
|
|
|
|
(16,404 |
) |
Recoveries |
|
|
196 |
|
|
|
29 |
|
|
|
378 |
|
|
|
183 |
|
|
|
|
|
|
|
786 |
|
Provision |
|
|
13,886 |
|
|
|
234 |
|
|
|
915 |
|
|
|
(1,138 |
) |
|
|
|
|
|
|
13,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
53,366 |
|
|
$ |
4,382 |
|
|
$ |
5,645 |
|
|
$ |
1,708 |
|
|
$ |
8 |
|
|
$ |
65,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation for loans
individually evaluated
for impairment |
|
$ |
19,662 |
|
|
$ |
1,120 |
|
|
$ |
1,732 |
|
|
$ |
154 |
|
|
$ |
|
|
|
$ |
22,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation for loans
collectively evaluated
for impairment |
|
|
33,704 |
|
|
|
3,262 |
|
|
|
3,913 |
|
|
|
1,554 |
|
|
|
8 |
|
|
|
42,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
$ |
53,366 |
|
|
$ |
4,382 |
|
|
$ |
5,645 |
|
|
$ |
1,708 |
|
|
$ |
8 |
|
|
$ |
65,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance: individually
evaluated for impairment |
|
$ |
181,082 |
|
|
$ |
9,657 |
|
|
$ |
7,512 |
|
|
$ |
1,286 |
|
|
$ |
|
|
|
$ |
199,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively
evaluated
for impairment |
|
$ |
847,821 |
|
|
$ |
363,266 |
|
|
$ |
200,984 |
|
|
$ |
66,458 |
|
|
$ |
3,139 |
|
|
$ |
1,481,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-101
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 3 LOANS (Continued)
Impaired loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2011 |
|
2010 |
Loans with no allowance allocated |
|
$ |
95,432 |
|
|
$ |
81,981 |
|
Loans with allowance allocated |
|
$ |
104,105 |
|
|
$ |
104,010 |
|
Amount of allowance allocated |
|
|
22,668 |
|
|
|
24,834 |
|
Average impaired loan balance during the year |
|
|
207,166 |
|
|
|
212,167 |
|
Interest income not recognized during impairment |
|
|
500 |
|
|
|
1,105 |
|
Impaired loans of $199,537, and $185,991, respectively, at March 31, 2011 and December 31, 2010 are
shown net of amounts previously charged off of $36,813, and $36,574, respectively. Interest income
actually recognized on these loans at March 31, 2011 and December 31, 2010 was $578, and $4,843,
respectively.
Impaired loans by class are presented below as of March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid |
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
|
Recorded |
|
|
Principal |
|
|
Related |
|
|
Recorded |
|
|
Income |
|
|
|
Investment |
|
|
Balance |
|
|
Allowance |
|
|
Investment |
|
|
Recognized |
|
|
|
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Speculative 1-4 Family |
|
$ |
75,482 |
|
|
$ |
111,392 |
|
|
$ |
11,085 |
|
|
$ |
79,742 |
|
|
$ |
231 |
|
Construction |
|
|
46,456 |
|
|
|
65,525 |
|
|
|
4,379 |
|
|
|
49,747 |
|
|
|
71 |
|
Owner Occupied |
|
|
14,782 |
|
|
|
15,365 |
|
|
|
543 |
|
|
|
15,143 |
|
|
|
18 |
|
Non-owner Occupied |
|
|
43,663 |
|
|
|
46,035 |
|
|
|
3,655 |
|
|
|
44,177 |
|
|
|
182 |
|
Other |
|
|
699 |
|
|
|
738 |
|
|
|
|
|
|
|
706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOC |
|
|
3,199 |
|
|
|
3,295 |
|
|
|
|
|
|
|
3,206 |
|
|
|
15 |
|
Mortgage-Prime |
|
|
6,260 |
|
|
|
6,801 |
|
|
|
1,069 |
|
|
|
6,373 |
|
|
|
41 |
|
Mortgage-Subprime |
|
|
650 |
|
|
|
649 |
|
|
|
51 |
|
|
|
650 |
|
|
|
|
|
Other |
|
|
102 |
|
|
|
122 |
|
|
|
|
|
|
|
103 |
|
|
|
|
|
Commercial |
|
|
7,512 |
|
|
|
8,702 |
|
|
|
1,732 |
|
|
|
7,825 |
|
|
|
17 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
222 |
|
|
|
234 |
|
|
|
|
|
|
|
235 |
|
|
|
3 |
|
Subprime |
|
|
86 |
|
|
|
86 |
|
|
|
90 |
|
|
|
86 |
|
|
|
|
|
Auto-Subprime |
|
|
424 |
|
|
|
424 |
|
|
|
64 |
|
|
|
424 |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
199,537 |
|
|
|
259,368 |
|
|
|
22,668 |
|
|
|
208,417 |
|
|
|
578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-102
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 3 LOANS (Continued)
Impaired loans by class are presented below as of December 31, 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.
F-103
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 3 LOANS (Continued)
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.
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, its
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.
F-104
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 3 LOANS (Continued)
Credit quality indicators by class are presented below as of March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Speculative 1-4 |
|
|
|
|
|
|
Owner |
|
|
Non-Owner |
|
|
|
|
|
|
Family |
|
|
Construction |
|
|
Occupied |
|
|
Occupied |
|
|
Other |
|
|
|
|
Commercial Real
Estate Credit
Exposure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Desirable |
|
|
|
|
|
|
1,585 |
|
|
|
971 |
|
|
|
173 |
|
|
|
|
|
Satisfactory tier I |
|
|
2,773 |
|
|
|
899 |
|
|
|
29,677 |
|
|
|
35,754 |
|
|
|
919 |
|
Satisfactory tier II |
|
|
13,816 |
|
|
|
18,949 |
|
|
|
111,367 |
|
|
|
155,082 |
|
|
|
6,664 |
|
Acceptable with care |
|
|
60,611 |
|
|
|
43,092 |
|
|
|
58,729 |
|
|
|
185,416 |
|
|
|
6,850 |
|
Management Watch |
|
|
25,855 |
|
|
|
15,592 |
|
|
|
8,985 |
|
|
|
34,028 |
|
|
|
2,036 |
|
Substandard |
|
|
78,764 |
|
|
|
55,190 |
|
|
|
19,051 |
|
|
|
52,929 |
|
|
|
3,146 |
|
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
181,819 |
|
|
|
135,307 |
|
|
|
228,780 |
|
|
|
463,382 |
|
|
|
19,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicators by class are presented below as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Speculative 1-4 |
|
|
|
|
|
|
Owner |
|
|
Non-Owner |
|
|
|
|
|
|
Family |
|
|
Construction |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-105
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 3 LOANS (Continued)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
Commercial |
|
|
Commercial |
|
|
|
|
Commercial Credit Exposure |
|
|
|
|
|
|
|
|
Prime |
|
$ |
1,418 |
|
|
$ |
1,236 |
|
Desirable |
|
|
6,098 |
|
|
|
7,951 |
|
Satisfactory tier I |
|
|
31,276 |
|
|
|
33,859 |
|
Satisfactory tier II |
|
|
85,849 |
|
|
|
91,505 |
|
Acceptable with care |
|
|
63,295 |
|
|
|
72,286 |
|
Management Watch |
|
|
8,826 |
|
|
|
8,511 |
|
Substandard |
|
|
11,734 |
|
|
|
7,579 |
|
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
208,496 |
|
|
|
222,927 |
|
|
|
|
|
|
|
|
As of March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
|
|
|
|
HELOC |
|
|
Mortgage |
|
|
Subprime |
|
|
Other |
|
|
|
|
Consumer Real
Estate Credit
Exposure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
$ |
192,083 |
|
|
$ |
151,975 |
|
|
$ |
11,668 |
|
|
$ |
3,932 |
|
Management Watch |
|
|
1,017 |
|
|
|
2,042 |
|
|
|
|
|
|
|
|
|
Substandard |
|
|
3,695 |
|
|
|
6,359 |
|
|
|
50 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
196,795 |
|
|
|
160,376 |
|
|
|
11,718 |
|
|
|
4,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-106
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 3 LOANS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
Consumer Auto |
|
As of March 31, 2011 |
|
Consumer Prime |
|
|
Subprime |
|
|
Subprime |
|
|
|
|
Consumer Credit Exposure |
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
$ |
33,964 |
|
|
$ |
12,963 |
|
|
$ |
19,468 |
|
Management Watch |
|
|
|
|
|
|
|
|
|
|
|
|
Substandard |
|
|
221 |
|
|
|
76 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
34,185 |
|
|
|
13,039 |
|
|
|
19,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
Consumer Auto |
|
As of December 31, 2010 |
|
Consumer 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 restructured 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.
F-107
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 3 LOANS (Continued)
Age analysis of past due loans by class are presented below as of March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
|
|
|
|
|
Greater |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
> 90 Days |
|
|
|
30-59 Days |
|
|
60-89 Days |
|
|
Than 90 |
|
|
Total Past |
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
Past Due |
|
|
Past Due |
|
|
Days |
|
|
Due |
|
|
Current |
|
|
Total Loans |
|
|
Accruing |
|
|
|
|
Commercial
real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Speculative 1-4 |
|
$ |
9,179 |
|
|
$ |
3,222 |
|
|
$ |
41,377 |
|
|
$ |
53,778 |
|
|
$ |
128,041 |
|
|
$ |
181,819 |
|
|
$ |
5,518 |
|
Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
248 |
|
|
|
18,622 |
|
|
|
18,870 |
|
|
|
116,437 |
|
|
|
135,307 |
|
|
|
|
|
Owner |
|
|
4,499 |
|
|
|
126 |
|
|
|
11,610 |
|
|
|
16,235 |
|
|
|
212,545 |
|
|
|
228,780 |
|
|
|
|
|
Occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner |
|
|
6,170 |
|
|
|
3,848 |
|
|
|
17,675 |
|
|
|
27,693 |
|
|
|
435,689 |
|
|
|
463,382 |
|
|
|
|
|
Occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
835 |
|
|
|
619 |
|
|
|
192 |
|
|
|
1,646 |
|
|
|
17,969 |
|
|
|
19,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOC |
|
|
1,077 |
|
|
|
155 |
|
|
|
1,024 |
|
|
|
2,256 |
|
|
|
194,539 |
|
|
|
196,795 |
|
|
|
|
|
Mortgage-Prime |
|
|
6,196 |
|
|
|
1,381 |
|
|
|
2,711 |
|
|
|
10,288 |
|
|
|
150,088 |
|
|
|
160,376 |
|
|
|
|
|
Mortgage-Subprime |
|
|
51 |
|
|
|
6 |
|
|
|
72 |
|
|
|
129 |
|
|
|
11,589 |
|
|
|
11,718 |
|
|
|
|
|
Other |
|
|
85 |
|
|
|
3 |
|
|
|
81 |
|
|
|
169 |
|
|
|
3,865 |
|
|
|
4,034 |
|
|
|
|
|
Commercial |
|
|
608 |
|
|
|
267 |
|
|
|
5,795 |
|
|
|
6,670 |
|
|
|
201,826 |
|
|
|
208,496 |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
201 |
|
|
|
58 |
|
|
|
51 |
|
|
|
310 |
|
|
|
33,875 |
|
|
|
34,185 |
|
|
|
2 |
|
Subprime |
|
|
140 |
|
|
|
104 |
|
|
|
53 |
|
|
|
297 |
|
|
|
12,742 |
|
|
|
13,039 |
|
|
|
|
|
Auto-Subprime |
|
|
565 |
|
|
|
110 |
|
|
|
125 |
|
|
|
800 |
|
|
|
18,764 |
|
|
|
19,564 |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,139 |
|
|
|
3,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
29,606 |
|
|
|
10,147 |
|
|
|
99,388 |
|
|
|
139,141 |
|
|
|
1,541,108 |
|
|
|
1,680,249 |
|
|
|
5,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-108
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 3 LOANS (Continued)
Age analysis of past due loans by class are presented below for December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
|
|
|
|
|
Greater |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
> 90 Days |
|
|
|
30-59 Days |
|
|
60-89 Days |
|
|
Than 90 |
|
|
Total Past |
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
Past Due |
|
|
Past Due |
|
|
Days |
|
|
Due |
|
|
Current |
|
|
Total Loans |
|
|
Accruing |
|
|
|
|
Commercial
real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Speculative 1-4 |
|
$ |
22,267 |
|
|
$ |
1,777 |
|
|
$ |
30,802 |
|
|
$ |
54,846 |
|
|
$ |
151,130 |
|
|
$ |
205,976 |
|
|
$ |
1,758 |
|
Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
14,541 |
|
|
|
|
|
|
|
26,915 |
|
|
|
41,456 |
|
|
|
119,074 |
|
|
|
160,530 |
|
|
|
|
|
Owner |
|
|
8,114 |
|
|
|
1,633 |
|
|
|
4,137 |
|
|
|
13,884 |
|
|
|
211,875 |
|
|
|
225,759 |
|
|
|
|
|
Occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner |
|
|
4,014 |
|
|
|
5,961 |
|
|
|
8,814 |
|
|
|
18,789 |
|
|
|
392,127 |
|
|
|
410,916 |
|
|
|
170 |
|
Occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-109
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 3 LOANS (Continued)
Non-accrual loans by class are presented below:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December |
|
|
|
2011 |
|
|
31, 2010 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
Speculative 1-4 Family |
|
$ |
60,024 |
|
|
$ |
63,298 |
|
Construction |
|
|
38,629 |
|
|
|
41,789 |
|
Owner Occupied |
|
|
14,458 |
|
|
|
5,511 |
|
Non-owner Occupied |
|
|
30,720 |
|
|
|
18,772 |
|
Other |
|
|
192 |
|
|
|
1,865 |
|
|
|
|
|
|
|
|
|
|
Residential real estate: |
|
|
|
|
|
|
|
|
HELOC |
|
|
2,025 |
|
|
|
1,668 |
|
Mortgage-Prime |
|
|
4,758 |
|
|
|
3,350 |
|
Mortgage-Subprime |
|
|
351 |
|
|
|
254 |
|
Other |
|
|
102 |
|
|
|
957 |
|
Commercial |
|
|
7,034 |
|
|
|
5,813 |
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
Prime |
|
|
143 |
|
|
|
130 |
|
Subprime |
|
|
163 |
|
|
|
107 |
|
Auto-Subprime |
|
|
217 |
|
|
|
193 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
158,816 |
|
|
|
143,707 |
|
|
|
|
|
|
|
|
Nonperforming loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Loans past due 90 days still on accrual |
|
$ |
5,592 |
|
|
$ |
2,112 |
|
Nonaccrual loans |
|
|
158,816 |
|
|
|
143,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
164,408 |
|
|
$ |
145,819 |
|
|
|
|
|
|
|
|
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.
F-110
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
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 March 31, 2011, the Company had $39,944 of
restructured loans of which $10,255 was classified as non-accrual and the remaining were
performing. The Company had taken charge-offs of $2,745 on the restructured non-accrual loans as of
March 31, 2011. At December 31, 2010, the Company had $47,154 of restructured loans of which $8,469
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, 2010.
The aggregate amount of loans to executive officers and directors of the Company and their related
interests was approximately $7,795 and $7,848 at March 31, 2011 and December 31, 2010,
respectively.
F-111
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 4 EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share (EPS) of common stock is computed by dividing net income available to
common shareholders by the weighted average number of common shares outstanding during the period.
Diluted earnings per share of common stock is computed by dividing net income available to common
shareholders by the weighted average number of common shares and potential common shares
outstanding during the period. Stock options, warrants and restricted common shares are regarded as
potential common shares. Potential common shares are computed using the treasury stock method. For
the three months ended March 31, 2011, 979,974 options and warrants are excluded from the effect of
dilutive securities because they are anti-dilutive; 1,017,645 options are similarly excluded from
the effect of dilutive securities for the three months ended March 31, 2010.
The following is a reconciliation of the numerators and denominators used in the basic and diluted
earnings per share computations for the three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Basic Earnings Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(10,311 |
) |
|
$ |
3,196 |
|
Less: preferred stock dividends and accretion of discount on
warrants |
|
|
1,250 |
|
|
|
1,250 |
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
(11,561 |
) |
|
$ |
1,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
13,108,598 |
|
|
|
13,082,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share available to common shareholders |
|
$ |
(0.88 |
) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(10,311 |
) |
|
$ |
3,196 |
|
Less: preferred stock dividends and accretion of discount on
warrants |
|
|
1,250 |
|
|
|
1,250 |
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
(11,561 |
) |
|
$ |
1,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
13,108,598 |
|
|
|
13,082,347 |
|
|
|
|
|
|
|
|
|
|
Add: Dilutive effects of assumed conversions of restricted stock
and exercises of stock options and warrants |
|
|
|
|
|
|
90,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and dilutive potential
common shares outstanding |
|
|
13,108,598 |
|
|
|
13,172,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share available to common
shareholders |
|
$ |
(0.88 |
) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
NOTE: |
|
Dividends of $3,255 on preferred stock have been accrued as the Company intends to pay. |
F-112
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 5 SEGMENT INFORMATION
The Companys operating segments include banking, mortgage banking, consumer finance, automobile
lending and title insurance. The reportable segments are determined by the products and services
offered, and internal reporting. Loans, investments and deposits provide the revenues in the
banking operation; loans and fees provide the revenues in consumer finance and mortgage banking and
insurance commissions provide revenues for the title insurance company. Consumer finance,
automobile lending and title insurance do not meet the quantitative threshold on an individual
basis, and are therefore shown below in Other Segments. Mortgage banking operations are included
in Bank. All operations are domestic.
Segment performance is evaluated using net interest income and non-interest 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 |
|
|
|
|
|
|
|
Three months ended March 31, 2011 |
|
Bank |
|
|
Segments |
|
|
Company |
|
|
Eliminations |
|
|
Totals |
|
Net interest income (expense) |
|
$ |
17,611 |
|
|
$ |
2,148 |
|
|
$ |
(492 |
) |
|
$ |
|
|
|
$ |
19,267 |
|
Provision for loan losses |
|
|
13,627 |
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
13,897 |
|
Noninterest income |
|
|
7,379 |
|
|
|
476 |
|
|
|
14 |
|
|
|
(242 |
) |
|
|
7,627 |
|
Noninterest expense |
|
|
22,115 |
|
|
|
1,243 |
|
|
|
(89 |
) |
|
|
(242 |
) |
|
|
23,027 |
|
Income tax expense (benefit) |
|
|
(46 |
) |
|
|
436 |
|
|
|
(109 |
) |
|
|
|
|
|
|
281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss) |
|
|
(10,706 |
) |
|
$ |
675 |
|
|
$ |
(280 |
) |
|
$ |
|
|
|
$ |
(10,311 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets at March 31, 2011 |
|
$ |
2,342,891 |
|
|
$ |
43,322 |
|
|
$ |
6,481 |
|
|
$ |
|
|
|
$ |
2,392,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Holding |
|
|
|
|
|
|
|
Three months ended March 31, 2010 |
|
Bank |
|
|
Segments |
|
|
Company |
|
|
Eliminations |
|
|
Totals |
|
Net interest income (expense) |
|
$ |
20,068 |
|
|
$ |
2,063 |
|
|
$ |
(472 |
) |
|
$ |
|
|
|
$ |
21,659 |
|
Provision for loan losses |
|
|
3,356 |
|
|
|
533 |
|
|
|
|
|
|
|
|
|
|
|
3,889 |
|
Noninterest income |
|
|
7,528 |
|
|
|
371 |
|
|
|
14 |
|
|
|
(227 |
) |
|
|
7,686 |
|
Noninterest expense |
|
|
19,469 |
|
|
|
1,115 |
|
|
|
189 |
|
|
|
(227 |
) |
|
|
20,546 |
|
Income tax expense (benefit) |
|
|
1,628 |
|
|
|
309 |
|
|
|
(223 |
) |
|
|
|
|
|
|
1,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss) |
|
|
3,143 |
|
|
$ |
477 |
|
|
$ |
(424 |
) |
|
$ |
|
|
|
$ |
3,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets at March 31, 2010 |
|
$ |
2,520,503 |
|
|
$ |
41,663 |
|
|
$ |
7,566 |
|
|
$ |
|
|
|
$ |
2,569,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-113
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 5 SEGMENT INFORMATION (Continued)
Asset Quality Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the period ended March 31, 2011 |
|
Bank |
|
Other |
|
Total |
Nonperforming loans as percentage of total loans, net of unearned income |
|
|
9.84 |
% |
|
|
1.65 |
% |
|
|
9.78 |
% |
Nonperforming assets as a percentage of total assets |
|
|
9.34 |
% |
|
|
2.07 |
% |
|
|
9.38 |
% |
Allowance for loan losses as a percentage of total loans, net of
unearned income |
|
|
3.72 |
% |
|
|
7.25 |
% |
|
|
3.87 |
% |
Allowance for loan losses as a percentage of nonperforming loans |
|
|
37.81 |
% |
|
|
439.21 |
% |
|
|
39.60 |
% |
YTD net charge-offs to average total loans, net of unearned income |
|
|
0.90 |
% |
|
|
0.61 |
% |
|
|
0.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the period ended March 31, 2010 |
|
Bank |
|
Other |
|
Total |
Nonperforming loans as percentage of total loans, net of unearned income |
|
|
3.19 |
% |
|
|
1.23 |
% |
|
|
3.19 |
% |
Nonperforming assets as a percentage of total assets |
|
|
5.25 |
% |
|
|
1.37 |
% |
|
|
5.27 |
% |
Allowance for loan losses as a percentage of total loans, net of
unearned income |
|
|
2.36 |
% |
|
|
8.13 |
% |
|
|
2.52 |
% |
Allowance for loan losses as a percentage of nonperforming loans |
|
|
73.98 |
% |
|
|
661.74 |
% |
|
|
78.85 |
% |
YTD net charge-offs to average total loans, net of unearned income |
|
|
0.17 |
% |
|
|
1.25 |
% |
|
|
0.19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year 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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
Bank |
|
Other |
|
Total |
For the three month period ended March 31, 2011 |
|
$ |
15,347 |
|
|
$ |
270 |
|
|
$ |
15,617 |
|
For the three month period ended March 31, 2010 |
|
$ |
3,345 |
|
|
$ |
537 |
|
|
$ |
3,882 |
|
For the year ended December 31, 2010 |
|
$ |
52,615 |
|
|
$ |
1,823 |
|
|
$ |
54,438 |
|
F-114
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 6 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.
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.
F-115
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 6 FAIR VALUE DISCLOSURES (continued)
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 March 31, 2011, substantially all of
the total 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, 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.
F-116
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 6 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Carrying |
|
Assets/Liabilities |
|
|
Fair Value Measurement Using |
|
Amount in |
|
Measured at Fair |
Description |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Balance Sheet |
|
Value |
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
|
|
|
$ |
93,073 |
|
|
$ |
|
|
|
$ |
93,073 |
|
|
$ |
93,073 |
|
States and political subdivisions |
|
|
|
|
|
|
30,799 |
|
|
|
|
|
|
|
30,799 |
|
|
|
30,799 |
|
Collateralized mortgage obligations |
|
|
|
|
|
|
79,766 |
|
|
|
|
|
|
|
79,766 |
|
|
|
79,766 |
|
Mortgage-backed securities |
|
|
|
|
|
|
21,404 |
|
|
|
|
|
|
|
21,404 |
|
|
|
21,404 |
|
Trust preferred securities |
|
|
|
|
|
|
1,052 |
|
|
|
638 |
|
|
|
1,690 |
|
|
|
1,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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 |
|
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.
F-117
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 6 FAIR VALUE DISCLOSURES (continued)
The following table shows a reconciliation of the beginning and ending balances for assets measured
at fair value on a recurring basis using significant unobservable inputs.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Beginning balance, January 1 |
|
$ |
638 |
|
|
$ |
638 |
|
Total gains or (loss) (realized/unrealized) |
|
|
|
|
|
|
|
|
Included in earnings |
|
|
|
|
|
|
|
|
Included in other comprehensive income |
|
|
|
|
|
|
|
|
Paydowns and maturities |
|
|
|
|
|
|
|
|
Transfers into Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, March 31 |
|
$ |
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 |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate |
|
$ |
|
|
|
$ |
|
|
|
$ |
6,008 |
|
|
$ |
6,008 |
|
|
$ |
6,008 |
|
Impaired loans |
|
|
|
|
|
|
|
|
|
|
125,361 |
|
|
|
125,361 |
|
|
|
125,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
131,369 |
|
|
$ |
131,369 |
|
|
$ |
131,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate |
|
$ |
|
|
|
$ |
|
|
|
$ |
38,806 |
|
|
$ |
38,806 |
|
|
$ |
38,806 |
|
Impaired loans |
|
|
|
|
|
|
|
|
|
|
129,088 |
|
|
|
129,088 |
|
|
|
129,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
167,174 |
|
|
$ |
167,174 |
|
|
$ |
167,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-118
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 6 FAIR VALUE DISCLOSURES (Continued)
The carrying value and estimated fair value of the Companys financial instruments are as follows
at March 31, 2011 and December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2011 |
|
2010 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
Value |
|
Value |
|
Value |
|
Value |
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
331,416 |
|
|
$ |
331,416 |
|
|
$ |
294,214 |
|
|
$ |
294,214 |
|
Securities available for sale |
|
|
226,732 |
|
|
|
226,732 |
|
|
|
202,002 |
|
|
|
202,002 |
|
Securities held to maturity |
|
|
115 |
|
|
|
115 |
|
|
|
465 |
|
|
|
467 |
|
Loans held for sale |
|
|
960 |
|
|
|
970 |
|
|
|
1,299 |
|
|
|
1,317 |
|
Loans, net |
|
|
1,615,140 |
|
|
|
1,600,794 |
|
|
|
1,678,548 |
|
|
|
1,664,126 |
|
FHLB and other stock |
|
|
12,734 |
|
|
|
12,734 |
|
|
|
12,734 |
|
|
|
12,734 |
|
Cash surrender value of life insurance |
|
|
31,758 |
|
|
|
31,758 |
|
|
|
31,479 |
|
|
|
31,479 |
|
Accrued interest receivable |
|
|
7,332 |
|
|
|
7,332 |
|
|
|
7,845 |
|
|
|
7,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit accounts |
|
$ |
1,975,635 |
|
|
$ |
1,988,676 |
|
|
$ |
1,976,854 |
|
|
$ |
1,987,105 |
|
Federal funds purchased and repurchase
agreements |
|
|
18,712 |
|
|
|
18,712 |
|
|
|
19,413 |
|
|
|
19,413 |
|
FHLB advances and notes payable |
|
|
158,588 |
|
|
|
166,703 |
|
|
|
158,653 |
|
|
|
166,762 |
|
Subordinated debentures |
|
|
88,662 |
|
|
|
62,985 |
|
|
|
88,662 |
|
|
|
64,817 |
|
Accrued interest payable |
|
|
2,454 |
|
|
|
2,454 |
|
|
|
2,140 |
|
|
|
2,140 |
|
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.
F-119
GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
Unaudited
(Amounts in thousands, except share and per share data)
NOTE 7 SUBSEQUENT EVENTS
Regulatory Matters
On May 2, 2011, the Bank received notice from the Federal Deposit Insurance Corporation (FDIC)
and Tennessee Department of Financial Institutions (TDFI) that, as a result of those agencies
findings in their most recently completed joint safety and soundness examination, the agencies
would be seeking a formal enforcement action against the Bank aimed at strengthening the Banks
operations and its financial condition, and that accordingly, the FDIC was pursuing the issuance of
a consent order against the Bank and the TDFI was pursuing the issuance of a written agreement
against the Bank. The Bank is seeking to negotiate the terms of these formal enforcement actions
with the FDIC and the TDFI, and while the final terms of the consent order and written agreement
are not currently known, the Company believes that they will contain requirements similar to those
that the Bank has already informally committed to comply with, including requirements to maintain
the Banks capital ratios above those levels required to be considered well-capitalized under
federal banking regulations. If the Companys transaction with North American is consummated,
including the merger of the Bank with and into a bank subsidiary of North Americans, it is
possible that these formal enforcement actions will not be issued.
Investment Agreement with North American Financial Holdings, Inc.
On May 5, 2011, the Company and the Bank entered into an Investment Agreement with North American
Financial Holdings, Inc. (North American) pursuant to which North American has agreed to acquire
approximately 120 million shares of the Companys common stock at a per share purchase price of
$1.81, for a total investment of approximately $217 million. The transaction, which is subject to
shareholder and regulatory approval, as well as the satisfaction of other customary closing
conditions, is expected to be consummated in the third quarter of 2011. In connection with the
investment, the Company expects that North American will enter into a binding agreement with the U.
S. Department of Treasury to purchase all of the outstanding shares of the Companys Fixed Rate
Cumulative Perpetual Preferred Stock, Series A, and related warrants to purchase shares of the
Companys Common Stock.
In connection with the investment by North American, the Companys shareholders as of a record date
to be fixed near the closing of that transaction will receive a contingent value right, entitling
them to cash proceeds of up to $0.75 per share of common stock based on the credit performance of
the Banks legacy loan portfolio over the five-year period following closing.
Subsequent to the announcement of North Americans planned investment, a class action lawsuit was
filed against the Company, the Companys directors and North American by one of the Companys
shareholders. For additional detail regarding this lawsuit, see
Legal Proceedings above.
F-120
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that management believes is
relevant to an assessment and understanding of the Companys consolidated results of operations and
financial condition. This discussion should be read in conjunction with the (i) condensed
consolidated financial statements and notes thereto in this Appendix F and (ii) the financial
statements and the notes thereto included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2010 (the 2010 10-K). Except for specific historical information, many of the
matters discussed in this Appendix F may express or imply projections of revenues or expenditures,
plans and objectives for future operations, growth or initiatives, expected future economic
performance, or the expected outcome or impact of pending or threatened litigation. These and
similar statements regarding events or results which the Company expects will or may occur in the
future, are forward-looking statements that involve risks, uncertainties and other factors which
may cause actual results and performance of the Company to differ materially from those expressed
or implied by those statements. All forward-looking information is provided pursuant to the safe
harbor established under the Private Securities Litigation Reform Act of 1995 and should be
evaluated in the context of these risks, uncertainties and other factors. Forward-looking
statements, which are based on assumptions and estimates and describe our future plans, strategies
and expectations, are generally identifiable by the use of forward-looking terminology and words
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 negative or other derivatives of each of these terms) or similar terminology
and expressions.
