##### 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 June 30, 2011
 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 incorporation or organization)
    
    (I.R.S. Employer Identification No.)100 North Main Street, Greeneville, Tennessee
    
    37743-4992(Address of principle executive offices)
    
    (Zip Code)
 423) 639-5111
 N/A  (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSThe unaudited condensed consolidated financial statements of Green Bankshares, Inc. and its
wholly owned subsidiaries are as follows:Condensed Consolidated Balance Sheets  June 30, 2011 and December 31, 2010
    
    
    2Condensed Consolidated Statements of Income (Loss)  For the three and six months ended June
30, 2011 and 2010
    
    
    3Condensed Consolidated Statement of Changes in Shareholders Equity  For the six months
ended June 30, 2011
    
    
    4Condensed Consolidated Statements of Cash Flows  For the six months ended June 30, 2011 and
2010
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   1




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##### Table of Contents



GREEN BANKSHARES, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30, 2011 and December 31, 2010
 (Amounts in thousands, except share and per share data)
 (Unaudited)June 30,
    
    
    December 31,2011
    
    
    2010*ASSETSCash and due from banks
    
    $
    339,242
    
    
    $
    289,358Federal funds sold
    
    
    5,023
    
    
    
    4,856Cash and cash equivalents
    
    
    344,265
    
    
    
    294,214Interest earning deposits in other banks
    
    
    
    
    
    
    Securities available for sale
    
    
    217,556
    
    
    
    202,002Securities held to maturity (with a market value of $467)
    
    
    
    
    
    
    465Loans held for sale
    
    
    617
    
    
    
    1,299Loans, net of unearned interest
    
    
    1,560,503
    
    
    
    1,745,378Allowance for loan losses
    
    
    (62,728
    )
    
    
    (66,830
    )Other real estate owned and repossessed assets
    
    
    79,690
    
    
    
    60,095Premises and equipment, net
    
    
    76,886
    
    
    
    78,794FHLB and other stock, at cost
    
    
    12,734
    
    
    
    12,734Cash surrender value of life insurance
    
    
    32,040
    
    
    
    31,479Core deposit and other intangibles
    
    
    5,502
    
    
    
    6,751Deferred tax asset (net of valuation allowance of $52,268 and
$43,455)
    
    
    5,645
    
    
    
    2,177Other assets
    
    
    21,105
    
    
    
    37,482Total assets
    
    $
    2,293,815
    
    
    $
    2,406,040LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesNon-interest bearing deposits
    
    $
    171,369
    
    
    $
    152,752Interest bearing deposits
    
    
    1,710,620
    
    
    
    1,822,703Brokered deposits
    
    
    1,399
    
    
    
    1,399Total deposits
    
    
    1,883,388
    
    
    
    1,976,854Repurchase agreements
    
    
    18,713
    
    
    
    19,413FHLB advances and notes payable
    
    
    157,859
    
    
    
    158,653Subordinated debentures
    
    
    88,662
    
    
    
    88,662Accrued interest payable and other liabilities
    
    
    23,147
    
    
    
    18,561Total liabilities
    
    $
    2,171,769
    
    
    $
    2,262,143Shareholders equityPreferred stock: no par, 1,000,000 shares authorized, 72,278 shares
outstanding
    
    $
    68,815
    
    
    $
    68,121Common stock: $2 par, 20,000,000 shares authorized, 13,257,606 and
13,188,896 shares outstanding
    
    
    26,515
    
    
    
    26,378Common stock warrants
    
    
    6,934
    
    
    
    6,934Additional paid-in capital
    
    
    189,051
    
    
    
    188,901Accumulated Deficit
    
    
    (171,381
    )
    
    
    (147,436
    )Accumulated other comprehensive income
    
    
    2,112
    
    
    
    999Total shareholders equity
    
    
    122,046
    
    
    
    143,897Total liabilities and shareholders equity
    
    $
    2,293,815
    
    
    $
    2,406,040
 *
    
    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, 2010.   2




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##### Table of Contents



GREEN BANKSHARES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
 Three and Six Months Ended June 30, 2011 and 2010
 (Amounts in thousands, except share and per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010(Unaudited)
    
    
    (Unaudited)Interest incomeInterest and fees on loans
    
    $
    23,804
    
    
    $
    29,374
    
    
    $
    48,404
    
    
    $
    59,434Taxable securities
    
    
    1,686
    
    
    
