greenbankshares10qaugust07.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended June 30, 2007
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
transition period from _____________________ to ________________
Commission
file number 0-14289
GREEN
BANKSHARES, INC.
(Exact
name of registrant as specified in its charter)
Tennessee
|
62-1222567
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
incorporation
or organization)
|
|
|
|
|
|
100
North Main Street, Greeneville,
Tennessee
|
37743-4992
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
|
|
|
|
Registrant's
telephone number, including area code: (423)
639-5111
GREENE
COUNTY BANCSHARES, INC.
(Former
name, if changed since last report)
Indicate
by check mark whether the registrant: (1) has filed all
reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such
filing requirements for the past 90 days. YES X
NO____
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer Accelerated
filerX Non-accelerated
filer
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.) YES___ NO X
As
of
August 8, 2007, the number of shares outstanding of the issuer’s common
stock was: 12,932,512.
PART
1 – FINANCIAL INFORMATION
ITEM
1. FINANCIAL
STATEMENTS
The
unaudited condensed consolidated financial statements of Green Bankshares,
Inc.
and its wholly owned subsidiaries are as follows:
Condensed
Consolidated Balance Sheets – June 30, 2007 and December 31, 2006.
Condensed
Consolidated Statements of Income and Comprehensive Income - For the three
and
six months ended June 30, 2007 and 2006.
Condensed
Consolidated Statement of Changes in Shareholders’ Equity – For the six months
ended June 30, 2007.
Condensed
Consolidated Statements of Cash Flows - For the six months ended June 30, 2007
and 2006.
Notes
to Condensed Consolidated
Financial Statements.
GREEN
BANKSHARES, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
June
30, 2007 and December 31, 2006
(Amounts
in thousands, except share and per share data)
|
|
(Unaudited)
June
30,
2007
|
|
|
December
31,
2006*
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from
banks
|
|
$ |
70,807
|
|
|
$ |
44,657
|
|
|
|
|
|
|
|
|
|
|
Federal
funds sold and other
|
|
|
1,007
|
|
|
|
25,983
|
|
|
|
|
|
|
|
|
|
|
Securities
available for
sale
|
|
|
242,882
|
|
|
|
37,740
|
|
|
|
|
|
|
|
|
|
|
Securities
held to maturity (with
a market value of $1,347 and $2,544)
|
|
|
1,358
|
|
|
|
2,545
|
|
|
|
|
|
|
|
|
|
|
FHLB,
Bankers Bank and other
stock, at cost
|
|
|
10,837
|
|
|
|
7,055
|
|
|
|
|
|
|
|
|
|
|
Loans
held for
sale
|
|
|
10,705
|
|
|
|
1,772
|
|
|
|
|
|
|
|
|
|
|
Loans,
net of unearned
interest
|
|
|
2,327,149
|
|
|
|
1,539,629
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan
losses
|
|
|
(32,935 |
) |
|
|
(22,302 |
) |
|
|
|
|
|
|
|
|
|
Premises
and equipment,
net
|
|
|
79,957
|
|
|
|
57,258
|
|
|
|
|
|
|
|
|
|
|
Goodwill
and other intangible assets
|
|
|
158,158
|
|
|
|
38,540
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
57,373
|
|
|
|
39,777
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,927,298
|
|
|
$ |
1,772,654
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$ |
2,069,749
|
|
|
$ |
1,332,505
|
|
|
|
|
|
|
|
|
|
|
Federal
funds purchased
|
|
|
41,862
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
|
83,598
|
|
|
|
22,165
|
|
|
|
|
|
|
|
|
|
|
FHLB
advances and notes
payable
|
|
|
287,983
|
|
|
|
177,571
|
|
|
|
|
|
|
|
|
|
|
Subordinated
debentures
|
|
|
88,662
|
|
|
|
13,403
|
|
|
|
|
|
|
|
|
|
|
Accrued
interest payable and
other liabilities
|
|
|
44,039
|
|
|
|
22,539
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,615,893
|
|
|
|
1,588,183
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
Common
stock: $2 par, 20,000,000
shares authorized,
12,927,407
and
9,810,867 shares outstanding
|
|
|
25,855
|
|
|
|
19,622
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in
capital
|
|
|
184,672
|
|
|
|
71,828
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
103,695
|
|
|
|
93,150
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive
loss
|
|
|
(2,817 |
) |
|
|
(129 |
) |
|
|
|
|
|
|
|
|
|
Total
shareholders’
equity
|
|
|
311,405
|
|
|
|
184,471
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
2,927,298
|
|
|
$ |
1,772,654
|
|
|
|
|
|
|
|
|
|
|
*
This condensed consolidated balance sheet has been derived from the
audited consolidated balance sheet, as filed in
the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2006.
|
|
See notes to condensed consolidated financial statements.
GREEN
BANKSHARES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three
and Six Months Ended June 30, 2007 and 2006
(Amounts
in thousands, except share and per share data)
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on
loans
|
|
$ |
39,681
|
|
|
$ |
27,781
|
|
|
$ |
71,596
|
|
|
$ |
53,881
|
|
Investment
securities
|
|
|
2,090
|
|
|
|
649
|
|
|
|
2,798
|
|
|
|
1,280
|
|
Federal
funds sold and
other
|
|
|
12
|
|
|
|
59
|
|
|
|
27
|
|
|
|
95
|
|
|
|
|
41,783
|
|
|
|
28,489
|
|
|
|
74,421
|
|
|
|
55,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
15,012
|
|
|
|
8,647
|
|
|
|
26,165
|
|
|
|
16,689
|
|
Borrowings
|
|
|
3,838
|
|
|
|
2,069
|
|
|
|
6,502
|
|
|
|
3,608
|
|
|
|
|
18,850
|
|
|
|
10,716
|
|
|
|
32,667
|
|
|
|
20,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
22,933
|
|
|
|
17,773
|
|
|
|
41,754
|
|
|
|
34,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
1,259
|
|
|
|
1,244
|
|
|
|
2,233
|
|
|
|
2,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision
for
loan losses
|
|
|
21,674
|
|
|
|
16,529
|
|
|
|
39,521
|
|
|
|
32,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges and
fees
|
|
|
5,395
|
|
|
|
4,001
|
|
|
|
9,684
|
|
|
|
7,232
|
|
Other
|
|
|
1,088
|
|
|
|
1,027
|
|
|
|
2,198
|
|
|
|
2,551
|
|
|
|
|
6,483
|
|
|
|
5,028
|
|
|
|
11,882
|
|
|
|
9,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee
benefits
|
|
|
8,472
|
|
|
|
6,266
|
|
|
|
15,930
|
|
|
|
12,657
|
|
Occupancy
and furniture and
equipment expense
|
|
|
2,626
|
|
|
|
2,050
|
|
|
|
4,722
|
|
|
|
4,109
|
|
Other
|
|
|
5,611
|
|
|
|
4,363
|
|
|
|
10,099
|
|
|
|
8,619
|
|
|
|
|
16,709
|
|
|
|
12,679
|
|
|
|
30,751
|
|
|
|
25,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
11,448
|
|
|
|
8,878
|
|
|
|
20,652
|
|
|
|
17,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
4,362
|
|
|
|
3,395
|
|
|
|
7,950
|
|
|
|
6,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
7,086
|
|
|
$ |
5,483
|
|
|
$ |
12,702
|
|
|
$ |
10,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$ |
4,357
|
|
|
$ |
5,498
|
|
|
$ |
10,014
|
|
|
$ |
10,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings
|
|
$ |
0.63
|
|
|
$ |
0.56
|
|
|
$ |
1.20
|
|
|
$ |
1.08
|
|
Diluted
earnings
|
|
|
0.62
|
|
|
|
0.55
|
|
|
|
1.19
|
|
|
|
1.07
|
|
Dividends
|
|
|
0.13
|
|
|
|
0.12
|
|
|
|
0.26
|
|
|
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,321,822
|
|
|
|
9,785,936
|
|
|
|
10,572,798
|
|
|
|
9,778,288
|
|
Diluted
|
|
|
11,395,518
|
|
|
|
9,897,987
|
|
|
|
10,647,638
|
|
|
|
9,891,817
|
|
See
notes
to condensed consolidated financial statements.
GREEN
BANKSHARES, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For
the Six Months Ended June 30, 2007
(Amounts
in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Compre-
|
|
|
Share-
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
hensive
|
|
|
holders’
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Equity
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
$ |
19,622
|
|
|
$ |
71,828
|
|
|
$ |
93,150
|
|
|
$ |
(129 |
) |
|
$ |
184,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of 3,102,616 shares in
acquisition
|
|
|
6,205
|
|
|
|
112,270
|
|
|
|
-
|
|
|
|
-
|
|
|
|
118,475
|
|
Exercise
of 14,574 shares under
stock
option plan
|
|
|
29
|
|
|
|
317
|
|
|
|
-
|
|
|
|
-
|
|
|
|
346
|
|
Common
stock exchanged for
exercised
stock options, 650
shares
|
|
|
(1 |
) |
|
|
(21 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
(22 |
) |
Stock-based
compensation
|
|
|
-
|
|
|
|
235
|
|
|
|
-
|
|
|
|
-
|
|
|
|
235
|
|
Tax
benefit from exercise of
Non-qualified
stock options
|
|
|
-
|
|
|
|
43
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43
|
|
Implementation
of FIN 48
|
|
|
-
|
|
|
|
-
|
|
|
|
800
|
|
|
|
-
|
|
|
|
800
|
|
Dividends
paid ($.26 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,957 |
) |
|
|
-
|
|
|
|
(2,957 |
) |
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
12,702
|
|
|
|
-
|
|
|
|
12,702
|
|
Change
in unrealized
gains
(losses),
net of reclassification
and
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,688 |
) |
|
|
(2,688 |
) |
Total
comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2007
|
|
$ |
25,855
|
|
|
$ |
184,672
|
|
|
$ |
103,695
|
|
|
$ |
(2,817 |
) |
|
$ |
311,405
|
|
See notes to condensed consolidated financial statements.