Although the Company believes that the assumptions underlying any forward-looking statements
are reasonable, any of the assumptions could be inaccurate, and therefore, actual results may
differ materially from those projected in or implied by the forward-looking statements. Factors and
risks that may result in actual results differing from this forward-looking information include,
but are not limited to, those contained in the 2010 10-K as Part I, Item 1A thereof and in Part II,
Item 1A of the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2011,
including (1) the occurrence of any event, change or other circumstances that could give rise to
the termination of the Investment Agreement by and among the Company, the Bank and North American
Financial Holdings, Inc., dated as of May 5, 2011 (the Investment Agreement); (2) the outcome of
any legal proceedings that may be instituted against the Company and others following announcement
of the Investment Agreement; (3) the inability to complete the transactions contemplated by the
Investment Agreement due to the failure to obtain shareholder approval or the failure to satisfy
other conditions to completion of the transaction, including the receipt of regulatory approval;
(4) risks that the proposed transaction contemplated by the Investment Agreement disrupts current
plans and operations and the potential difficulties in employee retention as a result of the
proposed transaction; (5) the amount of the costs, fees, expenses and charges related to the
proposed transaction contemplated by the Investment Agreement; (6) deterioration in the financial
condition of borrowers resulting in significant increases in loan losses and provisions for those
losses; (7) continuation of the historically low short-term interest rate environment; (8) changes
in loan underwriting, credit review or loss reserve policies associated with economic conditions,
examination conclusions, or regulatory developments; (9) increased levels of non-performing and
repossessed assets and the ability to resolve these may result in future losses; (10) greater than
anticipated deterioration or lack of sustained growth in the national or local economies; (11)
rapid fluctuations or unanticipated changes in interest rates; (12) the impact of governmental
restrictions on entities participating in the Capital Purchase Program (the CPP) of the United
States Department of the Treasury; (13) 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,
arising out of current unsettled conditions in the economy; (14) the results of regulatory
examinations including requirements contained in any enforcement action against the Company or the
Bank as a result of such examinations; (15) the remediation efforts related to the Companys
material weakness in its internal control over financial reporting; (16) increased competition with
other financial institutions in the markets that the Bank serves; (17) the Companys recording a
further valuation allowance related to its deferred tax asset; (18) exploring alternatives
available for the future repayment or conversion of the preferred stock issued in the CPP,
including in the transaction contemplated by the
F-121
Investment Agreement; (19) further deterioration in the valuation of other real estate owned;
(20) 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 (21) the loss of key personnel, as well as other factors discussed throughout
this document, including, without limitation the factors described under Critical Accounting
Policies and Estimates on page F-123 of this Appendix F, or from time to time, in the Companys
filings with the SEC, press releases and other communications.
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 Appendix F are expressly qualified in their entirety by the cautionary statements
in this section and to the more detailed risk factors included in the Companys 2010 10-K and in
Part II, Item of the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2011.
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 Appendix F, 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 SEC or in its other
public disclosures.
Green Bankshares, Inc. (the Company) is the bank holding company for GreenBank (the Bank),
a Tennessee-chartered commercial bank that conducts the principal business of the Company. The
Company is the third largest bank holding company headquartered in Tennessee based on asset size at
March 31, 2011 and at that date was also the second largest NASDAQ-listed bank holding company
headquartered in Tennessee. The Bank currently maintains a main office in Greeneville, Tennessee
and 64 full-service bank branches primarily in East and Middle Tennessee. In addition to its
commercial banking operations, the Bank conducts separate businesses through its three wholly-owned
subsidiaries: Superior Financial Services, Inc. (Superior Financial), a consumer finance company;
GCB Acceptance Corporation (GCB Acceptance), an automobile lending company; and Fairway Title
Co., a title company formed in 1998. The Bank also operates a wealth management office in Sumner
County, Tennessee, and a mortgage banking operation in Knox County, Tennessee. All dollar amounts
reported or discussed in this Appendix F are shown in thousands, except share and per share
amounts.
Investment Agreement with North American Financial Holdings, Inc.
On May 5, 2011, the Company and the Bank entered into an Investment Agreement with North
American Financial Holdings, Inc. (North American) pursuant to which North American has agreed to
acquire approximately 120 million shares of the Companys common stock at a per share purchase
price of $1.81, for a total investment of approximately $217 million. The transaction, which is
subject to shareholder and regulatory approval, as well as the satisfaction of other customary
closing conditions, is expected to be consummated in the third quarter of 2011. In connection with
the investment, the Company expects that North American will enter into a binding agreement with
the U. S. Treasury Department to purchase all of the outstanding shares of the Companys Fixed Rate
Cumulative Perpetual Preferred Stock, Series A, and related warrants to purchase shares of the
Companys common stock. In connection with the investment by North American, the Companys
shareholders as of a record date to be fixed near the closing of that transaction will receive a
contingent value right, entitling them to cash proceeds of up to $0.75 per share of common stock
based on the credit performance of the Banks legacy loan portfolio over the five-year period
following closing.
Business Strategy
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
environment stabilizes in the Companys markets and the economy begins to improve.
In the event that North Americans investment is consummated, we believe that the additional
capital contributed to the Company in that transaction will facilitate loan growth as well as
enable the Company to consider growth opportunities in the form of in-market mergers and
acquisitions including acquisitions of both entire financial institutions and selected branches of
financial institutions. Following consummation of the North American investment, de novo branching
could also be a method of growth, particularly in high-growth and other demographically-desirable
markets.
F-122
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 summarized in the paragraphs above and
the 2010 10-K, 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.
Overview
For the three months ended March 31, 2011, the Company reported a net loss available to common
shareholders of $11,561 compared with a net loss available to common shareholders of $52,798 for
the quarter ended December 31, 2010, and net income available to common shareholders of $1,946 for
the first quarter of 2010. The $41,237 improvement versus the quarter ended December 31, 2010 was
driven by an $11,749 decline in the loan loss provision, a $19,821 decline in OREO expenses, and
$10,407 decline in income tax expense related to a 2010 fourth quarter non-cash charge to record a
valuation allowance for deferred tax assets. The $13,507 decline versus the first quarter of 2010
related to a $10,008 increase in loan loss provision, a $1,592 increase in OREO expenses and a
$2,392 decline in net interest income due to an approximately 20% decline in average loan balances.
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
historical experience, information from regulators and third party professionals and various
assumptions that are believed to be reasonable under the existing 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 $65,109, or 3.87% of total
loans, net of unearned income, was deemed an adequate estimate of losses inherent in the loan
portfolio as of March 31, 2011. This estimate resulted in a provision for loan losses in the income
statement of $13,897 for the three months ended March 31, 2011. 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.
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.
F-123
The Company believes its critical accounting policies and estimates also include the valuation
of the allowance for net Deferred Tax Assets (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 second quarter of 2009) as of September 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, pre-tax core
operating projections, tax planning strategies, and the longevity of the Company. Based on
managements calculation, a valuation allowance of $47,563, or 88% of the net DTA, was an adequate
estimate as of March 31, 2011. If the Companys financial condition were to deteriorate
significantly from those assumptions used by management in making its determination, the valuation
allowance for the net DTA and the provision for the net DTA on the income statement could be
materially affected. 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 recognized amounts and 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. Estimates of fair value are used in 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 Companys net loss available to common shareholders was $11,561 for the three
months ended March 31, 2011, compared to net income available to common shareholders of $1,946 for
the three months ended March 31, 2010. The $13,507 decline versus the year ago period reflected a
higher loan loss provision, coupled with rising costs associated with maintenance, disposition and
revaluation of other real estate owned (OREO) along with continued weakness in economic conditions
in our markets. Our 2011 first quarter results reflected a $10,008 increase in loan loss provision,
a $1,592 increase in OREO expenses and a $2,392 decline in net interest income in each case as
compared to the first quarter of 2010. We incurred an approximately 20% decline in average loan
balances between the periods as well.
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 expense on deposits
and other interest-bearing liabilities.
First quarter 2011 net interest income totaled $19,267, down $2,392 or 11% versus the first
quarter of 2010. The decline was due to an approximately 20% decline in average performing loans
(the combination of movement into non-performing loans coupled with credit worthy borrowers
reducing their aggregate loans), partially offset by the Companys ability to lower average rates
paid on interest bearing deposits by 0.57% while achieving a 0.13% increase in average loan yields
through pricing discipline. The 3.77% net interest margin in the first quarter of 2011 was down
0.13% versus the first quarter of 2010, due to a shift from loans into lower yielding investment
securities and short-term investments. The Companys average balance for interest-bearing
liabilities decreased 3% or $58,424 for the first quarter of 2011 versus the same period of 2010 as
the Company reduced its reliance on jumbo time deposits and brokered deposits while focusing on
building core deposit levels throughout its branch network.
F-124
The following table sets forth certain information relating to the Companys consolidated
average interest-earning assets and interest-bearing liabilities and reflects the average yield on
assets and average cost of liabilities for the periods indicated. These yields and costs are
derived by dividing income or expense by the average daily balance of assets or liabilities,
respectively, for the periods presented.
F-125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(1) (2) |
|
$ |
1,567,761 |
|
|
$ |
24,614 |
|
|
|
6.37 |
% |
|
$ |
1,954,136 |
|
|
$ |
30,080 |
|
|
|
6.24 |
% |
Investment securities (2) |
|
|
227,762 |
|
|
|
2,007 |
|
|
|
3.57 |
% |
|
|
169,020 |
|
|
|
1,906 |
|
|
|
4.57 |
% |
Other short-term investments |
|
|
294,905 |
|
|
|
181 |
|
|
|
0.25 |
% |
|
|
148,394 |
|
|
|
94 |
|
|
|
0.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
2,090,428 |
|
|
$ |
26,802 |
|
|
|
5.20 |
% |
|
$ |
2,271,550 |
|
|
$ |
32,080 |
|
|
|
5.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest earning assets |
|
|
340,868 |
|
|
|
|
|
|
|
|
|
|
|
306,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,431,296 |
|
|
|
|
|
|
|
|
|
|
$ |
2,578,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking, savings and money
market |
|
$ |
1,079,824 |
|
|
$ |
1,811 |
|
|
|
0.68 |
% |
|
$ |
941,888 |
|
|
$ |
2,398 |
|
|
|
1.03 |
% |
Time deposits |
|
|
763,967 |
|
|
|
3,519 |
|
|
|
1.87 |
% |
|
|
940,388 |
|
|
|
5,663 |
|
|
|
2.44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
$ |
1,843,791 |
|
|
$ |
5,330 |
|
|
|
1.17 |
% |
|
$ |
1,882,276 |
|
|
$ |
8,061 |
|
|
|
1.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under repurchase
agreements and short-term borrowings |
|
|
16,994 |
|
|
|
4 |
|
|
|
0.10 |
% |
|
|
23,615 |
|
|
|
6 |
|
|
|
0.10 |
% |
Notes payable |
|
|
158,628 |
|
|
|
1,543 |
|
|
|
3.94 |
% |
|
|
171,946 |
|
|
|
1,694 |
|
|
|
4.00 |
% |
Subordinated debentures |
|
|
88,662 |
|
|
|
481 |
|
|
|
2.20 |
% |
|
|
88,662 |
|
|
|
472 |
|
|
|
2.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
2,108,075 |
|
|
$ |
7,358 |
|
|
|
1.42 |
% |
|
$ |
2,166,499 |
|
|
$ |
10,233 |
|
|
|
1.92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
161,702 |
|
|
|
|
|
|
|
|
|
|
|
163,173 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
17,731 |
|
|
|
|
|
|
|
|
|
|
|
18,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest bearing liabilities |
|
|
179,433 |
|
|
|
|
|
|
|
|
|
|
|
181,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,287,508 |
|
|
|
|
|
|
|
|
|
|
|
2,347,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
143,788 |
|
|
|
|
|
|
|
|
|
|
|
230,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders
equity |
|
$ |
2,431,296 |
|
|
|
|
|
|
|
|
|
|
$ |
2,578,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
19,444 |
|
|
|
|
|
|
|
|
|
|
$ |
21,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
3.77 |
% |
|
|
|
|
|
|
|
|
|
|
3.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest-earning assets |
|
|
|
|
|
|
|
|
|
|
3.77 |
% |
|
|
|
|
|
|
|
|
|
|
3.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Average loan balances excluded nonaccrual loans for the periods presented. |
|
2 |
|
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. |
F-126
Provision for Loan Losses. During the three months ended March 31, 2011, loan charge-offs
were $16,404 and recoveries of charged-off loans were $786. For the three month period ended March
31, 2010, loan charge-offs were $4,733 and recoveries of charged-off loans were $850. The Companys
provision for loan losses increased to $13,897 for the three months ended March 31, 2011 compared
to $3,889 for the same period in 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 the first quarter of 2011 when compared to the comparable
period in 2010. 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.
The Companys allowance for loan losses increased to $65,109 at March 31, 2011 from $50,167 at
March 31, 2010 while the reserve to outstanding loans ratio increased to 3.87% at March 31, 2011
from 2.52% at March 31, 2010. These estimates resulted in a provision for loan losses in the income
statement of $13,897 for the three months ended March 31, 2011, versus $3,889 for the three months
ended March 31, 2010. If economic conditions, including residential real estate market conditions,
loan 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.
The ratio of allowance for loan losses to nonperforming loans was 39.60% as of March 31, 2011
versus 78.85% as of March 31, 2010. The ratio of nonperforming assets to total assets was 9.38% as
of March 31, 2011 versus 5.27% as of March 31, 2010. The ratio of nonperforming loans to total
loans, net of unearned interest, was 9.78% as of March 31, 2011 versus 3.19% as of March 31, 2010.
Within the Bank, the Companys largest subsidiary, the ratio of nonperforming assets to total
assets was 9.34%, as of March 31, 2011 versus 5.25% as of March 31, 2010. This increase reflects
both the rise in absolute levels of non-performing assets, compounded by the Companys shrinking
balance sheet.
Net charge-offs as a percentage of average loans increased from 0.19% for the three months
ended March 31, 2010 to 0.91% (annualized 4.04%) for the three months ended March 31, 2011
Management believes that credit quality indicators will be driven by the current economic
environment and condition of the residential real estate markets. Management continually evaluates
the existing portfolio in light of loan concentrations, current general economic conditions and
economic trends. During the second quarter of 2010, the Company segregated staffing for its special
assets group and transferred additional independent resources into this area in an effort to
accelerate problem asset resolution.
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 March 31, 2011.
However, the provision for loan losses could further increase based on actions taken by the special
assets group to resolve problem loans, and if general economic conditions remain sluggish or weaken
further or the residential real estate markets in Nashville, Knoxville or the Companys other
markets or the financial conditions of borrowers deteriorate beyond managements current
expectations, the provision for loan losses would likely remain elevated.
Non-interest Income. Fee income unrelated to interest-earning assets, consisting primarily of
service charges, commissions and fees, is an important component to the Companys total revenue
stream. Total non-interest income for the three months ended March 31, 2011 was $7,627 down 1%
versus the same period in 2010.
Service charges on deposit accounts remain the largest component of total non-interest income
and declined 2% from the year ago period to $5,830 for the three months ended March 31, 2011.
Non-interest Expense. Control of non-interest expense is a critical aspect in enhancing
income. Non-interest expense includes personnel, occupancy, and other expenses such as OREO costs,
data processing, printing and supplies, legal and professional fees, postage, Federal Deposit
Insurance Corporation (FDIC) assessment fees and other expenses. Total non-interest expense was
$23,027 for the three months ended March 31, 2011, up $2,481 or 12% versus the three months ended
March 31, 2010. The increase was principally the result of a $1,592 increase
F-127
in losses on OREO and repossessed assets, including as a result of revaluation of OREO
properties following receipt of updated appraisals, and severance costs of approximately $570
associated with the Companys reduction in force effected in the first quarter of 2011 given the
current business environment and level of business activity.
Personnel costs are the largest category of recurring non-interest expenses. For the three
months ended March 31, 2011, employee compensation and benefits represented $8,131 or 35% of total
non-interest expense. This was an increase of $466 versus the year ago quarter. Excluding current
period severance costs noted above, personnel costs would be down 1% versus the year ago quarter,
despite normal non-executive compensation increases.
Income Taxes. The effective income tax rate for the three months ended March 31, 2011 was
significantly impacted by the valuation allowance for the net DTA. Accounting guidance states that
a DTA should be reduced by a valuation allowance if, based on the weight of all available evidence,
it is more likely than not that some portion or the entire deferred tax asset will not be realized.
The determination of whether a deferred tax asset is realizable is based on weighing all available
evidence, including both positive and negative evidence. In making such judgments, significant
weight is given to the evidence that can be objectively verified. The most significant negative
verifiable evidence for the current quarter is the three year cumulative loss calculation, net of
the non-cash goodwill impairment charge of ($143.4) million recognized in the second quarter of
2009. 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, pre-tax core
operating projections, tax planning strategies, and the longevity of the Company. Based on
managements calculation, an allowance of $47,563, or 88.2% of the net DTA, was an adequate
estimate of the portion of the net DTA which is more likely than not to not be realized as of March
31, 2011. The effective income tax rate for the three months ended March 31, 2011 was (2.8%) or
38.2% adjusting for the non-cash DTA valuation allowance of $4,108. For the same period in 2010,
which had no DTA valuation allowance, the effective income tax rate was 34.9%.
Changes in Financial Condition
Total assets at March 31, 2011 were $2,392,694, a decrease of $13,346 or 0.6% from December
31, 2010. The decrease in assets reflects a $65,129 decline in loans, partially offset by an
increase of $61,582 in investment securities and liquid assets. Total assets at March 31, 2011
declined $177,038 or 7% from March 31, 2010 reflecting a $313,790 decline in loans, net of unearned
income, which was partially offset by an increase of $195,390 in investment securities and liquid
assets.
Non-performing assets (NPAs), which include non-accrual loans, loans past due 90 days or
more and still accruing interest and OREO, totaled $224,441 at March 31, 2011 compared with
$205,914 at December 31. 2010. NPAs at March 31, 2011 increased $89,075 versus March 31, 2010. The
Company expects that the levels of NPAs will remain elevated for the remainder of 2011.
Non-performing loans include non-accrual loans and loans 90 or more days past due. All loans
that are greater than 90 days past due are considered non-accrual unless they are adequately
secured and there is reasonable assurance of full collection of principal and interest. Non-accrual
loans that are 120 days past due without assurance of repayment are charged off against the
allowance for loan losses. Nonaccrual loans and loans past due 90 days totaled $164,408 at March
31, 2011, representing an increase of $18,589 versus December 31, 2010 and an increase of $100,788
versus March 31, 2010.
OREO totaled $60,033 at March 31, 2011 essentially unchanged from the December 31, 2010
balance of $60,095, though down $11,713 versus March 31, 2010 as the Company recognized sales and
write-downs in excess of recorded foreclosures.
Impaired loans, which are loans identified as being probable that the Company will not be able
to collect all amounts of contractual interest and principal as scheduled in the loan agreement,
totaled $198,581 after impairment charges necessary to reflect current fair values at March 31,
2011.
The Companys policy requires new appraisals on adversely rated collateral dependent loans and
OREO to be obtained at least annually. Each four months, the Company receives a written report from
an independent
F-128
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 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.
At March 31, 2011, the ratio of the Companys allowance for loan losses to non-performing
loans (which include non-accrual loans) was 39.6% compared to 78.9% at March 31, 2010.
The Company maintains an investment portfolio to provide liquidity and earnings. Investments
at March 31, 2011 with an amortized cost of $225,141 had a market value of $226,847. At December
31, 2010, investments with an amortized cost of $200,824 had a market value of $202,469. At March
31, 2010, investments with an amortized cost of $172,425 had a market value of $174,344.
Liquidity and Capital Resources
Liquidity. Liquidity refers to the ability or the financial flexibility 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.
As of March 31, 2011, the Banks liquidity reserves included $263,140 of surplus cash with the
Federal Reserve, $7,931 of federal funds sold to upstream correspondent banks, and $63,000 of
unpledged securities.
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). 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 informally
committed to the FDIC and TDFI it would maintain in 2010, and to retain its characterization under
federal regulations as a well-capitalized institution. Because of the Banks losses in 2009, 2010
and year-to-date 2011, dividends from the Bank to the holding 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 Department (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.
Following consultation with the FRB the Company gave notice on November 9, 2010 to the U.S.
Treasury Department that the Company was 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 Department. The dividends, which are cumulative, will continue to be accrued for payment
in the future and 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 $88.6 million, 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
F-129
consecutive quarterly periods without default or penalty. 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 Department will preserve approximately $5.1 million per
year in Bank level capital.
For the three months ended March 31, 2011, operating activities of the Company provided
$16,495 of cash flows. The net loss of $10,311 comprised a substantial portion of the cash
generated from operations after removing various non-cash items, including $13,897 in provision for
loan losses and $1,736 of depreciation and amortization. A decline in other assets added $4,609.
Maturities of $11,335 in investment securities, proceeds from the net change in loans of
$43,266 and proceeds of $4,322 from the sale of OREO were the primary components of inflows from
investing activities. These were offset in part by $35,782 in purchases of investment securities
available for sale for a net increase in net cash provided from investing activities of $22,693.
The net cash used in financing activities totaled $1,986.
Capital Resources. The Companys 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.
As a result of the first quarter 2011 loss, the Banks capital ratios declined. Shareholders
equity on March 31, 2011 was $132,830, a decline of $11,067 or 7.7% since December 31, 2010 and a
decline of $97,359 or 42.3% since March 31, 2010.
During the second quarter of 2009 the Company suspended common stock dividends and on November
9, 2010 the Company 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.
Risk-based capital regulations adopted by the Board of Governors of the FRB and the FDIC
require bank holding companies and banks, respectively, to achieve and maintain specified ratios of
capital to risk-weighted assets. The risk-based capital rules are designed to measure Tier 1
Capital and Total Capital in relation to the credit risk of both on- and off-balance sheet items.
Under the guidelines, one of four risk weights is applied to the different on-balance sheet items.
Off-balance sheet items, such as loan commitments, are also subject to risk-weighting after
conversion to balance sheet equivalent amounts. All bank holding companies and banks must maintain
a minimum total capital to total risk-weighted assets ratio of 8.00%, at least half of which must
be in the form of core, or Tier 1, capital (consisting of common equity, retained earnings, and a
limited amount of qualifying perpetual preferred stock and trust preferred securities, net of
goodwill and other intangible assets and accumulated other comprehensive income). These guidelines
also specify that bank holding companies that are experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially above the minimum
supervisory levels.
At March 31, 2011, capital ratios for the Bank and the Company remained above the statutory
minimums necessary to be deemed a well-capitalized financial institution. However, they fell below
the Tier 1 leverage ratio of 10.0% and the Total risk-based capital ratio of 14.0% that the Bank
had informally committed to its regulators that it would maintain, as discussed further in the 2010
10-K. As described above in Note 7 Subsequent Events, the Bank has been notified by the FDIC
and the TDFI that those agencies intend to seek a formal enforcement action against the Bank in the
form of a consent order and written agreement, respectively. Although the terms of the consent
order and written agreement are not yet finalized, it is likely that the order and agreement, if
issued, would contain a requirement for the Bank to maintain capital levels above those levels
required to be considered well-capitalized under federal banking regulations, and those levels
may be as high as those levels that the Bank has already informally committed to the FDIC and TDFI.
F-130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required |
|
Required |
|
|
|
|
|
|
Minimum |
|
to be |
|
|
|
|
|
|
Ratio |
|
Well Capitalized |
|
Bank |
|
Company |
Tier 1 risk-based |
|
|
4.00 |
% |
|
|
6.00 |
% |
|
|
11.83 |
% |
|
|
9.36 |
% |
capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
|
|
8.00 |
% |
|
|
10.00 |
% |
|
|
13.11 |
% |
|
|
13.03 |
% |
Leverage Ratio |
|
|
4.00 |
% |
|
|
5.00 |
% |
|
|
8.55 |
% |
|
|
6.78 |
% |
As described above, the Company recently announced that it has entered into a definitive agreement
to raise approximately $217 million in new capital through the sale of newly issued common shares
to North American. The transaction, which is subject to shareholder and regulatory approval, as
well as the satisfaction of other customary closing conditions, is expected to be consummated in
the third quarter of 2011. In connection with the investment, the Company expects that North
American will enter into a binding agreement with the U. S. Department of Treasury to purchase all
of the outstanding shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series
A, and related warrants to purchase shares of the Companys common stock. The recapitalization will
strengthen the Companys and the Banks capital ratios and balance sheet.
Off-Balance Sheet Arrangements
At March 31, 2011, the Company had outstanding unused lines of credit and standby letters of
credit totaling $261,936 and unfunded loan commitments outstanding of $3,559. Because these
commitments generally have fixed expiration dates and most will expire without being drawn upon,
the total commitment level does not necessarily represent future cash requirements. If needed to
fund outstanding commitments, as noted in Liquidity and Capital Resources Liquidity, as of
March 31, 2011, the Company had various liquidity reserves, including $263,140 of surplus cash at
the Federal Reserve, the ability to liquidate $7,931 of Federal funds sold, and $63,000 of
unpledged investment securities. The following table presents additional information about the
Companys off-balance sheet commitments as of March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1_ |
|
|
|
|
|
|
|
|
|
|
More than 5_ |
|
|
|
|
|
|
Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
Years |
|
|
Total |
|
Commitments to make loans fixed |
|
$ |
272 |
|
|
$ |
862 |
|
|
$ |
744 |
|
|
$ |
152 |
|
|
$ |
2,030 |
|
Commitments to make loans
variable |
|
|
606 |
|
|
|
225 |
|
|
|
|
|
|
|
698 |
|
|
|
1,529 |
|
Unused lines of credit |
|
|
126,883 |
|
|
|
22,888 |
|
|
|
14,379 |
|
|
|
72,492 |
|
|
|
236,642 |
|
Letters of credit |
|
|
17,532 |
|
|
|
7,762 |
|
|
|
|
|
|
|
|
|
|
|
25,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
145,293 |
|
|
$ |
31,737 |
|
|
$ |
15,123 |
|
|
$ |
73,342 |
|
|
$ |
265,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1_ |
|
|
|
|
|
|
|
|
|
|
More than 5_ |
|
|
|
|
|
|
Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
Years |
|
|
Total |
|
Certificates of deposits |
|
$ |
527,774 |
|
|
$ |
142,656 |
|
|
$ |
56,445 |
|
|
$ |
3,448 |
|
|
$ |
730,323 |
|
FHLB advances and notes payable |
|
|
15,291 |
|
|
|
75,570 |
|
|
|
20,611 |
|
|
|
47,115 |
|
|
|
158,587 |
|
Subordinated debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,662 |
|
|
|
88,662 |
|
Operating lease obligations |
|
|
1,292 |
|
|
|
2,284 |
|
|
|
1,093 |
|
|
|
648 |
|
|
|
5,317 |
|
Deferred compensation |
|
|
1,515 |
|
|
|
|
|
|
|
264 |
|
|
|
2,131 |
|
|
|
3,910 |
|
Purchase obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
545,872 |
|
|
$ |
220,510 |
|
|
$ |
78,413 |
|
|
$ |
142,004 |
|
|
$ |
986,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-131
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.
Effect of New Accounting Standards
FASB ASU 2011-1 In January 2011, the FASB issued ASU No. 2011-1 Deferral of the
Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. ASU 2011-1
temporarily delays the effective date of the disclosures about troubled debt restructurings in
Update 2010-20 for public entities. Accordingly, management has not included such disclosures in
Note 3 (Loans footnote) of the interim financial statements. Management will implement the
disclosures required by this standard beginning with the Companys June 30, 2011 interim financial
statements.
FASB ASU 2011-2 In April 2011, the FASB issued ASU No. 2011-2 Receivables (Topic 310) -
A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring. ASU 2011-2
provides additional guidance to assist creditors in determining whether a restructuring of a
receivable meets the criteria to be considered a troubled debt restructuring. In conjunction with
ASU 2011-1, the effective date of the disclosures has been temporarily delayed. Therefore,
management has not included such disclosures in Note 3 (Loans footnote) of the financial
statements. Management will implement the disclosures required by this standard beginning with the
Companys June 30, 2011 interim financial statements.
F-132
Appendix G
CERTAIN INFORMATION REGARDING NAFH BANK
North American Financial Holdings, Inc.