    1,391
    
    
    
    3,088
    
    
    
    2,679Nontaxable securities
    
    
    281
    
    
    
    306
    
    
    
    586
    
    
    
    618FHLB and other stock
    
    
    134
    
    
    
    134
    
    
    
    272
    
    
    
    272Federal funds sold and other
    
    
    170
    
    
    
    99
    
    
    
    350
    
    
    
    193Total interest income
    
    
    26,075
    
    
    
    31,304
    
    
    
    52,700
    
    
    
    63,196Interest expenseDeposits
    
    
    4,561
    
    
    
    7,626
    
    
    
    9,892
    
    
    
    15,687Federal funds purchased and repurchase agreements
    
    
    4
    
    
    
    5
    
    
    
    8
    
    
    
    11FHLB advances and notes payable
    
    
    1,570
    
    
    
    1,712
    
    
    
    3,113
    
    
    
    3,406Subordinated debentures
    
    
    488
    
    
    
    488
    
    
    
    969
    
    
    
    960Total interest expense
    
    
    6,623
    
    
    
    9,831
    
    
    
    13,982
    
    
    
    20,064Net interest income
    
    
    19,452
    
    
    
    21,473
    
    
    
    38,718
    
    
    
    43,132Provision for loan losses
    
    
    14,333
    
    
    
    4,749
    
    
    
    28,229
    
    
    
    8,638Net interest income after provision for loan losses
    
    
    5,119
    
    
    
    16,724
    
    
    
    10,489
    
    
    
    34,494Non-interest incomeService charges on deposit accounts
    
    
    6,377
    
    
    
    6,692
    
    
    
    12,208
    
    
    
    12,632Other charges and fees
    
    
    369
    
    
    
    383
    
    
    
    799
    
    
    
    739Trust and investment services income
    
    
    497
    
    
    
    757
    
    
    
    1,012
    
    
    
    1,339Mortgage banking income
    
    
    112
    
    
    
    123
    
    
    
    199
    
    
    
    241Other income
    
    
    881
    
    
    
    909
    
    
    
    1,646
    
    
    
    1,599Securities gains (losses), netOther-than-temporary impairment
    
    
    
    
    
    
    (553
    )
    
    
    
    
    
    
    (553
    )Less non-credit portion recognized in other
comprehensive income
    
    
    
    
    
    
    460
    
    
    
    
    
    
    
    460Total non-interest income
    
    
    8,236
    
    
    
    8,771
    
    
    
    15,864
    
    
    
    16,457Non-interest expenseEmployee compensation
    
    
    7,324
    
    
    
    7,972
    
    
    
    15,455
    
    
    
    15,637Employee benefits
    
    
    879
    
    
    
    816
    
    
    
    1,856
    
    
    
    1,793Occupancy expense
    
    
    1,710
    
    
    
    1,684
    
    
    
    3,504
    
    
    
    3,383Equipment expense
    
    
    638
    
    
    
    668
    
    
    
    1,516
    
    
    
    1,376Computer hardware/software expense
    
    
    936
    
    
    
    886
    
    
    
    1,855
    
    
    
    1,710Professional services
    
    
    1,122
    
    
    
    576
    
    
    
    1,910
    
    
    
    1,183Advertising
    
    
    367
    
    
    
    806
    
    
    
    1,085
    
    
    
    1,404OREO maintenance expense
    
    
    1,194
    
    
    
    554
    
    
    
    2,349
    
    
    
    999Collection and repossession expense
    
    
    772
    
    
    
    534
    
    
    
    1,319
    
    
    
    1,821Loss on OREO and repossessed assets
    
    
    4,328
    
    
    
    926
    
    
    
    6,429
    
    
    
    1,435FDIC Insurance
    
    
    1,284
    
    
    
    1,209
    
    
    
    2,370
    
    
    
    2,060Core deposit and other intangibles amortization
    
    
    623
    
    
    
    640
    
    
    
    1,249
    
    
    
    1,291Other expenses
    
    
    3,593
    
    
    
    4,003
    
    
    
    6,901
    
    
    
    7,728Total non-interest expenses
    
    
    24,770
    
    
    
    21,274
    
    
    
    47,798
    
    
    
    41,820Income (loss) before income taxes
    
    
    (11,415
    )
    
    
    4,221
    
    
    
    (21,445
    )
    