GREEN
BANKSHARES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
the Six Months Ended June 30, 2007 and 2006
(Amounts
in thousands, except share and per share data)
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
income
|
|
$ |
12,702
|
|
|
$ |
10,579
|
|
Adjustments
to reconcile net
income to net cash provided by
operating
activities
|
|
|
|
|
|
|
|
|
Provision
for loan
losses
|
|
|
2,233
|
|
|
|
2,308
|
|
Depreciation
and
amortization
|
|
|
2,416
|
|
|
|
2,077
|
|
Security
amortization and
accretion, net
|
|
|
(77 |
) |
|
|
(9 |
) |
Loss
on sale of securities
|
|
|
23
|
|
|
|
8
|
|
FHLB
stock
dividends
|
|
|
-
|
|
|
|
(165 |
) |
Net
gain on sale of mortgage
loans
|
|
|
(535 |
) |
|
|
(391 |
) |
Originations
of mortgage loans
held for sale
|
|
|
(33,779 |
) |
|
|
(29,924 |
) |
Proceeds
from sales of mortgage
loans
|
|
|
34,022
|
|
|
|
30,947
|
|
Increase
in cash surrender value of life insurance
|
|
|
(413 |
) |
|
|
(391 |
) |
Net
losses
[gains?]from sales of fixed assets
|
|
|
78
|
|
|
|
(2 |
) |
Stock
compensation expense
|
|
|
235
|
|
|
|
185
|
|
Net
gain on other real estate and
repossessed assets
|
|
|
(178 |
) |
|
|
(148 |
) |
Deferred
tax benefit
|
|
|
(2,996 |
) |
|
|
(874 |
) |
Net
changes:
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
(642 |
) |
|
|
(492 |
) |
Accrued
interest payable and
other liabilities
|
|
|
18,126
|
|
|
|
(2,724 |
) |
Net
cash provided from operating
activities
|
|
|
31,215
|
|
|
|
10,984
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase
of securities available for sale
|
|
|
(23,682 |
) |
|
|
(5,948 |
) |
Proceeds
from sale of securities available for sale
|
|
|
1,262
|
|
|
|
985
|
|
Proceeds
from maturities of securities held for sale
|
|
|
13,106
|
|
|
|
9,386
|
|
Proceeds
from sale of securities held to maturity
|
|
|
496
|
|
|
|
-
|
|
Proceeds
from maturities of securities held to maturity
|
|
|
690
|
|
|
|
640
|
|
Purchase
of life insurance
|
|
|
-
|
|
|
|
(41 |
) |
Purchase
of FHLB stock
|
|
|
(819 |
) |
|
|
-
|
|
Net
change in loans
|
|
|
(152,845 |
) |
|
|
(62,387 |
) |
Acquisition,
net of cash received
|
|
|
(24,548 |
) |
|
|
-
|
|
Proceeds
from sale of other real estate
|
|
|
2,622
|
|
|
|
2,571
|
|
Improvements
to other real estate
|
|
|
-
|
|
|
|
(47 |
) |
Proceeds
from sale of fixed assets
|
|
|
13
|
|
|
|
23
|
|
Premises
and equipment expenditures
|
|
|
(6,008 |
) |
|
|
(4,308 |
) |
Net
cash used in investing
activities
|
|
|
(189,713 |
) |
|
|
(59,126 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Net
change in deposits
|
|
|
38,157
|
|
|
|
(12,273 |
) |
Net
change in federal funds purchased and repurchase
agreements
|
|
|
(11,994 |
) |
|
|
33,635
|
|
Proceeds
from FHLB advances and notes payable
|
|
|
114,200
|
|
|
|
195,900
|
|
Proceeds
from subordinated debentures
|
|
|
57,732
|
|
|
|
-
|
|
Repayments
of FHLB advances and notes payable
|
|
|
(35,790 |
) |
|
|
(177,765 |
) |
Dividends
paid
|
|
|
(2,957 |
) |
|
|
(2,348 |
) |
Proceeds
from issuance of common stock
|
|
|
324
|
|
|
|
444
|
|
Net
cash from financing
activities
|
|
|
159,672
|
|
|
|
37,593
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
1,174
|
|
|
|
(10,549 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
70,640
|
|
|
|
74,523
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$ |
71,814
|
|
|
$ |
63,974
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures – cash and noncash
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
28,866
|
|
|
$ |
20,136
|
|
Income
taxes
paid
|
|
|
9,499
|
|
|
|
7,162
|
|
Loans
converted to other real
estate
|
|
|
1,785
|
|
|
|
3,121
|
|
Unrealized
gain (loss) on available for sale securities, net of tax
|
|
|
2,688
|
|
|
|
8
|
|
See
notes to condensed consolidated financial statements.
GREEN
BANKSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2007
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 and six months ended June 30,
2007 are not necessarily indicative of the results that may be expected for
the
year ending December 31, 2007. For further information, refer to the
consolidated financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2006. Certain amounts
from prior period financial statements have been reclassified to conform to
the
current year’s presentation.
NOTE
2 – LOANS
Loans
at
June 30, 2007 and December 31, 2006 were as follows:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
344,470
|
|
|
$ |
258,998
|
|
Commercial
real estate
|
|
|
1,486,967
|
|
|
|
921,190
|
|
Residential
real estate
|
|
|
405,494
|
|
|
|
281,629
|
|
Consumer
|
|
|
100,441
|
|
|
|
87,111
|
|
Other
|
|
|
2,818
|
|
|
|
2,203
|
|
Unearned
interest
|
|
|
(13,041 |
) |
|
|
(11,502 |
) |
Loans,
net of unearned interest
|
|
$ |
2,327,149
|
|
|
$ |
1,539,629
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$ |
(32,935 |
) |
|
$ |
(22,302 |
) |
|
|
|
|
|
|
|
|
|
(Continued)
GREEN
BANKSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2007
Unaudited
(Amounts
in thousands, except share and per share data)
NOTE
2 – LOANS (Continued)
Transactions
in the allowance for loan
losses and certain information about nonaccrual loans and loans 90 days past
due
but still accruing interest for the six months ended June 30, 2007 and twelve
months ended December 31, 2006 were as follows:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
22,302
|
|
|
$ |
19,739
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
Reserve
of acquired Bank
|
|
|
9,022
|
|
|
|
-
|
|
Provision
for loan losses
|
|
|
2,233
|
|
|
|
5,507
|
|
Loans
charged off
|
|
|
(1,412 |
) |
|
|
(4,357 |
) |
Recoveries
of loans charged off
|
|
|
790
|
|
|
|
1,413
|
|
Ending
balance
|
|
$ |
32,935
|
|
|
$ |
22,302
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Loans
past due 90 days still on accrual
|
|
$ |
443
|
|
|
$ |
28
|
|
Nonaccrual
loans
|
|
|
4,440
|
|
|
|
3,479
|
|
Total
|
|
$ |
4,883
|
|
|
$ |
3,507
|
|
|
|
|
|
|
|
|
|
|
GREEN
BANKSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2007
Unaudited
(Amounts
in thousands, except share and per share data)
NOTE
3 – EARNINGS PER SHARE OF COMMON STOCK
Basic
earnings per share (EPS) of common stock is computed by dividing net income
by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share of common stock is computed by dividing net income
by
the weighted average number of common shares and potential common shares
outstanding during the period. Stock options are regarded as potential common
shares. Potential common shares are computed using the treasury stock method.
For the three and six months ended June 30, 2007, 73,626 options are excluded
from the effect of dilutive securities because they are anti-dilutive; 30,485
options are similarly excluded from the effect of dilutive securities for the
three and six months ended June 30, 2006.
The
following is a reconciliation of the numerators and denominators used in the
basic and diluted earnings per share computations for the three and six months
ended June 30, 2007 and 2006:
|
|
Three Months Ended June 30,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Income
|
|
|
Shares
|
|
|
Income
|
|
|
Shares
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common shareholders
|
|
$ |
7,086
|
|
|
|
11,321,822
|
|
|
$ |
5,483
|
|
|
|
9,785,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options outstanding
|
|
|
-
|
|
|
|
73,696
|
|
|
|
-
|
|
|
|
112,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common shareholders plus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assumed
conversions
|
|
$ |
7,086
|
|
|
|
11,395,518
|
|
|
$ |
5,483
|
|
|
|
9,897,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Income
|
|
|
Shares
|
|
|
Income
|
|
|
Shares
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common shareholders
|
|
$ |
12,702
|
|
|
|
10,572,798
|
|
|
$ |
10,579
|
|
|
|
9,778,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options outstanding
|
|
|
-
|
|
|
|
74,840
|
|
|
|
-
|
|
|
|
113,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common shareholders plus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assumed
conversions
|
|
$ |
12,702
|
|
|
|
10,647,638
|
|
|
$ |
10,579
|
|
|
|
9,891,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
GREEN
BANKSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2007
Unaudited
(Amounts
in thousands, except share and per share data)
NOTE
4 – SEGMENT INFORMATION
The
Company’s 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, 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 noninterest income.
Income taxes are allocated based on income before income taxes, and indirect
expenses (includes management fees) are allocated based on time spent for each
segment. Transactions among segments are made at fair value. Information
reported internally for performance assessment follows.