Unaudited Consolidated Financial Statements for the Three Months Ended
March 31, 2010 and 2011
G-1
NORTH AMERICAN FINANCIAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
(Dollars and shares in thousands, except per share data) |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
719,804 |
|
|
$ |
886,925 |
|
|
|
|
|
|
|
|
|
|
Trading securities |
|
|
602 |
|
|
|
|
|
Investment Securities held to maturity |
|
|
250 |
|
|
|
250 |
|
Investment securities available for sale |
|
|
764,550 |
|
|
|
479,466 |
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
|
1,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of deferred loan costs and fees |
|
|
2,939,768 |
|
|
|
1,742,747 |
|
Less: Allowance for loan losses |
|
|
2,287 |
|
|
|
753 |
|
|
|
|
|
|
|
|
Loans, net |
|
|
2,937,481 |
|
|
|
1,741,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
|
84,533 |
|
|
|
70,817 |
|
Indemnification asset |
|
|
77,597 |
|
|
|
91,467 |
|
Receivable from FDIC |
|
|
45,095 |
|
|
|
46,585 |
|
Premises and equipment, net |
|
|
71,165 |
|
|
|
44,078 |
|
Goodwill |
|
|
67,610 |
|
|
|
36,616 |
|
Intangible assets, net |
|
|
19,340 |
|
|
|
15,154 |
|
Deferred income tax asset |
|
|
68,929 |
|
|
|
16,789 |
|
Accrued interest receivable and other assets |
|
|
92,758 |
|
|
|
66,850 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
4,951,138 |
|
|
$ |
3,496,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Noninterest-bearing demand |
|
$ |
463,206 |
|
|
$ |
295,713 |
|
Interest-bearing |
|
|
3,075,516 |
|
|
|
1,964,384 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
3,538,722 |
|
|
|
2,260,097 |
|
|
|
|
|
|
|
|
Federal Home Loan Bank (FHLB) advances |
|
|
280,151 |
|
|
|
243,067 |
|
Short-term borrowings |
|
|
50,650 |
|
|
|
61,969 |
|
Long-term borrowings |
|
|
97,358 |
|
|
|
22,887 |
|
Accrued interest payable and other liabilities |
|
|
43,953 |
|
|
|
27,735 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
4,010,834 |
|
|
|
2,615,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Preferred stock $0.01 par value: 50,000 shares authorized, 0 shares issued |
|
|
|
|
|
|
|
|
Common stockClass A $0.01 par value: 200,000 shares authorized, 20,889
and 21,384 shares issued and outstanding, respectively |
|
|
209 |
|
|
|
214 |
|
Common stockClass B $0.01 par value: 200,000 shares authorized, 25,261
and 23,736 shares issued and outstanding, respectively |
|
|
252 |
|
|
|
237 |
|
Additional paid in capital |
|
|
878,485 |
|
|
|
865,673 |
|
Retained earnings |
|
|
12,338 |
|
|
|
11,938 |
|
Accumulated other comprehensive loss |
|
|
(97 |
) |
|
|
(2,759 |
) |
Noncontrolling interest |
|
|
49,117 |
|
|
|
5,933 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
940,304 |
|
|
|
881,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
4,951,138 |
|
|
$ |
3,496,991 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
G-2
NORTH AMERICAN FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars and shares in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Interest and dividend income |
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
35,551 |
|
|
$ |
|
|
Investment securities: |
|
|
|
|
|
|
|
|
Taxable interest income |
|
|
3,693 |
|
|
|
|
|
Tax-exempt interest income |
|
|
207 |
|
|
|
|
|
Dividends |
|
|
13 |
|
|
|
|
|
Interest-bearing deposits in other banks |
|
|
710 |
|
|
|
725 |
|
Federal Home Loan Bank stock |
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income |
|
|
40,305 |
|
|
|
725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
Deposits |
|
|
5,926 |
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
623 |
|
|
|
|
|
Short-term borrowings |
|
|
35 |
|
|
|
|
|
Long-term borrowings |
|
|
882 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
7,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
32,839 |
|
|
|
725 |
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
1,545 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
31,294 |
|
|
|
725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
1,919 |
|
|
|
|
|
Fees on mortgage loans originated and sold |
|
|
531 |
|
|
|
|
|
Investment advisory and trust fees |
|
|
387 |
|
|
|
|
|
Other income |
|
|
1,721 |
|
|
|
|
|
Investment securities losses, net |
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
4,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
15,093 |
|
|
|
851 |
|
Net occupancy and equipment expense |
|
|
5,338 |
|
|
|
15 |
|
Foreclosed asset related expense |
|
|
1,178 |
|
|
|
|
|
Conversion expenses |
|
|
3,737 |
|
|
|
|
|
Organizational expenses |
|
|
|
|
|
|
2,100 |
|
Other expense |
|
|
9,694 |
|
|
|
148 |
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
35,040 |
|
|
|
3,114 |
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
755 |
|
|
|
(2,389 |
) |
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
|
405 |
|
|
|
(1,008 |
) |
|
|
|
|
|
|
|
Net income (loss) before attribution of noncontrolling interests |
|
|
350 |
|
|
|
(1,381 |
) |
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests |
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to North American Financial Holdings, Inc. |
|
$ |
400 |
|
|
$ |
(1,381 |
) |
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share |
|
$ |
0.01 |
|
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
G-3
NORTH AMERICAN FINANCIAL HOLDINGS, INC.
Consolidated Statements of Changes in Shareholders Equity
(Unaudited)
(Dollars and shares in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Stock |
|
|
Class A |
|
|
Stock |
|
|
Class B |
|
|
Paid in |
|
|
Retained |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
Shareholders |
|
|
|
Class A |
|
|
Stock |
|
|
Class B |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
Interest |
|
|
Equity |
|
Balance, January 1, 2011 |
|
|
21,384 |
|
|
$ |
214 |
|
|
|
23,736 |
|
|
$ |
237 |
|
|
$ |
865,673 |
|
|
$ |
11,938 |
|
|
$ |
(2,759 |
) |
|
$ |
5,933 |
|
|
$ |
881,236 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
|
|
|
|
(50 |
) |
|
|
350 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net market valuation
adjustment on securities
available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,611 |
|
|
|
269 |
|
|
|
2,880 |
|
Less: reclassification
adjustment for gains
included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net
of tax expense of $1,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,604 |
|
|
|
269 |
|
|
|
2,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,223 |
|
Conversion of shares |
|
|
(1,525 |
) |
|
|
(15 |
) |
|
|
1,525 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock grants |
|
|
1,030 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408 |
|
Origination of noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,785 |
|
|
|
43,785 |
|
Rights offerings of subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,414 |
|
|
|
|
|
|
|
58 |
|
|
|
(820 |
) |
|
|
11,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011 |
|
|
20,889 |
|
|
$ |
209 |
|
|
|
25,261 |
|
|
$ |
252 |
|
|
$ |
878,485 |
|
|
$ |
12,338 |
|
|
$ |
(97 |
) |
|
$ |
49,117 |
|
|
$ |
940,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Stock |
|
|
Class A |
|
|
Stock |
|
|
Class B |
|
|
Paid in |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
Shareholders |
|
|
|
Class A |
|
|
Stock |
|
|
Class B |
|
|
Stock |
|
|
Capital |
|
|
deficit |
|
|
Loss |
|
|
Interest |
|
|
Equity |
|
Balance, January 1, 2010 |
|
|
19,181 |
|
|
$ |
192 |
|
|
|
8,726 |
|
|
$ |
87 |
|
|
$ |
526,133 |
|
|
$ |
(92 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
526,320 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,381 |
) |
|
|
|
|
|
|
|
|
|
|
(1,381 |
) |
Issuance of common stock |
|
|
3,114 |
|
|
|
31 |
|
|
|
1,073 |
|
|
|
11 |
|
|
|
79,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010 |
|
|
22,295 |
|
|
$ |
223 |
|
|
|
9,799 |
|
|
$ |
98 |
|
|
$ |
605,291 |
|
|
$ |
(1,473 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
604,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G-4
NORTH AMERICAN FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
350 |
|
|
$ |
(1,381 |
) |
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
Accretion of acquired loans |
|
|
(29,916 |
) |
|
|
|
|
Depreciation and amortization |
|
|
197 |
|
|
|
|
|
Provision for loan losses |
|
|
1,545 |
|
|
|
|
|
Deferred income tax expense (income) |
|
|
(734 |
) |
|
|
(887 |
) |
Investment securities net realized gains |
|
|
(57 |
) |
|
|
|
|
Net amortization of investment premium/discount |
|
|
1,983 |
|
|
|
|
|
Stock-based compensation |
|
|
545 |
|
|
|
|
|
Gain on sales of OREO |
|
|
(105 |
) |
|
|
|
|
OREO valuation adjustments |
|
|
131 |
|
|
|
|
|
Other |
|
|
(127 |
) |
|
|
|
|
Mortgage loans originated for sale |
|
|
(10,790 |
) |
|
|
|
|
Proceeds from sales of mortgage loans originated for sale |
|
|
18,739 |
|
|
|
|
|
Fees on mortgage loans sold |
|
|
(353 |
) |
|
|
|
|
Change in accrued interest receivable and other assets |
|
|
16,373 |
|
|
|
50 |
|
Change in accrued interest payable and other liabilities |
|
|
5,603 |
|
|
|
101 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
3,384 |
|
|
|
(2,117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of investment securities available for sale |
|
|
(105,870 |
) |
|
|
|
|
Sales of investment securities available for sale |
|
|
6,635 |
|
|
|
|
|
Repayments of principal and maturities of investment securities available for sale |
|
|
33,811 |
|
|
|
|
|
Cash acquired through acquisition of Capital Bank Corp. |
|
|
27,955 |
|
|
|
|
|
Principal repayments on loans, net of loans originated or acquired |
|
|
(44,632 |
) |
|
|
|
|
Purchases of premises and equipment |
|
|
(1,161 |
) |
|
|
|
|
Proceeds from sales of loans |
|
|
|
|
|
|
|
|
Proceeds from sale of OREO |
|
|
14,358 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(68,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
|
|
|
|
79,200 |
|
Net increase in demand, money market and savings accounts |
|
|
111,337 |
|
|
|
|
|
Net decrease in time deposits |
|
|
(184,178 |
) |
|
|
|
|
Net decrease in federal funds purchased and securities sold under agreements to repurchase |
|
|
(11,320 |
) |
|
|
|
|
Net decrease short term FHLB advances |
|
|
(10,000 |
) |
|
|
|
|
Repayment of long term FHLB advances |
|
|
(19,030 |
) |
|
|
|
|
Net proceeds from common stock rights offering |
|
|
11,590 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(101,601 |
) |
|
|
79,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(167,121 |
) |
|
|
77,083 |
|
Cash and cash equivalents at beginning of period |
|
|
886,925 |
|
|
|
526,711 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
719,804 |
|
|
$ |
603,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash paid: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
9,103 |
|
|
$ |
|
|
Income taxes |
|
|
5,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information: |
|
|
|
|
|
|
|
|
Transfer of loans to OREO |
|
|
12,842 |
|
|
|
|
|
See accompanying notes to consolidated financial statements
G-5
North American Financial Holdings, Inc.
Notes to Consolidated Financial Statements
March 31, 2011 and 2010
(dollars in thousands)
Note 1Basis of Presentation & Accounting Policies
North American Financial Holdings, Inc. (NAFH or the Company) is a bank holding company
incorporated in Delaware and headquartered in Florida whose business is conducted primarily through
our subsidiaries, NAFH National Bank (NAFH NB), TIB Financial Corp. (TIBB; parent company of
TIB Bank and Naples Capital Advisors, Inc.), and Capital Bank Corporation (parent company of
Capital Bank) (collectively referred to as the Companys subsidiary banks or the Banks). All
significant inter-company accounts and transactions have been eliminated in consolidation. As of
March 31, NAFH had a total of eighty-one full service banking offices located in Florida, South
Carolina and North Carolina.
The accompanying unaudited consolidated financial statements for the Company have been
prepared in accordance with accounting principles generally accepted in the United States of
America for interim financial information and Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statement presentation. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. For further information and an additional description of the Companys
accounting policies, refer to the Companys consolidated financial statements for the year ended
December 31, 2010.
The accounting and reporting policies conform to accounting principles generally accepted in
the United States of America. The following is a summary of the more significant of these policies.
Critical Accounting Policies
Allowance for Loan Losses
The Company maintains an allowance for loan losses to absorb losses incurred in the loan
portfolio. The allowance is based on ongoing, quarterly assessments of the probable estimated
incurred losses inherent in the loan portfolio. The allowance is increased by the provision for
loan losses, which is charged against current period operating results and decreased by the amount
of charge offs, net of recoveries. The Companys methodology for assessing the appropriateness of
the allowance consists of several key elements, which include the formulaic allowance and the
specific allowance for impaired loans. Management develops and documents its systematic methodology
for determining the allowance for loan losses by first dividing its portfolio into
segmentscommercial mortgage, residential mortgage, construction and vacant land, commercial and
agricultural, indirect auto, home equity and other consumer loans. The Company further divides the
portfolio segments into classes based on initial measurement attributes, risk characteristics or
its method of monitoring and assessing credit risk. The classes for the Company are as follows:
|
|
|
Commercial mortgageowner occupied, office building, hotel or motel, guest houses,
retail, multi-family, farmland, and other; |
|
|
|
|
Residential mortgageprimary residence, second residence and investment; |
|
|
|
|
Construction and vacant land; |
|
|
|
|
Commercial and agricultural |
|
|
|
|
Indirect autoprime and sub-prime; |
|
|
|
|
Home equity; and |
|
|
|
|
Other consumer |
The allowance is calculated by applying loss factors to outstanding loans. Loss factors are
based on the Companys historical loss experience and may be adjusted for significant factors that,
in managements judgment, affect the collectability of the portfolio as of the evaluation date. The
Company derives the loss factors for all segments from pooled loan loss factors. Such pooled loan
loss factors (for loans not individually graded) are based on expected net charge off ranges.
Loan loss factors, which are used in determining the allowance, are adjusted quarterly
primarily based upon the changes in the level of historical net charge offs and parameter updates
by management. Management estimates probable incurred losses in the portfolio based on a historical
loss look-back period. The look-back period is representative of managements expectations of
relevant historical loss experience.
Furthermore, based on managements judgment, the Companys methodology permits adjustments to
any loss factor used in the computation of the allowance for significant factors, which affect the
collectability of the portfolio as of the evaluation date, but are not reflected in the loss
factors. By assessing the probable estimated incurred losses in the loan portfolio on a quarterly
basis, management is able to adjust specific and inherent loss estimates based upon the most recent
information that has become available. This includes changing the number of periods that are
included in the calculation of the loss factors and adjusting qualitative factors to be
representative of the economic cycle that management expects will impact the portfolio. Updates of
the loss confirmation period are done when significant events cause management to reexamine data.
G-6
At March 31, 2011, the majority of the Companys loans are purchased credit-impaired
loans. Estimates of cash flows expected to be collected for purchased credit-impaired loans are
updated each reporting period. If the Company has probable decreases in expected cash flows to be
collected after acquisition, the Company charges the provision for loan losses and establishes an
allowance for loan losses.
The Company individually evaluates for impairment larger commercial and agricultural,
construction and vacant land, and commercial mortgage loans. Residential mortgage and consumer
loans are not individually evaluated for impairment unless they become delinquent and exceed $500
in recorded investment or represent troubled debt restructurings. Loans are considered impaired
when the individual evaluation of current information regarding the borrowers financial condition,
loan collateral, and cash flows indicates that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement, including interest payments. Impaired
loans are carried at the lower of the recorded investment in the loan, the present value of
expected future cash flows discounted at the loans effective rate, the loans observable market
price, or the fair value of the collateral, if the loan is collateral dependent. Excluded from the
impairment analysis are large groups of smaller balance homogeneous loans such as consumer,
indirect auto and residential mortgage loans, which are evaluated on a pool basis. The Companys
policy for recognition of interest income, charge offs of loans, and application of payments on
impaired loans is the same as the policy applied to nonaccrual loans.
Significant risk characteristics considered in estimating the allowance for credit losses
include the following:
|
|
|
Commercial and agriculturalindustry specific economic trends and individual
borrower financial condition |
|
|
|
|
Construction and vacant land, farmland and commercial mortgage loanstype of
property (i.e., residential, commercial, industrial) and geographic concentrations and
risks and individual borrower financial condition |
|
|
|
|
Residential mortgage, indirect auto and consumerhistorical charge-offs and current
trends in borrowers credit, property collateral, and loan characteristics |
Loans are charged off in whole or in part when they are considered to be uncollectible. For
commercial and agricultural, construction and vacant land and commercial mortgage loans, they are
generally considered uncollectible based on an evaluation of borrower financial condition as well
as the value of any collateral. For residential mortgage and consumer loans, this is generally
based on past due status as discussed above, as well as an evaluation of borrower creditworthiness
and the value of any collateral. Recoveries of amounts previously charged off are recorded as a
recovery to the allowance for loan losses.
Purchased Credit-Impaired Loans
Loans acquired in a transfer, including business combinations and transactions similar to the
acquisitions of TIBB and Capital Bank, where there is evidence of credit deterioration since
origination and it is probable at the date of acquisition that the Company will not collect all
contractually required principal and interest payments, are accounted for under accounting guidance
for purchased credit-impaired (PCI) loans. This guidance provides that the excess of the cash
flows initially expected to be collected over the fair value of the loans at the acquisition date
(i.e., the accretable yield) is accreted into interest income over the estimated remaining life of
the purchased credit-impaired loans using the effective yield method, provided that the timing and
amount of future cash flows is reasonably estimable. Accordingly, such loans are not classified as
nonaccrual and they are considered to be accruing because their interest income relates to the
accretable yield recognized under accounting for purchased credit-impaired loans and not to
contractual interest payments. The difference between the contractually required payments and the
cash flows expected to be collected at acquisition, considering the impact of prepayments, is
referred to as the nonaccretable difference.
The Company periodically evaluates the relationship of any material changes in estimated
future cash flows in contrast to changes in the recorded investment in the PCI loans, to determine
the need to record a provision for loan losses, reverse any previous allowance for loan losses, or
increase the accretable yield to be recognized prospectively. The impact of changes in variable
interest rates is recognized prospectively as adjustments to interest income. The accounting pools
of acquired loans are defined as of the date of acquisition of a portfolio of loans and are
comprised of groups of loans with similar collateral types and credit risk.
FDIC Indemnification Asset
Pursuant to purchase and assumption agreements with the FDIC, NAFH NB has entered into loss
share agreements in which the FDIC will reimburse the Company for certain amounts related to
certain acquired loans and other real estate owned should the Company experience a loss, an
indemnification asset is also recorded at fair value at the acquisition date. The indemnification
asset is recognized at the same time as the indemnified loans, and measured on the same basis,
subject to collectability or contractual limitations. The indemnification asset on the acquisition
date reflects the present value of future cash flows expected to be received from the FDIC, using
an appropriate discount rate, which reflects counterparty credit risk.
G-7
Subsequent to initial recognition, the indemnification asset continues to be measured on the
same basis as the related indemnified loans and the loss share receivable is impacted by changes in
estimated cash flows associated with these loans. Deterioration in the credit quality on expected
cash flows of the loans (immediately recorded as an adjustment to the allowance for loan losses)
would immediately increase the loss share receivable, with the offset recorded through the
consolidated statement of income. Increases in the credit quality or cash flows of loans (reflected
as an adjustment to yield and accreted into income over the remaining life of the loans) decrease
the basis of the indemnification asset, with such decrease being amortized into income over 1) the
life of the loan or 2) the life of the shared loss agreements, whichever is shorter. Loss
assumptions used in the basis of the indemnified loans are consistent with the loss assumptions
used to measure the indemnification asset. Fair value accounting incorporates into the fair value
of the indemnification asset an element of the time value of money, which is accreted back into
income over the life of the shared loss agreements.
Upon the determination of an incurred loss the indemnification asset will be reduced by the
amount owed by the FDIC. A corresponding claim receivable is recorded until cash is received from
the FDIC.
Goodwill and Other Intangible Assets
Goodwill and intangible assets acquired in a purchase business combination and determined to
have an indefinite useful life are not amortized, but tested for impairment at least annually.
Intangible assets with definite useful lives are amortized over their estimated useful lives to
their estimated residual values. Other intangible assets include core deposit base premiums,
customer relationship intangibles and mortgage servicing rights arising from acquisitions and are
initially measured at fair value. Long-lived intangible assets with definite lives are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If such an asset is determined to be impaired when comparing
undiscounted future cash flows to net book value, the impairment loss is measured by the excess of
the carrying amount of the asset over its fair value as determined by an estimate of discounted
future cash flows. The primary estimates which would be inherent in the impairment evaluation
include fair market value, general market conditions, and projections of future operating results.
Stock Based Compensation
The Company maintains various equity-based compensation plans. These plans provide for the
granting of stock options, stock appreciation rights, restricted stock, restricted stock units,
stock awards, and stock bonus awards. The Company values equity-based awards at the grant date fair
value and recognizes expense over the requisite service period taking into account retirement
eligibility.
Earnings (Loss) Per Common Share
Basic earnings (loss) per share is net income (loss) attributable to common shareholders
divided by the weighted average number of common shares outstanding during the period. Diluted
earnings per share includes the dilutive effect of additional potential common shares issuable
under stock options and unvested restricted shares computed using the treasury stock method.
Earnings (loss) per share have been computed based on the following for the periods ended:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
45,120 |
|
|
|
31,117 |
|
Dilutive effect of options outstanding |
|
|
|
|
|
|
|
|
Dilutive effect of restricted shares |
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
45,250 |
|
|
|
31,117 |
|
|
|
|
|
|
|
|
The dilutive effect of stock options and unvested restricted shares are the only common
stock equivalents for purposes of calculating diluted earnings per common share.
G-8
Weighted average anti-dilutive stock options and unvested restricted shares excluded from the
computation of diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
|
Ended March 31, |
|
Ended March 31, |
|
|
2011 |
|
2011 |
Anti-dilutive stock options |
|
|
397 |
|
|
|
|
|
Anti-dilutive restricted shares |
|
|
|
|
|
|
|
|
Income Taxes
Income tax expense (or benefit) is the total of the current year income tax due or refundable
and the change in deferred tax assets and liabilities. Deferred income tax assets and liabilities
are determined using the liability (or balance sheet) method. Under this method, the net deferred
tax asset or liability is determined based on the tax effects of the temporary differences between
the book and tax basis of the various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
A tax position is recognized as a benefit only if it is more likely than not that the tax
position would be sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being
realized on examination. For tax positions not meeting the more likely than not test, no tax
benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters
in income tax expense.
Recent Accounting Pronouncements
In April 2011, the Financial Accounting Standards Board (the FASB) issued new guidance
impacting receivables. The new guidance amended existing guidance for assisting a creditor in
determining whether a restructuring is a troubled debt restructuring. The amendments clarify the
guidance for a creditors evaluation of whether it has granted a concession and whether a debtor is
experiencing financial difficulties. This guidance is effective for interim and annual reporting
periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of
the annual period of adoption. Management is currently evaluating the impact the standard will have
on the consolidated financial statements.
In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma
Information for Business Combinations, to amend ASC Topic 805, Business Combinations. The
amendments in this update specify that if a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the current year had occurred as of the beginning of
the comparable prior annual reporting period only. The amendments in this update are effective
prospectively for business combinations for which the acquisition date is on or after the beginning
of the first annual reporting period beginning on or after December 15, 2010. Adoption of this
update did not have a material impact on the Companys consolidated financial statements.
In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses, to amend ASC Topic 320, Receivables. The
amendments in this update are intended to provide disclosures that facilitate financial statement
users evaluation of the nature of credit risk inherent in the entitys portfolio of financing
receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses,
and the changes and reasons for those changes in the allowance for credit losses. The disclosures
as of the end of a reporting period are effective for interim and annual periods ending on or after
December 15, 2010. The disclosures about activity that occurs during a reporting period are
effective for interim and annual reporting periods beginning on or after December 15, 2010.
Adoption of this update did not have a material impact on the Companys consolidated financial
statements.
Note 2Business Combinations and Acquisitions
On January 28, 2011, Capital Bank Corporation completed the issuance and sale of 71,000 shares
of its common stock to NAFH for $181,050 in cash. As a result of this NAFH investment and the
Rights Offering on March 11, 2011, NAFH currently owns approximately 83% of the Capital Bank
Corporations common stock. In connection with the NAFH investment in Capital Bank Corporation,
each shareholder as of January 27, 2011 received one contingent value right per share (CVR) that
entitles the holder to receive up to $0.75 in cash per CVR at the end of a five-year period based
on the credit performance of Capital Bank Corporations existing loan portfolio.
Also in connection with the NAFH investment, Capital Bank Corporations Series A Preferred
Stock and warrant to purchase shares of common stock issued by Capital Bank Corporation to the U.S.
Treasury in connection with the Troubled Asset Relief Program (TARP) were repurchased. Following
the TARP Repurchase, the Series A Preferred Stock and warrant are no longer outstanding, and
accordingly, Capital Bank Corporation is no longer subject to the restrictions imposed by the terms
of the Series A Preferred Stock or certain regulatory provisions of the Emergency Economic
Stabilization Act of 2008 (EESA) and the American Recovery and Reinvestment Act of 2009 (ARRA)
that are imposed on TARP recipients.
G-9
Pursuant to the NAFH investment, shareholders as of January 27, 2011 received non-transferable
rights to purchase a number of shares of Capital Bank Corporations common stock proportional to
the number of shares of common stock held by such holders on such date, at a purchase price equal
to $2.55 per share, subject to certain limitations. Capital Bank Corporation issued 1,613 shares of
common stock in exchange for $4,113 upon completion of the Rights Offering on March 11, 2011.
Direct offering costs of $300 were recorded as a reduction to the proceeds of the Rights Offering.
Also in connection with the closing of the NAFH investment, Capital Bank Corporation amended
its Supplemental Executive Retirement Plan (the Executive Plan or SERP) to waive, with respect
to unvested amounts only, any change in control provision and corresponding entitlement to change
in control benefits that would otherwise be triggered by the NAFH investment or any subsequent
transaction or series of transactions that result in an affiliate of NAFH holding Capital Bank
Corporations outstanding voting securities or total voting power. On January 28, 2011, Capital
Bank Corporation received written waivers from each of the participants in the Executive Plan
pursuant to which such executives waived the previously described change in control benefits under
the SERP and the accelerated vesting of their outstanding unvested stock options in connection with
the transactions contemplated by the NAFH investment. Cash payments made to participants in the
Executive Plan upon change in control related to vested benefits totaled $1,119. The Supplemental
Retirement Plan for Directors was not amended, and cash payments made to participants upon change
in control pursuant to terms of this plan totaled $3,156.
Capital Bank Corporation determined push-down accounting to be appropriate for this
transaction in accordance with SEC guidance, and as such, has applied the acquisition method of
accounting due to NAFHs acquisition of 85% of the Companys outstanding common stock on
January 28, 2011 (subsequently reduced to 83% following the Rights Offering on March 11, 2011).
The following table summarizes the NAFH investment and Capital Bank Corporations
preliminary opening balance sheet:
|
|
|
|
|
|
|
As of January 28, 2011 |
|
(Dollars in thousands) |
|
(Unaudited) |
|
Fair value of assets acquired: |
|
|
|
|
Cash and cash equivalents |
|
$ |
208,255 |
|
Investment securities |
|
|
225,336 |
|
Mortgage loans held for sale |
|
|
2,569 |
|
Loans |
|
|
1,135,164 |
|
Goodwill |
|
|
30,994 |
|
Other intangible assets |
|
|
5,004 |
|
Deferred tax assets |
|
|
55,391 |
|
Other assets |
|
|
66,663 |
|
|
|
|
|
Total assets acquired |
|
|
1,729,376 |
|
|
|
|
|
Fair value of liabilities assumed: |
|
|
|
|
Deposits |
|
|
1,351,467 |
|
Borrowings |
|
|
123,837 |
|
Subordinated debt |
|
|
19,392 |
|
Other liabilities |
|
|
10,595 |
|
|
|
|
|
Total liabilities assumed |
|
|
1,505,291 |
|
|
|
|
|
Net assets acquired |
|
|
224,085 |
|
Less: non-controlling interest at fair value |
|
|
(43,785 |
) |
|
|
|
|
|
|
|
180,300 |
|
Underwriting and legal costs |
|
|
750 |
|
|
|
|
|
Purchase price |
|
$ |
181,050 |
|
|
|
|
|
The above estimated fair values of assets acquired and liabilities assumed are based on
the information that was available. The Company believes that information provides a reasonable
basis for estimating the fair values. However, the Company may obtain additional information and
evidence during the measurement period that may result in changes to the estimated fair value
amounts. The Company expects to finalize the valuation and complete the purchase price allocation
as soon as practicable.
G-10
The following table reflects the pro forma total net interest income, non interest income and
net loss for periods presented as though the acquisition of Capital Bank Corporation had taken
place at the beginning of each period. The pro forma results are not necessarily indicative of the
results of operations that would have occurred had the acquisition actually taken place on the
first day of the respective periods, nor of future results of operations.
|
|
|
|
|
|
|
|
|
|
|
Pro Forma (Unaudited) |
|
|
Three-Months Ended March 31, |
|
|
2011 |
|
2010 |
Net interest income |
|
$ |
36,798 |
|
|
$ |
13,275 |
|
Non-interest income |
|
$ |
5,333 |
|
|
$ |
2,531 |
|
Net income (loss) |
|
$ |
996 |
|
|
$ |
(6,715 |
) |
Note 3Investment Securities
The amortized cost, estimated fair value and the related gross unrealized gains and losses
recognized in accumulated other comprehensive income of investment securities held to maturity and
available for sale at March 31, 2011 and December 31, 2010 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated Fair |
|
Held to Maturity |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Foreign government |
|
$ |
250 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
250 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
Available for Sale |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
U.S. Government agencies and corporations |
|
$ |
62,564 |
|
|
$ |
26 |
|
|
$ |
385 |
|
|
$ |
62,205 |
|
States and political subdivisionstax exempt |
|
|
26,234 |
|
|
|
966 |
|
|
|
116 |
|
|
|
27,084 |
|
States and political subdivisionstaxable |
|
|
7,229 |
|
|
|
6 |
|
|
|
104 |
|
|
|
7,131 |
|
Marketable equity securities |
|
|
1,833 |
|
|
|
37 |
|
|
|
9 |
|
|
|
1,861 |
|
Mortgage-backed securitiesresidential |
|
|
662,494 |
|
|
|
2,545 |
|
|
|
2,955 |
|
|
|
662,084 |
|
Corporate bonds |
|
|
3,220 |
|
|
|
174 |
|
|
|
|
|
|
|
3,394 |
|
Collateralized debt obligation |
|
|
803 |
|
|
|
|
|
|
|
12 |
|
|
|
791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
764,377 |
|
|
$ |
3,754 |
|
|
$ |
3,581 |
|
|
$ |
764,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
Held to Maturity |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
Foreign government |
|
$ |
250 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
250 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
Available for Sale |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
U.S. Government agencies and corporations |
|
$ |
49,497 |
|
|
$ |
18 |
|
|
$ |
382 |
|
|
$ |
49,133 |
|
States and political subdivisionstax exempt |
|
|
5,918 |
|
|
|
2 |
|
|
|
128 |
|
|
|
5,792 |
|
States and political subdivisionstaxable |
|
|
9,540 |
|
|
|
41 |
|
|
|
227 |
|
|
|
9,354 |
|
Marketable equity securities |
|
|
102 |
|
|
|
|
|
|
|
28 |
|
|
|
74 |
|
Mortgage-backed securitiesresidential |
|
|
415,961 |
|
|
|
948 |
|
|
|
4,696 |
|
|
|
412,213 |
|
Corporate bonds |
|
|
2,104 |
|
|
|
1 |
|
|
|
|
|
|
|
2,105 |
|
Collateralized debt obligation |
|
|
807 |
|
|
|
|
|
|
|
12 |
|
|
|
795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
483,929 |
|
|
$ |
1,010 |
|
|
$ |
5,473 |
|
|
$ |
479,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales and calls of securities available for sale was $17,988 for the three
months ended March 31, 2011. Gross gains of approximately $7 were realized on these sales and calls
during the three months ended March 31, 2011.
