##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 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.
  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)
 (423) 639-5111
 N/A
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
  Large accelerated filer  o
    
    Accelerated filer  þ
    
    Non-accelerated filer  o
    
    Smaller reporting company  o(Do not check if a smaller reporting company)
 o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSCONDENSED CONSOLIDATED BALANCE SHEETSCONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOMECONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITYCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESEXHIBIT INDEXExhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    Table of Contents  
 
 PART
I  FINANCIAL INFORMATION
 
 
 ITEM 1. FINANCIAL STATEMENTS
        1




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##### Table of Contents



GREEN BANKSHARES, INC.
 
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30, 2008 and December 31, 2007
(Amounts in thousands, except share and per share data)
 September 30,
    
    
    December 31,2008
    
    
    2007*(Unaudited)ASSETSCash and due from banks
    
    $
    46,168
    
    
    $
    65,717Federal funds sold
    
    
    56,751
    
    
    
    Securities available for sale
    
    
    292,897
    
    
    
    235,273Securities held to maturity (with a market value
of $700 and $1,280)
    
    
    757
    
    
    
    1,303FHLB and other stock, at cost
    
    
    13,203
    
    
    
    12,322Loans held for sale
    
    
    1,824
    
    
    
    2,331Loans, net of unearned income
    
    
    2,323,076
    
    
    
    2,356,376Allowance for loan losses
    
    
    (34,856
    )
    
    
    (34,111
    )Other real estate owned and repossessed assets
    
    
    12,215
    
    
    
    4,859Premises and equipment, net
    
    
    83,569
    
    
    
    82,697Goodwill and other intangible assets
    
    
    156,117
    
    
    
    157,827Other assets
    
    
    60,320
    
    
    
    63,147Total assets
    
    $
    3,012,041
    
    
    $
    2,947,741LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesDeposits
    
    $
    2,276,198
    
    
    $
    1,986,793Federal funds purchased
    
    
    413
    
    
    
    87,787Repurchase agreements
    
    
    64,929
    
    
    
    106,738FHLB advances and notes payable
    
    
    229,906
    
    
    
    318,690Subordinated debentures
    
    
    88,662
    
    
    
    88,662Accrued interest payable and other liabilities
    
    
    25,451
    
    
    
    36,594Total liabilities
    
    
    2,685,559
    
    
    
    2,625,264Shareholders equityCommon stock: $2 par, 20,000,000 shares authorized,
12,999,161 and 12,931,015 shares outstanding
    
    
    25,998
    
    
    
    25,862Additional paid-in capital
    
    
    185,631
    
    
    
    185,170Retained earnings
    
    
    114,742
    
    
    
    109,938Accumulated other comprehensive income
    
    
    111
    
    
    
    1,507Total shareholders equity
    
    
    326,482
    
    
    
    322,477Total liabilities and shareholders equity
    
    $
    3,012,041
    
    
    $
    2,947,741
 *
    
    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, 2007.   2




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##### Table of Contents



GREEN BANKSHARES, INC.
 
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 Three and Nine Months Ended September 30, 2008 and 2007
(Amounts in thousands, except share and per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)Interest incomeInterest and fees on loans
    
    $
    38,497
    
    
    $
    48,630
    
    
    $
    120,653
    
    
    $
    120,226Investment securities
    
    
    3,982
    
    
    
    3,642
    
    
    
    10,604
    
    
    
    6,440Federal funds sold and other
    
    
    87
    
    
    
    22
    
    
    
    112
    
    
    
    4942,566
    
    
    
    52,294
    
    
    
    131,369
    
    
    
    126,715Interest expenseDeposits
    
    
    14,345
    
    
    
    17,812
    
    
    
    43,657
    
    
    
    43,977Borrowings
    
    
    3,837
    
    
    
    7,189
    
    
    
    13,812
    
    
    
    13,69118,182
    
    
    
    25,001
    
    
    
    57,469
    
    
    
    57,668Net interest income
    
    
    24,384
    
    
    
    27,293
    
    
    
    73,900
    
    
    
    69,047Provision for loan losses
    
    
    8,620
    
    
    
    1,444
    
    
    
    20,527
    
    
    
    3,677Net interest income after provision
for loan losses
    
    
    15,764
    
    
    
    25,849
    
    
    
    53,373
    
    
    
    65,370Noninterest incomeService charges and fees
    
    
    6,711
    
    
    
    6,418
    
    
    
    19,725
    
    
    
    16,102Other
    
    
    1,299
    
    
    
    1,270
    
    
    
    3,703
    
    
    
    3,4688,010
    
    
    
    7,688
    
    
    
    23,428
    
    
    
    19,570Noninterest expenseSalaries and employee benefits
    
    
    10,157
    
    
    
    9,753
    
    
    
    29,261
    
    
    
    25,683Occupancy and furniture and
equipment expense
    
    
    3,180
    
    
    
    2,852
    
    
    
    9,743
    
    
    
    7,574Other
    
    
    8,607
    
    
    
    6,405
    
    
    