Three
months ended June 30, 2007
|
|
Bank
|
|
|
Other
Segments
|
|
|
Holding
Company
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense)
|
|
$ |
22,002
|
|
|
$ |
1,649
|
|
|
$ |
(718 |
) |
|
$ |
-
|
|
|
$ |
22,933
|
|
Provision
for loan losses
|
|
|
905
|
|
|
|
354
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,259
|
|
Noninterest
income
|
|
|
6,075
|
|
|
|
674
|
|
|
|
27
|
|
|
|
(293 |
) |
|
|
6,483
|
|
Noninterest
expense
|
|
|
15,496
|
|
|
|
1,282
|
|
|
|
224
|
|
|
|
(293 |
) |
|
|
16,709
|
|
Income
tax expense (benefit)
|
|
|
4,442
|
|
|
|
270
|
|
|
|
(350 |
) |
|
|
-
|
|
|
|
4,362
|
|
Segment
profit
|
|
$ |
7,234
|
|
|
$ |
417
|
|
|
$ |
(565 |
) |
|
$ |
-
|
|
|
$ |
7,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets at June 30, 2007
|
|
$ |
2,871,987
|
|
|
$ |
39,998
|
|
|
$ |
15,313
|
|
|
$ |
-
|
|
|
$ |
2,927,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30, 2006
|
|
Bank
|
|
|
Other
Segments
|
|
|
Holding
Company
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense)
|
|
$ |
16,626
|
|
|
$ |
1,423
|
|
|
$ |
(276 |
) |
|
$ |
-
|
|
|
$ |
17,773
|
|
Provision
for loan losses
|
|
|
999
|
|
|
|
245
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,244
|
|
Noninterest
income
|
|
|
4,583
|
|
|
|
629
|
|
|
|
45
|
|
|
|
(229 |
) |
|
|
5,028
|
|
Noninterest
expense
|
|
|
11,514
|
|
|
|
1,199
|
|
|
|
195
|
|
|
|
(229 |
) |
|
|
12,679
|
|
Income
tax expense (benefit)
|
|
|
3,342
|
|
|
|
238
|
|
|
|
(185 |
) |
|
|
-
|
|
|
|
3,395
|
|
Segment
profit
|
|
$ |
5,354
|
|
|
$ |
370
|
|
|
$ |
(241 |
) |
|
$ |
-
|
|
|
$ |
5,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets at June 30, 2006
|
|
$ |
1,629,798
|
|
|
$ |
31,544
|
|
|
$ |
4,288
|
|
|
$ |
-
|
|
|
$ |
1,665,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30, 2007
|
|
Bank
|
|
|
Other
Segments
|
|
|
Holding
Company
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense)
|
|
$ |
39,534
|
|
|
$ |
3,206
|
|
|
$ |
(986 |
) |
|
$ |
-
|
|
|
$ |
41,754
|
|
Provision
for loan losses
|
|
|
1,519
|
|
|
|
714
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,233
|
|
Noninterest
income
|
|
|
11,174
|
|
|
|
1,262
|
|
|
|
38
|
|
|
|
(592 |
) |
|
|
11,882
|
|
Noninterest
expense
|
|
|
28,362
|
|
|
|
2,512
|
|
|
|
469
|
|
|
|
(592 |
) |
|
|
30,751
|
|
Income
tax expense (benefit)
|
|
|
8,005
|
|
|
|
487
|
|
|
|
(542 |
) |
|
|
-
|
|
|
|
7,950
|
|
Segment
profit
|
|
$ |
12,822
|
|
|
$ |
755
|
|
|
$ |
(875 |
) |
|
$ |
-
|
|
|
$ |
12,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30, 2006
|
|
Bank
|
|
|
Other
Segments
|
|
|
Holding
Company
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense)
|
|
$ |
32,642
|
|
|
$ |
2,852
|
|
|
$ |
(535 |
) |
|
$ |
-
|
|
|
$ |
34,959
|
|
Provision
for loan losses
|
|
|
1,841
|
|
|
|
467
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,308
|
|
Noninterest
income
|
|
|
8,913
|
|
|
|
1,078
|
|
|
|
242
|
|
|
|
(450 |
) |
|
|
9,783
|
|
Noninterest
expense
|
|
|
23,213
|
|
|
|
2,310
|
|
|
|
312
|
|
|
|
(450 |
) |
|
|
25,385
|
|
Income
tax expense (benefit)
|
|
|
6,334
|
|
|
|
452
|
|
|
|
(316 |
) |
|
|
-
|
|
|
|
6,470
|
|
Segment
profit
|
|
$ |
10,167
|
|
|
$ |
701
|
|
|
$ |
(289 |
) |
|
$ |
-
|
|
|
$ |
10,579
|
|
(Continued)
GREEN
BANKSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2007
Unaudited
(Amounts
in thousands, except share and per share data)
NOTE
4 – SEGMENT INFORMATION (Continued)
Asset
Quality Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of and for the period ended June 30, 2007
|
|
Bank
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans as percentage of total loans, net of unearned income
|
|
|
0.19 |
% |
|
|
1.47 |
% |
|
|
0.21 |
% |
Nonperforming
assets as a percentage of total assets
|
|
|
0.17 |
% |
|
|
1.62 |
% |
|
|
0.20 |
% |
Allowance
for loan losses as a percentage of total loans, net of unearned
income
|
|
|
1.30 |
% |
|
|
8.02 |
% |
|
|
1.42 |
% |
Allowance
for loan losses as a percentage of nonperforming loans
|
|
|
690.29 |
% |
|
|
545.98 |
% |
|
|
674.48 |
% |
YTD
net charge-offs to average total loans, net of unearned
income
|
|
|
0.01 |
% |
|
|
1.42 |
% |
|
|
0.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of and for the period ended June 30, 2006
|
|
Bank
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans as percentage of total loans, net of unearned income
|
|
|
0.31 |
% |
|
|
1.32 |
% |
|
|
0.34 |
% |
Nonperforming
assets as a percentage of total assets
|
|
|
0.43 |
% |
|
|
1.95 |
% |
|
|
0.47 |
% |
Allowance
for loan losses as a percentage of total loans, net of unearned
income
|
|
|
1.28 |
% |
|
|
7.90 |
% |
|
|
1.45 |
% |
Allowance
for loan losses as a percentage of nonperforming loans
|
|
|
410.68 |
% |
|
|
596.70 |
% |
|
|
426.84 |
% |
YTD
net charge-offs to average total loans, net of unearned
income
|
|
|
0.06 |
% |
|
|
1.26 |
% |
|
|
0.09 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of and for the year ended December 31, 2006
|
|
Bank
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans as percentage of total loans, net of unearned income
|
|
|
0.19 |
% |
|
|
1.84 |
% |
|
|
0.23 |
% |
Nonperforming
assets as a percentage of total assets
|
|
|
0.24 |
% |
|
|
2.53 |
% |
|
|
0.29 |
% |
Allowance
for loan losses as a percentage of total loans, net of unearned
income
|
|
|
1.28 |
% |
|
|
7.94 |
% |
|
|
1.45 |
% |
Allowance
for loan losses as a percentage of nonperforming loans
|
|
|
680.25 |
% |
|
|
431.95 |
% |
|
|
635.93 |
% |
Net
charge-offs to average total loans, net of unearned income
|
|
|
0.14 |
% |
|
|
2.82 |
% |
|
|
0.20 |
% |
Net
charge-offs
|
Bank
|
Other
|
Total
|
|
|
|
|
Actual
for the six month period ending June 30, 2007
|
$ 124
|
$ 498
|
$ 622
|
Actual
for the six month period ending June 30, 2006
|
$ 819
|
$ 394
|
$ 1,213
|
Actual for
the year ended December 31, 2006
|
$ 2,041
|
$ 903
|
$ 2,944
|
NOTE
5 – REVOLVING CREDIT AGREEMENT
The
Company is a party to a revolving credit agreement with SunTrust Bank pursuant
to which SunTrust agreed to loan the Company up to $15,000. This
agreement currently is scheduled to expire on August 31, 2007. The
fee for maintaining this credit agreement is 0.15% per annum on the unused
portion of the commitment.
(Continued)
GREEN
BANKSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2007
Unaudited
(Amounts
in thousands, except share and per share data)
NOTE
6 – INCOME TAXES
Effective
January 1, 2007, the Company adopted Financial Accounting Standards Board
(“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
(“FIN 48”), an interpretation of FASB statement No. 109 (“the
Interpretation”). This Interpretation provides guidance on financial
statement recognition and measurement of tax positions taken, or expected to
be
taken, in tax returns. As a result of the implementation of FIN 48, the
Company recognized approximately an $800 decrease in the liability
for unrecognized tax benefits which was accounted for as an
increase to the January 1, 2007, balance of retained
earnings.
The
total
amount of unrecognized tax benefits at the date of adoption of FIN 48 was
approximately $475. The total amount of unrecognized tax
benefits that, if recognized, would affect the effective tax rate at the
date of adoption of FIN 48 was approximately $475. Of this total, the
entire $475, net of the federal benefit on state issues, would favorably affect
the effective income tax rate in a future quarter of 2007. The Company
recognizes accrued interest and penalties related to uncertain tax positions
in
tax expense. At the date of adoption of FIN 48, the Company had recognized
approximately $150 for the payment of interest and penalties.
In
the
future, the amount of unrecognized tax benefits may increase or
decrease for various reasons including adding amounts for current tax
year positions, expiration of open income tax returns due to the statutes of
limitations, changes in management’s judgment about the level of uncertainty,
status of examinations, litigation and legislative activity and the addition
or
elimination of uncertain tax positions. The Company is not aware of
any uncertain tax positions, other than those disclosed, for which it is
reasonably possible that the total amounts of unrecognized tax benefits will
significantly increase or decrease within 12 months of the reporting
date.
The
Company’s Federal returns are open and subject to examination for the years of
2003 and 2005. The Company's State returns are open and subject to
examination for the years of 2003, 2004, and 2005.
NOTE
7 – BUSINESS COMBINATION
On
May
18, 2007, the Company merged with and thereby acquired Civitas Bank Group,
Inc.
(“CVBG”), parent of Cumberland Bank, with the Company being the surviving
entity. CVBG headquartered in Franklin, Tennessee, operated 12
full-service branches in the middle Tennessee area. The primary
reason for the acquisition of CVBG and the premium paid, was
to provide accelerated entry for the Company in the Middle Tennessee
area in some of the fastest growing areas in the Nashville MSA. Operating
results of CVBG are included in the consolidated financial statements since
the
date of the acquisition.
The
acquisition was accounted for under the purchase method of accounting, and
accordingly, the purchase price has been allocated to the tangible and
identified intangible assets purchased and the liabilities assumed based upon
preliminary estimated fair values at the date of acquisition. The aggregate purchase
price
was $164,268, including $45,793 in cash, $118,475 in the Company’s common
stock. The allocation of the purchase price is subject to
changes in the estimated fair values of assets acquired and liabilities
assumed. Identified intangible assets and purchase accounting fair
value adjustments are being amortized under various methods over the expected
lives of the corresponding assets and liabilities. Goodwill will not
be amortized and is not deductible for tax purposes, but will be reviewed for
impairment on an annual basis. Currently, identified intangible
assets from the acquisition subject to amortization are $8,740 and total
goodwill from the acquisition is $111,591.
(Continued)
GREEN
BANKSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2007
Unaudited
(Amounts
in thousands, except share and per share data)
NOTE
7 – BUSINESS COMBINATION (Continued)
The
following table summarizes the fair value of assets acquired and liabilities
assumed at the date of acquisition.