G-11
The estimated fair value of investment securities available for sale at March 31, 2011 by
contractual maturity, are shown as follows. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or repay obligations without call or
prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed
securities, are shown separately.
|
|
|
|
|
|
|
March 31, 2011 |
|
Due in one year or less |
|
$ |
2,285 |
|
Due after one year through five years |
|
|
35,920 |
|
Due after five years through ten years |
|
|
27,427 |
|
Due after ten years |
|
|
34,973 |
|
Marketable equity securities |
|
|
1,861 |
|
Mortgage-backed securitiesresidential |
|
|
662,084 |
|
|
|
|
|
|
|
$ |
764,550 |
|
|
|
|
|
Securities with unrealized losses not recognized in income, and the period of time
they have been in an unrealized loss position, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
12 Months or Longer |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
March 31, 2011 |
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
U.S. Government agencies and corporations |
|
$ |
15,868 |
|
|
$ |
385 |
|
|
|
|
|
|
|
|
|
|
$ |
15,868 |
|
|
$ |
385 |
|
States and political subdivisionstax exempt |
|
|
4,723 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
4,723 |
|
|
|
116 |
|
States and political subdivisionstaxable |
|
|
5,744 |
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
5,744 |
|
|
|
104 |
|
Marketable equity securities |
|
|
1,722 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
1,722 |
|
|
|
9 |
|
Mortgage-backed securitiesresidential |
|
|
246,999 |
|
|
|
2,955 |
|
|
|
|
|
|
|
|
|
|
|
246,999 |
|
|
|
2,955 |
|
Collateralized debt obligation |
|
|
791 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
791 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired |
|
$ |
275,847 |
|
|
$ |
3,581 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
275,847 |
|
|
$ |
3,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
12 Months or Longer |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
December 31, 2010 |
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
U.S. Government agencies and corporations |
|
$ |
20,725 |
|
|
$ |
382 |
|
|
|
|
|
|
|
|
|
|
$ |
20,725 |
|
|
$ |
382 |
|
States and political subdivisionstax exempt |
|
|
5,191 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
5,191 |
|
|
|
128 |
|
States and political subdivisionstaxable |
|
|
8,198 |
|
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
8,198 |
|
|
|
227 |
|
Marketable equity securities |
|
|
74 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
74 |
|
|
|
28 |
|
Mortgage-backed securitiesresidential |
|
|
255,676 |
|
|
|
4,696 |
|
|
|
|
|
|
|
|
|
|
|
255,676 |
|
|
|
4,696 |
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligation |
|
|
795 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
795 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired |
|
$ |
290,659 |
|
|
$ |
5,473 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
290,659 |
|
|
$ |
5,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011, the Companys security portfolio consisted of 197 securities, 71 of
which were in an unrealized loss position. As of December 31, 2010, the Companys security
portfolio consisted of 106 securities, 77 of which were in an unrealized loss position. The
majority of unrealized losses are related to the Companys mortgage-backed securities.
The mortgage-backed securities at March 31, 2011 and December 31, 2010, were issued by
U.S. government-sponsored entities and agencies, institutions which the government has affirmed its
commitment to support. Unrealized losses associated with these securities are attributable to
changes in interest rates and illiquidity, and not credit quality, and because the Company does not
have the intent to sell these mortgage-backed securities and it is not more likely than not that it
will be required to sell the securities before their anticipated recovery, the Company does not
consider these securities to be other-than-temporarily impaired at March 31, 2011 or December 31,
2010.
G-12
Note 4Loans
Major categories of loans are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Real estate mortgage loans: |
|
|
|
|
|
|
|
|
Commercial |
|
$ |
1,512,703 |
|
|
$ |
1,042,211 |
|
Residential |
|
|
497,712 |
|
|
|
318,977 |
|
Construction and vacant land |
|
|
404,755 |
|
|
|
130,019 |
|
Commercial and agricultural loans |
|
|
279,232 |
|
|
|
103,524 |
|
Indirect auto loans |
|
|
40,653 |
|
|
|
28,038 |
|
Home equity loans |
|
|
183,590 |
|
|
|
104,955 |
|
Other consumer loans |
|
|
19,479 |
|
|
|
14,807 |
|
|
|
|
|
|
|
|
Total loans |
|
|
2,938,124 |
|
|
|
1,742,531 |
|
|
|
|
|
|
|
|
|
|
Net deferred loan costs |
|
|
1,644 |
|
|
|
216 |
|
|
|
|
|
|
|
|
Loans, net of deferred loan costs |
|
$ |
2,939,768 |
|
|
$ |
1,742,747 |
|
|
|
|
|
|
|
|
Covered loans represent loans acquired from the FDIC subject to the loss sharing
agreements. Covered loans are further broken out into (i) loans acquired with evidence of credit
impairment, which we call purchased credit impaired (PCI), and (ii) non PCI loans. Loans
originated by the Company and loans acquired through the acquisition of TIBB and Capital Bank are
excluded from the loss sharing agreements and are classified as not covered. Additionally,
certain consumer loans acquired through the acquisition of failed banks from the FDIC are
specifically excluded from the loss sharing agreements.
Loans acquired are recorded at fair value in accordance with acquisition accounting, exclusive
of the loss sharing agreements with the FDIC. The fair value estimates associated with the loans
include estimates related to expected prepayments and the amount and timing of undiscounted
expected principal, interest and other cash flows. At the time of acquisition, the Company
accounted for the impaired purchased loans by segregating each portfolio into loan pools with
similar risk characteristics, which included:
|
|
|
Whether the loan was performing according to contractual terms at the time of
acquisition; |
|
|
|
|
The loan type based on regulatory reporting guidelines, namely whether the loan was
a mortgage, consumer, or commercial loan; and |
|
|
|
|
The nature of collateral. |
From these pools, the Company used certain loan information, including outstanding principal
balance, estimated expected losses, weighted average maturity, weighted average term to re-price
(if a variable rate loan), weighted average margin, and weighted average interest rate to estimate
the expected cash flow for each loan pool. Over the life of the acquired loans, the Company
continues to estimate cash flows expected to be collected on each loan pool. The Company evaluates,
at each balance sheet date, whether the present value of the cash flows from the loan pools,
determined using the effective interest rates, has decreased and if so, recognizes a provision for
loan loss in its consolidated statement of income. For any increases in cash flows expected to be
collected, the Company adjusts the amount of accretable yield recognized on a prospective basis
over the loans or pools remaining life.
Resulting from the acquisition of Capital Bank Corp., purchased credit-impaired loans for
which it was probable at acquisition that all contractually required payments would not be
collected are as follows:
|
|
|
|
|
Contractually required payments |
|
$ |
1,318,702 |
|
Nonaccretable difference |
|
|
(98,777 |
) |
|
|
|
|
Cash flows expected to be collected at acquisition |
|
|
1,219,925 |
|
Accretable yield |
|
|
(163,892 |
) |
|
|
|
|
Fair value of acquired loans at acquisition |
|
$ |
1,056,033 |
|
|
|
|
|
G-13
Accretable yield, or income expected to be collected, related to purchased
credit-impaired loans is as follows:
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, 2011 |
|
Balance, beginning of period |
|
$ |
292,805 |
|
New loans purchased |
|
|
163,892 |
|
Accretion of income |
|
|
(29,916 |
) |
Reclassifications from nonaccretable difference |
|
|
|
|
Disposals |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
426,781 |
|
|
|
|
|
The contractually required payments represent the total undiscounted amount of all
uncollected contractual principal and contractual interest payments both past due and scheduled for
the future, adjusted for the timing of estimated prepayments and any full or partial charge-offs
prior to acquisition by the Company. Nonaccretable difference represents contractually required
payments in excess of the amount of estimated cash flows expected to be collected. The accretable
yield represents the excess of estimated cash flows expected to be collected over the initial
recorded investment in the PCI loans, which was their fair value at the time of the acquisition.
The accretable yield is accreted into interest income over the estimated life of the PCI loans
using the level yield method. The accretable yield will change due to changes in:
|
|
|
the estimate of the remaining life of PCI loans which may change the amount of
future interest income, and possibly principal, expected to be collected; |
|
|
|
|
the estimate of the amount of contractually required principal and interest
payments over the estimated life that will not be collected (the nonaccretable
difference); and |
|
|
|
|
indices for PCI loans with variable rates of interest. |
For PCI loans, the impact of loan modifications is included in the evaluation of expected
cash flows for subsequent decreases or increases of cash flows. For variable rate PCI loans,
expected future cash flows will be recalculated as the rates adjust over the lives of the loans. At
acquisition, the expected future cash flows were based on the variable rates that were in effect at
that time.
Because of the loss protection provided by the FDIC, the risks of NAFH NBs loans and
foreclosed real estate are significantly different from those assets not covered under the loss
share agreement. Accordingly, the Company presents loans subject to the loss share agreements as
covered loans in the information below and loans that are not subject to the loss share agreement
as noncovered loans.
G-14
Non-covered Loans
|
|
The following is a summary of the major categories of non-covered loans outstanding as of
March 31, 2011 and December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Non PCI |
|
|
Noncovered |
|
March 31, 2011 |
|
PCI Loans |
|
|
Loans |
|
|
Loans |
|
Real estate mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
1,047,649 |
|
|
$ |
79,747 |
|
|
$ |
1,127,396 |
|
Residential |
|
|
372,240 |
|
|
|
39,973 |
|
|
|
412,213 |
|
Construction and vacant land |
|
|
305,904 |
|
|
|
13,540 |
|
|
|
319,444 |
|
Commercial and agricultural loans |
|
|
194,997 |
|
|
|
53,817 |
|
|
|
248,814 |
|
Indirect auto loans |
|
|
18,325 |
|
|
|
22,328 |
|
|
|
40,653 |
|
Home equity loans |
|
|
25,347 |
|
|
|
87,936 |
|
|
|
113,283 |
|
Other consumer loans |
|
|
7,924 |
|
|
|
11,555 |
|
|
|
19,479 |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
1,972,386 |
|
|
|
308,896 |
|
|
|
2,281,282 |
|
Net deferred loan costs |
|
|
|
|
|
|
1,644 |
|
|
|
1,644 |
|
|
|
|
|
|
|
|
|
|
|
Loans, net of deferred loan costs |
|
$ |
1,972,386 |
|
|
$ |
310,540 |
|
|
$ |
2,282,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Non PCI |
|
|
Noncovered |
|
December 31, 2010 |
|
PCI Loans |
|
|
Loans |
|
|
Loans |
|
Real estate mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
599,820 |
|
|
$ |
18,043 |
|
|
$ |
617,863 |
|
Residential |
|
|
213,982 |
|
|
|
15,918 |
|
|
|
229,900 |
|
Farmland |
|
|
12,083 |
|
|
|
|
|
|
|
12,083 |
|
Construction and vacant land |
|
|
38,956 |
|
|
|
1,864 |
|
|
|
40,820 |
|
Commercial and agricultural loans |
|
|
55,741 |
|
|
|
15,633 |
|
|
|
71,374 |
|
Indirect auto loans |
|
|
21,743 |
|
|
|
6,295 |
|
|
|
28,038 |
|
Home equity loans |
|
|
4,353 |
|
|
|
27,010 |
|
|
|
31,363 |
|
Other consumer loans |
|
|
8,805 |
|
|
|
6,001 |
|
|
|
14,806 |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
955,483 |
|
|
|
90,764 |
|
|
|
1,046,247 |
|
Net deferred loan costs |
|
|
|
|
|
|
216 |
|
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
Loans, net of deferred loan costs |
|
$ |
955,483 |
|
|
$ |
90,980 |
|
|
$ |
1,046,463 |
|
|
|
|
|
|
|
|
|
|
|
Covered Loans
The following is a summary of the major categories of covered loans outstanding as of March 31,
2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non PCI |
|
|
Total Covered |
|
March 31, 2011 |
|
PCI Loans |
|
|
Loans |
|
|
Loans |
|
Real estate mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
385,307 |
|
|
$ |
|
|
|
$ |
385,307 |
|
Residential |
|
|
85,499 |
|
|
|
|
|
|
|
85,499 |
|
Construction and vacant land |
|
|
85,311 |
|
|
|
|
|
|
|
85,311 |
|
Commercial and agricultural loans |
|
|
28,136 |
|
|
|
2,282 |
|
|
|
30,418 |
|
Home equity loans |
|
|
|
|
|
|
70,307 |
|
|
|
70,307 |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
584,253 |
|
|
$ |
72,589 |
|
|
$ |
656,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non PCI |
|
|
Total Covered |
|
December 31, 2010 |
|
PCI Loans |
|
|
Loans |
|
|
Loans |
|
Real estate mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
412,266 |
|
|
$ |
|
|
|
$ |
412,266 |
|
Residential |
|
|
89,077 |
|
|
|
|
|
|
|
89,077 |
|
Construction and vacant land |
|
|
89,199 |
|
|
|
|
|
|
|
89,199 |
|
Commercial and agricultural loans |
|
|
29,592 |
|
|
|
2,558 |
|
|
|
32,150 |
|
Home equity loans |
|
|
|
|
|
|
73,592 |
|
|
|
73,592 |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
620,134 |
|
|
$ |
76,150 |
|
|
$ |
696,284 |
|
|
|
|
|
|
|
|
|
|
|
G-15
The following table presents the aging of the recorded investment in past due loans,
based on contractual terms, as of March 31, 2011 by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 90 Days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due and Still |
|
|
|
|
|
|
|
|
|
30-89 Days Past Due |
|
|
Accruing/Accreting |
|
|
Nonaccrual |
|
|
|
|
Non-purchased credit impaired |
|
|
|
|
|
Non- |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Non- |
|
|
|
|
loans |
|
Covered |
|
|
Covered |
|
|
Covered |
|
|
Covered |
|
|
Covered |
|
|
Covered |
|
|
Total |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, lot and construction |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Real estatenon-owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estateowner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines |
|
|
1,300 |
|
|
|
516 |
|
|
|
2,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,321 |
|
Commercial and industrial |
|
|
20 |
|
|
|
|
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110 |
|
Prime indirect auto loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-prime indirect auto loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other consumer loans |
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
1,320 |
|
|
$ |
581 |
|
|
$ |
2,595 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 90 Days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due and Still |
|
|
|
|
|
|
|
|
|
30-89 Days Past Due |
|
|
Accruing/Accreting |
|
|
Nonaccrual |
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Non- |
|
|
|
|
Purchased credit impaired loans |
|
Covered |
|
|
Covered |
|
|
Covered |
|
|
Covered |
|
|
Covered |
|
|
Covered |
|
|
Total |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, lot and construction |
|
$ |
455 |
|
|
$ |
14,822 |
|
|
$ |
54,920 |
|
|
$ |
61,243 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
131,440 |
|
Real estatenon-owner occupied |
|
|
4,256 |
|
|
|
16,057 |
|
|
|
26,832 |
|
|
|
17,638 |
|
|
|
|
|
|
|
|
|
|
|
64,783 |
|
Real estateowner occupied |
|
|
5,681 |
|
|
|
8,439 |
|
|
|
9,526 |
|
|
|
31,730 |
|
|
|
|
|
|
|
|
|
|
|
55,376 |
|
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
4,380 |
|
|
|
6,760 |
|
|
|
30,536 |
|
|
|
16,939 |
|
|
|
|
|
|
|
|
|
|
|
58,615 |
|
Home equity lines |
|
|
1,244 |
|
|
|
529 |
|
|
|
1,267 |
|
|
|
1,239 |
|
|
|
|
|
|
|
|
|
|
|
4,279 |
|
Commercial and industrial |
|
|
702 |
|
|
|
7,224 |
|
|
|
3,586 |
|
|
|
3,565 |
|
|
|
|
|
|
|
|
|
|
|
15,077 |
|
Prime indirect auto loans |
|
|
|
|
|
|
118 |
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
178 |
|
Sub-prime indirect auto loans |
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
316 |
|
Other consumer loans |
|
|
|
|
|
|
178 |
|
|
|
|
|
|
|
236 |
|
|
|
|
|
|
|
|
|
|
|
414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
16,718 |
|
|
$ |
54,387 |
|
|
$ |
126,667 |
|
|
$ |
132,706 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
330,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased credit-impaired loans are not classified as nonaccrual as they are considered
to be accruing because their interest income relates to the accretable yield recognized under
accounting for purchased credit-impaired loans and not to contractual interest payments.
There were no troubled debt restructurings as of March 31, 2011.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the
ability of borrowers to service their debt such as: current financial information, historical
payment experience, credit documentation, public information, and current economic trends, among
other factors. The Company analyzes loans individually by classifying the loans as to credit risk.
This analysis is performed on a monthly basis. The Company uses the following definitions for risk
ratings:
|
|
|
PassThese loans range from superior quality with minimal credit risk to loans
requiring heightened management attention but that are still an acceptable risk and
continue to perform as contracted. |
|
|
|
|
Special MentionLoans classified as special mention have a potential weakness that
deserves managements close attention. If left uncorrected, these potential weaknesses
may result in deterioration of the repayment prospects for the loan or of the
institutions credit position at some future date. |
|
|
|
|
SubstandardLoans classified as substandard are inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral pledged, if
any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the
liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected. |
G-16
|
|
|
DoubtfulLoans classified as doubtful have all the weaknesses inherent in those
classified as substandard, with the added characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts, conditions,
and values, highly questionable and improbable. |
The following table summarizes loans, excluding purchased credit-impaired loans,
monitored for credit quality based on internal ratings at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special |
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
|
Mention |
|
|
Substandard |
|
|
Doubtful |
|
|
Total |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, lot and construction |
|
$ |
13,483 |
|
|
$ |
74 |
|
|
$ |
45 |
|
|
$ |
|
|
|
$ |
13,602 |
|
Real estate- non-owner occupied |
|
|
32,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,225 |
|
Real estateowner occupied |
|
|
41,647 |
|
|
|
|
|
|
|
2,115 |
|
|
|
|
|
|
|
43,762 |
|
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
45,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,439 |
|
Home equity lines |
|
|
152,047 |
|
|
|
1,589 |
|
|
|
4,593 |
|
|
|
|
|
|
|
158,229 |
|
Commercial and industrial |
|
|
52,633 |
|
|
|
17 |
|
|
|
382 |
|
|
|
|
|
|
|
53,032 |
|
Prime indirect auto loans |
|
|
22,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,281 |
|
Sub-prime indirect auto loans |
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
Other consumer loans |
|
|
12,343 |
|
|
|
20 |
|
|
|
505 |
|
|
|
|
|
|
|
12,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
372,145 |
|
|
$ |
1,700 |
|
|
$ |
7,640 |
|
|
$ |
|
|
|
$ |
381,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The credit impact of purchased impaired loans is primarily determined by estimates of
expected cash flows. Such estimates are influenced by a number of credit related items which may
include, but are not limited to, estimated real estate values, payment patterns, economic
environment, LTV ratios and origination dates.
Note 5FDIC Indemnification Asset
The following is a summary of the year to date activity in the FDIC indemnification asset.
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
91,467 |
|
Increase due to acquisitions |
|
|
|
|
Accretion |
|
|
318 |
|
Reimbursable losses claimed |
|
|
(14,188 |
) |
|
|
|
|
Balance, March 31, 2011 |
|
$ |
77,597 |
|
|
|
|
|
Note 6Allowance for Loan Losses
Activity in the allowance for loan losses for the three months ended March 31, 2011 and 2010
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended March 31, 2011 |
|
|
Ended March 31, 2010 |
|
Balance, beginning of period |
|
$ |
753 |
|
|
$ |
|
|
Provision for loan losses charged to expense |
|
|
1,545 |
|
|
|
|
|
Loans charged off |
|
|
(11 |
) |
|
|
|
|
Recoveries of loans previously charged off |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
2,287 |
|
|
$ |
|
|
|
|
|
|
|
|
|
G-17
Activity in the allowance for loan losses for the three months ended March 31, 2011 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
Provision |
|
|
Net Charge-offs |
|
|
March 31, 2011 |
|
Real estate mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
149 |
|
|
$ |
610 |
|
|
$ |
|
|
|
$ |
759 |
|
Residential |
|
|
215 |
|
|
|
236 |
|
|
|
|
|
|
|
451 |
|
Construction and vacant land |
|
|
25 |
|
|
|
190 |
|
|
|
|
|
|
|
215 |
|
Commercial and agricultural loans |
|
|
133 |
|
|
|
417 |
|
|
|
|
|
|
|
550 |
|
Indirect auto loans |
|
|
184 |
|
|
|
44 |
|
|
|
(11 |
) |
|
|
217 |
|
Home equity loans |
|
|
33 |
|
|
|
37 |
|
|
|
|
|
|
|
70 |
|
Other consumer loans |
|
|
14 |
|
|
|
11 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
753 |
|
|
$ |
1,545 |
|
|
$ |
(11 |
) |
|
$ |
2,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses |
|
|
Loans |
|
|
|
Individually |
|
|
Collectively |
|
|
|
|
|
|
Individually |
|
|
|
|
|
|
|
|
|
Evaluated |
|
|
Evaluated |
|
|
Purchased |
|
|
Evaluated |
|
|
Collectively |
|
|
Purchased |
|
|
|
for |
|
|
for |
|
|
Credit- |
|
|
for |
|
|
Evaluated for |
|
|
Credit- |
|
March 31, 2011 |
|
Impairment |
|
|
Impairment |
|
|
Impaired |
|
|
Impairment |
|
|
Impairment(1) |
|
|
Impaired |
|
Real estate mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
|
|
|
$ |
759 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
79,747 |
|
|
$ |
1,432,956 |
|
Residential |
|
|
|
|
|
|
451 |
|
|
|
|
|
|
|
|
|
|
|
39,973 |
|
|
|
457,739 |
|
Construction and vacant land |
|
|
|
|
|
|
215 |
|
|
|
|
|
|
|
|
|
|
|
13,540 |
|
|
|
391,215 |
|
Commercial and agricultural |
|
|
|
|
|
|
550 |
|
|
|
|
|
|
|
|
|
|
|
56,099 |
|
|
|
223,133 |
|
Indirect auto loans |
|
|
|
|
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
22,328 |
|
|
|
18,325 |
|
Home equity loans |
|
|
|
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
158,243 |
|
|
|
25,347 |
|
Other consumer loans |
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
11,555 |
|
|
|
7,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
|
|
|
$ |
2,287 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
381,485 |
|
|
$ |
2,556,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7Capital Adequacy
The Company (on a consolidated basis) and the Banks are subject to various regulatory capital
requirements administered by federal and state banking agencies. Failure to meet minimum capital
requirements result in certain discretionary and required actions by regulators that could have an
effect on the Companys operations. The regulations require the Company and the Banks to meet
specific capital adequacy guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting practices. The Companys
capital amounts and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
G-18
To be considered well capitalized and adequately capitalized (as defined) under the
regulatory framework for prompt corrective action, the Banks must maintain minimum Tier 1 leverage,
Tier 1 risk-based, and total risk-based ratios. At March 31, 2011 and December 31, 2010 the Banks
maintained capital ratios exceeding the requirement to be considered adequately capitalized. These
minimum ratios along with the actual ratios for the Company, TIBB, Capital Bank Corp. and the Banks
as of March 31, 2011 and December 31, 2010 are presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well |
|
Adequately |
|
|
|
|
|
|
Capitalized |
|
Capitalized |
|
March 31, 2011 |
|
December 31, |
|
|
Requirement |
|
Requirement |
|
Actual |
|
2010 Actual |
Tier 1 Capital (to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
N/A |
|
|
|
³ 4.0 |
% |
|
|
19.2 |
% |
|
|
24.3 |
% |
TIBB |
|
|
N/A |
|
|
|
³ 4.0 |
% |
|
|
9.0 |
% |
|
|
8.2 |
% |
Capital Bank Corp. |
|
|
N/A |
|
|
|
³ 4.0 |
% |
|
|
10.0 |
% |
|
|
N/A |
|
TIB Bank |
|
|
³ 5.0 |
% |
|
|
³ 4.0 |
% |
|
|
8.4 |
% |
|
|
8.1 |
% |
NAFH NB Bank |
|
|
³ 5.0 |
% |
|
|
³ 4.0 |
% |
|
|
12.7 |
% |
|
|
12.1 |
% |
Capital Bank |
|
|
³ 5.0 |
% |
|
|
³ 4.0 |
% |
|
|
8.8 |
% |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
N/A |
|
|
|
³ 4.0 |
% |
|
|
30.8 |
% |
|
|
41.8 |
% |
TIBB |
|
|
N/A |
|
|
|
³ 4.0 |
% |
|
|
14.2 |
% |
|
|
13.4 |
% |
Capital Bank Corp. |
|
|
N/A |
|
|
|
³ 4.0 |
% |
|
|
13.2 |
% |
|
|
N/A |
|
TIB Bank |
|
|
³ 6.0 |
% |
|
|
³ 4.0 |
% |
|
|
13.2 |
% |
|
|
13.1 |
% |
NAFH NB Bank |
|
|
³ 6.0 |
% |
|
|
³ 4.0 |
% |
|
|
45.8 |
% |
|
|
17.1 |
% |
Capital Bank |
|
|
³ 6.0 |
% |
|
|
³ 4.0 |
% |
|
|
11.6 |
% |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
N/A |
|
|
|
³ 8.0 |
% |
|
|
31.1 |
% |
|
|
41.9 |
% |
TIBB |
|
|
N/A |
|
|
|
³ 8.0 |
% |
|
|
14.3 |
% |
|
|
13.4 |
% |
Capital Bank Corp. |
|
|
N/A |
|
|
|
³ 8.0 |
% |
|
|
13.6 |
% |
|
|
N/A |
|
TIB Bank |
|
|
³ 10.0 |
% |
|
|
³ 8.0 |
% |
|
|
13.3 |
% |
|
|
13.1 |
% |
NAFH NB Bank |
|
|
³ 10.0 |
% |
|
|
³ 8.0 |
% |
|
|
46.2 |
% |
|
|
17.1 |
% |
Capital Bank |
|
|
³ 10.0 |
% |
|
|
³ 8.0 |
% |
|
|
12.0 |
% |
|
|
N/A |
|
Management believes, as of March 31, 2011, that the Company, TIBB, Capital Bank Corp. and the
Banks meet all capital requirements to which they are subject. Tier 1 Capital for the Company, TIBB
and Capital Bank Corp. includes trust preferred securities to the extent allowable.
The ability of the Banks to pay dividends to the Company is restricted under state banking
laws. Declaration of dividends by TIB Bank in 2010 would have required regulatory approval. During
2011 and 2010, no dividends were declared by the Banks.
Note 8Fair Value Measurements
ASC 820-10 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 (unadjusted) for identical assets or liabilities in active markets that
the entity has the ability to access as of the measurement date.
Level 2: Significant other 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.
Level 3: Significant unobservable inputs that reflect a reporting entitys own assumptions
about the assumptions that market participants would use in pricing an asset or liability.
Valuation of Investment Securities
The fair values of securities available for sale are determined by: 1) obtaining quoted prices
on nationally recognized securities exchanges when available (Level 1 inputs); 2) matrix pricing,
which is a mathematical technique widely used in the financial markets to value debt securities
without relying exclusively on quoted prices for the specific securities but rather by relying on
the securities relationship to other benchmark quoted securities (Level 2 inputs); and 3) for
collateralized debt obligations, certain corporate debt
G-19
securities that are not actively traded and certain other assets and liabilities recorded at
fair value in connection with the application of the acquisition method of accounting, custom
discounted cash flow modeling (Level 3 inputs).
As of March 31, 2011, the Company owned a collateralized debt security where the underlying
collateral is comprised primarily of trust preferred securities of banks and insurance companies
and certain corporate debt securities which are not actively traded. The inputs used in determining
the estimated fair value of these securities are Level 3 inputs. In determining their estimated
fair value, management utilizes a discounted cash flow modeling valuation approach. Discount rates
utilized in the modeling of these securities are estimated based upon a variety of factors
including the market yields of publicly traded trust preferred securities of larger financial
institutions and other non-investment grade corporate debt. Additionally, cash flows utilized in
the modeling of the collateralized debt obligation security were based upon actual default history
of the underlying issuers and issuer specific assumptions of estimated future defaults of the
underlying issuers.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of cost or estimated fair value. The
fair values of mortgage loans held for sale are based on commitments on hand from investors within
the secondary market for loans with similar characteristics. As such, the fair value adjustment for
mortgage loans held for sale is classified as nonrecurring Level 2.
Valuation of Impaired Loans and Other Real Estate Owned
The fair value of collateral dependent impaired loans with specific allocations of the
allowance for loan losses and other real estate owned is generally based on recent real estate
appraisals and other available observable market information. These appraisals may utilize a single
valuation approach or a combination of approaches including comparable sales and the income
approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for
differences between the comparable sales and income data available. Such adjustments are typically
significant and result in a Level 3 classification of the inputs for determining fair value.