    22,641
    
    
    
    16,50421,944
    
    
    
    19,010
    
    
    
    61,645
    
    
    
    49,761Income before income taxes
    
    
    1,830
    
    
    
    14,527
    
    
    
    15,156
    
    
    
    35,179Provision for income taxes
    
    
    596
    
    
    
    5,613
    
    
    
    5,282
    
    
    
    13,563Net income
    
    $
    1,234
    
    
    $
    8,914
    
    
    $
    9,874
    
    
    $
    21,616Comprehensive income
    
    $
    1,547
    
    
    $
    11,167
    
    
    $
    8,478
    
    
    $
    21,181Per share of common stock:Basic earnings
    
    $
    0.10
    
    
    $
    0.69
    
    
    $
    0.76
    
    
    $
    1.90Diluted earnings
    
    
    0.10
    
    
    
    0.69
    
    
    
    0.76
    
    
    
    1.89Dividends
    
    
    0.13
    
    
    
    0.13
    
    
    
    0.39
    
    
    
    0.39Weighted average shares outstanding:Basic
    
    
    12,931,774
    
    
    
    12,921,240
    
    
    
    12,931,538
    
    
    
    11,362,422Diluted
    
    
    12,947,618
    
    
    
    13,008,733
    
    
    
    12,936,084
    
    
    
    11,455,389
   3




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GREEN BANKSHARES, INC.
 
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 For the Nine Months Ended September 30, 2008
(Amounts in thousands, except share and per share data)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income (loss)
    
    
    Equity(Unaudited)Balance, December 31, 2007
    
    
    12,931,015
    
    
    $
    25,862
    
    
    $
    185,170
    
    
    $
    109,938
    
    
    $
    1,507
    
    
    $
    322,477Common stock transactions:Exercise of shares under stock
option plan
    
    
    759
    
    
    
    2
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    14Issuance of restricted common
shares
    
    
    67,387
    
    
    
    134
    
    
    
    (134
    )
    
    
    
    
    
    
    
    
    
    
    Compensation expense:Stock options
    
    
    
    
    
    
    
    
    
    
    342
    
    
    
    
    
    
    
    
    
    
    
    342Restricted stock
    
    
    
    
    
    
    
    
    
    
    241
    
    
    
    
    
    
    
    
    
    
    
    241Dividends paid ($.39 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,070
    )
    
    
    
    
    
    
    (5,070
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,874
    
    
    
    
    
    
    
    9,874Change in unrealized gains
(losses), net of
reclassification and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,396
    )
    
    
    (1,396
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,478Balance, September 30, 2008
    
    
    12,999,161
    
    
    $
    25,998
    
    
    $
    185,631
    
    
    $
    114,742
    
    
    $
    111
    
    
    $
    326,482
   4




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GREEN BANKSHARES, INC.
 
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine Months Ended Septembers 30, 2008 and 2007
(Amounts in thousands, except share and per share data)
 September 30,
    
    
    September 30,2008
    
    
    2007(Unaudited)Cash flows from operating activitiesNet income
    
    $
    9,874
    
    
    $
    21,616Adjustments to reconcile net income to net cash provided by
operating activitiesProvision for loan losses
    
    
    20,527
    
    
    
    3,677Depreciation and amortization
    
    
    5,264
    
    
    
    4,073Security amortization and accretion, net
    
    
    (726
    )
    
    
    (391
    )(Gain) loss on sale of securities
    
    
    (74
    )
    
    
    42FHLB stock dividends
    
    
    (464
    )
    
    
    Net gain on sale of mortgage loans
    
    
    (487
    )
    
    
    (891
    )Originations of mortgage loans held for sale
    
    
    (43,894
    )
    
    
    (57,424
    )Proceeds from sales of mortgage loans
    
    
    44,887
    
    
    
    63,067Increase in cash surrender value of life insurance
    
    
    (804
    )
    
    
    (675
    )Net losses from sales of fixed assets
    
    
    388
    
    
    
    77Stock-based compensation expense
    
    
    583
    
    
    
    351Net loss (gain) on other real estate and repossessed assets
    
    
    1,837
    
    
    
    (153
    )Deferred tax expense
    
    
    (746
    )
    
    
    (3,078
    )Net changes:Other assets
    
    
    5,031
    
    
    
    (2,903
    )Accrued interest payable and other liabilities
    
    
    (11,142
    )
    
    
    9,014Net cash provided by operating activities
    
    
    30,054
    
    
    
    36,402Cash flows from investing activitiesPurchase of securities available for sale
    
    
    (136,985
    )
    
    
    (23,682
    )Proceeds from sale of securities available for sale
    
    
    3,398
    
    
    
    2,230Proceeds from maturities of securities available for sale
    
    
    74,467
    
    
    
    21,015Proceeds from sale of securities held to maturity
    
    
    
    
    
    
    496Proceeds from maturities of securities held to maturity
    
    
    545
    
    
    
    690Purchase of FHLB stock
    
    
    (417
    )
    
    
    (1,741
    )Net change in loans
    
    
    (13,841
    )
    