Cash
and due from banks
|
|
$ |
21,245
|
|
Securities
|
|
|
200,108
|
|
FHLB
stock
|
|
|
2,863
|
|
Bankers
Bank stock
|
|
|
100
|
|
Loans
held for sale
|
|
|
8,642
|
|
Loans,
net of unearned interest
|
|
|
636,748
|
|
Allowance
for loan losses
|
|
|
(9,022 |
) |
Premises
and equipment
|
|
|
18,486
|
|
Goodwill
|
|
|
111,591
|
|
Core
deposit intangible
|
|
|
8,740
|
|
Other
assets
|
|
|
12,089
|
|
Total
assets acquired
|
|
|
1,011,590
|
|
Deposits
|
|
|
(699,089 |
) |
Federal
funds purchased
|
|
|
(52,500 |
) |
Repurchase
agreements
|
|
|
(42,790 |
) |
FHLB
advances
|
|
|
(32,000 |
) |
Subordinated debentures
|
|
|
(17,527 |
) |
Other
liabilities
|
|
|
(3,416 |
) |
Total
liabilities assumed
|
|
|
(847,322 |
) |
Net
assets acquired
|
|
$ |
164,268
|
|
|
|
|
|
|
The Company
also incurred $698 in direct cost that were capitalized into goodwill associated
with the merger for legal, advisory and conversion cost.
The
following table presents pro forma information as if the acquisition had
occurred at the beginning of 2007 and 2006 for the six month periods ending
June
30. The pro forma information includes adjustments for interest income on loans
and securities acquired, amortization of intangibles arising from the
acquisition, depreciation expense on property acquired, interest expense on
deposits assumed, and the related income tax effects. The pro forma
financial information is not necessarily indicative of the results of operations
as they would have been had the acquisition been effected on the assumed
dates.
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
54,348
|
|
|
$ |
46,415
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
16,694
|
|
|
$ |
14,593
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
1.26
|
|
|
$ |
1.13
|
|
Diluted
earnings per share
|
|
$ |
1.25
|
|
|
$ |
1.12
|
|
(Continued)
GREEN
BANKSHARES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2007
Unaudited
(Amounts
in thousands, except share and per share data)
NOTE
8 – BORROWINGS
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 (7.01% at June 30, 2007). 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 acquired two Trusts in the CVBG acquisition, Civitas
Statutory Trust I (“CS Trust I”) and Cumberland Capital Statutory Trust II (“CCS
Trust II”).
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 (6.90% at June 30, 2007). 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 (8.94% at June 30, 2007). The Company
may redeem the subordinated debentures, in whole or in part, beginning July
2007
at a price of 100% of face value. The subordinated debentures must be
redeemed no later than July 2031.
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 second largest bank
holding company headquartered in Tennessee based on asset size and the largest
NASDAQ Listed Bank Holding Company headquartered in Tennessee. The
Bank currently maintains a main office in Greeneville, Tennessee and 62
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”), a 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 Part I, Item 2 of this Quarterly Report on Form 10-Q are shown
in
thousands, except share and per share amounts and percentages.
The
following discussion and analysis provides information that management believes
is relevant to an assessment and understanding of the Company’s 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 Form 10-Q and (ii) the financial statements and the notes
thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2006 (the “2006 10-K”). Except for specific historical information,
many of the matters discussed in this Form 10-Q 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
similarterminology
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 2006 10-K in Part I, Item 1A thereof, which is
incorporated herein by this reference, as well as other factors discussed
throughout this document, including, without limitation, in Part II, Item 1A,
the factors described under “Critical Accounting Policies and Estimates” on page
16 of this Quarterly Report on Form 10-Q or, from time to time, in the Company’s
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 document’s date. All
forward-looking statements included in this Quarterly Report on Form 10-Q are
expressly qualified in their entirety by the cautionary statements in this
section and to the more detailed risk factors included in the Company’s 2006
10-K. 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 Quarterly Report on Form 10-Q, 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.
General
At
the Company’s
Annual Meeting of Shareholders held on May 16, 2007, the shareholders approved
changing the name of the Company from Greene County Bancshares to Green
Bankshares, Inc., to complement the name of the Company’s principal banking
subsidiary, GreenBank which was introduced in January 2007. GreenBank has
become the name for the Company's banks system-wide. Previously, the
banks operated under 18 distinct names, although under one common
Charter. Management believed that a corresponding change in the
Company's corporate identity, to Green Bankshares, Inc., would further
strengthen its bank brand and the fundamental conveniences offered by its
network of branch offices. In connection with the name change, Green
Bankshares also changed its NASDAQ ticker symbol to
GRNB.
At
the
Annual Meeting, the shareholders also approved the Company’s acquisition of
Civitas Bank Group, Inc. (“CVBG”), headquartered in Franklin, Tennessee and the
holding company for Cumberland Bank. That acquisition was completed
two days later on May 18, 2007,
Growth
and Business Strategy
The
Company expects that, over the intermediate term, its growth from mergers and
acquisitions, including acquisitions of both entire financial institutions
and
selected branches of financial institutions, will continue. De novo branching
is
also expected to be a method of growth, particularly in high-growth and other
demographically-desirable markets.
The
Company’s strategic plan projects
geographic expansion within a 300-mile radius of its headquarters in Greene
County, Tennessee. This could result in the Company expanding westward and
eastward up to and including Nashville, Tennessee and Roanoke, Virginia,
respectively, east/southeast up to and including the Piedmont area of North
Carolina and western North Carolina, southward to northern Georgia and northward
into eastern and central Kentucky. In particular, the Company believes the
markets in and around Knoxville, Nashville and Chattanooga, Tennessee are highly
desirable areas with respect to expansion and growth plans.
The
Bank
had historically operated under a single bank charter while conducting business
under 18 bank brands. On January 23, 2007 the Bank announced that it
was changing all brand names to GreenBank throughout all the communities it
serves to better enhance recognition and customer convenience. The GreenBank
name became effective on March 31, 2007. 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 on Saturday. During the first quarter
of
2007, the Bank initiated Sunday banking hours from 1:00 pm to 4:00 pm. The
Bank
also offers free online banking and in early 2005 established its High
Performance Checking Program which it has generated a significant number of
new
core transaction accounts.
In
addition to the Company’s business model, which is summarized in the paragraphs
above, the Company is continuously investigating and analyzing other lines
and
areas of business. These include, but are not limited to, various
types of insurance and real estate activities. 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
The
Company's results of operations for the three and six months ended June 30,
2007, compared to the same period in 2006, reflected an increase in net interest
income due primarily to organic loan growth, higher interest rates in 2007
resulting from the 2006 actions of the Federal Open Market Committee (“FOMC”)
and the Company’s continued expansion initiatives, including the CVBG
acquisition. This increase in net interest income was offset, in
part, by increases in noninterest expense from the Company’s expansion
initiatives.
Reflecting
improved credit quality offset in part by strong loan growth, the Company’s
provision for loan losses decreased for the six months ended June 30, 2007
by
$75 compared to the same period in 2006. The provision for loan loss for the
three months ended June 30, 2007 increased by $15 from the same period in 2006,
reflecting strong loan growth offset in part by improved credit
quality.
At
June 30, 2007, the Company had total
consolidated assets of $2,927,298, total consolidated deposits of $2,069,749,
total consolidated loans, net of unearned interest, of $2,327,149 and total
consolidated shareholders' equity of $311,405. The Company's
annualized return on average shareholders' equity for the three and six months
ended June 30, 2007 was 11.25% and 11.53%, respectively, and its annualized
return on average total assets was 1.21% and 1.23%, respectively. The primary
reason for the Company’s increase in total assets, total consolidated deposits,
total consolidated loans, net of unearned interest and total shareholders'
equity was the completion of the CVBG acquisition in the second quarter of
2007. The Company expects the Balance Sheet to continue to grow over
the remainder of 2007, although at a lesser rate, as a result of its expansion
efforts and branch expansion in the Knoxville area, Loudon County, City of
Kingsport and City of Johnson City markets.
Critical
Accounting Policies and Estimates
The
Company’s 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 Company’s accounting policies and estimates it uses to
prepare the consolidated financial statements. In general,
management’s 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. Based on management’s calculation, an allowance of $32,935,
or 1.42%, of total loans, net of unearned interest, was an adequate estimate
of
losses inherent in the loan portfolio as of June 30, 2007. This
estimate resulted in a provision for loan losses in the income statement of
$1,259 and $2,233, respectively, for the three and six months ended June 30,
2007. If the economic 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
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. 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.
The
Company and its subsidiaries are parties to various legal and regulatory
proceedings and claims incidental to its business. In the opinion of management,
however, based upon information currently available, the ultimate liability
with
respect to these proceedings and claims will not materially affect the Company’s
consolidated results of operations or financial position. The Company reviews
outstanding claims and proceedings internally and with external counsel as
necessary to assess probability of loss and for the ability to estimate loss.
These assessments are re-evaluated each quarter, or as new information becomes
available, to determine whether a reserve should be established or if any
existing reserve should be adjusted. The actual cost of resolving a claim or
proceeding ultimately may be substantially different than the amount of the
recorded reserve. In addition, because it is not permissible under GAAP to
establish a litigation reserve until the loss is both probable and estimable,
in
some cases there may be insufficient time to establish a reserve prior to the
actual incurrence of the loss (upon verdict and judgment at trial, for example,
or in the case of a quickly negotiated settlement).
Changes
in Results of Operations
Net
Income. Net income for the three months ended June 30, 2007
was $7,086, as compared to $5,483 for the same period in 2006. This
increase of $1,603, or 29%, resulted primarily from a $5,160, or 29%, increase
in net interest income reflecting higher earning asset volume arising primarily
from the CVBG acquisition and organic growth in the loan
portfolio. Offsetting this increase was a $4,030, or 32%, increase in total
noninterest expense from $12,679 for the three months ended June 30, 2006 to
$16,709 for the same period of 2007. This increase is primarily attributable
to
the increased normal operating costs associated with the CVBG acquisition along
with incurring approximately $450 of merger related assimilation
costs.
Net
income for the six months ended June 30, 2007 was $12,702 compared to $10,579
for the same period in 2006. The increase of $2,123, or 20%, reflects
substantially the same trends that existed during the quarter ended June 30,
2007.