G-20
Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2011 |
|
|
|
|
|
|
|
Using |
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Significant |
|
|
Significant |
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Unobservable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Observable |
|
|
Inputs |
|
|
|
March 31, 2011 |
|
|
(Level 1) |
|
|
Inputs (Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities |
|
$ |
602 |
|
|
$ |
602 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and corporations |
|
$ |
62,205 |
|
|
$ |
|
|
|
$ |
62,205 |
|
|
$ |
|
|
States and political subdivisionstax exempt |
|
|
27,084 |
|
|
|
|
|
|
|
27,084 |
|
|
|
|
|
States and political subdivisionstaxable |
|
|
7,131 |
|
|
|
|
|
|
|
7,131 |
|
|
|
|
|
Marketable equity securities |
|
|
1,861 |
|
|
|
1,861 |
|
|
|
|
|
|
|
|
|
Mortgage-backed securitiesresidential |
|
|
662,084 |
|
|
|
|
|
|
|
662,084 |
|
|
|
|
|
Corporate bonds |
|
|
3,394 |
|
|
|
|
|
|
|
2,287 |
|
|
|
1,107 |
|
Collateralized debt obligations |
|
|
791 |
|
|
|
|
|
|
|
|
|
|
|
791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
$ |
764,550 |
|
|
$ |
1,861 |
|
|
$ |
760,791 |
|
|
$ |
1,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010 |
|
|
|
|
|
|
|
Using |
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Significant |
|
|
Significant |
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Unobservable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Observable |
|
|
Inputs |
|
|
|
December 31, 2010 |
|
|
(Level 1) |
|
|
Inputs (Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and corporations |
|
$ |
49,133 |
|
|
$ |
|
|
|
$ |
49,133 |
|
|
$ |
|
|
States and political subdivisionstax exempt |
|
|
5,792 |
|
|
|
|
|
|
|
5,792 |
|
|
|
|
|
States and political subdivisionstaxable |
|
|
9,354 |
|
|
|
|
|
|
|
9,354 |
|
|
|
|
|
Marketable equity securities |
|
|
74 |
|
|
|
|
|
|
|
74 |
|
|
|
|
|
Mortgage-backed securitiesresidential |
|
|
412,213 |
|
|
|
|
|
|
|
412,213 |
|
|
|
|
|
Corporate bonds |
|
|
2,105 |
|
|
|
|
|
|
|
2,105 |
|
|
|
|
|
Collateralized debt obligations |
|
|
795 |
|
|
|
|
|
|
|
|
|
|
|
795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
$ |
479,466 |
|
|
$ |
|
|
|
$ |
478,671 |
|
|
$ |
795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below presents a reconciliation and income statement classification of gains
and losses for all assets measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the three months ended March 31, 2011 and held at March 31, 2011.
No assets were measured at fair value using Level 3 inputs during the three months ended March 31,
2010.
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant |
|
|
|
Unobservable Inputs (Level 3) |
|
|
|
Three Months Ended March 31, 2011 |
|
|
|
|
|
|
|
Collateralized Debt |
|
|
|
Corporate Bonds |
|
|
Obligations |
|
Beginning balance, January 1, |
|
$ |
|
|
|
$ |
795 |
|
Acquired through acquisition of Capital Bank Corporation |
|
|
1,107 |
|
|
|
|
|
Included in earningsother than temporary impairment |
|
|
|
|
|
|
|
|
Included in other comprehensive income |
|
|
|
|
|
|
(4 |
) |
Transfer in to Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance March 31, |
|
$ |
1,107 |
|
|
$ |
791 |
|
|
|
|
|
|
|
|
G-21
Assets and Liabilities Measured on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2011 Using |
|
|
Quoted Prices |
|
Significant |
|
|
|
|
in Active |
|
Other |
|
Significant |
|
|
Markets for |
|
Observable |
|
Unobservable |
|
|
Identical Assets |
|
Inputs |
|
Inputs |
|
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
$ |
|
|
|
$ |
|
|
|
$ |
77,636 |
|
Other repossessed assets |
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010 Using |
|
|
Quoted Prices |
|
Significant |
|
|
|
|
in Active |
|
Other |
|
Significant |
|
|
Markets for |
|
Observable |
|
Unobservable |
|
|
Identical Assets |
|
Inputs |
|
Inputs |
|
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
$ |
|
|
|
$ |
|
|
|
$ |
70,817 |
|
Other repossessed assets |
|
|
|
|
|
|
137 |
|
|
|
|
|
The carrying amounts and estimated fair values of financial instruments, at March 31, 2011 and
December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
December 31, 2010 |
|
|
Carrying |
|
Estimated |
|
Carrying |
|
Estimated |
|
|
Value |
|
Fair Value |
|
Value |
|
Fair Value |
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
719,804 |
|
|
$ |
719,804 |
|
|
$ |
886,925 |
|
|
$ |
886,925 |
|
Investment securities |
|
|
765,402 |
|
|
|
765,402 |
|
|
|
479,716 |
|
|
|
479,716 |
|
Loans, net |
|
|
2,938,905 |
|
|
|
2,947,097 |
|
|
|
1,741,994 |
|
|
|
1,781,181 |
|
FDIC indemnification asset |
|
|
77,597 |
|
|
|
77,597 |
|
|
|
91,467 |
|
|
|
91,467 |
|
Federal reserve, federal home
loan bank and independent
bankers bank stock |
|
|
30,735 |
|
|
|
30,735 |
|
|
|
23,465 |
|
|
|
23,465 |
|
Accrued interest receivable |
|
|
14,107 |
|
|
|
14,107 |
|
|
|
8,286 |
|
|
|
8,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-contractual deposits |
|
$ |
1,507,529 |
|
|
$ |
1,507,529 |
|
|
$ |
906,742 |
|
|
$ |
906,742 |
|
Contractual deposits |
|
|
2,031,193 |
|
|
|
2,034,276 |
|
|
|
1,353,510 |
|
|
|
1,355,099 |
|
Federal Home Loan Bank Advances |
|
|
280,151 |
|
|
|
279,278 |
|
|
|
243,067 |
|
|
|
242,522 |
|
Short-term borrowings |
|
|
50,650 |
|
|
|
50,649 |
|
|
|
61,969 |
|
|
|
61,969 |
|
Long term borrowings |
|
|
55,899 |
|
|
|
55,899 |
|
|
|
|
|
|
|
|
|
Subordinated debentures |
|
|
41,459 |
|
|
|
41,704 |
|
|
|
22,887 |
|
|
|
25,267 |
|
Accrued interest payable |
|
|
9,055 |
|
|
|
9,055 |
|
|
|
9,334 |
|
|
|
9,334 |
|
The methods and assumptions used to estimate fair value are described as follows:
Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest
receivable and payable, noncontractual demand deposits and certain short-term borrowings. As it is
not practicable to determine the fair value of Federal Reserve, Federal Home Loan Bank stock and
other bankers bank stock due to restrictions placed on its transferability, the estimated fair
value is equal to their carrying amount. Security fair values are based on market prices or dealer
quotes, and if no such information is available, on the rate and term of the security and
information about the issuer including estimates of discounted cash flows when necessary. For fixed
rate loans or contractual deposits and for variable rate loans or deposits with infrequent
repricing or repricing limits, fair value is based on discounted cash flows using current market
rates applied to the estimated life, adjusted for the allowance for loan losses. Fair values for
impaired loans are estimated using discounted cash flow analysis or underlying collateral values.
Fair values of long-term debt are based on current rates for similar financing. The fair value of
off-balance sheet items that includes commitments to extend credit to fund commercial, consumer,
real estate construction and real estate-mortgage loans and to fund standby letters of credit is
considered nominal.
G-22
Note 9Other Real Estate Owned
Activity in other real estate owned is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Three Months Ended |
|
|
Ended March 31, |
|
|
|
March 31, 2011 |
|
|
2010 |
|
Balance, beginning of period |
|
$ |
70,817 |
|
|
$ |
|
|
Increase due to acquisitions |
|
|
15,118 |
|
|
|
|
|
Real estate acquired |
|
|
13,713 |
|
|
|
|
|
Property sold |
|
|
(15,115 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
84,533 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Note 10Stock-Based Compensation
As of March 31, 2011, the Company had one compensation plan under which shares of its common
stock are issuable in the form of stock options, stock appreciation rights, restricted stock,
restricted stock units, stock awards and stock bonus awards. This is its 2010 Equity Incentive Plan
(the 2010 Plan). The 2010 Plan was effective December 22, 2009 and expires on December 22, 2019,
the tenth anniversary of the effective date. The maximum number of shares of common stock of the
Company that may be optioned or awarded through the 2019 expiration of the plan is 5,750 shares
(limited to 10% of outstanding shares of common stock) of which up to 70% may be granted pursuant
to stock options and up to 30% may be granted pursuant to restricted stock and restricted stock
units. If any awards granted under the Plan are forfeited or any option terminates, expires or
lapses without being exercised, or any award is settled for cash, the shares of stock shall again
be available for awards under the Plan. As of December 31, 2010, no awards had been granted.
The following table summarizes the components and classification of stock-based compensation
expense for the three months ended March 31, 2011. As there were no outstanding, unvested equity
awards prior to the first quarter of 2011, no stock-based compensation expense was recorded in
prior periods.
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, 2011 |
|
Stock options |
|
$ |
376 |
|
Restricted stock |
|
|
169 |
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
545 |
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
470 |
|
Other expense |
|
|
75 |
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
545 |
|
|
|
|
|
The tax benefit related to stock-based compensation expense arising from restricted stock
awards and non-qualified stock options was approximately $210 for the three months ended March 31,
2011.
Stock Options
Under the 2010 Plan, the exercise price for common stock must equal at least 100 percent of
the fair market value of the stock on the day an option is granted. The exercise price under an
incentive stock option granted to a person owning stock representing more than 10 percent of the
common stock must equal at least 110 percent of the fair market value at the date of grant, and
such option is not exercisable after five years from the date the incentive stock option was
granted. The Board of Directors may, at its discretion, provide that an option not be exercised in
whole or in part for any period or periods of time as specified in the option agreements. No option
may be exercised after the expiration of ten years from the date it is granted. Stock options
granted during the first quarter of 2011 vest over a service period of approximately 2 years.
G-23
The fair value of each option is estimated as of the date of grant using the Black-Scholes
Option Pricing Model. This model requires the input of subjective assumptions that will usually
have a significant impact on the fair value estimate. The assumptions for the current period grants
were developed based on ASC 718 and SEC guidance contained in Staff Accounting Bulletin (SAB)
No. 107, Share-Based Payment. The following table summarizes the weighted average assumptions
used to compute the grant-date fair value of options granted during the three months ended
March 31, 2011.
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, 2011 |
Dividend yield |
|
|
0.00 |
% |
Risk-free interest rate |
|
|
2.55 |
% |
Expected option life |
|
5 years |
|
Volatility |
|
|
33 |
% |
Weighted average grant-date fair value of options granted |
|
$ |
4.61 |
|
|
|
|
The dividend yield assumption is consistent with management expectations of
dividend distributions based upon the Companys business plan. An increase in dividend
yield will decrease stock compensation expense. |
|
|
|
|
The risk-free interest rate was developed using the U.S. Treasury yield curve for
periods equal to the expected life of the options on the grant date. An increase in the
risk-free interest rate will increase stock compensation expense. |
|
|
|
|
The expected option life for the current period grants was estimated using the
vesting period, the term of the option and estimates of future exercise behavior
patterns. An increase in the option life will increase stock compensation expense. |
|
|
|
|
The volatility was estimated using a peer group assessment for periods
approximating the expected option life. Appropriate weight is attributed to financial
theory, according to which the volatility of an institutions equity should be related to
the volatility of its assets and the entitys financial leverage. An increase in the
volatility will increase stock compensation expense. |
ASC 718 requires the recognition of stock-based compensation for the number of awards that are
ultimately expected to vest. During the three months ended March 31, 2011, stock based compensation
expense was recorded based upon estimates that we would experience no forfeitures. Our estimate of
forfeitures will be reassessed in subsequent periods based on historical forfeiture rates and may
change based on new facts and circumstances. Any changes in our estimates will be accounted for
prospectively in the period of change.
As of March 31, 2010, unrecognized compensation expense associated with stock options was
$10,029 which is expected to be recognized over a weighted average period of approximately 2 years.
A summary of the stock option activity in the 2010 plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise Price |
|
|
|
Shares |
|
|
Per Share |
|
Balance, January 1, 2011 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
2,236 |
|
|
|
20.00 |
|
Exercised |
|
|
|
|
|
|
|
|
Expired or forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011 |
|
|
2,236 |
|
|
$ |
20.00 |
|
The weighted average remaining term for outstanding stock options was approximately 9 years at
March 31, 2011. The aggregate intrinsic value at March 31, 2011 was $0 for stock options
outstanding and $0 for stock options exercisable. The intrinsic value for stock options is
calculated based on the exercise price of the underlying awards and the market price of the
Companys common stock as of the reporting date. There were no options exercisable at March 31,
2011 or December 31, 2010.
G-24
Options outstanding at March 31, 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options |
|
Options Exercisable |
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
|
|
|
|
Average |
|
Average |
|
|
|
Weighted |
|
|
|
|
|
Remaining |
|
Exercise |
|
|
|
Average |
|
|
|
|
|
Contractual |
|
Price Per |
|
|
|
Exercise |
Exercise Prices |
|
Number |
|
Life |
|
Share |
|
Number |
|
Price |
$ |
20.00
|
|
2,236
|
|
8.73 years
|
|
$ |
20.00 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
Restricted stock provides the grantee with voting, dividend and anti-dilution rights
equivalent to common shareholders, but is restricted from transfer until vested, at which time all
restrictions are removed. Vesting for restricted shares is based upon the performance of the
Companys common stock. The terms of the restricted stock awards granted during the first quarter
of 2011 provide for vesting upon the achievement of stock price goals as follows: 1) 33% at $25.00
per share; 2) 33% at $28.00 per share; and 3) 33% at $32.00 per share. Achievement of stock price
goals is generally defined as the average closing price of the shares for any consecutive 30-day
trading period exceeding the applicable price target.
The fair value of each restricted stock award is estimated as of the date of grant using
a risk-neutral Monte Carlo simulation model that projected the Companys stock price over 10,000
random scenarios in order to assess the stock price along those paths where vesting conditions are
met. The value of the restricted stock award is equal to the weighted average present value of the
terminal projected stock price of all 10,000 paths, where paths are set to $0 when vesting
conditions are not met or the awards are forfeited. This model requires the input of subjective
assumptions that will usually have a significant impact on the fair value estimate. The following
table summarizes the weighted average assumptions used to compute the grant-date fair value of
restricted stock awards granted during the three months ended March 31, 2011.
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, 2011 |
Starting share price (based upon most recent trade) |
|
|
$17.00 |
|
Risk-free interest rate |
|
Forward Treasury Curve |
|
Market risk premium |
|
|
0.00 |
% |
Volatility (annual/monthly) |
|
|
33% / 9.4 |
% |
Annual forfeiture estimate |
|
|
5.00 |
% |
Weighted average grant-date fair value of restricted
stock awards granted |
|
|
$10.56 |
|
|
|
|
An increase in the risk-free interest rate will increase stock compensation
expense. |
|
|
|
|
The volatility was estimated using a peer group assessment for periods
approximating the expected option life. Appropriate weight is attributed to financial
theory, according to which the volatility of an institutions equity should be related to
the volatility of its assets and the entitys financial leverage. An increase in the
volatility will increase stock compensation expense. |
|
|
|
|
An increase in the annual forfeiture estimate will decrease stock compensation
expense. |
The value of the restricted stock is being amortized on a straight-line basis over the implied
service periods. No restricted stock awards vested during the three months ended March 31, 2011.
A summary of the restricted stock activity in the plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
|
|
|
|
|
|
Fair Value Per |
|
|
|
Shares |
|
|
Share |
|
Balance, January 1, 2011 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
1,030 |
|
|
|
10.56 |
|
Vested |
|
|
|
|
|
|
|
|
Expired or forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011 |
|
|
1,030 |
|
|
$ |
10.56 |
|
As of March 31, 2011, unrecognized compensation expense associated with restricted stock
awards was $11,522, which is expected to be recognized over a weighted average period of
approximately 4 years.
G-25
Acquired Institutions Equity Incentive Plans
As of March 31, 2011, the Companys subsidiary, Capital Bank Corp. has one compensation plan
under which shares of its common stock are issuable in the form of stock options, restricted
shares, stock appreciation rights, performance shares or performance units. This is the Capital
Bank Corporation Equity Incentive Plan (the Capital Plan), which was approved by its
shareholders. Under the Capital Plan, the Board of Directors of Capital Bank Corp. may grant
nonqualified stockbased awards to any director, and incentive or nonqualified stock-based awards
to any officer, key executive, administrative, or other employee. The maximum number of shares of
common stock of Capital Bank Corp. that may be optioned or awarded through the expiration of the
plan is 1,150 shares. If options or awards granted under the Capital Plan expire or terminate for
any reason without having been exercised in full or released from restriction, the corresponding
shares shall again be available for option or award as long as no dividends have been paid to the
holder in accordance with the provisions of the grant agreement. At March 31, 2011, shares
available for grant under the Capital Plan were 605.
As of March 31, 2011, the Companys subsidiary, TIB Financial Corp. has one compensation plan
under which shares of its common stock are issuable in the form of stock options, restricted
shares, stock appreciation rights, performance shares or performance units. This is its 2004 Equity
Incentive Plan (the TIB Plan), which was approved by its shareholders. Under the TIB Plan, the
Board of Directors of TIB Financial Corp. may grant nonqualified stockbased awards to any
director, and incentive or nonqualified stock-based awards to any officer, key executive,
administrative, or other employee. The maximum number of shares of common stock of TIB Financial
Corp. that may be optioned or awarded through the 2014 expiration of the plan is 250 shares, no
more than 200 of which may be issued pursuant to awards granted in the form of restricted shares.
If options or awards granted under the TIB Plan expire or terminate for any reason without having
been exercised in full or released from restriction, the corresponding shares shall again be
available for option or award as long as no dividends have been paid to the holder in accordance
with the provisions of the grant agreement. At March 31, 2011, shares available for grant under the
TIB Plan were 243.
As the awards outstanding under the equity incentive plans of acquired subsidiaries have
exercise prices which exceed the current respective stock prices, management believes these
outstanding options to be immaterial to the Companys consolidated financial statements.
Note 11Subsequent Events
Effective April 29, 2011, the Company merged its subsidiary TIB Bank, (the Merger) with and
into NAFH National Bank (NAFH Bank), a national banking association.
On May 5, 2011, the Company entered into an Investment Agreement with GreenBankshares, Inc.
(GreenBank) pursuant to which NAFH has agreed to acquire approximately 120,000 shares of the
Companys common stock at a per share purchase price of $1.81, for a total investment of
approximately $217,000. The transaction, which is subject to shareholder and regulatory approval,
as well as the satisfaction of other customary closing conditions, is expected to be consummated in
the third quarter of 2011. Subsequent to the announcement of the GreenBank investment, a class
action lawsuit was filed against the Company, GreenBank and its directors by one of GreenBanks
shareholders. The complaint alleges that the individual defendants breached their fiduciary duties
by accepting a sale price for the shares to be sold to NAFH that was unfair to GreenBanks
shareholders. The complaint also alleges that GreenBank and NAFH aided and abetted these breaches
of fiduciary duty. It seeks injunctive relief and/or rescission of the proposed investment by NAFH
and fees and expenses in an unspecified amount. The Company and the individual defendants
collectively intend to vigorously defend themselves against these class action allegations.
G-26
North American Financial Holdings, Inc.
Consolidated Financial Statements as of and for the Year Ended
December 31, 2010 and as of December 31, 2009 and for the Period from November 30, 2009
to December 31, 2009
G-27
Report of Independent Registered Certified Public Accounting Firm
To the Board of Directors and Shareholders of
North American Financial Holdings, Inc.
In our opinion, based on our audit and the report of other auditors, the accompanying consolidated
balance sheets and the related consolidated statements of income, changes in shareholders equity
and cash flows present fairly, in all material respects, the financial position of North American
Financial Holdings, Inc. and its subsidiaries at December 31, 2010 and December 31, 2009, and the
results of their operations and their cash flows for the year ended December 31, 2010 and the
period from November 30, 2009 (date of inception) through December 31, 2009 in conformity with
accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the financial
statements of TIB Financial Corp., a 98.7% owned subsidiary, which statements reflect total assets
(in thousands) of $1,756,866 as of December 31, 2010 and total net interest income after provision
for loan losses (in thousands) of $12,030 for the three months then ended. Those statements were
audited by other auditors whose report thereon has been furnished to us, and our opinion expressed
herein, insofar as it relates to the amounts included for North American Financial Holdings, Inc.,
is based solely on the report of the other auditors. We conducted our audit of these statements in
accordance with 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, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit and the report of other auditors
provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
June 23, 2011
Ft. Lauderdale, Florida
G-28
North American Financial Holdings, Inc.
Consolidated Balance Sheets
December 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
(dollars and shares in thousands, except per share data) |
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
886,925 |
|
|
$ |
526,711 |
|
Investment securities held to maturity (estimated fair value $250) |
|
|
250 |
|
|
|
|
|
Investment securities available for sale (amortized cost $483,929) |
|
|
479,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of deferred loan costs and fees |
|
|
1,742,747 |
|
|
|
|
|
Less: Allowance for loan losses |
|
|
753 |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
|
1,741,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
|
70,817 |
|
|
|
|
|
Receivable from FDIC |
|
|
46,585 |
|
|
|
|
|
Indemnification asset |
|
|
91,467 |
|
|
|
|
|
Premises and equipment, net |
|
|
44,078 |
|
|
|
|
|
Goodwill |
|
|
36,616 |
|
|
|
|
|
Intangible assets, net |
|
|
15,154 |
|
|
|
|
|
Deferred income tax asset |
|
|
16,789 |
|
|
|
50 |
|
Accrued interest receivable and other assets |
|
|
66,850 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,496,991 |
|
|
$ |
526,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
Noninterest-bearing demand |
|
$ |
295,713 |
|
|
$ |
|
|
Interest-bearing |
|
|
1,964,384 |
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
2,260,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank (FHLB) advances |
|
|
243,067 |
|
|
|
|
|
Short-term borrowings |
|
|
61,969 |
|
|
|
|
|
Long-term borrowings |
|
|
22,887 |
|
|
|
|
|
Accrued interest payable and other liabilities |
|
|
27,735 |
|
|
|
441 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,615,755 |
|
|
|
441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
|
|
|
|
|
|
Preferred stock $0.01 par value: 50,000 shares authorized, 0 shares issued |
|
|
|
|
|
|
|
|
Common stock-Class A $0.01 par value: 200,000 shares authorized, 21,384
and 19,181 shares issued and outstanding |
|
|
214 |
|
|
|
192 |
|
Common stock-Class B $0.01 par value: 200,000 shares authorized, 23,736
and 8,726 shares issued and outstanding |
|
|
237 |
|
|
|
87 |
|
Additional paid in capital |
|
|
865,673 |
|
|
|
526,133 |
|
Retained earnings (accumulated deficit) |
|
|
11,938 |
|
|
|
(92 |
) |
Accumulated other comprehensive loss |
|
|
(2,759 |
) |
|
|
|
|
Noncontrolling interest |
|
|
5,933 |
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
881,236 |
|
|
|
526,320 |
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
3,496,991 |
|
|
$ |
526,761 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
G-29
North American Financial Holdings, Inc.
Consolidated Statements of Income
Year Ended December 31, 2010 and Period From November 30, 2009 (Inception) to
December 31, 2009
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
Interest and dividend income |
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
36,429 |
|
|
$ |
|
|
Investment securities |
|
|
2,713 |
|
|
|
|
|
Interest-bearing deposits in other banks |
|
|
3,462 |
|
|
|
72 |
|
Federal Home Loan Bank stock |
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income |
|
|
42,745 |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
Deposits |
|
|
4,656 |
|
|
|
|
|
Long-term debt-subordinated debentures |
|
|
458 |
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
931 |
|
|
|
|
|
Borrowings |
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
6,234 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
36,511 |
|
|
|
72 |
|
Provision for loan losses |
|
|
753 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
35,758 |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income |
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
1,992 |
|
|
|
|
|
Fees on mortgage loans originated and sold |
|
|
449 |
|
|
|
|
|
Investment advisory and trust fees |
|
|
354 |
|
|
|
|
|
Gain on acquisition of banks |
|
|
15,175 |
|
|
|
|
|
Other income |
|
|
1,645 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
19,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
17,229 |
|
|
|
40 |
|
Net occupancy and equipment expense |
|
|
4,629 |
|
|
|
|
|
Professional fees |
|
|
11,721 |
|
|
|
|
|
Other expense |
|
|
10,798 |
|
|
|
174 |
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
44,377 |
|
|
|
214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
10,996 |
|
|
|
(142 |
) |
Income tax benefit |
|
|
1,041 |
|
|
|
50 |
|
|
|
|
|
|
|
|
Net income before attribution of noncontrolling interests |
|
|
12,037 |
|
|
|
(92 |
) |
Net income attributable to noncontrolling interests |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to North American Financial Holdings, Inc. |
|
$ |
12,030 |
|
|
$ |
(92 |
) |
|
|
|
|
|
|
|
Basic and diluted income (loss) per share |
|
$ |
0.31 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
G-30
North American Financial Holdings, Inc.
Statements of Changes in Shareholders Equity
Year Ended December 31, 2010 and Period From November 30, 2009 (Inception) to December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Additional |
|
|
Earnings |
|
|
Other |
|
|
|
|
|
|
|
|
|
Stock |
|
|
Class A |
|
|
Stock |
|
|
Class B |
|
|
Paid in |
|
|
(Accumulated |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
Total |
|
(dollars and shares in thousands) |
|
Class A |
|
|
Stock |
|
|
Class B |
|
|
Stock |
|
|
Capital |
|
|
Deficit) |
|
|
Loss |
|
|
Interest |
|
|
Equity |
|
Balance, November 30, 2009 (Inception) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Issuance of common stock |
|
|
19,181 |
|
|
|
192 |
|
|
|
8,726 |
|
|
|
87 |
|
|
|
526,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526,412 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
19,181 |
|
|
|
192 |
|
|
|
8,726 |
|
|
|
87 |
|
|
|
526,133 |
|
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
526,320 |
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,030 |
|
|
|
|
|
|
|
7 |
|
|
|
12,037 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net market valuation adjustment
on securities available for
sale, net of $1,327 tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,759 |
) |
|
|
(29 |
) |
|
|
(2,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
2,203 |
|
|
|
22 |
|
|
|
15,010 |
|
|
|
150 |
|
|
|
339,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339,712 |
|
Origination of noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,955 |
|
|
|
5,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
|
21,384 |
|
|
$ |
214 |
|
|
|
23,736 |
|
|
$ |
237 |
|
|
$ |
865,673 |
|
|
$ |
11,938 |
|
|
$ |
(2,759 |
) |
|
$ |
5,933 |
|
|
$ |
881,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
G-31
North American Financial Holdings, Inc.
Consolidated Statements of Cash Flow
Year Ended December 31, 2010 and Period From November 30, 2009 (Inception) to
December 31, 2009
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
12,037 |
|
|
$ |
(92 |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |
|
|
|
|
|
|
|
|
Accretion of acquired loans |
|
|
(30,480 |
) |
|
|
|
|
Depreciation and amortization |
|
|
(980 |
) |
|
|
|
|
Provision for loan losses |
|
|
752 |
|
|
|
|
|
Deferred income tax benefit (loss) |
|
|
(159 |
) |
|
|
|
|
Net amortization of investment premium/discount |
|
|
1,931 |
|
|
|
|
|
Net deferred loan costs |
|
|
(216 |
) |
|
|
|
|
Gain on acquisition of banks |
|
|
(15,175 |
) |
|
|
|
|
Mortgage loans originated for sale |
|
|
(22,194 |
) |
|
|
|
|
Proceeds from sales of mortgage loans held for sale, net of fees |
|
|
18,493 |
|
|
|
|
|
Change in accrued interest receivable and other asset |
|
|
1,336 |
|
|
|
(50 |
) |
Change in accrued interest payable and other liabilities |
|
|
(7,090 |
) |
|
|
441 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(41,745 |
) |
|
|
299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchases of investment securities available for sale |
|
|
(211,775 |
) |
|
|
|
|
Sales of investment securities available for sale |
|
|
22,204 |
|
|
|
|
|
Repayments of principal and maturities of investment securities available for sale |
|
|
87,173 |
|
|
|
|
|
Cash received on TIB Financial Corp. acquisition |
|
|
54,665 |
|
|
|
|
|
Cash paid on FNB acquisition, net of cash acquired |
|
|
(29,751 |
) |
|
|
|
|
Cash received on Metro bank acquisition, net of cash paid |
|
|
75,076 |
|
|
|
|
|
Cash received on Turnberry acquisition |
|
|
57,279 |
|
|
|
|
|
Net purchase of FHLB and Federal Reserve stock |
|
|
(2,849 |
) |
|
|
|
|
Principal repayments on loans, net of loans originated or acquired |
|
|
54,338 |
|
|
|
|
|
Purchases of premises and equipment |
|
|
(1,277 |
) |
|
|
|
|
Proceeds from sales of OREO |
|
|
12,253 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
117,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net increase in demand, money market and savings accounts |
|
|
31,062 |
|
|
|
|
|
Net decrease in time deposits |
|
|
(58,427 |
) |
|
|
|
|
Net decrease in brokered time deposits |
|
|
(314 |
) |
|
|
|
|
Net increase in federal funds purchased and securities sold under agreements to repurchase |
|
|
4,430 |
|
|
|
|
|
Net decrease in long term repurchase agreements |
|
|
(10,000 |
) |
|
|
|
|
Net repayment of long term FHLB advances |
|
|
(21,840 |
) |
|
|
|
|
Net proceeds from issuance of common shares |
|
|
339,712 |
|
|
|
526,412 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
284,623 |
|
|
|
526,412 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
360,214 |
|
|
|
526,711 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
526,711 |
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
886,925 |
|
|
$ |
526,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash paid |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
7,387 |
|
|
$ |
|
|
Income taxes paid |
|
$ |
500 |
|
|
$ |
|
|
Supplemental disclosures of noncash transactions |
|
|
|
|
|
|
|
|
Other real estate acquired from borrowers |
|
$ |
20,009 |
|
|
$ |
|
|
The accompanying notes are an integral part of these financial statements.