    
    9,131Provision (benefit) for income taxes
    
    
    (281
    )
    
    
    1,410
    
    
    
    
    
    
    
    3,124Net income (loss)
    
    $
    (11,134
    )
    
    $
    2,811
    
    
    $
    (21,445
    )
    
    $
    6,007Preferred stock dividends and accretion of discount
    
    
    1,250
    
    
    
    1,250
    
    
    
    2,500
    
    
    
    2,500Net income (loss) available to common shareholders
    
    $
    (12,384
    )
    
    $
    1,561
    
    
    $
    (23,945
    )
    
    $
    3,507Per share of common stock:Basic earnings (loss)
    
    $
    (0.94
    )
    
    $
    0.12
    
    
    $
    (1.83
    )
    
    $
    0.27Diluted earnings (loss)
    
    
    (0.94
    )
    
    
    0.12
    
    
    
    (1.83
    )
    
    
    0.27Weighted average shares outstanding:Basic
    
    
    13,126,923
    
    
    
    13,097,611
    
    
    
    13,117,811
    
    
    
    13,090,021Diluted1
    
    
    13,126,923
    
    
    
    13,158,131
    
    
    
    13,117,811
    
    
    
    13,148,226
 1
    
    Diluted weighted average shares outstanding exclude 92,524 and 85,697 restricted
average shares for the three and six month periods ended June 30, 2011 because their impact would
be anti-dilutive.   3




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##### Table of Contents



GREEN BANKSHARES, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 For the Six Months Ended June 30, 2011
 (Unaudited)
 (Amounts in thousands, except share and per share data)
 Warrants
    
    
    
    
    
    
    
    
    
    
    AccumulatedFor
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    TotalPreferred
    
    
    Common Stock
    
    
    Common
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ShareholdersStock
    
    
    Shares
    
    
    Amount
    
    
    Stock
    
    
    Capital
    
    
    (Deficit)
    
    
    Income
    
    
    EquityBalance, December 31, 2010
    
    $
    68,121
    
    
    
    13,188,896
    
    
    $
    26,378
    
    
    $
    6,934
    
    
    $
    188,901
    
    
    $
    (147,436
    )
    
    $
    999
    
    
    $
    143,897Preferred stock transactions:Accretion of preferred stock discount
    
    
    694
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (694
    )
    
    
    
    
    
    
    Preferred stock dividends accrued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,806
    )
    
    
    
    
    
    
    (1,806
    )Common stock transactions:Issuance of restricted common shares
    
    
    
    
    
    
    77,356
    
    
    
    154
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    183Forfeiture of restricted common shares
    
    
    
    
    
    
    (8,646
    )
    
    
    (17
    )
    
    
    
    
    
    
    (87
    )
    
    
    
    
    
    
    
    
    
    
    (104
    )Compensation expense:Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158
    
    
    
    
    
    
    
    
    
    
    
    158Comprehensive income/(loss):Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,445
    )
    
    
    
    
    
    
    (21,445
    )Change in unrealized gains,
net of reclassification and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,113
    
    
    
    1,113Total comprehensive income/(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,331
    )Balance, June 30, 2011
    
    $
    68,815
    
    
    
    13,257,606
    
    
    $
    26,515
    
    
    $
    6,934
    
    
    $
    189,051
    
    
    $
    (171,381
    )
    
    $
    2,112
    
    
    $
    122,046
   4




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##### Table of Contents



GREEN BANKSHARES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Six Months Ended June 30, 2011 and 2010
 (Amounts in thousands, except share and per share data)
 June 30,
    
    
    June 30,2011
    
    
    2010(Unaudited)Cash flows from operating activitiesNet income (loss)
    
    $
    (21,445
    )
    
    $
    6,007Adjustments to reconcile net income / (loss) to net cash
provided by operating
ActivitiesProvision for loan losses
    
    
    28,229
    
    
    
    8,638Depreciation and amortization
    
    
    3,442
    
    
    
    3,619Security amortization and accretion, net
    
    
    199
    
    
    
    235Write down of investments for impairment
    
    
    
    
    
    
    93Net gain on sale of mortgage loans
    
    
    (185
    )
    
    
    (222
    )Originations of mortgage loans held for sale
    
    
    (14,560
    )
    
    
    (18,759
    )Proceeds from sales of mortgage loans
    
    
    15,427
    
    
    
    19,685Increase in cash surrender value of life insurance
    
    
    (561
    )
    