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 which affect net interest income are changes
in
volume and rates on interest-earning assets and interest-bearing
liabilities, which are affected in part by management’s responses to changes in
interest rates through asset/liability management. During the three months
ended
June 30, 2007, net interest income was $22,933, as compared to $17,773 for
the
same period in 2006, representing an increase of 29%.
The
Company’s average balance for interest-earning assets increased 42% from
$1,486,031 for the three months ended June 30, 2006 to $2,117,358 for the three
months ended June 30, 2007. The Company experienced a 38% growth in average
loan
balances from $1,426,984 for the three months ended June 30, 2006 to $1,962,127
for the three months ended June 30, 2007 and a 182% growth in average investment
securities balances from $54,571for the three months ended June 30, 2006 to
$154,110 for the three months ended June 30, 2007. The growth in
loans and investment securities can be attributed to the CVBG acquisition that
took place during the second quarter of 2007 and the continued organic loan
growth of the Company. Please refer to Note 7 of the “Notes to
Condensed Consolidated Financial Statements” for more information on
interest-earning assets acquired in the CVBG acquisition.
The
Company’s average balance for interest-bearing liabilities increased 46% from
$1,288,822 for the three months ended June 30, 2006 to $1,878,737 for the three
months ended June 30, 2007. The Company experienced a 39% growth in average
interest-bearing deposits from $1,130,840 for the three months ended June 30,
2006 to $1,567,701 for the three months ended June 30, 2007. The Company’s CVBG
acquisition in the second quarter is the primary reason for the growth in
deposits. Please refer to Note 7 of the “Notes to Condensed Consolidated
Financial Statements” for more information on interest-bearing liabilities
acquired in the CVBG acquisition.
The
Company’s yield on loans (the largest component of interest-earning assets)
increased by 30 basis points from the second quarter of 2006 to the second
quarter of 2007. The increase was primarily a result of the escalating market
rates driven by changes enacted by the FOMC during the first and second quarters
of 2006:
FOMC
Meeting
|
|
Beginning
|
|
|
|
|
|
Ending
|
|
Date
|
|
Rate
|
|
|
Increase
|
|
|
Rate
|
|
December
13, 2005
|
|
|
4.00 |
% |
|
|
0.25 |
% |
|
|
4.25 |
% |
January
31, 2006
|
|
|
4.25 |
% |
|
|
0.25 |
% |
|
|
4.50 |
% |
March
28, 2006
|
|
|
4.50 |
% |
|
|
0.25 |
% |
|
|
4.75 |
% |
May
10, 2006
|
|
|
4.75 |
% |
|
|
0.25 |
% |
|
|
5.00 |
% |
June
29, 2006
|
|
|
5.00 |
% |
|
|
0.25 |
% |
|
|
5.25 |
% |
August
8, 2006
|
|
|
5.25 |
% |
|
|
0.00 |
% |
|
|
5.25 |
% |
September
20, 2006
|
|
|
5.25 |
% |
|
|
0.00 |
% |
|
|
5.25 |
% |
October
25, 2006
|
|
|
5.25 |
% |
|
|
0.00 |
% |
|
|
5.25 |
% |
December
12, 2006
|
|
|
5.25 |
% |
|
|
0.00 |
% |
|
|
5.25 |
% |
January
31, 2007
|
|
|
5.25 |
% |
|
|
0.00 |
% |
|
|
5.25 |
% |
March
21, 2007
|
|
|
5.25 |
% |
|
|
0.00 |
% |
|
|
5.25 |
% |
May 9,
2007
|
|
|
5.25 |
% |
|
|
0.00 |
% |
|
|
5.25 |
% |
June
28, 2007
|
|
|
5.25 |
% |
|
|
0.00 |
% |
|
|
5.25 |
% |
The
Company’s cost of interest-bearing liabilities increased by 68 basis points from
the second quarter ended June 30, 2006 to the second quarter ended June 30,
2007. The cost of raising deposits and other borrowed funds were influenced
by
both local market conditions as well as FOMC actions as well as the higher
cost
interest-bearing liabilities assumed in the CVBG
acquisition. Management believes that these costs were prudently
managed during this volatile interest rate cycle.
For
the
six months ended June 30, 2007, net interest income increased by $6,795, or
19%,
to $41,754 from $34,959 for the same period in 2006, and the same trends
outlined above with respect to the three months ended June 30, 2007 were
observed.
The
following table sets forth certain information relating to the Company’s
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.
|
|
Three
Months Ended
|
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(1)
|
|
$ |
1,962,127
|
|
|
$ |
39,681
|
|
|
|
8.11 |
% |
|
$ |
1,426,984
|
|
|
$ |
27,781
|
|
|
|
7.81 |
% |
Investment
securities
|
|
|
154,110
|
|
|
|
2,090
|
|
|
|
5.44 |
% |
|
|
54,571
|
|
|
|
649
|
|
|
|
4.77 |
% |
Other
short-term investments
|
|
|
1,121
|
|
|
|
12
|
|
|
|
4.29 |
% |
|
|
4,476
|
|
|
|
59
|
|
|
|
5.29 |
% |
Fully
taxable equivalent adjustment (2)
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
Total
interest-earning assets
|
|
$ |
2,117,358
|
|
|
$ |
41,897
|
|
|
|
7.94 |
% |
|
$ |
1,486,031
|
|
|
$ |
28,527
|
|
|
|
7.70 |
% |
Noninterest
earning assets
|
|
|
230,119
|
|
|
|
|
|
|
|
|
|
|
|
146,520
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,347,477
|
|
|
|
|
|
|
|
|
|
|
$ |
1,632,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
checking, savings and money
market
|
|
$ |
693,235
|
|
|
$ |
4,865
|
|
|
|
2.81 |
% |
|
$ |
505,383
|
|
|
$ |
2,680
|
|
|
|
2.13 |
% |
Time
deposits
|
|
|
874,466
|
|
|
|
10,147
|
|
|
|
4.65 |
% |
|
|
625,457
|
|
|
|
5,967
|
|
|
|
3.83 |
% |
Total
interest-bearing deposits
|
|
$ |
1,567,701
|
|
|
$ |
15,012
|
|
|
|
3.84 |
% |
|
$ |
1,130,840
|
|
|
$ |
8,647
|
|
|
|
3.07 |
% |
Securities
sold under repurchase
agreements
and short-term borrowings
|
|
|
67,307
|
|
|
|
768
|
|
|
|
4.58 |
% |
|
|
34,783
|
|
|
|
397
|
|
|
|
4.58 |
% |
Notes
payable
|
|
|
192,668
|
|
|
|
2,352
|
|
|
|
4.90 |
% |
|
|
109,796
|
|
|
|
1,414
|
|
|
|
5.17 |
% |
Subordinated
debentures(3)
|
|
|
51,061
|
|
|
|
718
|
|
|
|
5.64 |
% |
|
|
13,403
|
|
|
|
258
|
|
|
|
7.72 |
% |
Total
interest-bearing liabilities
|
|
$ |
1,878,7.37
|
|
|
$ |
18,850
|
|
|
|
4.02 |
% |
|
$ |
1,288,822
|
|
|
$ |
10,716
|
|
|
|
3.34 |
% |
Noninterest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
180,185
|
|
|
|
|
|
|
|
|
|
|
|
148,937
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
36,566
|
|
|
|
|
|
|
|
|
|
|
|
18,396
|
|
|
|
|
|
|
|
|
|
Total
noninterest bearing liabilities
|
|
|
216,751
|
|
|
|
|
|
|
|
|
|
|
|
167,333
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,095,488
|
|
|
|
|
|
|
|
|
|
|
|
1,456,155
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
251,989
|
|
|
|
|
|
|
|
|
|
|
|
176,396
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’
equity
|
|
$ |
2,347,477
|
|
|
|
|
|
|
|
|
|
|
$ |
1,632,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
23,047
|
|
|
|
|
|
|
|
|
|
|
$ |
17,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate spread
|
|
|
|
|
|
|
|
|
|
|
3.91 |
% |
|
|
|
|
|
|
|
|
|
|
4.36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
yield on interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
4.37 |
% |
|
|
|
|
|
|
|
|
|
|
4.81 |
% |
1
Average loan
balances included nonaccrual loans. Interest income collected on
nonaccrual loans has been included.
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.
3The
interest expense and average interest rates paid
on the Subordinated Debentures for the three and six month periods ending June
30, 2007 should have been $938 and $1,206 and 7.37% and 7.53%,
respectively. The impact of this timing difference on the 2007 second
quarter and six month results was deemed immaterial to the overall financial
statements.