G-32
North American Financial Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
(dollars and shares in thousands)
1. |
|
Summary of Significant Accounting Policies |
|
|
Principles of Consolidation and Nature of Operations |
|
|
North American Financial Holdings, Inc. (NAFH or the Company) is a bank holding company
incorporated in Delaware and headquartered in Florida whose business is conducted primarily
through our subsidiaries, NAFH National Bank (NAFH NB) and TIB Financial Corp. (TIBB;
parent company of TIB Bank and Naples Capital Advisors, Inc.) (collectively referred to as the
Companys subsidiary banks or the Banks). All significant inter-company accounts and
transactions have been eliminated in consolidation. As of December 31, 2010, NAFH had a total
of fifty full service banking offices located in southern Florida and throughout South
Carolina. |
|
|
On July 16, 2010, NAFH NB acquired the operations and certain assets and liabilities from the
Federal Deposit Insurance Corporation (FDIC) as receiver of three failed banks: the former
Metrobank of Dade County, the former Turnberry Bank and the former First National Bank of the
South. On September 30, 2010, NAFH acquired a controlling interest in TIB Financial Corp. See
Note 2Acquisitions for information about the Companys acquired operations. On January 28,
2011, the Company acquired a controlling interest in Capital Bank Corporation, see Note 20. The
Companys subsidiary banks offer a wide range of commercial and retail banking and financial
services to businesses and individuals. Account services include checking, interest-bearing
checking, money market, certificates of deposit and individual retirement accounts. The Banks
offers all types of commercial loans, including: owner-operated commercial real estate;
acquisition, development and construction; income-producing properties; working capital;
inventory and receivable facilities; and equipment loans. Consumer loan products include
residential real estate, installment loans, home equity, home equity lines and auto and boat
loans. |
|
|
The accounting and reporting policies conform to accounting principles generally accepted in
the United States of America. The following is a summary of the more significant of these
policies. |
|
|
|
Operating Segments |
|
|
While the chief decision-makers monitor the revenue streams of the various products and
services, operations are managed and financial performance is evaluated on a Company wide
basis. As operating results for all segments are similar, all of the financial service
operations are considered by management to be aggregated in one reportable operating segment. |
|
|
|
Use of Estimates and Assumptions |
|
|
To prepare financial statements in conformity with accounting principles generally accepted in
the United States of America, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the financial
statements and the disclosures provided, and actual results could differ. Material estimates
that are particularly susceptible to significant change include the determination of the
allowance for loan losses, determination of fair value, determination of impairment of
financial instruments, goodwill and intangible assets and the determination of deferred income
tax assets and liabilities. Changes in assumptions or in market conditions could significantly
affect the fair value estimates. Due to the acquisitions discussed in more detail in
Note 2-Acquisitions, the measurement of assets acquired and liabilities assumed at their
estimated fair values represent material estimates which are subject to change during the
measurement period. |
|
|
|
Cash and Cash Equivalents |
|
|
For purposes of the consolidated statement of cash flows, cash and cash equivalents include
cash on hand and items with an original maturity of three months or less, including amounts due
from banks, federal funds sold, and interest-bearing deposits at the Federal Home Loan Bank of
Atlanta and the Federal Reserve Bank of Atlanta. Net cash flows are reported for customer loan
and deposit transactions and short term borrowings. |
|
|
|
Investment Securities and Other than Temporary Impairment |
|
|
Investment securities which may be sold prior to maturity are classified as available for sale
and are carried at fair value, with unrealized holding gains and losses reported in other
comprehensive income. Other securities such as Federal Home Loan Bank stock are carried at cost
and are included in other assets on the balance sheets. Investment securities where the Company
has both the intent and ability to hold to maturity are classified as held to maturity and
reported at amortized cost. |
G-33
|
|
Interest income includes amortization of purchase premium or discount. Premiums and discounts
on securities are amortized using the level-yield method without anticipating prepayments,
except for mortgage backed securities where prepayments are anticipated. Gains and losses on
sales are realized on the trade date and determined using the specific identification method
based on the amortized cost of the security sold. |
|
|
Management regularly reviews each investment security for impairment based on criteria that
include the extent to which cost exceeds fair value, the duration of that market decline, the
financial health of and specific prospects for the issuer(s) and our ability and intention with
regard to holding the security. |
|
|
Management evaluates securities for other-than-temporary impairment (OTTI) at least on a
quarterly basis, and more frequently when economic or market conditions warrant such an
evaluation. |
|
|
In determining OTTI under accounting guidance, management considers many factors, including but
not limited to: (1) the length of time and the extent to which the fair value has been less
than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the
market decline was affected by macroeconomic conditions, and (4) whether the entity has the
intent to sell the debt security or more likely than not will be required to sell the debt
security before its anticipated recovery. The assessment of whether an other-than-temporary
decline exists involves a high degree of subjectivity and judgment and is based on the
information available to management at a point in time. |
|
|
When OTTI occurs, the amount of the impairment recognized in earnings depends on whether
management intends to sell the security or it is more likely than not that we will be required
to sell the security before recovery of its amortized cost basis, less any current-period
credit loss. If management intends to sell or it is more likely than not that the Company will
be required to sell the security before recovery of its amortized cost basis, less any
current-period credit loss, the impairment is required to be recognized in earnings equal to
the entire difference between the investments amortized cost basis and its fair value at the
balance sheet date. If management does not intend to sell the security and it is not more
likely than not that the Company will be required to sell the security before recovery of its
amortized cost basis less any current-period loss, the impairment is separated into the amount
representing the credit loss and the amount related to all other factors. The amount of
impairment related to the credit loss is determined based on the present value of cash flows
expected to be collected and is recognized in earnings. The amount of the impairment related to
other factors is recognized in other comprehensive income, net of applicable taxes. The
previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized
cost basis of the investment. |
|
|
Future declines in the fair value of securities may result in impairment charges which may
be material to the financial condition and results of operations of the Company. |
|
|
|
Originated Loans |
|
|
Loans that management has the intent and ability to hold are reported at the principal balance
outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Interest
income is reported on the interest method and includes amortization of net deferred loan fees
and costs over the loan term. If the collectibility of interest appears doubtful, the accrual
of interest is discontinued and all unpaid interest is reversed. Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought current and
future payments are reasonably assured. |
|
|
|
Nonaccrual Loans |
|
|
The majority of loans are placed on nonaccrual status when it is probable that principal or
interest is not fully collectible, or generally when principal or interest becomes 90 days past
due, whichever occurs first. Certain loans past due 90 days or more may remain on accrual
status if management determines that it does not have concern over the collectability of
principal and interest. Generally, when loans are placed on nonaccrual status, accrued interest
receivable is reversed against interest income in the current period. Interest payments
received thereafter are generally applied as a reduction to the remaining principal balance as
long as concern exists as to the ultimate collection of the principal. Loans are generally
removed from nonaccrual status when they become current as to both principal and interest and
concern no longer exists as to the collectability of principal and interest. NAFHs policies
related to when loans are placed on nonaccrual status conform to guidelines prescribed by bank
regulatory authorities. |
|
|
|
Accounting for Acquired Loans |
|
|
The Company accounts for its acquisitions using the acquisition method of accounting. All
identifiable assets acquired, including loans, are recorded at fair value. No allowance for
loan losses related to the acquired loans is recorded on the acquisition date as the fair value
of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are
recorded at fair value, exclusive of the shared-loss agreements with the FDIC. The fair value
estimates associated with the loans include estimates related to expected prepayments and the
amount and timing of undiscounted expected principal, interest and other cash flows. |
|
|
Loans acquired in a transfer, including business combinations, where there is evidence of
credit deterioration since origination and it is probable at the date of acquisition that the
Company will not collect all contractually required principal and interest |
G-34
|
|
payments, are accounted for under accounting guidance for purchased credit-impaired (PCI)
loans. NAFH has generally aggregated the purchased loans into pools of loans with common risk
characteristics. Over the life of the acquired loans, the Company continues to estimate cash
flows expected to be collected on individual loans or on pools of loans sharing common risk
characteristics. The Company evaluates at each balance sheet date whether the estimated cash
flows and corresponding present value of its loans, determined using the effective interest
rates, has decreased and if so, recognizes a provision for loan loss in its consolidated
statement of income. For any increases in cash flows expected to be collected, the Company
adjusts the amount of accretable yield recognized on a prospective basis over the loans or
pools remaining life. For further discussion of the Companys acquisitions and loan
accounting, see Notes 2 and 5 to the consolidated financial statements. |
|
|
|
FDIC Indemnification Asset |
|
|
Because the FDIC will reimburse the Company for certain amounts related to certain acquired
loans and other real estate owned should the Company experience a loss, an indemnification
asset is also recorded at fair value at the acquisition date. The indemnification asset is
recognized at the same time as the indemnified loans, and measured on the same basis, subject
to collectability or contractual limitations. The indemnification asset on the acquisition date
reflect the reimbursements expected to be received from the FDIC, using an appropriate discount
rate, which reflects counterparty credit risk and other uncertainties. |
|
|
Subsequent to initial recognition, the indemnification asset continues to be measured on the
same basis as the related indemnified loans and the loss share receivable is impacted by
changes in estimated cash flows associated with these loans. Deterioration in the credit
quality on expected cash flows of the loans (immediately recorded as an adjustment to the
allowance for loan losses) would immediately increase the loss share receivable, with the
offset recorded through the consolidated statement of income. Increases in the credit quality
or cash flows of loans (reflected as an adjustment to yield and accreted into income over the
remaining life of the loans) decrease the basis of the indemnification asset, with such
decrease being amortized into income over 1) the life of the loan or 2) the life of the shared
loss agreements, whichever is shorter. Loss assumptions used in the basis of the indemnified
loans are consistent with the loss assumptions used to measure the indemnification asset. Fair
value accounting incorporates into the fair value of the indemnification asset an element of
the time value of money, which is accreted back into income over the life of the shared loss
agreements. |
|
|
Upon the determination of an incurred loss the indemnification asset will be reduced by the
amount owed by the FDIC. A corresponding claim receivable is recorded until cash is received
from the FDIC. |
|
|
|
Loans Held for Sale |
|
|
Certain residential fixed rate mortgage loans originated by the Company are sold servicing
released to third parties immediately. Certain of these sales are subject to temporary recourse
provisions. The recourse provisions may require the repurchase of the outstanding balance of
loans which default within a limited period of time subsequent to the sale of the loan. The
recourse periods vary by investor and extend up to seven months subsequent to the sale of the
loan. All origination fees are recognized as income at the time of the sale. Mortgage loans
originated and intended for sale in the secondary market are carried at the lower of aggregate
cost or market, as determined by outstanding commitments from investors. Net unrealized losses,
if any, are recorded as a valuation allowance and charged to earnings. As of December 31, 2010,
the Company had mortgage loans originated for sale of $10,492 classified within the caption
Other assets in the consolidated balance sheet. The Company and its acquired operations have
not historically experienced significant losses resulting from the recourse provisions
described above. Accordingly, management believes that no such provision or allowance is
necessary as of December 31, 2010. |
|
|
|
Allowance for Loan Losses |
|
|
The allowance for loan losses is a valuation allowance for probable incurred credit losses,
which is increased by the provision for loan losses and decreased by charge-offs less
recoveries. Loan losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance. Management estimates the allowance balance required based on factors including
past loan loss experience, 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. |
|
|
The allowance consists of specific and general components. The specific component relates to
loans that are individually internally classified as impaired. The general component covers
nonimpaired loans and is based on subjective factors and historical loss experience adjusted
for current factors. |
|
|
A loan is considered impaired when it is probable that not all principal and interest amounts
will be collected according to the loan contract or when the loan contract terms have been
modified resulting in a concession of terms and where the borrower is experiencing financial
difficulty. Generally, individual commercial, commercial real estate and residential loans
exceeding $500 are individually evaluated for impairment. If a loan is considered to be
impaired, a portion of the allowance is allocated so that the loan is reported net, at the
present value of estimated future cash flows using the loans existing rate or at the lesser of
the recorded investment in the loan or the fair value of collateral if repayment is expected
solely from the collateral. Generally, large groups of smaller balance homogeneous loans, such
as consumer, indirect, and residential real estate loans (other than those |
G-35
|
|
evaluated individually), are collectively evaluated for impairment, and accordingly, they are
not separately identified for impairment disclosures. |
|
|
|
Premises and Equipment |
|
|
Land is carried at cost. Premises and equipment are reported at cost less accumulated
depreciation. For financial reporting purposes, premises and equipment are depreciated using
the straight-line method over their estimated useful lives. Expenditures for maintenance and
repairs are charged to operations as incurred, while major renewals and betterments are
capitalized. For Federal income tax reporting purposes, depreciation is computed using
primarily accelerated methods. |
|
|
|
Operating Leases |
|
|
Rent expense for the Companys operating leases is recorded on a straight-line basis over the
initial lease term and those renewal periods that are reasonably assured. It is common for
lease agreements to contain various provisions for items such as step rent or other escalation
clauses and lease concessions, which may offer a period of no rent payment. These types of
items are considered by the Company and are recorded into expense on a straight line basis over
the minimum lease terms. Certain leases require the Company to pay property taxes, insurance
and routine maintenance. |
|
|
|
Foreclosed Assets |
|
|
Assets acquired through, or in lieu of, loan foreclosure or repossession are generally held for
sale and are initially recorded at the lesser of their recorded investment or fair value less
cost to sell when acquired, establishing a new cost basis. If fair value subsequently declines,
a valuation allowance is recorded through expense so that the asset is reported at the lower of
cost or fair value less cost to sell. Costs incurred after acquisition are generally expensed. |
|
|
|
Goodwill |
|
|
Goodwill represents the future economic benefits arising from other assets acquired that are
not individually identified and separately recognized. Goodwill and intangible assets acquired
in a purchase business combination and determined to have an indefinite useful life are not
amortized, but tested for impairment annually or more frequently when events or circumstances
indicate impairment may have occurred. |
|
|
Goodwill impairment exists when a reporting units carrying value of goodwill exceeds its
fair value, which is determined through a two-step impairment test. Step 1 includes the
determination of the carrying value of a reporting unit, including the existing goodwill and
intangible assets, and estimating the fair value of the reporting unit. If the carrying amount
of a reporting unit exceeds its fair value, we are required to perform a second step to the
impairment test. Step 2 of the goodwill impairment test is performed to measure the impairment
loss. Step 2 requires that the implied fair value of the reporting unit goodwill be compared to
the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill
exceeds the implied fair value of that goodwill, an impairment loss is required to be
recognized in an amount equal to that excess. |
|
|
|
Long-lived Assets and Other Intangible Assets |
|
|
Long-lived assets, including premises and equipment, core deposit base premiums arising from
acquisitions and other intangible 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 written down to fair value. |
|
|
Intangible assets with definite useful lives are amortized over their estimated useful lives to
their estimated residual values. The only intangible asset with an indefinite life on the
Companys balance sheet is goodwill. Other intangible assets include core deposit base premiums
arising from acquisitions and are initially measured at fair value. Amortization expense
associated with intangible assets is recognized in other expense on the income statement using
the straight-line method over estimated lives of four to ten years, which is consistent with
the use of the assets. |
|
|
|
Loan Commitments and Related Financial Instruments |
|
|
Financial instruments include off-balance sheet credit instruments, such as commitments to make
loans and 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. |
|
|
|
Company Owned Life Insurance |
|
|
The Companys owns life insurance polices on certain current and former directors and employees
of its subsidiaries. These policies are recorded at the amount that can be realized under the
insurance contract at the balance sheet date, which is the cash surrender value adjusted for
other charges or other amounts due that are probable at settlement, if applicable. |
G-36
|
|
Income tax expense (or benefit) is the total of the current year income tax due or refundable
and the change in deferred tax assets and liabilities. Deferred income tax assets and
liabilities are determined using the liability (or balance sheet) method. Under this method,
the net deferred tax asset or liability is determined based on the tax effects of the temporary
differences between the book and tax basis of the various balance sheet assets and liabilities
and gives current recognition to changes in tax rates and laws. |
|
|
A valuation allowance related to deferred tax assets is required when it is considered more
likely than not that all or part of the benefit related to such assets will not be realized. As
of December 31, 2010, management considered the need for a valuation allowance and, based upon
its assessment of the relative weight of the positive and negative evidence available at the
time of the analysis, concluded that a valuation allowance was not necessary. |
|
|
A tax position is recognized as a benefit only if it is more likely than not that the tax
position would be sustained in a tax examination, with a tax examination being presumed to
occur. The amount recognized is the largest amount of tax benefit that is greater than 50%
likely of being realized on examination. For tax positions not meeting the more likely than
not test, no tax benefit is recorded. The Company recognizes interest and/or penalties related
to income tax matters in income tax expense. |
|
|
|
Earnings (Loss) Per Common Share |
|
|
Basic earnings (loss) per share is net income (loss) allocated to common shareholders divided
by the weighted average number of common shares and vested restricted shares outstanding during
the period. Diluted earnings per share includes the dilutive effect of additional potential
common shares issuable under stock options, warrants and restricted shares computed using the
treasury stock method. |
|
|
Since there were no dilutive stock options, restricted stock awards or warrants outstanding
during the periods reported, earnings (loss) per share has been computed based on 38,206 and
8,244 basic and diluted shares for the year ended December 31, 2010 and the period ended
December 31, 2009, respectively. |
|
|
|
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 separate components of equity. |
|
|
Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to
Repurchase |
|
|
Securities purchased under agreements to resell and securities sold under agreements to
repurchase are accounted for as collateralized lending and borrowing transactions,
respectively, and are recorded at the amounts at which the securities were acquired or sold
plus accrued interest. The fair value of collateral either received from or provided to a third
party is regularly monitored, and additional collateral is obtained, provided or requested to
be returned as appropriate. |
|
|
|
Loss Contingencies |
|
|
Loss contingencies, including claims and legal actions arising in the ordinary course of
business, are recorded as liabilities when the likelihood of loss is probable and an amount or
range of loss can be reasonably estimated. Management does not believe there are currently any
such matters that will have a material effect on the financial statements. |
|
|
|
Fair Value of Financial Instruments |
|
|
Fair values of financial instruments are estimated using relevant market information and other
assumptions, as more fully disclosed in Note 15. Fair value estimates include 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 these estimates. |
|
2. |
|
Business Combinations and Acquisitions |
|
|
FDIC-Assisted Purchase and Assumption of Assets and Liabilities of First National Bank of the
South, Metro Bank of Dade County and Turnberry Bank |
|
|
NAFH NB entered into three purchase and assumption agreements with loss share arrangements with
the FDIC as receiver during 2010. As part of these agreements, the FDIC also granted NAFH NB an
option to purchase at appraised value the premises, furniture, fixtures, and equipment of the
acquired institutions and assume the leases associated with these offices. |
|
|
On July 16, 2010 (the Transaction Date), NAFH NB acquired certain assets, assumed all of the
deposits, and assumed certain other liabilities of First National Bank of the South (FNB),
Metro Bank of Dade County (Metro) and Turnberry Bank (Turnberry) from the FDIC in
whole-bank acquisitions. |
G-37
|
|
Each acquisition was accounted for separately under the purchase method of accounting. Both the
purchased assets and liabilities assumed were recorded at their respective acquisition date
fair values. Identifiable intangible assets, including goodwill, core deposit intangible
assets, customer relationships, tradenames and mortgage servicing rights, were recorded at fair
value. Because the fair value of assets acquired and intangible assets created as a result of
the acquisitions exceeded the fair value of liabilities assumed on the Metro Bank and Turnberry
acquistions, the Company recorded gains resulting from the acquisitions in its consolidated
statements of income for the year ended December 31, 2010. These gains totaled $15,175. As the
fair value of consideration paid in the FNB acquisition exceeded the estimated fair value of
net assets acquired, goodwill of $6,616 was recorded. |
|
|
Certain loans and other real estate owned acquired in these acquisitions are covered by loss
share agreements between NAFH NB and the FDIC which afford NAFH NB significant protection
against future losses. Under the agreements, the FDIC will cover 80% of losses on the
disposition of loans and other real estate owned up to certain thresholds presented in the
following table. The term for loss sharing on single-family residential real estate loans is
ten years, while the term for loss sharing on nonresidential loans is five years and NAFH NB
reimbursement to the FDIC for a total of eight years for recoveries. The reimbursable losses
from the FDIC are based on the book value of the relevant loans as determined by the FDIC at
the date of the transaction. New loans made after that date are not covered by the provisions
of the loss share agreements. As part of the acquisition, NAFH NB has recorded an
indemnification asset that represents the estimated fair value of the FDICs portion of the
losses that are expected to be incurred and reimbursed. The indemnification asset related to
incurred losses at December 31, 2010 was $46,585 of which $45,678 was collected through
April 18, 2011. The following table also presents the value of the indemnification asset at the
acquisition date. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of |
|
|
|
Loss |
|
|
80% of Loss |
|
|
Indemnification |
|
|
|
Threshold |
|
|
Threshold |
|
|
Asset |
|
FNB |
|
$ |
123,000 |
|
|
$ |
98,400 |
|
|
$ |
71,386 |
|
Metro |
|
|
81,000 |
|
|
|
64,800 |
|
|
|
44,191 |
|
Turnberry |
|
|
28,000 |
|
|
|
22,400 |
|
|
|
21,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
232,000 |
|
|
$ |
185,600 |
|
|
$ |
137,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NAFH NB has agreed to make a true-up payment, also known as clawback liability, to the
FDIC on the date that is 45 days following the last day of the final shared loss month, or upon
the final disposition of all covered assets under the loss sharing agreements in the event
losses thereunder fail to reach expected levels, not to exceed ten years from the Transaction
Date. The estimated fair value of the true-up payment as of the acquisition date was $979. |
|
|
The acquired assets and liabilities are presented in the following table at fair value at the
acquisition date. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNB |
|
|
Metro |
|
|
Turnberry |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
64,728 |
|
|
$ |
79,267 |
|
|
$ |
40,353 |
|
|
$ |
184,348 |
|
Investment securities |
|
|
40,564 |
|
|
|
30,333 |
|
|
|
3,495 |
|
|
|
74,392 |
|
Loans |
|
|
389,603 |
|
|
|
226,826 |
|
|
|
152,125 |
|
|
|
768,554 |
|
Other real estate owned |
|
|
20,832 |
|
|
|
7,547 |
|
|
|
5,439 |
|
|
|
33,818 |
|
Core deposit and other intangible assets |
|
|
2,214 |
|
|
|
1,400 |
|
|
|
600 |
|
|
|
4,214 |
|
Goodwill |
|
|
6,616 |
|
|
|
|
|
|
|
|
|
|
|
6,616 |
|
Indemnification asset |
|
|
71,386 |
|
|
|
44,191 |
|
|
|
21,739 |
|
|
|
137,316 |
|
Other assets |
|
|
6,315 |
|
|
|
3,921 |
|
|
|
4,392 |
|
|
|
14,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
602,258 |
|
|
|
393,485 |
|
|
|
228,143 |
|
|
|
1,223,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
409,614 |
|
|
|
263,110 |
|
|
|
161,209 |
|
|
|
833,933 |
|
Noninterest-bearing deposits |
|
|
38,718 |
|
|
|
73,271 |
|
|
|
14,192 |
|
|
|
126,181 |
|
Borrowings |
|
|
57,579 |
|
|
|
31,981 |
|
|
|
59,024 |
|
|
|
148,584 |
|
Other liabilities |
|
|
1,868 |
|
|
|
10,312 |
|
|
|
6,089 |
|
|
|
18,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
507,779 |
|
|
|
378,674 |
|
|
|
240,514 |
|
|
|
1,126,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
|
94,479 |
|
|
|
14,811 |
|
|
|
(12,371 |
) |
|
|
96,919 |
|
Consideration paid (received) |
|
|
94,479 |
|
|
|
4,191 |
|
|
|
(16,926 |
) |
|
|
81,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on acquisitions of banks |
|
$ |
|
|
|
$ |
10,620 |
|
|
$ |
4,555 |
|
|
$ |
15,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G-38
|
|
The above estimated fair values of assets acquired and liabilities assumed are based on
the information that was available as of the Transaction Date and the Company believes that
information provides a reasonable basis for estimating the fair values. However, the Company
may obtain additional information and evidence during the measurement period that may impact
the estimated fair value amounts. The Company expects to finalize the valuation and complete
the purchase price allocation as soon as practicable. |
|
|
As these acquisitions are FDIC-assisted purchases and assumptions of assets and liabilities of
failed institutions, the presentation of pro forma information of the acquired institutions is
impracticable. |
|
|
|
NAFH Inc. Investment in TIBB |
|
|
On September 30, 2010, the Company acquired a controlling interest in TIBB for aggregate
consideration of $175,000. The consideration was comprised of approximately $162,840 in cash
and approximately $12,160 in the form of the contribution to TIBB of all 37,000 shares of
preferred stock issued by TIBB to the United States Department of the Treasury under the TARP
Capital Purchase Program and the related warrant to purchase shares of TIBBs Common Stock
which the Company purchased directly from the Treasury. |
|
|
Immediately following the acquisition, the Company controlled 98.7% of the voting
securities of TIBB. The following table summarizes the acquisition: |
|
|
|
|
|
Fair value of assets acquired |
|
|
|
|
Cash and cash equivalents |
|
$ |
229,665 |
|
Securities available for sale |
|
|
309,320 |
|
Loans |
|
|
1,017,842 |
|
Goodwill and intangible assets, net |
|
|
41,769 |
|
Other real estate owned |
|
|
29,531 |
|
Bank officer life insurancecash surrender value |
|
|
10,842 |
|
Premises and equipment |
|
|
43,632 |
|
Other assets |
|
|
54,582 |
|
|
|
|
|
Total assets acquired |
|
|
1,737,183 |
|
|
|
|
|
|
|
|
|
|
Fair value of liabilities assumed |
|
|
|
|
Deposits |
|
|
1,327,663 |
|
Long-term debt and other borrowings |
|
|
208,783 |
|
Other liabilities |
|
|
22,239 |
|
|
|
|
|
Total liabilities assumed |
|
|
1,558,685 |
|
|
|
|
|
Net assets |
|
|
178,498 |
|
Less: Noncontrolling interest at fair value |
|
|
5,955 |
|
|
|
|
|
|
|
|
172,543 |
|
Underwriting, due diligence and legal costs |
|
|
2,457 |
|
|
|
|
|
Purchase consideration |
|
$ |
175,000 |
|
|
|
|
|
|
|
The above estimated fair values of assets acquired and liabilities assumed are based on
the information that was available as of the acquisition date and the Company believe that
information provides a reasonable basis for estimating the fair values. However, the Company
may obtain additional information and evidence during the measurement period that may impact
the estimated fair value amounts. The Company expects to finalize the valuation and complete
the purchase price allocation as soon as practicable. |
|
|
There were no indemnification assets identified in this business combination, nor were there
any contingent consideration assets or liabilities to be recognized. |
G-39
|
|
The following table reflects the pro forma total net interest income, non interest income and
net loss for 2010 presented as though the acquisition of TIB Financial Corp. had taken place at
the beginning of the period. The pro forma results are not necessarily indicative of the
results of operations that would have occurred had the acquisition actually taken place on the
first day of the respective periods, nor of future results of operations. As the inception of
the Companys operations was November 30, 2009, pro forma information for the period from
inception to December 31, 2009 was deemed not material for presentation. |
|
|
|
|
|
|
|
Pro Forma |
|
|
(Unaudited) |
|
|
Year Ended |
|
|
December 31, 2010 |
Net interest income |
|
$ |
69,393 |
|
Non-interest income |
|
$ |
28,941 |
|
Net loss |
|
$ |
(40,775 |
) |
3. |
|
Cash and Due From Banks |
|
|
The Banks are required to maintain reserve balances in cash or on deposit with the Federal