    
    (159,902
    )Acquisition, net of cash received
    
    
    
    
    
    
    (24,578
    )Proceeds from sale of other real estate
    
    
    19,238
    
    
    
    3,264Improvements to other real estate
    
    
    (1,073
    )
    
    
    Proceeds from sale of fixed assets
    
    
    50
    
    
    
    14Premises and equipment expenditures
    
    
    (4,615
    )
    
    
    (9,702
    )Net cash used by investing activities
    
    
    (59,233
    )
    
    
    (191,896
    )Cash flows from financing activitiesNet change in deposits
    
    
    289,405
    
    
    
    (4,928
    )Net change in federal funds purchased and repurchase agreements
    
    
    (129,183
    )
    
    
    12,720Tax benefit resulting from stock options
    
    
    
    
    
    
    126Proceeds from FHLB advances and notes payable
    
    
    20,916
    
    
    
    160,416Proceeds from subordinated debentures
    
    
    
    
    
    
    57,732Repayments of FHLB advances and notes payable
    
    
    (109,701
    )
    
    
    (35,884
    )Dividends paid
    
    
    (5,070
    )
    
    
    (4,637
    )Proceeds from issuance of common stock
    
    
    14
    
    
    
    407Net cash provided by financing activities
    
    
    66,381
    
    
    
    185,952Net change in cash and cash equivalents
    
    
    37,202
    
    
    
    30,458Cash and cash equivalents, beginning of year
    
    
    65,717
    
    
    
    70,640Cash and cash equivalents, end of period
    
    $
    102,919
    
    
    $
    101,098Supplemental disclosures  cash and noncashInterest paid
    
    $
    60,293
    
    
    $
    52,467Income taxes paid
    
    
    5,674
    
    
    
    13,015Loans converted to other real estate
    
    
    29,676
    
    
    
    3,199Unrealized gain (loss) on available for sale securities, net of tax
    
    
    111
    
    
    
    (435
    )
   5




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GREEN BANKSHARES, INC.
 
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2008
Unaudited
(Amounts in thousands, except share and per share data)
 NOTE
1  PRINCIPLES OF CONSOLIDATION
  NOTE
2  LOANS
  September 30,
    
    
    December 31,2008
    
    
    2007Commercial real estate
    
    $
    1,525,742
    
    
    $
    1,549,457Residential real estate
    
    
    391,550
    
    
    
    398,779Commercial
    
    
    319,087
    
    
    
    320,264Consumer
    
    
    91,866
    
    
    
    97,635Other
    
    
    9,237
    
    
    
    3,871Unearned income
    
    
    (14,406
    )
    
    
    (13,630
    )Loans, net of unearned income
    
    $
    2,323,076
    
    
    $
    2,356,376Allowance for loan losses
    
    $
    (34,856
    )
    
    $
    (34,111
    )
   6




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GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
Unaudited
(Amounts in thousands, except share and per share data)
 NOTE
2  LOANS
  September 30,
    
    
    December 31,2008
    
    
    2007Balance at beginning of year
    
    $
    34,111
    
    
    $
    22,302Add (deduct):Reserve of acquired bank
    
    
    
    
    
    
    9,022Provision for loan losses
    
    
    20,527
    
    
    
    14,483Loans charged off
    
    
    (22,380
    )
    
    
    (13,471
    )Recoveries of loans charged off
    
    
    2,598
    
    
    
    1,775Ending balance
    
    $
    34,856
    
    
    $
    34,111
 September 30,
    
    
    December 31,2008
    
    
    2007Impaired loans were as follows:Loans with no allowance allocated
    
    $
    41,008
    
    
    $
    Loans with allowance allocated
    
    
    16,458
    
    
    
    36,267Amount of allowance allocated
    
    
    3,161
    
    
    
    5,440Nonperforming loans were as follows:Loans past due 90 days still on accrual
    
    $
    54
    
    
    $
    18Nonaccrual loans
    
    
    40,687
    
    
    
    32,060Total
    
    $
    40,741
    
    
    $
    32,078
   7




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GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
Unaudited
(Amounts in thousands, except share and per share data)
 NOTE
3  EARNINGS PER SHARE OF COMMON STOCK
   Three Months Ended September 30,2008
    
    
    2007Income
    
    
    Shares
    
    
    Income
    
    
    Shares(Numerator)
    
    
    (Denominator)
    
    
    (Numerator)
    
    
    (Denominator)Basic EPSIncome available to common shareholders
    
    $
    1,234
    
    
    
    12,931,774
    
    
    $
    8,914
    
    
    
    12,921,240Effect of dilutive shares
    
    
    
    
    
    
    15,844
    
    
    
    
    
    
    
    87,493Diluted EPSIncome available to common
shareholders plus
assumed conversions
    
    $
    1,234
    
    
    
    12,947,618
    
    
    $
    8,914
    
    
    
    13,008,733
 Nine Months Ended September 30,2008
    
    
    2007Income
    
    
    Shares
    
    
    Income
    
    
    Shares(Numerator)
    