    
    (595
    )Net losses from sales of fixed assets
    
    
    223
    
    
    
    5Stock-based compensation expense
    
    
    287
    
    
    
    316Net loss on other real estate and repossessed assets
    
    
    6,429
    
    
    
    1,435Deferred tax benefit
    
    
    
    
    
    
    (516
    )Net changes:Other assets
    
    
    12,193
    
    
    
    6,631Accrued interest payable and other liabilities
    
    
    2,779
    
    
    
    (3,561
    )Net cash provided by operating activities
    
    
    32,457
    
    
    
    23,011Cash flows from investing activitiesPurchase of securities available for sale
    
    
    (59,790
    )
    
    
    (85,684
    )Proceeds from maturities of securities available for sale
    
    
    45,868
    
    
    
    70,025Proceeds from maturities of securities held to maturity
    
    
    465
    
    
    
    10Net change in loans
    
    
    111,627
    
    
    
    77,775Proceeds from sale of other real estate
    
    
    15,154
    
    
    
    8,357Improvements to other real estate
    
    
    (261
    )
    
    
    (450
    )Proceeds from sale of fixed assets
    
    
    7
    
    
    
    Premises and equipment expenditures
    
    
    (516
    )
    
    
    (951
    )Net cash provided by investing activities
    
    
    112,554
    
    
    
    69,082Cash flows from financing activitiesNet change in deposits
    
    
    (93,466
    )
    
    
    (87,072
    )Net change in brokered deposits
    
    
    
    
    
    
    (5,185
    )Net change in repurchase agreements
    
    
    (700
    )
    
    
    (209
    )Repayments of FHLB advances and notes payable
    
    
    (794
    )
    
    
    (161
    )Preferred stock dividends paid
    
    
    
    
    
    
    (1,805
    )Net cash (used) in financing activities
    
    
    (94,960
    )
    
    
    (94,432
    )Net change in cash and cash equivalents
    
    
    50,051
    
    
    
    (2,339
    )Cash and cash equivalents, beginning of period
    
    
    294,214
    
    
    
    210,494Cash and cash equivalents, end of period
    
    $
    344,265
    
    
    $
    208,155Supplemental disclosures  cash and noncashInterest paid
    
    $
    13,313
    
    
    $
    20,639Loans converted to other real estate
    
    
    41,261
    
    
    
    30,879Unrealized gain on available for sale securities, net of tax
    
    
    1,113
    
    
    
    1,863Loans Originated to finance / sell other real estate
    
    
    1,568
    
    
    
    Preferred Dividends Declared
    
    
    1,806
    
    
    
    
   5




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##### Table of Contents



NOTE 1  PRINCIPLES OF CONSOLIDATION
  NOTE 2  SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable for SaleJune 30, 2011U.S. government agencies
    
    $
    68,950
    
    
    $
    210
    
    
    $
    (282
    )
    
    $
    68,878States and political subdivisions
    
    
    28,893
    
    
    
    843
    
    
    
    (392
    )
    
    
    29,344CMO Agency
    
    
    88,678
    
    
    
    2,442
    
    
    
    (166
    )
    
    
    90,954CMO Non-Agency
    
    
    3,354
    
    
    
    32
    
    
    
    (75
    )
    
    
    3,311Mortgage-backed securities
    
    
    22,362
    
    
    
    1,032
    
    
    
    (6
    )
    
    
    23,388Trust preferred securities
    
    
    1,844
    
    
    
    
    
    
    
    (163
    )
    
    
    1,681$
    214,081
    
    
    $
    4,559
    
    
    $
    (1,084
    )
    
    $
    217,556December 31, 2010U.S. government agencies
    
    $
    84,106
    
    
    $
    115
    
    
    $
    (922
    )
    
    $
    83,299States and political subdivisions
    
    
    31,192
    
    
    
    705
    
    
    
    (396
    )
    
    
    31,501CMO Agency
    
    
    62,589
    
    
    
    1,858
    
    
    
    (265
    )
    
    
    64,182CMO Non-Agency
    
    
    3,454
    
    
    
    43
    
    
    
    (104
    )
    
    
    3,393Mortgage-backed securities
    
    
    17,168
    
    
    
    815
    
    
    
    (19
    )
    
    
    17,964Trust preferred securities
    
    
    1,850
    
    
    
    
    
    
    
    (187
    )
    