Reserve Bank to meet regulatory reserve and clearing requirements. The reserve requirement at
December 31, 2010 for NAFH NB was $500. The regulatory reserve and clearing balance
requirements for TIB Bank was $2,393 at December 31, 2010. |
|
|
As of December 31, 2010, the Companys security portfolio consisted of 106 securities
positions, 77 of which were in an unrealized loss position. The majority of unrealized losses
are related to the Companys collateralized debt obligation, corporate bonds and
mortgage-backed and other securities, as discussed below. |
|
|
The amortized cost, estimated fair value, and the related gross unrealized gains and losses
recognized in accumulated other comprehensive income of investment securities at December 31,
2010 are presented below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
Held to Maturity |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
Foreign government |
|
$ |
250 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
250 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
Available for Sale |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
U.S. Government agencies and corporations |
|
$ |
49,497 |
|
|
$ |
18 |
|
|
$ |
382 |
|
|
$ |
49,133 |
|
States and political subdivisionstax exempt |
|
|
5,918 |
|
|
|
2 |
|
|
|
128 |
|
|
|
5,792 |
|
States and political subdivisionstaxable |
|
|
9,540 |
|
|
|
41 |
|
|
|
227 |
|
|
|
9,354 |
|
Mortgage-backed securitiesresidential |
|
|
415,961 |
|
|
|
948 |
|
|
|
4,696 |
|
|
|
412,213 |
|
Marketable equity securities |
|
|
102 |
|
|
|
|
|
|
|
28 |
|
|
|
74 |
|
Corporate bonds |
|
|
2,104 |
|
|
|
1 |
|
|
|
|
|
|
|
2,105 |
|
Collateralized debt obligations |
|
|
807 |
|
|
|
|
|
|
|
12 |
|
|
|
795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
483,929 |
|
|
$ |
1,010 |
|
|
$ |
5,473 |
|
|
$ |
479,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities with unrealized losses not recognized in income, and the period of time they
have been in an unrealized loss position as of December 31, 2010, are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
12 Months or Longer |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
Available for Sale |
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
U.S. Government agencies and corporations |
|
$ |
20,725 |
|
|
$ |
382 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20,725 |
|
|
$ |
382 |
|
States and political subdivisionstax exempt |
|
|
5,191 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
5,191 |
|
|
|
128 |
|
States and political subdivisionstaxable |
|
|
8,198 |
|
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
8,198 |
|
|
|
227 |
|
Mortgage-backed securitiesResidential |
|
|
255,676 |
|
|
|
4,696 |
|
|
|
|
|
|
|
|
|
|
|
255,676 |
|
|
|
4,696 |
|
Marketable equity securities |
|
|
74 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
74 |
|
|
|
28 |
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations |
|
|
795 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
795 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
290,659 |
|
|
$ |
5,473 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
290,659 |
|
|
$ |
5,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G-40
|
|
The mortgage-backed securities in an unrealized loss position at December 31, 2010, were
issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae and Freddie
Mac, institutions which the government has affirmed its commitment to support. Because the
decline in fair value is attributable to changes in interest rates and illiquidity, and not
credit quality, and because the Company does not have the intent to sell these mortgage-backed
securities and it is more likely than not that it will not be required to sell the securities
before their anticipated recovery, the Company does not consider these securities to be
other-than-temporarily impaired at December 31, 2010. |
|
|
The estimated fair value of investment securities available for sale at December 31, 2010, by
contractual maturity, are shown as follows. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or repay obligations without call or
prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed
securities, are shown separately. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to |
|
|
|
|
|
|
Available |
|
|
|
|
|
|
Maturity |
|
|
Yield |
|
|
for Sale |
|
|
Yield |
|
Due in one year or less |
|
$ |
250 |
|
|
|
5.10 |
% |
|
$ |
2,290 |
|
|
|
1.08 |
% |
Due after one year through five years |
|
|
|
|
|
|
|
|
|
|
18,409 |
|
|
|
0.74 |
% |
Due after five years through ten years |
|
|
|
|
|
|
|
|
|
|
26,104 |
|
|
|
1.41 |
% |
Due after ten years |
|
|
|
|
|
|
|
|
|
|
20,376 |
|
|
|
3.83 |
% |
Marketable equity securities |
|
|
|
|
|
|
|
|
|
|
74 |
|
|
|
N/A |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
412,213 |
|
|
|
2.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
250 |
|
|
|
|
|
|
$ |
479,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, securities with a fair value of approximately $44,784 are subject to
call during 2011. |
|
|
Sales of available for sale securities were as follows: |
|
|
|
|
|
|
|
Year Ended |
|
|
December 31, |
|
|
2010 |
Proceeds |
|
$ |
22,204 |
|
Gross gains |
|
|
|
|
Gross losses |
|
|
|
|
|
|
Proceeds from the maturities, principal repayments, and calls of investment securities
available for sale during 2010 were $87,173. |
|
|
Investment securities having carrying values of approximately $145,338 at December 31, 2010
were pledged to secure public funds on deposit, securities sold under agreements to repurchase,
and for other purposes as required by law. |
|
|
Major classifications of loans are as follows: |
|
|
|
|
|
Real estate mortgage loans |
|
|
|
|
Commercial |
|
$ |
1,020,921 |
|
Residential |
|
|
318,977 |
|
Farmland |
|
|
21,290 |
|
Construction and vacant land |
|
|
130,019 |
|
Commercial and agricultural loans |
|
|
103,524 |
|
Indirect auto loans |
|
|
28,038 |
|
Home equity loans |
|
|
104,955 |
|
Other consumer loans |
|
|
14,807 |
|
|
|
|
|
Total loans |
|
|
1,742,531 |
|
Net deferred loan costs |
|
|
216 |
|
|
|
|
|
Loans, net of deferred loan costs |
|
$ |
1,742,747 |
|
|
|
|
|
|
|
Covered loans represent loans acquired from the FDIC subject to the loss sharing
agreements. Covered loans are further broken out into (i) loans acquired with evidence of
credit impairment, which we call purchased credit impaired, and (ii) non PCI loans. Loans
originated by the Company and loans acquired through the purchase of TIBB are excluded from the
loss sharing agreements and are classified as not covered. Additionally, certain consumer
loans acquired through the acquisition of failed banks from the FDIC are specifically excluded
from the loss sharing agreements. |
G-41
|
|
Loans acquired are recorded at fair value in accordance with the fair value, exclusive of the
shared-loss agreements with the FDIC. The fair value estimates associated with the loans
include estimates related to expected prepayments and the amount and timing of undiscounted
expected principal, interest and other cash flows. At the time of acquisition, the Company
accounted for the impaired purchased loans by segregating each portfolio into loan pools with
similar risk characteristics, which included: |
|
|
|
Whether the loan was performing according to contractual terms at the time of
acquisition; |
|
|
|
|
The loan type based on regulatory reporting guidelines, namely whether the loan was
a mortgage, consumer, or commercial loan; and |
|
|
|
|
The nature of collateral. |
|
|
From these pools, the Company used certain loan information, including outstanding principal
balance, estimated expected losses, weighted average maturity, weighted average term to
re-price (if a variable rate loan), weighted average margin, and weighted average interest rate
to estimate the expected cash flow for each loan pool. Over the life of the acquired loans, the
Company continues to estimate cash flows expected to be collected on each loan pool. The
Company evaluates, at each balance sheet date, whether the present value of the cash flows from
the loan pools, determined using the effective interest rates, has decreased and if so,
recognizes a provision for loan loss in its consolidated statement of income. For any increases
in cash flows expected to be collected, the Company adjusts the amount of accretable yield
recognized on a prospective basis over the loans or pools remaining life. |
|
|
Purchased credit-impaired loans for which it was probable at acquisition that all
contractually required payments would not be collected are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAFH NB |
|
|
TIBB |
|
|
Total |
|
Cash flows expected to be collected at acquisition |
|
$ |
737,605 |
|
|
$ |
1,250,636 |
|
|
$ |
1,988,241 |
|
Accretable yield |
|
|
(46,570 |
) |
|
|
(276,715 |
) |
|
|
(323,285 |
) |
|
|
|
|
|
|
|
|
|
|
Fair value of acquired loans at acquisition |
|
$ |
691,035 |
|
|
$ |
973,921 |
|
|
$ |
1,664,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretable yield, or income expected to be collected, related to purchased credit-impaired
loans is as follows: |
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
|
|
New loans purchased |
|
|
323,285 |
|
Accretion of income |
|
|
(30,480 |
) |
Reclassifications from nonaccretable difference |
|
|
|
|
Disposals |
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
292,805 |
|
|
|
|
|
|
|
The contractually required payments represent the total undiscounted amount of all
uncollected contractual principal and contractual interest payments both past due and scheduled
for the future, adjusted for the timing of estimated prepayments and any full or partial
charge-offs prior to acquisition by NAFH. Nonaccretable difference represents contractually
required payments in excess of the amount of estimated cash flows expected to be collected. The
accretable yield represents the excess of estimated cash flows expected to be collected over
the initial fair value of the PCI loans, which is their fair value at the time of acquisition
by NAFH. The accretable yield is accreted into interest income over the estimated life of the
PCI loans using the level yield method. The accretable yield will change due to changes in: |
|
|
|
The estimate of the remaining life of PCI loans which may change the amount of
future interest income, and possibly principal, expected to be collected; |
|
|
|
|
The estimate of the amount of contractually required principal and interest
payments over the estimated life that will not be collected (the nonaccretable
difference); and |
|
|
|
|
Indices for PCI loans with variable rates of interest. |
|
|
PCI loans accounted for using the cost recovery method amounted to $124,650 as of December 31,
2010. Each of these loans is on nonaccrual status. PCI loans that have an accretable difference
are not included in disclosures of nonperforming balances even though the borrower may be
contractually past due. |
|
|
For PCI loans, the impact of loan modifications is included in the evaluation of expected cash
flows for subsequent decreases or increases of cash flows. For variable rate PCI loans,
expected future cash flows will be recalculated as the rates adjust over the lives of the
loans. At acquisition, the expected future cash flows were based on the variable rates that
were in effect at that time. |
G-42
|
|
Because of the loss protection provided by the FDIC, the risks of NAFH NBs loans and
foreclosed real estate are significantly different from those assets not covered under the loss
share agreement. Accordingly, the Company presents loans subject to the loss share agreements
as covered loans in the information below and loans that are not subject to the loss share
agreement as noncovered loans. |
|
|
The following is a summary of the major categories of noncovered loans outstanding as of
December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noncovered |
|
|
|
PCI Loans |
|
|
Non PCI Loans |
|
|
Loans |
|
Real estate mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
599,820 |
|
|
$ |
18,043 |
|
|
$ |
617,863 |
|
Residential |
|
|
213,982 |
|
|
|
15,918 |
|
|
|
229,900 |
|
Farmland |
|
|
12,083 |
|
|
|
|
|
|
|
12,083 |
|
Construction and vacant land |
|
|
38,956 |
|
|
|
1,864 |
|
|
|
40,820 |
|
Commercial and agricultural loans |
|
|
55,741 |
|
|
|
15,633 |
|
|
|
71,374 |
|
Indirect auto loans |
|
|
21,743 |
|
|
|
6,295 |
|
|
|
28,038 |
|
Home equity loans |
|
|
4,353 |
|
|
|
27,010 |
|
|
|
31,363 |
|
Other consumer loans |
|
|
8,805 |
|
|
|
6,001 |
|
|
|
14,806 |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
955,483 |
|
|
|
90,764 |
|
|
|
1,046,247 |
|
Net deferred loan costs |
|
|
|
|
|
|
216 |
|
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
Loans, net of deferred loan costs |
|
$ |
955,483 |
|
|
$ |
90,980 |
|
|
$ |
1,046,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank had no troubled debt restructurings (TDR) or nonaccrual loans in its noncovered
loan portfolio at December 31, 2010. |
|
|
The following is a summary of the major categories of covered loans outstanding as of
December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Covered |
|
|
|
PCI Loans |
|
|
Non PCI Loans |
|
|
Loans |
|
Real estate mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
403,059 |
|
|
$ |
|
|
|
$ |
403,059 |
|
Residential |
|
|
89,077 |
|
|
|
|
|
|
|
89,077 |
|
Farmland |
|
|
9,207 |
|
|
|
|
|
|
|
9,207 |
|
Construction and vacant land |
|
|
89,199 |
|
|
|
|
|
|
|
89,199 |
|
Commercial and agricultural loans |
|
|
29,592 |
|
|
|
2,558 |
|
|
|
32,150 |
|
Home equity loans |
|
|
|
|
|
|
73,592 |
|
|
|
73,592 |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
620,134 |
|
|
$ |
76,150 |
|
|
$ |
696,284 |
|
|
|
|
|
|
|
|
|
|
|
G-43
The following table presents the aging of the recorded investment in past due loans,
based on contractual terms, as of December 31, 2010 by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 90 Days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due and Still |
|
|
|
|
|
|
|
|
|
30-89 Days Past Due |
|
|
Accruing/Accreting |
|
|
Nonaccrual |
|
|
|
|
Non-purchased credit impaired loans |
|
Covered |
|
|
Non-Covered |
|
|
Covered |
|
|
Non-Covered |
|
|
Covered |
|
|
Non-Covered |
|
|
Total |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, lot and construction |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Real estate- non-owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estateowner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines |
|
|
1,237 |
|
|
|
405 |
|
|
|
2,868 |
|
|
|
636 |
|
|
|
|
|
|
|
|
|
|
|
5,146 |
|
Commercial and industrial |
|
|
135 |
|
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401 |
|
Prime indirect auto loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-prime indirect auto loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other consumer loans |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
1,372 |
|
|
$ |
686 |
|
|
$ |
2,868 |
|
|
$ |
636 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 90 Days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due and Still |
|
|
|
|
|
|
|
|
|
30-89 Days Past Due |
|
|
Accruing/Accreting |
|
|
Nonaccrual |
|
|
|
|
Purchased credit impaired loans |
|
Covered |
|
|
Non-Covered |
|
|
Covered |
|
|
Non-Covered |
|
|
Covered |
|
|
Non-Covered |
|
|
Total |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, lot and construction |
|
$ |
5,978 |
|
|
$ |
1,776 |
|
|
$ |
51,075 |
|
|
$ |
8,217 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
67,046 |
|
Real estatenon-owner occupied |
|
|
7,601 |
|
|
|
9,221 |
|
|
|
33,615 |
|
|
|
12,020 |
|
|
|
|
|
|
|
|
|
|
|
62,457 |
|
Real estateowner occupied |
|
|
9,905 |
|
|
|
2,237 |
|
|
|
12,696 |
|
|
|
22,616 |
|
|
|
|
|
|
|
|
|
|
|
47,454 |
|
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
5,704 |
|
|
|
1,713 |
|
|
|
33,416 |
|
|
|
12,263 |
|
|
|
|
|
|
|
|
|
|
|
53,096 |
|
Home equity lines |
|
|
1,039 |
|
|
|
|
|
|
|
1,675 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
2,722 |
|
Commercial and industrial |
|
|
1,168 |
|
|
|
1,175 |
|
|
|
1,916 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
4,659 |
|
Prime indirect auto loans |
|
|
|
|
|
|
191 |
|
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
240 |
|
Sub-prime indirect auto loans |
|
|
|
|
|
|
534 |
|
|
|
|
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
617 |
|
Other consumer loans |
|
|
|
|
|
|
367 |
|
|
|
|
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
31,395 |
|
|
$ |
17,214 |
|
|
$ |
134,393 |
|
|
$ |
55,921 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
238,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased credit-impaired loans are not classified as nonaccrual as they are considered
to be accruing because their interest income relates to the accretable yield recognized under
accounting for purchased credit-impaired loans and not to contractual interest payments.
There were no troubled debt restructurings as of December 31, 2010.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the
ability of borrowers to service their debt such as: current financial information, historical
payment experience, credit documentation, public information, and current economic trends, among
other factors. The Company analyzes loans individually by classifying the loans as to credit risk.
This analysis is performed on a monthly basis. The Company uses the following definitions for risk
ratings:
|
|
|
PassThese loans range from superior quality with minimal credit risk to loans
requiring heightened management attention but that are still an acceptable risk and
continue to perform as contracted. |
|
|
|
|
Special MentionLoans classified as special mention have a potential weakness that
deserves managements close attention. If left uncorrected, these potential weaknesses
may result in deterioration of the repayment prospects for the loan or of the
institutions credit position at some future date. |
|
|
|
|
SubstandardLoans classified as substandard are inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral pledged, if
any. Loans so classified have a well-defined weakness or weaknesses that |
G-44
|
|
|
jeopardize the liquidation of the debt. They are characterized by the distinct possibility
that the institution will sustain some loss if the deficiencies are not corrected. |
|
|
|
|
DoubtfulLoans classified as doubtful have all the weaknesses inherent in those
classified as substandard, with the added characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts, conditions,
and values, highly questionable and improbable. |
The following table summarizes loans, excluding purchased credit-impaired loans, monitored for
credit quality based on internal ratings at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special |
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
|
Mention |
|
|
Substandard |
|
|
Doubtful |
|
|
Total |
|
Real estate mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
18,043 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
18,043 |
|
Residential |
|
|
15,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,918 |
|
Construction and vacant land |
|
|
1,535 |
|
|
|
162 |
|
|
|
167 |
|
|
|
|
|
|
|
1,864 |
|
Commercial and agricultural |
|
|
15,547 |
|
|
|
127 |
|
|
|
2,517 |
|
|
|
|
|
|
|
18,191 |
|
Indirect auto loans |
|
|
6,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,295 |
|
Home equity loans |
|
|
76,058 |
|
|
|
9,818 |
|
|
|
9,784 |
|
|
|
4,942 |
|
|
|
100,602 |
|
Other consumer loans |
|
|
5,914 |
|
|
|
|
|
|
|
87 |
|
|
|
|
|
|
|
6,001 |
|
Total loans |
|
$ |
139,310 |
|
|
$ |
10,107 |
|
|
$ |
12,555 |
|
|
$ |
4,942 |
|
|
$ |
166,914 |
|
6. |
|
FDIC Indemnification Asset |
|
|
The following is a summary of the year to date activity in the FDIC indemnification asset. |
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
|
|
Increase due to acquisitions |
|
|
137,316 |
|
Accretion |
|
|
736 |
|
Reimbursable losses claimed |
|
|
(46,585 |
) |
|
|
|
|
Balance, December 31, 2010 |
|
$ |
91,467 |
|
|
|
|
|
7. |
|
Allowance for Loan Losses |
|
|
Activity in the allowance for loan losses is as follows: |
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
|
|
Provision for loan losses charged to expense |
|
|
753 |
|
Loans charged off |
|
|
|
|
Recoveries of loans previously charged off |
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
753 |
|
|
|
|
|
The following table presents the balance in the allowance for loan losses and the
recorded investment in loans by portfolio segment and based on impairment method as of December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses |
|
|
Loans |
|
|
|
Individually |
|
|
Collectively |
|
|
|
|
|
|
Individually |
|
|
|
|
|
|
|
|
|
Evaluated |
|
|
Evaluated |
|
|
Purchased |
|
|
Evaluated |
|
|
Collectively |
|
|
Purchased |
|
|
|
for |
|
|
for |
|
|
Credit- |
|
|
for |
|
|
Evaluated for |
|
|
Credit- |
|
|
|
Impairment |
|
|
Impairment |
|
|
Impaired |
|
|
Impairment |
|
|
Impairment(1) |
|
|
Impaired |
|
Real estate mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
|
|
|
$ |
149 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
18,043 |
|
|
$ |
1,024,169 |
|
Residential |
|
|
|
|
|
|
215 |
|
|
|
|
|
|
|
|
|
|
|
15,918 |
|
|
|
303,059 |
|
Construction and vacant land |
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
1,864 |
|
|
|
128,155 |
|
Commercial and agricultural |
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
18,191 |
|
|
|
85,333 |
|
Indirect auto loans |
|
|
|
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
6,295 |
|
|
|
21,744 |
|
Home equity loans |
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
100,602 |
|
|
|
4,353 |
|
Other consumer loans |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
6,001 |
|
|
|
8,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
|
|
|
$ |
753 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
166,914 |
|
|
$ |
1,575,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G-45
|
|
|
(1) |
|
Loans collectively evaluated for impairment include $97,987 of acquired home equity loans,
$5,827 of commercial and agricultural loans and $4,935 of other consumer loans which are
presented net of unamortized purchase discounts of $(25,025), (279), and (46), respectively. |
There were no loans individually evaluated for impairment at December 31, 2010 or during the
three months ended December 31, 2010, due to substantially all loans being accounted for as
purchased credit-impaired loans as a result of the Companys recent acquisitions. No allowance for
loan losses was recorded for those purchased credit-impaired loans disclosed above during the three
months ended December 31, 2010.
8. |
|
Premises and Equipment |
|
|
A summary of the cost and accumulated depreciation of premises and equipment follows: |
|
|
|
|
|
|
|
|
|
|
|
Balance as of |
|
|
|
|
|
|
December 31, |
|
|
Estimated |
|
|
|
2010 |
|
|
Useful Life |
|
Land |
|
$ |
13,891 |
|
|
|
|
|
Buildings and leasehold improvements |
|
|
25,133 |
|
|
|
3 to 40 years |
|
Furniture, fixtures and equipment |
|
|
5,595 |
|
|
|
1 to 40 years |
|
Construction in progress |
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,878 |
|
|
|
|
|
Less: Accumulated depreciation |
|
|
(800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
$ |
44,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is obligated under operating leases for office and banking premises which
expire in periods varying from one to twenty-two years. Future minimum lease payments, before
considering renewal options that generally are present, are as follows at December 31, 2010: |
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
2011 |
|
$ |
3,062 |
|
2012 |
|
|
1,996 |
|
2013 |
|
|
1,689 |
|
2014 |
|
|
1,655 |
|
2015 |
|
|
1,244 |
|
Thereafter |
|
|
15,145 |
|
|
|
|
|
|
|
$ |
24,791 |
|
|
|
|
|
|
|
Rental expense for the year ended December 31, 2010 was $1,351. |
9. |
|
Goodwill and Intangible Assets |
|
|
The ending balance of goodwill as of December 31, 2010 is $36,616 of which $30,000 and $6,616
is related to the Companys 2010 acquisitions of TIBB and FNB, respectively. |
|
|
The Company applied acquisition accounting for all of its acquisitions during 2010.
Acquisition accounting requires that the assets purchased, the liabilities assumed, and
non-controlling interests all be reported in the acquirers financial statements at their fair
value, with any excess of purchase consideration over the net assets being reported at fair
value being recorded as goodwill. |
|
|
Changes in intangible assets during the year ended December 31, 2010 consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Net Book |
|
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
Balance, December 31, 2009 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Core deposit intangible due to acquisition of NAFH NB |
|
|
4,100 |
|
|
|
454 |
|
|
|
3,646 |
|
Mortgage servicing right due to acquisition of NAFH NB |
|
|
114 |
|
|
|
12 |
|
|
|
102 |
|
Core deposit intangible due to acquisition of TIBB |
|
|
7,500 |
|
|
|
188 |
|
|
|
7,312 |
|
Customer relationship intangible due to acquisition of TIBB |
|
|
3,500 |
|
|
|
87 |
|
|
|
3,413 |
|
Trade names due to acquisition of TIBB |
|
|
770 |
|
|
|
89 |
|
|
|
681 |
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
15,984 |
|
|
$ |
830 |
|
|
$ |
15,154 |
|
|
|
|
|
|
|
|
|
|
|
G-46
|
|
All of the identified intangible assets are amortized as noninterest expense over their
estimated lives. |
|
|
Estimated amortization expense for each of the next five years is as follows: |
|
|
|
|
|
Years ending December 31, |
|
|
|
|
2011 |
|
$ |
2,509 |
|
2012 |
|
|
2,420 |
|
2013 |
|
|
2,154 |
|
2014 |
|
|
1,686 |
|
2015 |
|
|
1,100 |
|
|
|
|
|
|
|
$ |
9,869 |
|
|
|
|
|
10. |
|
Other Real Estate Owned |
|
|
The activity within Other Real Estate Owned for the year ended December 31, 2010 was as
follows: |
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
|
|
OREO acquired through acquisitions |
|
|
63,349 |
|
Real estate acquired from borrowers |
|
|
19,721 |
|
Property sold |
|
|
(12,253 |
) |
|
|
|
|
Balance, December 31, 2010 |
|
$ |
70,817 |
|
|
|
|
|
|
|
Time deposits of $100 or more were $703,567 at December 31, 2010. |
|
|
At December 31, 2010, the scheduled maturities of time deposits are as follows: |
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
2011 |
|
$ |
1,004,708 |
|
2012 |
|
|
248,638 |
|
2013 |
|
|
70,882 |
|
2014 |
|
|
5,234 |
|
2015 |
|
|
24,048 |
|
|
|
|
|
|
|
$ |
1,353,510 |
|
|
|
|
|
12. |
|
Short-Term Borrowings and Federal Home Loan Bank Advances |
|
|
Short-term borrowings include federal funds purchased, securities sold under agreements to
repurchase, advances from the Federal Home Loan Bank, and a Treasury, tax and loan note option. |
|
|
As of December 31, 2010, TIB Bank had an unsecured overnight federal funds purchased line with
a maximum accommodation of $30,000 from a correspondent bank. Additionally, TIB Bank has
agreements with various financial institutions under which securities can be sold under
agreements to repurchase. The Banks also have securities sold under agreements to repurchase
with commercial account holders whereby the Banks sweep the customers accounts on a daily
basis and pay interest on these amounts. These agreements are collateralized by investment
securities chosen by the Banks. |
|
|
TIB Bank accepts Treasury, tax and loan deposits from certain commercial depositors and remits
these deposits to the appropriate government authorities. TIB Bank can hold up to $1,700 of
these deposits more than a day under a note option agreement with its regional Federal Reserve
Bank and pays interest on those funds held. TIB Bank pledges certain investment securities
against this account. |
|
|
As of December 31, 2010, TIB Banks collateral availability under its agreement with the
Federal Reserve Bank of Atlanta (FRB) provided for up to approximately $39,653 of borrowing
availability from the FRB discount window. |
|
|
NAFH NB assumed an agreement with another financial institution in which securities had been
sold which would be repurchased at a future date. The interest rates on these repurchase
agreements are fixed for the remaining term of the agreement. The outstanding fair value amount
at December 31, 2010 was $10,015, matured in January 2011, and had a fixed interest rate of
5.16%. As of December 31, 2010, $11,203 of securities of the United States Government or its
agencies were pledged to collateralize these borrowings. |
G-47
|
|
The Banks have securities sold under agreements to repurchase with customers whereby the Banks
sweep the customers accounts on a daily basis and pay interest on these amounts. These
agreements are collateralized by investment securities of the United States Government or its
agencies which are chosen by the Banks. |
|
|
The Banks invest in Federal Home Loan Bank stock for the purpose of establishing credit lines
with the Federal Home Loan Bank. The credit availability to the Banks is based on a percentage
of each Banks total assets as reported on the most recent quarterly financial information
submitted to the regulators subject to the pledging of sufficient collateral. At December 31,
2010, in addition to $25,150 in letters of credit used in lieu of pledging securities to the
State of Florida, TIB Bank had $125,000 in advances outstanding with a carrying value of
$131,116. NAFH Bank had FHLB advances outstanding with a face value of $105,833 and a carrying
value of $111,951. The advances for both Banks consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual |
|
|
|
|
Contractual |
|
|
|
|
|
|
Rate at |
|
Carrying |
|
Outstanding |
|
|
|
|
Repricing |
|
December 31, |
|
Amount |
|
Amount |
|
|
Maturity Date |
|
Frequency |
|
2010 |
|
|
NAFH Bank |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,001 |
|
$ |
5,000 |
|
|
February 2011 |
|
Fixed |
|
|
0.51 |
% |
|
3,011 |
|
|
3,000 |
|
|
March 2011 |
|
Fixed |
|
|
2.12 |
% |
|
3,013 |
|
|
3,000 |
|
|
May 2011 |
|
Fixed |
|
|
1.65 |
% |
|
5,102 |
|
|
5,000 |
|
|
June 2011(a) |
|
Fixed |
|
|
4.95 |
% |
|
5,106 |
|
|
5,000 |
|
|
June 2011(a) |
|
Fixed |
|
|
5.04 |
% |
|
5,058 |
|
|
5,000 |
|
|
July 2011(a) |
|
Fixed |
|
|
2.81 |
% |
|
1,547 |
|
|
1,250 |
|
|
September 2011 |
|
Fixed |
|
|
2.99 |
% |
|
1,077 |
|
|
1,250 |
|
|
September 2011 |
|
Fixed |
|
|
3.58 |
% |
|
465 |
|
|
357 |
|
|
October 2011 |
|
Fixed |
|
|
3.91 |
% |
|
5,203 |
|
|
5,000 |
|
|
January 2012(a) |
|
Fixed |
|
|
4.56 |
% |
|
571 |
|
|
476 |
|
|
April 2012 |
|
Fixed |
|
|
4.70 |
% |
|
5,265 |
|
|
5,000 |
|
|
May 2012(a) |
|
Fixed |
|
|
4.59 |
% |
|
7,695 |
|
|
7,500 |
|
|
March 2013 |
|
Fixed |
|
|
2.29 |
% |
|
4,308 |
|
|
4,000 |
|
|
March 2013 |
|
Fixed |
|
|
4.58 |
% |
|
5,155 |
|
|
5,000 |
|
|
June 2013(a) |
|
Fixed |
|
|
2.27 |
% |
|
5,528 |
|
|
5,000 |
|
|
May 2014(a) |
|
Fixed |
|
|
4.60 |
% |
|
5,552 |
|
|
5,000 |
|
|
June 2014(a) |
|
Fixed |
|
|
4.66 |
% |
|
5,215 |
|
|
5,000 |
|
|
February 2015 |
|
Fixed |
|
|
2.83 |
% |
|
5,391 |
|
|
5,000 |
|
|
June 2015 |
|
Fixed |
|
|
3.71 |
% |
|
5,426 |
|
|
5,000 |
|
|
July 2015(a) |
|
Fixed |
|
|
3.57 |
% |
|
5,734 |
|
|
5,000 |
|
|
June 2017(a) |
|
Fixed |
|
|
4.58 |
% |
|
5,523 |
|
|
5,000 |
|
|
November 2017(b) |
|
Fixed |
|
|
3.93 |
% |
|
5,613 |
|
|
5,000 |
|
|
July 2018(a) |
|
Fixed |
|
|
3.94 |
% |
|
5,198 |
|
|
5,000 |
|
|
July 2018(a) |
|
Fixed |
|
|
2.14 |
% |
|
5,194 |
|
|
5,000 |
|
|
July 2018(a) |
|
Fixed |
|
|
2.12 |
% |
|
TIB Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
53,502 |
|
|
50,000 |
|
|
April 2013(a) |
|
Fixed |
|
|
3.80 |
% |
|
51,790 |
|
|
50,000 |
|
|
December 2011(a) |
|
Fixed |
|
|
4.18 |
% |
|
10,586 |
|
|
10,000 |
|
|
September 2012(a) |
|
Fixed |
|
|
4.05 |
% |
|
10,009 |
|
|
10,000 |
|
|
March 2011 |
|
Fixed |
|
|
0.61 |
% |
|
5,229 |
|
|
5,000 |
|
|
March 2012(a) |
|
Fixed |
|
|
4.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
243,067 |
|
$ |
230,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
These advances have quarterly conversion dates. If the FHLB chooses to convert the
advance, the Bank has the option of prepaying the entire balance without penalty.
Otherwise, the advance will convert to an adjustable rate, repricing on a quarterly basis.
If the FHLB does not convert the advance, it will remain at the contracted fixed rate
until the maturity date. |
|
(b) |
|
This advance has a one-time conversion option in November 2012. |
|
|
The Banks collateral with the FHLB consists of a blanket floating lien pledge of the Banks
respective residential 1-4 family mortgage and commercial real estate secured loans. The amount
of eligible collateral at December 31, 2010 was $187,722 and $121,840 for TIB Bank and NAFH
Bank, respectively. |
G-48
13. |
|
Long Term Borrowings |
|
|
|
Subordinated Debentures |
|
|
Through its acquisition of TIBB, the Company acquired three separate pooled offerings of trust
preferred securities. The Company is not considered the primary beneficiary of the trusts
(variable interest entities), therefore the trusts are not consolidated in the Companys
consolidated financial statements, but rather the subordinated debentures are presented as a
liability. |
|
|
TIBB formed three wholly-owned statutory trust subsidiaries for the purpose of issuing the
trust preferred securities. The Trusts used the proceeds from the issuance of trust preferred
securities to acquire junior subordinated deferrable interest debentures of TIBB. The trust
preferred securities essentially mirror the debt securities, carrying a cumulative preferred
dividend equal to the interest rate on the debt securities. The debt securities and the trust
preferred securities each have 30-year lives. The trust preferred securities and the debt
securities are callable by TIBB or the Trust, at their respective option after a period of time
outlined below, and at varying premiums and sooner in specific events, subject to prior
approval by the Federal Reserve Board (FRB), if then required. Pursuant to a request from the
FRB, the Companys subsidiary TIBB, prior to its acquisition by the Company, elected to defer
interest payments on these trust preferred securities beginning with the payments due in
October 2009. As of December 31, 2010, the Company remained in an elective deferral period.