    
    (Denominator)
    
    
    (Numerator)
    
    
    (Denominator)Basic EPSIncome available to common shareholders
    
    $
    9,874
    
    
    
    12,931,538
    
    
    $
    21,616
    
    
    
    11,362,422Effect of dilutive shares
    
    
    
    
    
    
    4,546
    
    
    
    
    
    
    
    92,967Diluted EPSIncome available to common
shareholders plus
assumed conversions
    
    $
    9,874
    
    
    
    12,936,084
    
    
    $
    21,616
    
    
    
    11,455,389
   8




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GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
Unaudited
(Amounts in thousands, except share and per share data)
 NOTE
4  SEGMENT INFORMATION
   Other
    
    
    HoldingThree months ended September 30, 2008
    
    Bank
    
    
    Segments
    
    
    Company
    
    
    Eliminations
    
    
    TotalsNet interest income (expense)
    
    $
    23,499
    
    
    $
    1,935
    
    
    $
    (1,050
    )
    
    $
    
    
    
    $
    24,384Provision for loan losses
    
    
    7,636
    
    
    
    984
    
    
    
    
    
    
    
    
    
    
    
    8,620Noninterest income
    
    
    7,711
    
    
    
    485
    
    
    
    32
    
    
    
    (218
    )
    
    
    8,010Noninterest expense
    
    
    20,347
    
    
    
    1,289
    
    
    
    526
    
    
    
    (218
    )
    
    
    21,944Income tax expense (benefit)
    
    
    1,002
    
    
    
    57
    
    
    
    (463
    )
    
    
    
    
    
    
    596Segment profit (loss)
    
    $
    2,225
    
    
    $
    90
    
    
    $
    (1,081
    )
    
    $
    
    
    
    $
    1,234Segment assets at September 30, 2008
    
    $
    2,963,181
    
    
    $
    39,106
    
    
    $
    9,754
    
    
    $
    
    
    
    $
    3,012,041
 Other
    
    
    HoldingThree months ended September 30, 2007
    
    Bank
    
    
    Segments
    
    
    Company
    
    
    Eliminations
    
    
    TotalsNet interest income (expense)
    
    $
    27,454
    
    
    $
    1,710
    
    
    $
    (1,871
    )
    
    $
    
    
    
    $
    27,293Provision for loan losses
    
    
    961
    
    
    
    483
    
    
    
    
    
    
    
    
    
    
    
    1,444Noninterest income
    
    
    7,311
    
    
    
    624
    
    
    
    56
    
    
    
    (303
    )
    
    
    7,688Noninterest expense
    
    
    17,836
    
    
    
    1,239
    
    
    
    238
    
    
    
    (303
    )
    
    
    19,010Income tax expense (benefit)
    
    
    6,154
    
    
    
    241
    
    
    
    (782
    )
    
    
    
    
    
    
    5,613Segment profit (loss)
    
    $
    9,814
    
    
    $
    371
    
    
    $
    (1,271
    )
    
    $
    
    
    
    $
    8,914Segment assets at September 30, 2007
    
    $
    2,905,571
    
    
    $
    37,517
    
    
    $
    12,659
    
    
    $
    
    
    
    $
    2,955,747
 Other
    
    
    HoldingNine months ended September 30, 2008
    
    Bank
    
    
    Segments
    
    
    Company
    
    
    Eliminations
    
    
    TotalsNet interest income (expense)
    
    $
    71,647
    
    
    $
    5,743
    
    
    $
    (3,490
    )
    
    $
    
    
    
    $
    73,900Provision for loan losses
    
    
    18,552
    
    
    
    1,975
    
    
    
    
    
    
    
    
    
    
    
    20,527Noninterest income
    
    
    22,315
    
    
    
    1,549
    
    
    
    209
    
    
    
    (645
    )
    
    
    23,428Noninterest expense
    
    
    56,906
    
    
    
    3,838
    
    
    
    1,546
    
    
    
    (645
    )
    
    
    61,645Income tax expense (benefit)
    
    
    6,448
    
    
    
    579
    
    
    
    (1,745
    )
    
    
    
    
    
    
    5,282Segment profit (loss)
    
    $
    12,056
    
    
    $
    900
    
    
    $
    (3,082
    )
    
    $
    
    
    
    $
    9,874
 Other
    
    
    HoldingNine months ended September 30, 2007
    
    Bank
    
    
    Segments
    
    
    Company
    
    
    Eliminations
    
    
    TotalsNet interest income (expense)
    
    $
    66,988
    
    
    $
    4,916
    
    
    $
    (2,857
    )
    
    $
    
    
    
    $
    69,047Provision for loan losses
    
    
    2,480
    
    
    
    1,197
    
    
    
    
    
    
    
    
    
    
    
    3,677Noninterest income
    
    
    18,485
    
    
    
    1,886
    
    
    
    94
    
    
    
    (895
    )
    
    
    19,570Noninterest expense
    
    
    46,198
    
    
    
    3,751
    
    
    