    
    1,663$
    200,359
    
    
    $
    3,536
    
    
    $
    (1,893
    )
    
    $
    202,002Held to maturityDecember 31, 2010States and political subdivisions
    
    $
    215
    
    
    $
    1
    
    
    $
    
    
    
    $
    216Other securities
    
    
    250
    
    
    
    1
    
    
    
    
    
    
    
    251$
    465
    
    
    $
    2
    
    
    $
    
    
    
    $
    467
   6




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##### Table of Contents



NOTE 2  SECURITIES
  Available for SaleFairValueDue in one year or less
    
    $
    1,018Due after one year through five years
    
    
    4,676Due after five years through ten years
    
    
    52,499Due after ten years
    
    
    41,710Collateralized mortgage obligations
    
    
    94,265Mortgage-backed securities
    
    
    23,388Total maturities
    
    $
    217,556
    Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossJune 30, 2011U. S. government agencies
    
    $
    23,690
    
    
    $
    (282
    )
    
    $
    
    
    
    $
    
    
    
    $
    23,690
    
    
    $
    (282
    )States and political subdivisions
    
    
    1,425
    
    
    
    (162
    )
    
    
    1,754
    
    
    
    (230
    )
    
    
    3,179
    
    
    
    (392
    )CMO Agency
    
    
    10,372
    
    
    
    (166
    )
    
    
    
    
    
    
    
    
    
    
    10,372
    
    
    
    (166
    )CMO Non-Agency
    
    
    
    
    
    
    
    
    
    
    2,728
    
    
    
    (75
    )
    
    
    2,728
    
    
    
    (75
    )Mortgage-backed securities
    
    
    2,040
    
    
    
    (3
    )
    
    
    5
    
    
    
    (3
    )
    
    
    2,045
    
    
    
    (6
    )Trust preferred securities
    
    
    
    
    
    
    
    
    
    
    1,681
    
    
    
    (163
    )
    
    
    1,681
    
    
    
    (163
    )Total temporarily impaired
    
    $
    37,527
    
    
    $
    (613
    )
    
    $
    6,168
    
    
    $
    (471
    )
    
    $
    43,695
    
    
    $
    (1,084
    )December 31, 2010U. S. government agencies
    
    $
    65,178
    
    
    $
    (922
    )
    
    $
    
    
    
    $
    
    
    
    $
    65,178
    
    
    $
    (922
    )States and political subdivisions
    
    
    2,488
    
    
    
    (114
    )
    
    
    1,659
    
    
    
    (282
    )
    
    
    4,147
    
    
    
    (396
    )CMO Agency
    
    
    14,666
    
    
    
    (265
    )
    
    
    
    
    
    
    
    
    
    
    14,666
    
    
    
    (265
    )CMO Non-Agency
    
    
    
    
    
    
    
    
    
    
    2,699
    
    
    
    (104
    )
    
    
    2,699
    
    
    
    (104
    )Mortgage-backed securities
    
    
    2,821
    
    
    
    (17
    )
    
    
    8
    
    
    
    (2
    )
    
    
    2,829
    
    
    
    (19
    )Trust preferred securities
    
    
    
    
    
    
    
    
    
    
    1,663
    
    
    
    (187
    )
    
    
    1,663
    
    
    
    (187
    )Total temporarily impaired
    
    $
    85,153
    
    
    $
    (1,318
    )
    
    $
    6,029
    
    
    $
    (575
    )
    
    $
    91,182
    
    
    $
    (1,893
    )
   7




---



##### Table of Contents



NOTE 2  SECURITIES
      8




---



##### Table of Contents



NOTE 2  SECURITIES
  CurrentCredit
    
    
    Book
    
    
    Fair
    
    
    UnrealizedDescription
    
    Cusip#
    
    
    Rating
    
    
    Value
    
    
    Value
    
    
    LossCollateralized mortgage
obligationsWells Fargo  2007 - 4 A21
    
    
    94985RAW2
    
    
    Caa2
    
    
    $
    2,802
    
    
    $
    2,728
    
    
    $
    (74
    )Trust preferred securitiesWest Tennessee Bancshares, Inc.
    