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(1)
|
|
$ |
1,768,459
|
|
|
$ |
71,596
|
|
|
|
8.16 |
% |
|
$ |
1,409,788
|
|
|
$ |
53,881
|
|
|
|
7.71 |
% |
Investment
securities
|
|
|
103,176
|
|
|
|
2,798
|
|
|
|
5.47 |
% |
|
|
55,503
|
|
|
|
1,280
|
|
|
|
4.65 |
% |
Other
short-term investments
|
|
|
1,189
|
|
|
|
27
|
|
|
|
4.58 |
% |
|
|
3,928
|
|
|
|
95
|
|
|
|
4.88 |
% |
Fully
taxable equivalent adjustment (2)
|
|
|
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
Total
interest-earning assets
|
|
$ |
1,872,824
|
|
|
$ |
74,567
|
|
|
|
8.03 |
% |
|
$ |
1,469,219
|
|
|
$ |
55,333
|
|
|
|
7.59 |
% |
Noninterest
earning assets
|
|
|
191,240
|
|
|
|
|
|
|
|
|
|
|
|
146,829
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,064,064
|
|
|
|
|
|
|
|
|
|
|
$ |
1,616,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
checking, savings and money
market
|
|
$ |
617,363
|
|
|
$ |
8,411
|
|
|
|
2.75 |
% |
|
$ |
513,060
|
|
|
$ |
5,256
|
|
|
|
2.07 |
% |
Time
deposits
|
|
|
774,411
|
|
|
|
17,754
|
|
|
|
4.62 |
% |
|
|
625,750
|
|
|
|
11,433
|
|
|
|
3.68 |
% |
Total
interest-bearing deposits
|
|
$ |
1,391,774
|
|
|
$ |
26,165
|
|
|
|
3.79 |
% |
|
$ |
1,138,810
|
|
|
$ |
16,689
|
|
|
|
2.96 |
% |
Securities
sold under repurchase
agreements
and short-term borrowings
|
|
|
46,696
|
|
|
|
1,054
|
|
|
|
4.55 |
% |
|
|
28,267
|
|
|
|
604
|
|
|
|
4.31 |
% |
Notes
payable
|
|
|
182,346
|
|
|
|
4,462
|
|
|
|
4.94 |
% |
|
|
99,071
|
|
|
|
2,504
|
|
|
|
5.10 |
% |
Subordinated
debentures(3)
|
|
|
32,336
|
|
|
|
986
|
|
|
|
6.15 |
% |
|
|
13,403
|
|
|
|
500
|
|
|
|
7.52 |
% |
Total
interest-bearing liabilities
|
|
$ |
1,653,152
|
|
|
$ |
32,667
|
|
|
|
3.98 |
% |
|
$ |
1,279,551
|
|
|
$ |
20,297
|
|
|
|
3.20 |
% |
Noninterest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
162,782
|
|
|
|
|
|
|
|
|
|
|
|
144,515
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
27,820
|
|
|
|
|
|
|
|
|
|
|
|
17,856
|
|
|
|
|
|
|
|
|
|
Total
noninterest bearing liabilities
|
|
|
190,602
|
|
|
|
|
|
|
|
|
|
|
|
162,371
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,843,754
|
|
|
|
|
|
|
|
|
|
|
|
1,441,922
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
220,310
|
|
|
|
|
|
|
|
|
|
|
|
174,126
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’
equity
|
|
$ |
2,064,064
|
|
|
|
|
|
|
|
|
|
|
$ |
1,616,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
41,900
|
|
|
|
|
|
|
|
|
|
|
$ |
34,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate spread
|
|
|
|
|
|
|
|
|
|
|
4.04 |
% |
|
|
|
|
|
|
|
|
|
|
4.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
yield on interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
4.51 |
% |
|
|
|
|
|
|
|
|
|
|
4.80 |
% |
1
Average loan
balances included nonaccrual loans. Interest income collected on
nonaccrual loans has been included.
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.
3The
interest expense and average interest rates paid
on the Subordinated Debentures for the three and six month periods ending June
30, 2007 should have been $938 and $1,206 and 7.37% and 7.53%,
respectively. The impact of this timing difference on the 2007 second
quarter and six month results was deemed immaterial to the overall financial
statements.
Provision
for Loan Losses. During the three and six months ended June
30, 2007, loan charge-offs were $755 and $1,412, respectively and recoveries
of
charged-off loans were $477 and $790, respectively. The Company’s provision for
loan losses increased by $15, or 1%, to $1,259 for the three months ended June
30, 2007, as compared to $1,244 for the same period in 2006. For the
six months ended June 30, 2007 the provision decreased $75, or 3%, to $2,233
from $2,308 for the six months ended June 30, 2006. The Company’s
allowance for loan losses increased by $10,633 to $32,935 at June 30, 2007
from
$22,302 at December 31, 2006, the primary reason for the increase being the
acquired allowance for loan losses of $9,022 from the CVBG
acquisition. The ratio of the allowance for loan losses to total
loans, net of unearned interest, remained relatively constant at 1.42% at June
30, 2007 compared to 1.45% and 1.45% at December 31, 2006 and June 30, 2006,
respectively. As of June 30, 2007, indicators of credit quality, as
discussed below, have improved compared to December 31, 2006 and June 30, 2006.
Management
continually evaluates the Company’s credit policies and procedures for effective
risks and controls management. The Company’s trend in asset quality
improvement is attributable to maintaining strong underwriting policies and
management controls in a highly competitive market environment. The
ratio of allowance for loan losses to nonperforming loans was 674.48%, 635.93%
and 426.84% at June 30, 2007, December 31, 2006 and June 30, 2006, respectively,
and the ratio of nonperforming assets to total assets was 0.20%, 0.29% and
0.47%
at June 30, 2007, December 31, 2006 and June 30, 2006, respectively. The ratio
of nonperforming loans to total loans, net of unearned interest, was 0.21%,
0.23% and 0.34% at June 30, 2007, December 31, 2006 and June 30, 2006,
respectively. Within the Bank, the Company’s largest subsidiary, the
ratio of nonperforming assets to total assets was 0.17%, 0.24% and 0.43% at
June
30, 2007, December 31, 2006 and June 30, 2006,
respectively.
The
Company’s year-to-date (“YTD”) net charge-offs as a percentage of average loans
improved from 0.09% for the three months ended June 30, 2006 to 0.04% for the
three months ended June 30, 2007. Net charge-offs as a percentage of
average loans were 0.20% for the year ended December 31, 2006. Within
the Bank, YTD net charge-offs as a percentage of average loans decreased from
0.06% for the three months ended June 30, 2006 to 0.01% for the same period
in
2007. Net charge-offs within the Bank as a percentage of average loans were
0.14% for the year ended December 31, 2006. YTD net charge-offs in
Superior Financial for the six months ended June 30, 2007 were $49 compared
to
actual net charge-offs of $159 for the year ended December 31, 2006. YTD net
charge-offs in GCB Acceptance for the six months ended June 30, 2007 were $448
compared to actual net charge-offs of $744 for the year ended December 31,
2006.
Although
credit quality trends continue to improve, management continually evaluates
the
existing portfolio in light of loan concentrations, current general economic
conditions and economic trends. Based upon these evaluations, which
all strongly suggest an economic slowdown occurring in late 2007 and further
based on the Company's allowance for loan loss calculation and review of the
loan portfolio, management believes the allowance for loan losses is adequate
at
June 30, 2007. Management anticipates that the provision for loan
losses during the third quarter of 2007 will be consistent with the first six
months of 2007 and also anticipates that the provision for loan losses for
the
entire year of 2007 may be less than the provision for 2006 if indicators of
credit quality remain stabilized. However, the provision for loan
losses could increase for the entire year of 2007, as compared to 2006, if
the
Company’s loan growth continues at the rate experienced through the six months
ended June 30, 2007.
Noninterest
Income. Fee income, unrelated to interest-earning assets,
consisting primarily of service charges, commissions and fees, has become an
important component to the Company’s total revenue stream.
Total
noninterest income for the three and six months ended June 30, 2007 was $6,483
and $11,882 as compared to $5,028 and $9,783 for the same periods in 2006.
Service charges, commissions and fees remain the largest component of total
noninterest income and increased from $4,001 and $7,322 for the three and six
months, respectively, ended June 30, 2006 to $5,395 and $9,684, respectively,
for the same periods in 2007. This increase primarily reflects
additional service charges and NSF fees from deposit-related products stemming
primarily from the continued increased volume as a result of the Bank’s High
Performance Checking Program introduced in the first quarter of
2005. The Company believes that noninterest income will continue to
improve over the remainder of 2007 when compared to prior comparable periods
as
a result of the increase in net new checking accounts
opened resulting from the Bank’s High Performance Checking Program
and the CVBG acquisition. The Company will begin introducing the High
Performance Checking product in the Cumberland Region during the third quarter
of this year with anticipated growth occurring during the latter part of the
fourth quarter of 2007. In addition, other noninterest income increased by
$61
to $1,088 for the three months ended June 30, 2007 from $1,027 for the same
period in 2006. For the six month period ended June 30, 2007 other noninterest
income decreased by $353 to $2,198 from $2,551 for the same period in
2006. The reduction is primarily a result of decreased dividends from
an insurance provider.
Noninterest
Expense. Control of noninterest expense is a critical aspect
in enhancing income. Noninterest expense includes personnel, occupancy, and
other expenses such as data processing, printing and supplies, legal and
professional fees, postage, Federal Deposit Insurance Corporation assessment,
etc. Total noninterest expense was $16,709 and $30,751 for the three and six
months ended June 30, 2007 compared to $12,679 and $25,385 for the same periods
in 2006. The $4,030, or 32%, increase in total noninterest expense for the
three
months ended June 30, 2007 compared to the same period of 2006 principally
reflects increases in all expense categories primarily as a result of
layering-on the normal operating costs associated with the acquisition of CVBG
and increased personnel costs for additional staffing related to loan production
initiatives. Noninterest expenses were also impacted by the assimilation costs
of $450 incurred relating to the CVGB acquisition.
Similarly,
the $5,366 or 21%, increase in total noninterest expense for the six months
ended June 30, 2007 compared to the same period in 2006 reflects substantially
the same trends that existed during the quarter ended June 30,
2007.
Personnel
costs are the primary element of the Company's noninterest expenses. For the
three and six months ended June 30, 2007, salaries and benefits represented
$8,472, or 51%, and $15,930, or 52%, respectively, of total noninterest expense.
This was an increase of $2,206, or 35%, and $3,273, or 26%, respectively, from
the $6,266 and $12,657 for the three and six months ended June 30,
2006. Including Bank branches and non-bank office locations, the
Company had 73 locations at June 30, 2007, as compared to 60 at December 31,
2006 and June 30, 2006, and the number of full-time equivalent employees
increased 25% from 609 at June 30, 2006 to 739 at June 30,
2007. These increases in personnel costs, number of branches and
employees are primarily the result of the CVBG acquisition. The
personnel cost compared to prior periods will increase for the remainder of
2007
as a result of the CVBG acquisition.
The
Company’s efficiency ratio was slightly up from 56.74% at June 30, 2006 to
57.33% at June 30, 2007. The increase is primarily attributable to the CVBG
acquisition during the second quarter of 2007. The efficiency ratio
illustrates how much it cost the Company to generate revenue; for example,
it
cost the Company 57.33 cents to generate one dollar of revenue for the six
months ended June 30, 2007.
Income
Taxes. The effective income tax rate for the three and six
months ended June 30, 2007 was 38.10% and 38.50%, respectively, compared to
38.24% and 37.95% for the same periods in 2006.
Changes
in Financial Condition
Total
assets at June 30, 2007 were $2,927,298, an increase of $1,154,644, or 65%,
from
total assets of $1,772,654 at December 31, 2006. The increase in assets was
primarily reflective of the $787,520, or 51%, increase in loans, net of unearned
interest and the $205,142, or 544%, increase in securities available for sale.