    707
    
    
    
    (895
    )
    
    
    49,761Income tax expense (benefit)
    
    
    14,159
    
    
    
    728
    
    
    
    (1,324
    )
    
    
    
    
    
    
    13,563Segment profit (loss)
    
    $
    22,636
    
    
    $
    1,126
    
    
    $
    (2,146
    )
    
    $
    
    
    
    $
    21,616
   9




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##### Table of Contents



GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
Unaudited
(Amounts in thousands, except share and per share data)
 NOTE
4  SEGMENT INFORMATION
 Asset Quality Ratios
 As of and for the period ended September 30, 2008
    
    Bank
    
    
    Other
    
    
    TotalNonperforming loans as percentage of total loans, net of unearned income
    
    
    1.74
    %
    
    
    1.57
    %
    
    
    1.75
    %Nonperforming assets as a percentage of total assets
    
    
    1.73
    %
    
    
    1.69
    %
    
    
    1.76
    %Allowance for loan losses as a percentage of total loans, net of
unearned income
    
    
    1.37
    %
    
    
    8.01
    %
    
    
    1.50
    %Allowance for loan losses as a percentage of nonperforming loans
    
    
    78.93
    %
    
    
    510.88
    %
    
    
    85.56
    %YTD net charge-offs to average total loans, net of unearned income
    
    
    0.77
    %
    
    
    4.64
    %
    
    
    0.84
    %
 As of and for the period ended September 30, 2007
    
    Bank
    
    
    Other
    
    
    TotalNonperforming loans as percentage of total loans, net of unearned income
    
    
    0.24
    %
    
    
    1.40
    %
    
    
    0.26
    %Nonperforming assets as a percentage of total assets
    
    
    0.22
    %
    
    
    1.96
    %
    
    
    0.26
    %Allowance for loan losses as a percentage of total loans, net of
unearned income
    
    
    1.32
    %
    
    
    8.01
    %
    
    
    1.45
    %Allowance for loan losses as a percentage of nonperforming loans
    
    
    556.73
    %
    
    
    573.30
    %
    
    
    558.18
    %YTD net charge-offs to average total loans, net of unearned income
    
    
    0.02
    %
    
    
    2.45
    %
    
    
    0.07
    %
 As of and for the year ended December 31, 2007
    
    Bank
    
    
    Other
    
    
    TotalNonperforming loans as percentage of total loans, net of unearned income
    
    
    1.35
    %
    
    
    1.30
    %
    
    
    1.36
    %Nonperforming assets as a percentage of total assets
    
    
    1.22
    %
    
    
    2.11
    %
    
    
    1.25
    %Allowance for loan losses as a percentage of total loans, net of
unearned income
    
    
    1.32
    %
    
    
    7.96
    %
    
    
    1.45
    %Allowance for loan losses as a percentage of nonperforming loans
    
    
    98.37
    %
    
    
    609.80
    %
    
    
    106.34
    %Net charge-offs to average total loans, net of unearned income
    
    
    0.50
    %
    
    
    4.14
    %
    
    
    0.57
    %
 Net charge-offs
 Bank
    
    
    Other
    
    
    TotalActual for the nine month period ended September 30, 2008
    
    $
    17,950
    
    
    $
    1,832
    
    
    $
    19,782Actual for the nine month period ended September 30, 2007
    
    $
    423
    
    
    $
    875
    
    
    $
    1,298Actual for the year ended December 31, 2007
    
    $
    10,193
    
    
    $
    1,503
    
    
    $
    11,696
   10




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GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
Unaudited
(Amounts in thousands, except share and per share data)
 NOTE
5  BUSINESS COMBINATION
    Cash and due from banks
    
    $
    21,182Securities
    
    
    200,081FHLB stock
    
    
    2,863Bankers Bank stock
    
    
    100Loans held for sale
    
    
    8,642Loans, net of unearned income
    
    
    631,496Allowance for loan losses
    
    
    (9,022
    )Premises and equipment
    
    
    18,332Goodwill
    
    
    112,062Core deposit intangible
    
    
    8,740Mortgage servicing rights
    
    
    745Other assets
    
    
    16,369Total assets acquired
    
    
    1,011,590Deposits
    
    
    (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
     11




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##### Table of Contents



GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
Unaudited
(Amounts in thousands, except share and per share data)
 NOTE
5  BUSINESS COMBINATION
 Nine MonthsEndedSeptember 30,2007Net interest income
    
    $
    88,991Net income
    
    $
    27,605Basic earnings per share
    
    $
    2.08Diluted earnings per share
    
    $
    2.06
 NOTE
6  BORROWINGS
       12




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GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
Unaudited
(Amounts in thousands, except share and per share data)
 NOTE
7  FAIR VALUE DISCLOSURES
   Level 1
  Level 2
  Level 3
   Investment Securities Available-for-Sale
    13




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GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
Unaudited
(Amounts in thousands, except share and per share data)
 NOTE
7  FAIR VALUE DISCLOSURES
 Loans Held for Sale
  Loans
 