Deferral of the trust preferred securities is allowed for up to 60 months without being
considered an event of default. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face |
|
|
Carrying |
|
|
Interest |
|
|
|
Maturity |
Date of Offering |
|
Amount |
|
|
Amount |
|
|
Rate |
|
Call Date |
|
Date |
September 7, 2000 |
|
$ |
8,000 |
|
|
$ |
8,865 |
|
|
10.6% Fixed |
|
September 7, 2010 |
|
September 7, 2030 |
July 31, 2001 |
|
|
5,000 |
|
|
|
3,674 |
|
|
3.87% (3 Month LIBOR plus 358 basis points) |
|
July 31, 2006 |
|
July 31, 2031 |
June 23, 2006 |
|
|
20,000 |
|
|
|
10,348 |
|
|
1.84% (3 Month LIBOR plus 155 basis points) |
|
June 23, 2011 |
|
June 23, 2036 |
|
|
At December 31, 2010, the maturities of long-term borrowings were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
Floating Rate |
|
|
Total |
|
Due in 2011 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Due in 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Due in 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Due in 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter |
|
|
8,865 |
|
|
|
14,022 |
|
|
|
22,887 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
8,865 |
|
|
$ |
14,022 |
|
|
$ |
22,887 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) from continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Current income tax provision |
|
|
|
|
|
|
|
|
Federal |
|
$ |
4,491 |
|
|
$ |
|
|
State |
|
|
550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax benefit |
|
|
|
|
|
|
|
|
Federal |
|
|
(4,949 |
) |
|
|
(41 |
) |
State |
|
|
(1,133 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
(6,082 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
$ |
(1,041 |
) |
|
$ |
(50 |
) |
|
|
|
|
|
|
|
G-49
A reconciliation of income tax computed at applicable Federal statutory income tax rates to
total income taxes reported is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Pretax income from continuing operations |
|
$ |
10,996 |
|
|
$ |
(142 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes computed at Federal statutory tax rate Effect of: |
|
|
3,849 |
|
|
|
50 |
|
Purchase Accounting Gain |
|
|
(5,371 |
) |
|
|
|
|
TCA Legal Costs |
|
|
860 |
|
|
|
|
|
Tax-exempt income, net |
|
|
(77 |
) |
|
|
|
|
State income taxes, net |
|
|
(423 |
) |
|
|
|
|
Other, net |
|
|
121 |
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit) |
|
$ |
(1,041 |
) |
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
The details of the net deferred tax asset as of December 31, 2010 and 2009 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Clawback Reserve Liability |
|
$ |
394 |
|
|
$ |
|
|
Goodwill |
|
|
7,910 |
|
|
|
|
|
OREO Write Down Allowance |
|
|
7,850 |
|
|
|
|
|
FHLB Borrowings |
|
|
2,397 |
|
|
|
|
|
CD Premium |
|
|
1,207 |
|
|
|
|
|
Allowance for loan losses |
|
|
290 |
|
|
|
|
|
Purchase accounting adjustment |
|
|
30,428 |
|
|
|
|
|
Net operating loss and AMT carryforward |
|
|
5,319 |
|
|
|
50 |
|
Recognized impairment of other real estate owned |
|
|
|
|
|
|
|
|
Acquisition related intangibles |
|
|
2,372 |
|
|
|
|
|
Net unrealized losses on securities available for sale |
|
|
1,716 |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets |
|
$ |
59,883 |
|
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FDIC Indemnification Assets |
|
$ |
(35,284 |
) |
|
$ |
|
|
Deferred loan costs |
|
|
(83 |
) |
|
|
|
|
Acquisition related intangibles |
|
|
(1,957 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
(5,770 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities |
|
$ |
(43,094 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net temporary differences |
|
|
16,789 |
|
|
|
|
|
Valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
16,789 |
|
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
A valuation allowance related to deferred tax assets is required when it is considered
more likely than not that all or part of the benefit related to such assets will not be
realized. In assessing the need for a valuation allowance, management considered various
factors including projections of future operating results as well as the significant cumulative
losses incurred by the operations acquired from the FDIC in recent years. These factors
represent the most significant positive and negative evidence that management considered in
concluding that no valuation allowance was necessary at December 31, 2010. |
|
|
At December 31, 2010, the Company had Federal and state net operating loss carryforwards of
$13,737, which expire in 2030 if unused. These net operating loss carryforwards resulted from
the acquisition of TIBB and are subject to an annual limitation estimated to be $723. |
|
|
The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax
of the states of Florida, South Carolina and North Carolina. |
|
|
At December 31, 2010, the Company had no amounts recorded for uncertain tax positions. The
Company does not expect the total amount of unrecognized tax benefits to significantly increase
in the next twelve months. |
G-50
15. |
|
Employee Benefit Plans |
|
|
TIBB maintains an Employee Stock Ownership Plan with 401(k) provisions that covers all
employees who are qualified as to age and length of service. Three types of contributions can
be made to the Plan by the Company and participants: basic voluntary contributions which are
discretionary contributions made by all participants; a matching contribution, whereby the
Company will match 50 percent of salary reduction contributions up to 5 percent of
compensation; and an additional discretionary contribution which may be made by the Company and
allocated to the accounts of participants on the basis of total relative compensation. The
Company contributed $83 during 2010 to the plan. |
|
|
TIB Bank entered into salary continuation agreements with several of its executive officers.
The plans are nonqualified deferred compensation arrangements that were designed to provide
supplemental retirement income benefits to participants. In 2010, following the investment by
NAFH Inc. and the TARP repayment, the salary continuation agreements were terminated and the
executives each received a lump sum distribution of their respective accrued benefit earned
under their agreement. The Bank has purchased single premium life insurance policies on several
of these individuals. In 2010, following the acquisition by the Company, the salary
continuation agreements were terminated and the executives each received a lump sum
distribution of their respective accrued benefit earned under their agreement resulting in a
total payout of $1,305. Cash value income (net of related insurance premium expense) totaled
$66 for 2010. |
|
|
In 2001, TIB Bank established a nonqualified retirement benefit plan for eligible Bank
directors. Under the plan, the Bank pays each participant, or their beneficiary, the amount of
directors fees deferred and interest in 120 equal monthly installments, beginning the month
following the directors normal retirement date. In 2011 the director deferred agreements were
terminated and the directors participating in the plan each received a lump sum distribution of
their respective deferral account balances. The Company expensed $9 in 2010 for the accrual of
the retirement benefits. The Company owns single premium split dollar life insurance policies
on these individuals. Cash value income (net of related insurance premium expense) totaled $38
during 2010. In 2011 the director deferred agreements were terminated and the directors
participating in the plan each received a lump sum distribution of their respective deferral
account balances resulting in a total payout of $431 by the Company. |
16. |
|
Shareholders Equity and Minimum Regulatory Capital Requirements |
|
|
The Company (on a consolidated basis) and the Banks are subject to various regulatory capital
requirements administered by federal and state banking agencies. Failure to meet minimum
capital requirements results in certain discretionary and required actions by regulators that
could have an effect on the Companys operations. The regulations require the Company and the
Banks to meet specific capital adequacy guidelines that involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Companys capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings and other factors. |
G-51
|
|
Capital Adequacy and Ratios |
|
|
To be considered well capitalized and adequately capitalized (as defined) under the regulatory
framework for prompt corrective action, the Banks must maintain minimum Tier 1 leverage, Tier 1
risk-based, and total risk-based ratios. At December 31, 2010 the Banks maintained capital
ratios exceeding the requirements to be considered well capitalized. These minimum amounts and
ratios along with the actual amounts and ratios for the Company, TIBB and the Banks at
December 31, 2010 are presented in the following table. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well Capitalized |
|
Adequately Capitalized |
|
|
|
|
Requirement |
|
Requirement |
|
Actual |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
Tier 1 Capital
(to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
N/A |
|
|
|
N/A |
|
|
|
³ $137,767 |
|
|
|
³ 4.0 |
% |
|
$ |
838,475 |
|
|
|
24.3 |
% |
TIBB |
|
|
N/A |
|
|
|
N/A |
|
|
|
³ 67,763 |
|
|
|
³ 4.0 |
% |
|
|
139,596 |
|
|
|
8.2 |
% |
TIB Bank |
|
|
³ $84,285 |
|
|
|
³ 5.0 |
% |
|
|
³ 67,428 |
|
|
|
³ 4.0 |
% |
|
|
136,764 |
|
|
|
8.1 |
% |
NAFH NB |
|
|
³ 60,119 |
|
|
|
³ 5.0 |
% |
|
|
³ 48,095 |
|
|
|
³ 4.0 |
% |
|
|
145,632 |
|
|
|
12.1 |
% |
Tier 1 Capital
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
N/A |
|
|
|
N/A |
|
|
$ |
80,201 |
|
|
|
³ 4.0 |
% |
|
$ |
838,475 |
|
|
|
41.8 |
% |
TIBB |
|
|
N/A |
|
|
|
N/A |
|
|
|
41,750 |
|
|
|
³ 4.0 |
% |
|
|
139,596 |
|
|
|
13.4 |
% |
TIB Bank |
|
|
³ $62,616 |
|
|
|
³ 6.0 |
% |
|
|
41,744 |
|
|
|
³ 4.0 |
% |
|
|
136,764 |
|
|
|
13.1 |
% |
NAFH NB |
|
|
³ 51,167 |
|
|
|
³ 6.0 |
% |
|
|
34,112 |
|
|
|
³ 4.0 |
% |
|
|
145,632 |
|
|
|
17.1 |
% |
Total Capital (to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
N/A |
|
|
|
N/A |
|
|
|
³ $160,402 |
|
|
|
³ 8.0 |
% |
|
$ |
839,280 |
|
|
|
41.9 |
% |
TIBB |
|
|
N/A |
|
|
|
N/A |
|
|
|
83,501 |
|
|
|
³ 8.0 |
% |
|
|
140,027 |
|
|
|
13.4 |
% |
TIB Bank |
|
|
³ $104,360 |
|
|
|
³ 10.0 |
% |
|
|
³ 83,488 |
|
|
|
³ 8.0 |
% |
|
|
137,195 |
|
|
|
13.1 |
% |
NAFH NB |
|
|
³ 85,279 |
|
|
|
³ 10.0 |
% |
|
|
³ 68,223 |
|
|
|
³ 8.0 |
% |
|
|
146,006 |
|
|
|
17.1 |
% |
|
|
Management believes, as of December 31, 2010, that the Company, TIBB and the Banks meet all
capital requirements to which they are subject. |
|
|
Under state banking law, regulatory approval will be required if the total of all dividends
declared in any calendar year by a bank exceeds the banks net profits to date for that year
combined with its retained net profits for the preceding two years. Declaration of any
dividends by TIB Bank in 2010 would have required regulatory approval. During 2010, no
dividends were declared by the Banks. |
17. |
|
Stock-Based Compensation |
|
|
As of December 31, 2010, the Company has one compensation plan under which shares of its common
stock are issuable in the form of stock options, stock appreciation rights, restricted stock
restricted stock units, stock awards and stock bonus awards. This is its 2010 Equity Incentive
Plan (the 2010 Plan). The 2010 Plan was effective December 22, 2009 and expires on
December 22, 2019, the tenth anniversary of the effective date. The maximum number of shares of
common stock of the Company that may be optioned or awarded through the 2019 expiration of the
plan is 5,750 shares of which up to 70% may be granted pursuant to stock options and up to 30%
may be granted pursuant to restricted stock and restricted stock units. If any awards granted
under the Plan are forfeited or any option terminates, expires or lapses without being
exercised, or any award is settled for cash, the shares of stock shall again be available for
awards under the Plan. As of December 31, 2010 no awards had been granted. |
|
|
As of December 31, 2010, TIBB has one compensation plan under which shares of its common stock
are issuable in the form of stock options, restricted shares, stock appreciation rights,
performance shares or performance units. This is its 2004 Equity Incentive Plan (the 2004
Plan), which was approved by TIBBs shareholders at the May 25, 2004 annual meeting.
Previously, TIBB had granted stock options under the 1994 Incentive Stock Option and
Nonstatutory Stock Option Plan (the 1994 Plan) as amended and restated as of August 31, 1996.
Under the 2004 Plan, the Board of Directors of the Company may grant nonqualified stock-based
awards to any director, and incentive or nonqualified stock-based awards to any officer, key
executive, administrative, or other employee including an employee who is a director of the
Company. At the May 25, 2010 annual meeting, the shareholders approved an amendment to the 2004
Plan increasing the maximum number of shares of common stock of the Company that may be
optioned or awarded through the 2014 expiration of the plan to 250 shares, no more than 200 of
which may be issued pursuant to awards granted in the form of restricted shares. Such shares
may be treasury, or |
G-52
|
|
authorized but unissued, shares of common stock of the Company. If options or awards granted
under the Plan expire or terminate for any reason without having been exercised in full or
released from restriction, the corresponding shares shall again be available for option or
award for the purposes of the Plan as long as no dividends have been paid to the holder in
accordance with the provisions of the grant agreement. At December 31, 2010 there were 7
exercisable options outstanding under the Plan with a weighted average remaining contractual
life of 4.91 years, weighted average exercise price of $688.80 and exercise price range from
$158.42 to $1,489.52. Shares available for grant as of December 31, 2010 were 243. |
18. |
|
Loan Commitments and Other Related Activities |
|
|
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 of 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. |
|
|
The contractual amount of financial instruments with off-balance-sheet risk was as follows at
December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
Variable Rate |
Commitments to make loans |
|
$ |
42,236 |
|
|
$ |
16,627 |
|
Unfunded commitments under lines of credit |
|
|
21,179 |
|
|
|
99,850 |
|
|
|
Commitments to make loans are generally made for periods of 30 days. As of December 31, 2010,
the fixed rate loan commitments have interest rates ranging from 2.94% to 11.00% and maturities
ranging from 1 year to 30 years. |
|
|
As of December 31, 2010 the Banks were subject to letters of credit totaling $2,080. |
19. |
|
Fair Values of Financial Instruments |
|
|
Accounting guidance 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 guidance describes three levels of inputs that may be used to measure fair value: |
|
|
Level 1 |
Quoted prices (unadjusted) for identical assets or liabilities in active markets that
the entity has the ability to access as of the measurement date. |
|
|
Level 2 |
Significant other 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. |
|
|
Level 3 |
Significant unobservable inputs that reflect a reporting entitys own assumptions
about the assumptions that market participants would use in pricing an asset or
liability. |
|
|
The fair values of securities available for sale can be determined by 1) obtaining quoted
prices on nationally recognized securities exchanges when available (Level 1 inputs), 2) matrix
pricing, which is a mathematical technique widely used in the industry to value debt securities
without relying exclusively on quoted prices for the specific securities but rather by relying
on the securities relationship to other benchmark quoted securities (Level 2 inputs) and 3)
custom discounted cash flow or other internal modeling (Level 3 inputs). |
|
|
Valuation of Impaired Loans and Other Real Estate Owned |
|
|
The fair value of collateral dependent impaired loans with specific allocations of the
allowance for loan losses and other real estate owned is generally based on recent real estate
appraisals. These appraisals may utilize a single valuation approach or a combination of
approaches including comparable sales and the income approach. Adjustments are routinely made
in the appraisal process by the appraisers to adjust for differences between the comparable
sales and income data available. Such adjustments are typically significant and result in a
Level 3 classification of the inputs for determining fair value. |
G-53
|
|
Assets and Liabilities Measured on a Recurring Basis |
|
|
Assets and liabilities measured at fair value on a recurring basis are summarized below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Significant |
|
|
Significant |
|
|
|
|
|
|
|
for Identical |
|
|
Other Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and corporations |
|
$ |
49,133 |
|
|
$ |
|
|
|
$ |
49,133 |
|
|
$ |
|
|
States and political subdivisionstax exempt |
|
|
5,792 |
|
|
|
|
|
|
|
5,792 |
|
|
|
|
|
States and political subdivisionstaxable |
|
|
9,354 |
|
|
|
|
|
|
|
9,354 |
|
|
|
|
|
Mortgage-backed securitiesresidential |
|
|
412,213 |
|
|
|
|
|
|
|
412,213 |
|
|
|
|
|
Marketable equity securities |
|
|
74 |
|
|
|
|
|
|
|
74 |
|
|
|
|
|
Corporate bonds |
|
|
2,105 |
|
|
|
|
|
|
|
2,105 |
|
|
|
|
|
Collateralized debt obligations |
|
|
795 |
|
|
|
|
|
|
|
|
|
|
|
795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
$ |
479,466 |
|
|
$ |
|
|
|
$ |
478,671 |
|
|
$ |
795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets and Liabilities Measured on a Nonrecurring Basis |
|
|
Assets and liabilities measured at fair value on a nonrecurring basis are summarized below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
Quoted Prices in |
|
|
|
|
|
|
Active Markets |
|
Significant |
|
Significant |
|
|
for Identical |
|
Other Observable |
|
Unobservable |
|
|
Assets |
|
Inputs |
|
Inputs |
|
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
$ |
|
|
|
$ |
|
|
|
$ |
70,817 |
|
Other repossessed assets |
|
|
|
|
|
|
137 |
|
|
|
|
|
|
|
Other real estate owned which is measured at the lesser of fair value less costs to sell or the
Companys recorded investment in the foreclosed loan had a carrying amount of $70,817 as of
December 31, 2010. Other repossessed assets are primarily comprised of repossessed vehicles and
equipment and are measured at fair value as of the date of repossession. |
|
|
Carrying amount and estimated fair values of financial instruments were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
|
|
Value |
|
|
Fair Value |
|
|
Value |
|
|
Fair Value |
|
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
886,925 |
|
|
$ |
886,925 |
|
|
$ |
526,711 |
|
|
$ |
526,711 |
|
Investment securities available for sale |
|
|
479,466 |
|
|
|
479,466 |
|
|
|
|
|
|
|
|
|
Investment securities held to maturity |
|
|
250 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
Loans, net |
|
|
1,741,994 |
|
|
|
1,781,181 |
|
|
|
|
|
|
|
|
|
FDIC indemnification asset |
|
|
91,467 |
|
|
|
91,467 |
|
|
|
|
|
|
|
|
|
Federal reserve, federal home loan bank
and independent bankers bank stock |
|
|
23,465 |
|
|
|
23,465 |
|
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
8,286 |
|
|
|
8,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontractual deposits |
|
$ |
906,742 |
|
|
$ |
906,742 |
|
|
$ |
|
|
|
$ |
|
|
Contractual deposits |
|
|
1,353,510 |
|
|
|
1,355,099 |
|
|
|
|
|
|
|
|
|
Federal home loan bank advances |
|
|
243,067 |
|
|
|
242,522 |
|
|
|
|
|
|
|
|
|
Short-term borrowings |
|
|
61,969 |
|
|
|
61,969 |
|
|
|
|
|
|
|
|
|
Subordinated debentures |
|
|
22,887 |
|
|
|
25,267 |
|
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
9,334 |
|
|
|
9,334 |
|
|
|
|
|
|
|
|
|
G-54
|
|
The methods and assumptions used to estimate fair value are described as follows: |
|
|
Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest
receivable and payable, noncontractual demand deposits and certain short-term borrowings. As it
is not practicable to determine the fair value of Federal Reserve, Federal Home Loan Bank stock
and other bankers bank stock due to restrictions placed on its transferability, the estimated
fair value is equal to their carrying amount. Security fair values are based on market prices
or dealer quotes, and if no such information is available, on the rate and term of the security
and information about the issuer including estimates of discounted cash flows when necessary.
For fixed rate loans or contractual deposits and for variable rate loans or deposits with
infrequent repricing or repricing limits, fair value is based on discounted cash flows using
current market rates applied to the estimated life, adjusted for the allowance for loan losses.
Fair values for impaired loans are estimated using discounted cash flow analysis or underlying
collateral values. Fair value of long-term debt is based on current rates for similar
financing. The fair value of off-balance sheet items that includes commitments to extend credit
to fund commercial, consumer, real estate construction and real estate-mortgage loans and to
fund standby letters of credit is considered nominal. |
20. |
|
Condensed Financial Information of North American Financial Holdings, Inc. |
Condensed Balance Sheets
Year Ended December 31, 2010 and Period From November 30, 2009 (Inception) to December 31, 2009
(Parent Only)
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
546,995 |
|
|
$ |
526,711 |
|
Investment in bank subsidiary |
|
|
155,515 |
|
|
|
|
|
Investment in bank holding company subsidiary |
|
|
170,817 |
|
|
|
|
|
Accrued interest receivable and other assets |
|
|
3,749 |
|
|
|
50 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
877,076 |
|
|
$ |
526,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
Accrued interest payable and other liabilities |
|
|
1,773 |
|
|
|
441 |
|
Shareholders equity |
|
|
875,303 |
|
|
|
526,320 |
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
877,076 |
|
|
$ |
526,761 |
|
|
|
|
|
|
|
|
Condensed Statements of Income
Year Ended December 31, 2010 and Period From November 30, 2009 (Inception) to December 31, 2009
(Parent Only)
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Operating income |
|
|
|
|
|
|
|
|
Interest-bearing deposits in other banks |
|
$ |
3,175 |
|
|
$ |
72 |
|
|
|
|
|
|
|
|
Total operating income |
|
|
3,175 |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense |
|
|
|
|
|
|
|
|
Salaries |
|
|
3,635 |
|
|
|
40 |
|
Other expense |
|
|
10,757 |
|
|
|
174 |
|
|
|
|
|
|
|
|
Total operating expense |
|
|
14,392 |
|
|
|
214 |
|
|
|
|
|
|
|
|
Income (loss) before income tax benefit and equity in undistributed earnings of subsidiaries |
|
|
(11,217 |
) |
|
|
(142 |
) |
Income tax benefit |
|
|
3,699 |
|
|
|
50 |
|
|
|
|
|
|
|
|
Loss before equity in undistributed earnings of subsidiaries |
|
|
(7,518 |
) |
|
|
(92 |
) |
Equity in income of subsidiaries |
|
|
19,548 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
12,030 |
|
|
$ |
(92 |
) |
|
|
|
|
|
|
|
G-55
Condensed Statements of Cash Flows
Year Ended December 31, 2010 and Period From November 30, 2009 (Inception) to December 31, 2009
(Parent Only)
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
12,030 |
|
|
$ |
(92 |
) |
Equity in income of subsidiaries |
|
|
(19,548 |
) |
|
|
|
|
Increase (decrease) in net income tax obligation |
|
|
(3,699 |
) |
|
|
(50 |
) |
Change in accrued interest receivable and other assets |
|
|
1,332 |
|
|
|
|
|
Change in accrued interest payable and other liabilities |
|
|
(1 |
) |
|
|
441 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(9,886 |
) |
|
|
299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Investment in bank subsidiary |
|
|
(137,000 |
) |
|
|
|
|
Investment in bank holding company subsidiary |
|
|
(172,543 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(309,543 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net proceeds from issuance of common shares |
|
|
339,713 |
|
|
|
526,412 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
339,713 |
|
|
|
526,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
20,284 |
|
|
|
526,711 |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
526,711 |
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
546,995 |
|
|
$ |
526,711 |
|
|
|
|
|
|
|
|
21. |
|
Supplemental Financial Data |
|
|
Components of other expense in excess of 1 percent of total interest and non-interest income
are as follows: |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
Conversion expenses |
|
$ |
1,991 |
|
|
|
|
|
FDIC & state assessments |
|
|
2,097 |
|
|
|
|
|
Computer services |
|
|
2,098 |
|
|
|
|
|
Amortization of intangibles |
|
|
818 |
|
|
|
|
|
Insurance non-building |
|
|
640 |
|
|
|
|
|
Foreclosed asset related expense |
|
|
701 |
|
|
|
|
|
Travel |
|
|
382 |
|
|
|
35 |
|
Organizational Expense |
|
|
|
|
|
|
91 |
|
22. |
|
Quarterly Financial Data (Unaudited) |
|
|
The following is a summary of unaudited quarterly results for 2010 and 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
|
Fourth |
|
Third |
|
Second |
|
First |
|
Fourth |
Condensed income statements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
29,773 |
|
|
$ |
11,416 |
|
|
$ |
831 |
|
|
$ |
725 |
|
|
$ |
72 |
|
Net interest income |
|
|
24,747 |
|
|
|
10,208 |
|
|
|
831 |
|
|
|
725 |
|
|
|
72 |
|
Provision for loan losses |
|
|
753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting gain |
|
|
|
|
|
|
15,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) |
|
|
(167 |
) |
|
|
14,607 |
|
|
|
(1,022 |
) |
|
|
(1,381 |
) |
|
|
(92 |
) |
Net income (loss) allocated to common shareholders |
|
|
(174 |
) |
|
|
14,607 |
|
|
|
(1,022 |
) |
|
|
(1,381 |
) |
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per common share |
|
$ |
|
|
|
$ |
0.33 |
|
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.01 |
) |
G-56
|
|
The Companys investment in TIBB was subsequently reduced to approximately 94% as a result of a
shareholder rights offering which closed on January 18, 2011. |
|
|
The Company closed on an investment in Capital Bank Corp. on January 28, 2011 to purchase
71,000,000 shares of common stock for $181,050,000 in cash. Subsequent to the investment, the
Company owned approximately 85% of Capital Bank Corp. The Companys investment in Capital Bank
Corp. was subsequently reduced to approximately 83% as a result of a shareholder rights
offering which closed on March 11, 2011. |
G-57
PLEASE VOTE TODAY!
SEE REVERSE SIDE FOR THREE
EASY WAYS TO VOTE
6
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE AND SIGN AND RETURN IN THE ENVELOPE PROVIDED 6
GREEN BANKSHARES, INC.
REVOCABLE PROXY FOR THE SPECIAL MEETING
OF SHAREHOLDERS
August __, 2011
The undersigned hereby constitutes and appoints Stephen M. Rownd and Robert K. Leonard, and
each of them, the proxies of the undersigned, with full power of substitution, to attend the
Special Meeting of Shareholders of Green Bankshares, Inc. (the Company) to be held at the
General Morgan Inn, 111 North Main Street, Greeneville, Tennessee on
_________, August ___, 2011
at ___a.m., local time, and at any adjournments or postponements thereof, and to vote all the
shares of stock of the Company which the undersigned may be entitled to vote, upon the following
matters.
This proxy, when properly executed and returned, will be voted in the manner directed herein
by the undersigned shareholder. If this proxy is properly executed and returned but not direction
is made, this proxy will be voted FOR Proposals 1, 2, 3, 4, 5, 6, 7 and 8. The undersigned hereby
acknowledges receipt of a copy of the accompanying Notice of Special Meeting of the Shareholders
and Proxy Statement, and hereby revokes any proxy heretofore given. This proxy may be revoked at
any time before its exercise.
This proxy is solicited by and on behalf of the Board of Directors for the Special Meeting of
Shareholders to be held on
_________, August ___, 2011.
Please sign and date on the reverse side.
GREEN BANKSHARES, INC.
YOUR VOTE IS IMPORTANT
Please take a moment now to vote your shares of Green Bankshares, Inc.
common stock for the upcoming Special Meeting of Shareholders.
YOU CAN VOTE TODAY IN ONE OF THREE WAYS:
|
1. |
|
Vote by Telephone Call toll-free from the U.S.
or Canada at 1 (866)-287-0485, on a touch-tone
telephone. Please follow the simple instructions provided. |
|
OR
|
2. |
|
Vote by Internet Please access
https://www.proxyvotenow.com/grnb, and follow the simple instructions
provided. Please note you must type an s after http. |
|
You may vote by telephone or Internet 24 hours a day, 7 days a week.
Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner
as if you had executed a proxy card.
OR
3. |
|
Vote by Mail If you do not have access to a touch-tone telephone or to the Internet,
please sign, date and return the proxy card in the envelope provided, or mail to: Green
Bankshares, Inc. c/o Innisfree M&A Incorporated, FDR Station,
P.O. Box 5154, New York, NY 10150-5154. |
6 TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE AND SIGN AND RETURN IN THE ENVELOPE PROVIDED 6
The Companys Board of Directors recommends a vote FOR each of the proposals.
|
1. |
|
Approval of the original issuance and certain subsequent issuances of shares of the
Companys Common Stock under the terms of the Investment Agreement, dated May 5, 2011,
among Green Bankshares, Inc., GreenBank and North American Financial Holdings, Inc. |
FOR ¨ AGAINST ¨ ABSTAIN ¨
|
2. |
|
Approval of the amendment to the Companys Charter to increase the number of
authorized shares of the Companys Common Stock from twenty million (20,000,000) to three
hundred million (300,000,000). |
FOR ¨ AGAINST ¨ ABSTAIN ¨
2
|
3. |
|
Approval of the amendment to the Companys Charter to decrease the par value of the
Companys Common Stock from $2.00 per share to $0.01 per share. |
FOR ¨ AGAINST ¨ ABSTAIN ¨
|
4. |
|
Approval of the amendment to the Companys Charter to exempt North American Financial
Holdings, Inc. and its affiliates and associates from Section 9 of the Charter. |
FOR ¨ AGAINST ¨ ABSTAIN ¨
|
5. |
|
Approval of the amendment to the Companys Charter to remove Section 8(j) of the
Charter so that the Tennessee Control Share Acquisition Act will not apply to the Company
and its shareholders. |
FOR ¨ AGAINST ¨ ABSTAIN ¨
|
6. |
|
Approval of the merger of GreenBank with and into a subsidiary of North American
Financial Holdings, Inc. |
FOR ¨ AGAINST ¨ ABSTAIN ¨
|
7. |
|
Approval, on an advisory and non-binding basis, of the compensation to be received by
the Companys named executive officers in connection with the issuance of shares of Common
Stock to North American Financial Holdings, Inc. under the terms of the Investment
Agreement. |
FOR ¨ AGAINST ¨ ABSTAIN ¨
|
8. |
|
Approval of grant of discretionary authority to vote to adjourn the Special Meeting,
if necessary, in order to solicit additional proxies in the event that there are not
sufficient affirmative votes present at the Special Meeting to approve the proposals that
may be considered and acted upon at the Special Meeting. |
FOR ¨ AGAINST ¨ ABSTAIN ¨
|
|
|
|
Date: |
|
|
|
|
|
|
|
|
Signature: |
|
|
|
|
|
|
|
|
Signature: |
|
|
|
|
|
|
|
|
Title(s): |
|
|
|
|
|
Please mark, date and sign as your name appears hereon. If acting as executor, administrator,
trustee, guardian, etc. you should so indicate when signing. If the signor is a corporation, please
sign the full name by duly appointed officer. If a partnership, please sign in partnership name by
authorized person. If shares are held jointly, each shareholder named should sign.
3