The primary component of these increases stemmed from the CVBG acquisition,
which resulted in an increase in total assets, loans, net of unearned interest
and investments, in the approximate amounts of $896,000, $628,000 and $200,000,
respectively. Absent the CVBG acquisition, total assets and loans,
net of unearned interest, would have increased approximately $258,644 and
$152,848, respectively.
At
June
30, 2007, loans, net of unearned interest, were $2,327,149 compared to
$1,539,629 at December 31, 2006, an increase of $787,520, or 51%, from December
31, 2006. The increase in loans during the first six months of 2007 primarily
reflects an increase from loans acquired in the CVBG acquisitions
and organic growth in commercial real estate loans and commercial
loans.
Non-performing
loans include non-accrual loans and loans 90 or more days past due. All loans
that are 90 days past due are considered non-accrual unless they are adequately
secured and there is reasonable assurance of full collection of principal and
interest. Non-accrual loans that are 120 days past due without assurance of
repayment are charged off against the allowance for loan losses. Nonaccrual
loans and loans past due 90 days and still accruing increased by $1,376 or
39%,
during the six months ended June 30, 2007 to $4,883 from $3,507 at December
31,
2006. This increase is attributable to the CVBG
acquisition. At June 30, 2007, the ratio of the Company’s
allowance for loan losses to non-performing loans (which include non-accrual
loans) was 674.48%.
The
Company maintains an investment portfolio to provide liquidity and earnings.
Investments at June 30, 2007 with an amortized cost of $248,783 had a market
value of $244,229. At year-end 2006, investments with an
amortized
cost of $40,494 had a market value of $40,284. The increase in investments
from
December 31, 2006 to June 30, 2007 results primarily from the CVBG
acquisition.
Liquidity
and Capital Resources
Liquidity. Liquidity
refers to the ability or the financial flexibility to manage future cash flows
to meet the needs of depositors and borrowers and fund operations. Maintaining
appropriate levels of liquidity allows the Company to have sufficient funds
available for reserve requirements, customer demand for loans, withdrawal of
deposit balances and maturities of deposits and other liabilities. The Company's
liquid assets include cash and due from banks, federal funds sold, investment
securities and loans held for sale. Including securities pledged to
collateralize municipal deposits, these assets represented 13% of the total
liquidity base at June 30, 2007, as compared to 8% at December 31, 2006. The
liquidity base is generally defined to include deposits, repurchase agreements,
notes payable and subordinated debentures. The Company
maintains borrowing availability with the Federal Home Loan Bank of Cincinnati
(“FHLB”), which was fully utilized at June 30, 2007
in order to better
optimize its funding costs. The Company also maintains federal funds lines
of credit totaling $166,000
at eight
correspondent banks, of which $124,138
was available
at June 30, 2007.
The Company
believes it has sufficient liquidity to satisfy its current operating
needs.
For
the
six months ended June 30, 2007, operating activities of the Company provided
$31,215 of cash flows. Net income of $12,702 comprised a substantial portion
of
the cash generated from operations. Cash flows from operating
activities were also positively affected by various non-cash items, including
(i) $2,233 in provision for loan losses, (ii) $2,416 of depreciation and
amortization, (iii) $18,126 increase in accrued interest payable and other
liabilities. The increase in accrued interest payable and other
liabilities relates to the timing of several sizable bank official checks
disbursed for loans that had not cleared through the Bank as of June 30,
2007. These checks cleared within a couple days after the June 30, 2007
quarter-end. This was offset in part by a decrease of $2,996 in deferred
tax benefit. In addition, the cash flows provided by the proceeds from sales
of
mortgage loans exceeded the cash flows used by the originations of mortgage
loans held for sale by $292.
The
Company’s net increase in loans
used $152,845 in cash flows and was the primary component of the $189,713 in
net
cash used in investing activities for the six months ended June 30, 2007. In
addition, the Company used $24,548 of net cash in the CVBG acquisition and
purchased $23,682 in investment securities available for sale. This was offset
by (i) $1,262 in proceeds from the sale of investments securities available
for
sale (ii) $13,106 in proceeds from the maturities of investment securities
available for sale (iii) $496 in proceeds from the sale of securities held
to
maturity, and (iv) $690 in proceeds from the maturities of securities held
to
maturity. Purchases of fixed asset additions, net of proceeds from sale of
other
real estate, used $3,373 in cash flows.
Proceeds
from FHLB advances and notes payable of $114,200, proceeds from the issuance
of
subordinated debentures of $57,732 in connection with the CVBG acquisition
and
the net increase in deposits of $38,157 were the primary sources of cash flows
used in financing activities. These were offset, in part, by
repayments of FHLB advances and notes payable of $35,790. In
addition, dividends paid in the amount of $2,957 further reduced the total
net
cash used in financing activities.
Capital
Resources. The Company’s capital position is reflected in
its shareholders’ equity, subject to certain adjustments for regulatory
purposes. Shareholders’ equity, or capital, is a measure of the Company’s net
worth, soundness and viability. The Company continues to exhibit a strong
capital position while consistently paying dividends to its shareholders.
Further, the capital base of the Company allows it to take advantage of business
opportunities while maintaining the level of resources deemed appropriate by
management of the Company to address business risks inherent in the Company’s
daily operations.
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 in 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 qualifies as Tier 1 capital for regulatory purposes.
Shareholders’
equity
on June 30, 2007
was $311,405, an increase of $126,934, or 69%, from $184,471 on December 31,
2006. The increase in shareholders’ equity primarily reflected the issuance of
common stock associated with the CVBG acquisition and net income for the six
months ended June 30, 2007 of $12,702 ($1.19 per share, assuming dilution).
This
increase was offset in part by quarterly dividend payments during the six months
ended June 30, 2007 totaling $2,957 ($0.26 per share) and the cumulative change
of $2,688 in unrealized losses, net of reclassification and taxes, on available
for sale securities. The
cumulative change in the unrealized losses was
primarily
driven by
a downturn in the Mortgage Backed Securities market led by the securities backed
by Sub-Prime mortgages; although, we do not hold such securities the market
value for Prime based securities was affected and a moderate recovery of this
unrealized loss is expected.
On
September 18, 2002 the Company announced that its Board of Directors had
authorized the repurchase of up to $2,000 of the Company’s outstanding shares of
common stock beginning in October 2002. The repurchase plan has been renewed
by
the Board of Directors annually thereafter and will terminate on the earlier
to
occur of the Company’s repurchase of the total authorized dollar amount or
December 31, 2007. The repurchase plan is dependent upon market conditions
and
there is no guarantee as to the exact number of shares to be repurchased by
the
Company. To date, the Company has purchased 25,700 shares at an
aggregate cost of approximately $538 under this program.
The
Company’s primary source of liquidity is dividends paid by the
Bank. Applicable Tennessee statutes and regulations impose
restrictions on the amount of dividends that may be declared by the Bank.
Further, any dividend payments are subject to the continuing ability of the
Bank
to maintain its compliance with minimum federal regulatory capital requirements
and to retain its characterization under federal regulations as a
“well-capitalized” institution.
Risk-based
capital regulations adopted by the Board of Governors of the Federal Reserve
Board (“FRB”) and the Federal Deposit Insurance Corporation (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 June 30, 2007, the Bank
and the Company each satisfied their respective minimum regulatory capital
requirements, and the Bank was “well-capitalized” within the meaning of federal
regulatory requirements. The table below sets forth the capital
position of the Bank and the Company at June 30, 2007.
|
Required
Minimum
Ratio
|
Required
to
be
Well
Capitalized
|
Bank
|
Company
|
Tier
1 risk-based capital
|
4.00%
|
6.00%
|
9.61%
|
10.14%
|
Total
risk-based capital
|
8.00%
|
10.00%
|
10.86%
|
11.39%
|
Leverage
Ratio
|
4.00%
|
5.00%
|
10.47%
|
11.06%
|
The
FRB
has recently issued regulations which will 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 Company's trust preferred securities
to
continue to be treated as Tier 1 capital.
Off-Balance
Sheet Arrangements
At
June
30, 2007, the Company had outstanding unused lines of credit and standby letters
of credit totaling $793,218 and unfunded loan commitments outstanding of
$121,390. 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
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
any then available amounts from the FHLB and/or purchase Federal funds from
other financial institutions. At June 30, 2007, the Company had
accommodations with upstream correspondent banks for unsecured Federal funds
lines. These accommodations have various covenants related to their
term and availability, and in most cases must be repaid within less than a
month. The following table presents additional information about the
Company’s off-balance sheet commitments as of June 30, 2007, which by their
terms have contractual maturity dates subsequent to June 30, 2007:
|
|
Less
than 1 Year
|
|
|
1-3
Years
|
|
|
3-5
Years
|
|
|
More
than 5 Years
|
|
|
Total
|
|
Commitments
to make loans – fixed
|
|
$ |
30,958
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
30,958
|
|
Commitments
to make loans – variable.
|
|
|
90,432
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,432
|
|
Unused
lines of credit
|
|
|
450,228
|
|
|
|
153,988
|
|
|
|
26,401
|
|
|
|
113,608
|
|
|
|
744,225
|
|
Letters
of credit
|
|
|
40,916
|
|
|
|
6,223
|
|
|
|
1,854
|
|
|
|
-
|
|
|
|
48,993
|
|
Total
|
|
$ |
612,534
|
|
|
$ |
160,211
|
|
|
$ |
28,255
|
|
|
$ |
113,608
|
|
|
$ |
914,608
|
|
Disclosure
of Contractual Obligations
In
the
ordinary course of operations, the Company enters into certain contractual
obligations. Such obligations include the funding of operations
through debt issuances as well as leases for premises and
equipment. The following table summarizes the Company’s significant
fixed and determinable contractual obligations as of June 30, 2007:
|
|
Less
than 1 Year
|
|
|
1-3
Years
|
|
|
3-5
Years
|
|
|
More
than 5 Years
|
|
|
Total
|
|
Certificates
of deposits
|
|
$ |
951,076
|
|
|
$ |
115,990
|
|
|
$ |
8,489
|
|
|
$ |
4,793
|
|
|
$ |
1,080,348
|
|
Federal
funds purchased and repurchase
agreements
|
|
|
125,460
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125,460
|
|
FHLB
advances and notes payable
|
|
|
133,923
|
|
|
|
55,305
|
|
|
|
37,882
|
|
|
|
60,873
|
|
|
|
287,983
|
|
Subordinated
debentures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88,662
|
|
|
|
88,662
|
|
Operating
lease obligations
|
|
|
1,137
|
|
|
|
1,064
|
|
|
|
568
|
|
|
|
525
|
|
|
|
3,294
|
|
Deferred
compensation
|
|
|
1,985
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,453
|
|
|
|
3,438
|
|
Unrecognized
tax benefits
|
|
|
475
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
475
|
|
Purchase
obligations
|
|
|
483
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
483
|
|
Total
|
|
$ |
1,214,539
|
|
|
$ |
172,359
|
|
|
$ |
46,939
|
|
|
$ |
156,306
|
|
|
$ |
1,590,143
|
|
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
In
July
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of
FASB Statement No. 109”. This interpretation clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with FASB Statement No. 109, “Accounting for Income Taxes.”