 Loan Servicing Rights
  Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  September 30, 2008Total CarryingAmount inStatement of
    
    
    Assets/LiabilitiesFair Value Measurement Using
    
    
    Financial
    
    
    Measured at FairDescription
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Position
    
    
    ValueSecurities available for sale
    
    $
    
    
    
    $
    292,897
    
    
    $
    
    
    
    $
    292,897
    
    
    $
    292,897
   14




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##### Table of Contents



GREEN BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
Unaudited
(Amounts in thousands, except share and per share data)
 NOTE
7  FAIR VALUE DISCLOSURES
 Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
  September 30, 2008Total CarryingAmount inStatement of
    
    
    Assets/LiabilitiesFair Value Measurement Using
    
    
    Financial
    
    
    Measured at FairDescription
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Position
    
    
    ValueLoans
    
    $
    
    
    
    $
    
    
    
    $
    35,536
    
    
    $
    35,536
    
    
    $
    35,536
   15




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    Forward-looking statements, which are based on assumptions and estimates and describe our future
plans, strategies and expectations, are generally identifiable by the use of forward-looking
terminology and words such as trends, assumptions, target, guidance, outlook,
opportunity, future, plans, goals, objectives, expectations, near-term, long-term,
projection, may, will, would, could, expect, intend, estimate, anticipate,
believe, potential, regular, or continue (or the negative or other derivatives of each of
these terms) or similar terminology and expressions.
  16




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##### Table of Contents



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, (1) unanticipated deterioration in the financial condition of borrowers
resulting in significant increases in loan losses and provisions for those losses; (2) lack of
sustained growth in the economy in the markets that the Bank serves; (3) increased competition with
other financial institutions in the markets that the Bank serves; (4) changes in the legislative
and regulatory environment; (5) the Companys failure to successfully implement its growth
strategy; and (6) the loss of key personnel as well as those contained in the 2007 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 the factors described under Critical
Accounting Policies and Estimates on page 19 of this Quarterly Report on Form 10-Q , or from time
to time, in the Companys filings with the Securities and Exchange Commission (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 2007 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.
 Growth and Business Strategy
       17




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##### Table of Contents



Overview
  non-accrual
      18




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##### Table of Contents



Critical Accounting Policies and Estimates
     Changes in Results of Operations
 Net Income.
   19




---



##### Table of Contents



Net Interest Income.
    Beginning
    
    
    Increase/
    
    
    EndingFOMC Meeting Date
    
    Rate
    
    
    Decrease
    
    
    RateMarch 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
    %August 7, 2007
    
    
    5.25
    %
    
    
    0.00
    %
    
    
    5.25
    %September 18, 2007
    
    
    5.25
    %
    
    
    (0.50
    %)
    
    
    4.75
    %October 31, 2007
    
    
    4.75
    %
    
    
    (0.25
    %)
    
    
    4.50
    %December 11, 2007
    
    
    4.50
    %
    
    
    (0.25
    %)
    
    
    4.25
    %January 22, 2008
    
    
    4.25
    %
    
    
    (0.75
    %)
    
    
    3.50
    %January 30, 2008
    
    
    3.50
    %
    
    
    (0.50
    %)
    
    
    3.00
    %March 18, 2008
    
    
    3.00
    %
    
    
    (0.75
    %)
    
    
    2.25
    %April 30, 2008
    
    
    2.25
    %
    
    
    (0.25
    %)
    
    
    2.00
    %June 25, 2008
    
    
    2.00
    %
    
    
    0.00
    %
    
    
    2.00
    %August 6, 2008
    
    
    2.00
    %
    
    
    0.00
    %
    
    
    2.00
    %September 16, 2008
    
    
    2.00
    %
    
    
    0.00
    %
    
    
    2.00
    %
    20




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##### Table of Contents



Three Months EndedSeptember 30,2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Loans(1) (2)
    
    $
    2,302,465
    
    
    $
    38,510
    
    
    
    6.65
    %
    
    $
    2,327,498
    
    
    $
    48,652
    
    
    
    8.29
    %Investment securities (2)
    
    
    306,616
    
    
    
    4,154
    
    
    
    5.39
    %
    
    
    255,556
    
    
    
    3,825
    
    
    
    5.94
    %Other short-term investments
    
    
    16,739
    
    
    
    87
    
    
    
    2.07
    %
    
    
    1,760
    
    
    
    22
    
    
    
    4.96
    %Total interest-earning assets
    
    $
    2,625,820
    
    
    $
    42,751
    
    
    
    6.48
    %
    
    $
    2,584,814
    
    
    $
    52,499
    
    
    
    8.06
    %Noninterest earning assets
    
    
    373,449
    
    
    
    
    
    
    
    
    
    
    
    321,831Total assets
    
    $
    2,999,269
    
    
    
    
    
    
    
    
    
    
    $
    2,906,645Interest-bearing liabilities:Deposits:Interest checking, savings and money
market
    
    $
    617,156
    
    
    $
    2,146
    
    
    