    
    956192AA6
    
    
    N/A
    
    
    
    675
    
    
    
    638
    
    
    
    (37
    )
  Six months
    
    
    Six monthsended
    
    
    ended6/30/2011
    
    
    6/30/2010Beginning balance of credit losses at January 1, 2011 and 2010
    
    $
    1,069
    
    
    $
    976Other-than-temporary impairment credit losses
    
    
    
    
    
    
    93Ending balance of cumulative credit losses recognized in earnings
    
    $
    1,069
    
    
    $
    1,069
   9




---



##### Table of Contents



NOTE 3  LOANS
  June 30,
    
    
    December 31,2011
    
    
    2010Commercial real estate
    
    $
    932,955
    
    
    $
    1,080,805Residential real estate
    
    
    372,320
    
    
    
    378,783Commercial
    
    
    193,158
    
    
    
    222,927Consumer
    
    
    74,408
    
    
    
    75,498Other
    
    
    3,058
    
    
    
    1,913Unearned income
    
    
    (15,396
    )
    
    
    (14,548
    )Loans, net of unearned income
    
    $
    1,560,503
    
    
    $
    1,745,378Allowance for loan losses
    
    $
    (62,728
    )
    
    $
    (66,830
    )
  June 30,
    
    
    June 30,2011
    
    
    2010Beginning balance
    
    $
    66,830
    
    
    $
    50,161Add (deduct):Provision for loan losses
    
    
    28,229
    
    
    
    8,638Loans charged off
    
    
    (33,632
    )
    
    
    (10,049
    )Recoveries of loans charged off
    
    
    1,301
    
    
    
    1,299Balance, end of year
    
    $
    62,728
    
    
    $
    50,049
   10




---



##### Table of Contents



NOTE 3  LOANS (Continued)
  3 Months Ended Allowance Rollforward:
 Commercial
    
    
    ResidentialReal Estate
    
    
    Real Estate
    
    
    Commercial
    
    
    Consumer
    
    
    Other
    
    
    TotalJune 30, 2011Allowance for loan losses:Beginning balance
    
    $
    53,366
    
    
    $
    4,382
    
    
    $
    5,645
    
    
    $
    1,708
    
    
    $
    8
    
    
    $
    65,109Add (deduct):Charge-offs
    
    
    (14,854
    )
    
    
    (506
    )
    
    
    (1,341
    )
    
    
    (524
    )
    
    
    
    
    
    
    (17,225
    )Recoveries
    
    
    216
    
    
    
    24
    
    
    
    118
    
    
    
    153
    
    
    
    
    
    
    
    511Provision
    
    
    10,744
    
    
    
    997
    
    
    
    1,011
    
    
    
    1,491
    
    
    
    
    
    
    
    14,333Ending balance
    
    $
    49,472
    
    
    $
    4,897
    
    
    $
    5,523
    
    
    $
    2,828
    
    
    $
    8
    
    
    $
    62,728
 6 Months Ended Allowance Rollforward:
 Commercial
    
    
    ResidentialReal Estate
    
    
    Real Estate
    
    
    Commercial
    
    
    Consumer
    
    
    Other
    
    
    TotalJune 30, 2011Allowance for loan losses:Beginning balance
    
    $
    54,203
    
    
    $
    4,431
    
    
    $
    5,080
    
    
    $
    3,108
    
    
    $
    8
    
    
    $
    66,830Add (deduct):Charge-offs
    
    
    (29,775
    )
    
    
    (819
    )
    
    
    (2,069
    )
    
    
    (969
    )
    
    
    
    
    
    
    (33,632
    )Recoveries
    
    
    413
    
    
    
    53
    
    
    
    496
    
    
    
    339
    
    
    
    
    
    
    
    1,301Provision
    
    
    24,631
    
    
    
    1,232
    
    
    
    2,016
    
    
    
    350
    
    
    
    
    
    
    
    28,229Ending balance
    
    $
    49,472
    
    
    $
    4,897
    
    
    $
    5,523
    
    
    $
    2,828
    
    
    $
    8
    
    
    $
    62,728As of June 30, 2011Allowance for loan losses:Allocation for loans individually evaluated for impairment
    
    $
    19,296
    
    
    $
    229
    
    
    $
    1,071
    
    
    $
    88
    
    
    $
    
    
    
    $
    20,684Allocation for loans collectively evaluated for impairment
    
    
    30,176
    
    
    
    4,668
    
    
    
    4,452
    
    
    
    2,740
    
    
    
    8
    
    
    