The interpretation prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. The interpretation also provides
guidance on de-recognition,
classification,
interest and penalties, accounting in interim periods, disclosure and
transition. FASB Interpretation No. 48 is effective for fiscal years
beginning after December 31, 2006. The Company adopted Interpretation No.
48 effective January 1, 2007, resulting in a beginning retained earnings
adjustment in the amount of $800. See Note 6 in the Notes to
Condensed Consolidated Financial Statements for further information regarding
the adoption of this standard.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157 “Fair Value Measurements” (“Statement 157”). Statement
157 defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. Statement 157 does not
require any new fair value measurements, but clarifies and standardizes some
divergent practices that have emerged since prior guidance was
issued. Statement 157 will become effective on January 1,
2008. The Company does not anticipate a material impact on the
consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”. This
statement permits entities to choose to measure many financial instruments
and
certain other items at fair value. The objective of this standard is
to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets
and
liabilities differently without having to apply complex hedge accounting
provisions. This statement is effective as of the beginning of fiscal
years beginning after November 15, 2007, with early adoption permitted under
certain circumstances. The Company did not choose to early adopt this
standard.
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Part
II,
Item 7A of the 2006 10-K is incorporated in this item of this Quarterly Report
by this reference. There have been no material changes in the
quantitative and qualitative market risks of the Company since December 31,
2006.
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
The
Company’s management, with the participation of the Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure
controls and procedures (as defined
in Rule
13a-15(e) and 15d-15(f) promulgated under the Securities Exchange Act of 1934
(the “Exchange Act”). as of the end of the period covered by this
report. Based upon this evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that, as of June 30, 2007, the Company's
disclosure controls and procedures were effective for the
purposes
set forth in the definition thereof in Exchange Act Rule
13a-15(e).
Internal
Control Over Financial Reporting
There
have been no changes (including
corrective actions with regard to significant deficiencies and material
weaknesses) in the Company's internal control over financial reporting
(as
defined
in Exchange Act Rule 13a-15(f)) during the quarter ended June 30, 2007
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
PART
II - OTHER INFORMATION
In
accordance with the Instruction to Part II of Form 10-Q, the Company has omitted
references to all Items in Part II of this Quarterly Report on form 10-Q that
are not applicable.
Item
1A. Risk
Factors
With
two
exceptions, there have been no material changes from our risk factors previously
disclosed in “Item 1A. Risk Factors” of the 2006 10-K, Those
changes relate to two additional risks following the acquisition of
CVBG. Investors should refer to the information under “The
Combined Company Will Incur Significant Transaction and Merger-Related Costs
in
Connection With the Merger” and “Greene County
May Not Be Able To Successfully Integrate Civitas or To Realize the Anticipated
Benefits of the Merger” under “Risk Factors” in the
Company’s Registration Statement on Form S-4 and related prospectus/joint proxy
statement filed with the SEC on April 20, 2007, which is incorporated herein
by
this reference.
Item
4. Submission of
Matters to a Vote of Security Holders
(a)
|
The
annual meeting of shareholders (the “Annual Meeting”) of the Company was
held on May 16, 2007. In addition to the election of directors,
the proposals described in section “(c)” below were considered by
shareholders at the Annual Meeting.
|
(b)
|
Proxies
for the Annual Meeting were solicited in accordance with Regulation
14 of
the Exchange Act; there was no solicitation in opposition to management’s
nominees and all of management’s nominees were elected. Each director is
elected to serve for a 3-year term and until his or her successor
is
elected and qualified. Accordingly, in section “(c)” below, the
Company has reported the voting results only with respect to those
directors who were voted on at the Annual
Meeting.
|
|
(c)
|
The
following sets forth the results of voting on each matter at the
Annual
Meeting:
|
Proposal
1 – To approve the Company’s merger with Civitas Bankgroup,
Inc.
Votes
|
|
Votes
|
|
|
|
Broker
|
For
|
|
Against
|
|
Abstentions
|
|
Non-Votes
|
6,576,527
|
|
49,414
|
|
65,899
|
|
803,613
|
Proposal
2 – Election of directors
|
|
Votes
|
|
Votes
|
|
|
For
|
|
Withheld
|
Phil
M. Bachman
|
|
6,856,741
|
|
634,111
|
Robert
K. Leonard
|
|
7,325,512
|
|
165,340
|
Terry
Leonard
|
|
7,083,920
|
|
406,932
|
Ronald
Mayberry
|
|
7,287,857
|
|
202,995
|
Kenneth
Vaught
|
|
7,289,369
|
|
198,483
|
Proposal
3 – To approve the selection of Dixon Hughes PLLC as the Company’s independent
registered public accounting firm for 2007
Votes
|
|
Votes
|
|
|
|
Broker
|
For
|
|
Against
|
|
Abstentions
|
|
Non-Votes
|
7,385,580
|
|
26,461
|
|
79,412
|
|
4,000
|
Proposal
4 – To amend the Company’s charter to increase the number of authorized
shares
Votes
|
|
Votes
|
|
|
|
Broker
|
For
|
|
Against
|
|
Abstentions
|
|
Non-Votes
|
6,454,815
|
|
159,372
|
|
75,048
|
|
806,218
|
Proposal
5 – To amend the Company’s
charter to change the Company’s corporate name
Votes
|
|
Votes
|
|
|
|
Broker
|
For
|
|
Against
|
|
Abstentions
|
|
Non-Votes
|
7,215,595
|
|
203,542
|
|
71,715
|
|
4,601
|
Proposal
6 – To approve the
adjournment of the Annual Meeting, if necessary
Votes
|
|
Votes
|
|
|
|
Broker
|
For
|
|
Against
|
|
Abstentions
|
|
Non-Votes
|
5,826,193
|
|
1,536,285
|
|
130,374
|
|
2,601
|
Item 5.
|
Other
Information
|
On
May
14, 2007, the Company formed GreenBank Capital Trust I (“GB Trust
I”). On May 16, 2007, GB Trust I issued $56 million of variable rate
trust preferred securities as part of a pooled offering of such
securities. In connection with the offering of the trust preferred
securities by GB Trust I, the Company guaranteed the obligations of GB Trust
I
under the trust preferred securities and also issued $57,732,000 in principal
amount subordinated debentures to the GB Trust I in exchange for the proceeds
of
the offering of trust preferred securities by GB Trust I. The
debentures represent the sole asset of GB Trust I. The debentures pay
interest quarterly at the three-month LIBOR plus 1.65% adjusted quarterly (7.01%
at June 30, 2007). 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. Reference is here made to the Amended and Restated Trust
Agreement of GreenBank Capital Trust I dated as of May 16, 2007 by and among
the
Company, as Depositor, Wilmington Trust Company, as Property Trustee, Wilmington
Trust Company, as Delaware Trustee and the Administrative Trustees named therein
filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and to the Junior
Subordinated Indenture dated as of May 16, 2007 between the Company and
Wilmington Trust Company, as Trustee filed as Exhibit 10.4 to this Quarterly
Report on 10-Q.
See
Exhibit Index immediately
following the signature page hereto.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized both on behalf of the Registrant and in his capacity as
principle financial and accounting officer of the Registrant.
Green
Bankshares, Inc. |
Registrant |
Date:
August 8, 2007
By |
/s/
James
E. Adams |
|
James
E. Adams |
|
Executive
Vice President, Chief Financial |
|
Officer
and Assistant Secretary |
|
|
EXHIBIT
INDEX
Exhibit
No.Description
3.1
|
Charter
(as amended to date)
|
10.1
|
Amended
and Restated Trust Agreement of GreenBank Capital Trust I (“GB Trust I”)
dated as of May 16, 2007 by and among the Greene County Bancshares,
Inc.,
as Depositor, Wilmington Trust Company, as Property Trustee, Wilmington
Trust Company, as Delaware Trustee and the Administrative Trustees
named
therein (the “GB Capital Trust
Agreement”)
|
10.2
|
Form
of Certificate for Common Securities of GB Trust I included as Exhibit
B
to the GB Capital Trust Agreement
|
10.3
|
Form
of Certificate for Preferred Securities of GB Trust I included as
Exhibit
C to the GB Capital Trust Agreement
|
10.4
|
Junior
Subordinated Indenture dated as of May 16, 2007 between the Company
and
Wilmington Trust Company, as Trustee included as Exhibit D to the
GB
Capital Trust Agreement (the “Junior Subordinated
Indenture”)
|
10.5
|
Form
of Certificate for $57,732,000 Note issued pursuant to the Junior
Subordinated Indenture included as Sections 2.1 and 2.2 to the Junior
Subordinated Indenture
|
10.6
|
Guarantee
Agreement dated as of May 16, 2007 between Greene County Bancshares,
Inc.,
as Guarantor and Wilmington Trust Company, as Guarantee
Trustee
|
31.1
|
Chief
Executive Officer Certification Pursuant to Rule
13a-14(a)/15d-14(a)
|
31.2
|
Chief
Financial Officer Certification Pursuant to Rule
13a-14(a)/15d-14(a)
|
32.1
|
Chief
Executive Officer Certification Pursuant to 18 U.S.C. Section 1350,
as
Adopted
|
|
Pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
|
32.2
|
Chief
Financial Officer Certification Pursuant to 18 U.S.C. Section 1350,
as
Adopted
|
|
Pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
|