    1.38
    %
    
    $
    701,472
    
    
    $
    4,381
    
    
    
    2.48
    %Time deposits
    
    
    1,440,693
    
    
    
    12,199
    
    
    
    3.37
    %
    
    
    1,120,908
    
    
    
    13,431
    
    
    
    4.75
    %Total interest-bearing deposits
    
    $
    2,057,849
    
    
    $
    14,345
    
    
    
    2.77
    %
    
    $
    1,822,380
    
    
    $
    17,812
    
    
    
    3.88
    %Securities sold under repurchase
agreements and short-term borrowings
    
    
    74,385
    
    
    
    262
    
    
    
    1.40
    %
    
    
    147,589
    
    
    
    1,777
    
    
    
    4.78
    %Notes payable
    
    
    229,928
    
    
    
    2,525
    
    
    
    4.37
    %
    
    
    286,956
    
    
    
    3,541
    
    
    
    4.90
    %Subordinated debentures (3)
    
    
    88,662
    
    
    
    1,050
    
    
    
    4.71
    %
    
    
    88,662
    
    
    
    1,871
    
    
    
    8.37
    %Total interest-bearing liabilities
    
    $
    2,450,824
    
    
    $
    18,182
    
    
    
    2.95
    %
    
    $
    2,345,587
    
    
    $
    25,001
    
    
    
    4.23
    %Noninterest bearing liabilities:Demand deposits
    
    
    193,566
    
    
    
    
    
    
    
    
    
    
    
    208,093Other liabilities
    
    
    24,698
    
    
    
    
    
    
    
    
    
    
    
    33,893Total noninterest bearing liabilities
    
    
    218,264
    
    
    
    
    
    
    
    
    
    
    
    241,986Total liabilities
    
    
    2,669,088
    
    
    
    
    
    
    
    
    
    
    
    2,587,573Shareholders equity
    
    
    330,181
    
    
    
    
    
    
    
    
    
    
    
    319,072Total liabilities and shareholders
Equity
    
    $
    2,999,269
    
    
    
    
    
    
    
    
    
    
    $
    2,906,645Net interest income
    
    
    
    
    
    $
    24,569
    
    
    
    
    
    
    
    
    
    
    $
    27,498Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.53
    %
    
    
    
    
    
    
    
    
    
    
    3.83
    %Net yield on interest-earning assets
    
    
    
    
    
    
    
    
    
    
    3.72
    %
    
    
    
    
    
    
    
    
    
    
    4.22
    %
 1
    
    2008 average loan balances exclude nonaccrual loans for the periods presented. 2007
average loan balances include nonaccrual loans for the periods presented, as they are not material.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.3
    
    The interest expense and average interest rates paid on the Subordinated Debentures
for the three month period ended September 30, 2007 should have been $1,655 and 7.41%,
respectively. The impact of this timing difference on the 2007 second and third quarter results was
deemed immaterial to the overall financial statements.  21




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##### Table of Contents



Nine Months EndedSeptember 30,2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Loans(1) (2)
    
    $
    2,332,510
    
    
    $
    120,698
    
    
    
    6.94
    %
    
    $
    1,956,853
    
    
    $
    120,292
    
    
    
    8.22
    %Investment securities (2)
    
    
    266,453
    
    
    
    11,132
    
    
    
    5.58
    %
    
    
    154,630
    
    
    
    6,725
    
    
    
    5.81
    %Other short-term investments
    
    
    7,254
    
    
    
    111
    
    
    
    2.04
    %
    
    
    1,279
    
    
    
    49
    
    
    
    5.12
    %Total interest-earning assets
    
    $
    2,596,217
    
    
    $
    131,941
    
    
    
    6.79
    %
    
    $
    2,112,762
    
    
    $
    127,066
    
    
    
    8.04
    %Noninterest earning assets
    
    
    362,035
    
    
    
    
    
    
    
    
    
    
    
    235,905Total assets
    
    $
    2,958,252
    
    
    
    
    
    
    
    
    
    
    $
    2,348,667Interest-bearing liabilities:Deposits:Interest checking, savings and money
market
    
    $
    663,195
    
    
    $
    7,726
    
    
    
    1.56
    %
    
    $
    645,708
    
    
    $
    12,792
    
    
    
    2.65
    %Time deposits
    
    
    1,270,940
    
    
    
    35,931
    
    
    
    3.78
    %
    
    
    891,179
    
    
    
    31,185
    
    
    
    4.68
    %Total interest-bearing deposits
    
    $
    1,934,135
    
    
    $
    43,657
    
    
    
    3.02
    %
    
    $
    1,536,887
    
    
    $
    43,977
    
    
    
    3.83
    %Securities sold under repurchase
agreements and short-term borrowings
    
    
    128,057
    
    
    
    2,054
    
    
    
    2.14
    %
    
    
    80,697
    
    
    
    2,831
    
    
    
    4.69
    %Notes payable
    
    
    262,405
    
    
    
    8,268
    
    
    
    4.21
    %
    
    
    217,599
    
    
    
    8,003
    
    
    
    4.92
    %Subordinated debentures
    
    
    88,662
    
    
    
    3,490
    
    
    
    5.26
    %
    
    
    51,318
    
    
    
    2,857
    
    
    
    7.44
    %Total interest-bearing liabilities
    
    $
    2,413,259
    
    
    $
    57,469
    
    
    
    3.18
    %
    
    $
    1,886,501
    
    
    $
    57,668
    
    
    
    4.09
    %Noninterest bearing liabilities:Demand deposits
    
    
    188,737
    
    
    
    
    
    
    
    
    
    
    
    178,051Other liabilities
    
    
    25,480
    
    
    
    
    
    
    
    
    
    
    
    30,522Total noninterest bearing liabilities
    
    
    214,217
    
    
    
    
    
    
    
    
    
    
    
    208,573Total liabilities
    
    
    2,627,476
    
    
    
    
    
    
    
    
    
    
    
    2,095,074Shareholders equity
    
    
    330,776
    
    
    
    
    
    
    
    
    
    
    
    253,593Total liabilities and shareholders
Equity
    
    $
    2,958,252
    
    
    
    
    
    
    
    
    
    
    $
    2,348,667Net interest income
    
    
    
    
    
    $
    74,472
    
    
    
    
    
    
    
    
    
    
    $
    69,398Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.61
    %
    
    
    
    
    
    
    
    
    
    
    3.95
    %Net yield on interest-earning assets
    
    
    
    
    
    
    
    
    
    
    3.83
    %
    
    
    
    
    
    
    
    
    
    
    4.39
    %
 1
    
    2008 average loan balances exclude nonaccrual loans for the periods presented. 2007
average loan balances include nonaccrual loans for the periods presented, as they are not material.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.  22




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##### Table of Contents



Provision for Loan Losses.
   Noninterest Income.
  Noninterest Expense.
  23




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##### Table of Contents



Income Taxes.
 Changes in Financial Condition
    Liquidity and Capital Resources
 Liquidity.
   24




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##### Table of Contents



Capital Resources.
    risk-weighting
  25




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##### Table of Contents



Required
    
    
    RequiredMinimum
    
    
    to beRatio
    
    
    Well Capitalized
    
    
    Bank
    
    
    CompanyTier 1 risk-based
capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    10.34
    %
    
    
    10.64
    %Total risk-based capital
    
    
    8.00
    %
    
    
    10.00
    %
    
    
    11.59
    %
    
    
    11.89
    %Leverage Ratio
    
    
    4.00
    %
    
    
    5.00
    %
    
    
    8.77
    %
    
    
    9.03
    %
  Off-Balance Sheet Arrangements
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    Years
    
    
    TotalCommitments to make loans 
 fixed
    
    $
    6,555
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,555Commitments to make loans 

variable
    
    
    10,225
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,225Unused lines of credit
    
    
    262,039
    
    
    
    83,578
    
    
    
    22,473
    
    
    
    84,259
    
    
    
    452,349Letters of credit
    
    
    30,207
    
    
    
    3,199
    
    
    
    7,721
    
    
    
    6,894
    
    
    
    48,021Total
    
    $
    309,026
    
    
    $
    86,777
    
    
    $
    30,194
    
    
    $
    91,153
    
    
    $
    517,150
 Disclosure of Contractual Obligations
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    Years
    
    
    TotalCertificates of deposits
    
    $
    1,312,493
    
    
    $
    166,085
    
    
    $
    6,102
    
    
    $
    3,179
    
    
    $
    1,487,859Repurchase agreements
    
    
    64,929
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,929FHLB advances and notes payable
    
    
    457
    
    
    
    67,402
    
    
    
    80,984
    
    
    
    81,063
    
    
    
    229,906Subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,662
    
    
    
    88,662Operating lease obligations
    
    
    1,039
    
    
    
    1,458
    
    
    
    1,236
    
    
    
    1,098
    
    
    
    4,831Deferred compensation
    
    
    1,949
    
    
    
    
    
    
    
    
    
    
    
    1,937
    
    
    
    3,886Purchase obligations
    
    
    281
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    281Total
    
    $
    1,381,148
    
    
    $
    234,945
    
    
    $
    88,322
    
    
    $
    175,939
    
    
    $
    1,880,354
   26




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##### Table of Contents



Effect of New Accounting Standards
  Business Combinations
     27




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
   28




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##### Table of Contents



PART II  OTHER INFORMATION
 
 
 Item 1. Legal Proceedings
  
 
 Item 1A. Risk Factors
  
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 
 Item 3. Defaults Upon Senior Securities
  
 
 Item 4. Submission of Matters to a Vote of Security Holders
  
 
 Item 5. Other Information
  
 
 Item 6. Exhibits
   29




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##### Table of Contents



SIGNATURES
  Green Bankshares, Inc.
RegistrantDate: November 06, 2008
By:
    /s/ James E. AdamsJames E. AdamsExecutive Vice President, Chief Financial
Officer and Secretary  30




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    
    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 200232.2
    
    
    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