    42,044Ending balance
    
    $
    49,472
    
    
    $
    4,897
    
    
    $
    5,523
    
    
    $
    2,828
    
    
    $
    8
    
    
    $
    62,728As of December 31, 2010Allowance for loan losses:Allocation for loans individually evaluated for impairment
    
    $
    22,939
    
    
    $
    1,027
    
    
    $
    722
    
    
    $
    146
    
    
    $
    
    
    
    $
    24,834Allocation for loans collectively evaluated for impairment
    
    
    31,264
    
    
    
    3,404
    
    
    
    4,358
    
    
    
    2,962
    
    
    
    8
    
    
    
    41,996Ending balance
    
    $
    54,203
    
    
    $
    4,431
    
    
    $
    5,080
    
    
    $
    3,108
    
    
    $
    8
    
    
    $
    66,830As of June 30, 2011Loans:Ending balance: individually evaluated for impairment
    
    $
    139,240
    
    
    $
    9,044
    
    
    $
    8,036
    
    
    $
    988
    
    
    $
    
    
    
    $
    157,308Ending balance: collectively evaluated for impairment
    
    $
    793,715
    
    
    $
    356,800
    
    
    $
    185,122
    
    
    $
    64,500
    
    
    $
    3,058
    
    
    $
    1,403,195As of December 31, 2010Loans:Ending balance: individually evaluated for impairment
    
    $
    170,175
    
    
    $
    8,697
    
    
    $
    6,149
    
    
    $
    970
    
    
    $
    
    
    
    $
    185,991Ending balance: collectively evaluated for impairment
    
    $
    910,630
    
    
    $
    363,506
    
    
    $
    216,778
    
    
    $
    66,470
    
    
    $
    1,913
    
    
    $
    1,559,387
   11




---



##### Table of Contents



NOTE 3  LOANS (Continued)
 Impaired loans by class are presented below as of June 30, 2011:
 3
Months
Ended
    
    

6
Months
EndedUnpaid
    
    
    Recorded
    
    
    Recorded
    
    
    Total
    
    
    
    
    
    
    Average
    
    
    Interest
    
    
    Average
    
    
    InterestPrincipal
    
    
    investment with
    
    
    investment
    
    
    Recorded
    
    
    Related
    
    
    Recorded
    
    
    Income
    
    
    Recorded
    
    
    IncomeBalance
    
    

no
allowance
    
    

with
allowance
    
    
    Investment
    
    
    Allowance
    
    
    Investment
    
    
    Recognized
    
    
    Investment
    
    
    RecognizedCommercial
Real Estate:Speculative 1-4 Family
    
    $
    92,992
    
    
    $
    33,514
    
    
    $
    32,970
    
    
    
    66,484
    
    
    $
    13,942
    
    
    $
    67,203
    
    
    $
    178
    
    
    $
    79,743
    
    
    $
    231Construction
    
    
    45,137
    
    
    
    22,341
    
    
    
    7,725
    
    
    
    30,066
    
    
    
    2,700
    
    
    
    31,769
    
    
    
    75
    
    
    
    49,747
    
    
    
    71Owner Occupied
    
    
    14,385
    
    
    
    15,162
    
    
    
    353
    
    
    
    15,515
    
    
    
    100
    
    
    
    15,966
    
    
    
    57
    
    
    
    15,144
    
    
    
    18Non-owner Occupied
    
    
    22,839
    
    
    
    18,559
    
    
    
    7,497
    
    
    
    26,056
    
    
    
    2,554
    
    
    
    26,883
    
    
    
    169
    
    
    
    44,177
    
    
    
    182Other
    
    
    1,159
    
    
    
    1,119
    
    
    
    
    
    
    
    1,119
    
    
    
    
    
    
    
    1,160
    
    
    
    
    
    
    
    706
    
    
    
    Residential
Real Estate:HELOC
    
    
    3,173
    
    
    
    3,369
    
    
    
    
    
    
    
    3,369
    
    
    
    
    
    
    
    3,381
    
    
    
    23
    
    
    
    3,206
    
    
    
    15Mortgage-Prime
    
    
    5,097
    
    
    
    4,399
    
    
    
    656
    
    
    
    5,055
    
    
    
    156
    
    
    
    5,237
    
    
    
    37
    
    
    
    6,334
    
    
    
    41Mortgage-Subprime
    
    
    484
    
    
    
    
    
    
    
    484
    
    
    
    484
    
    
    
    73
    
    
    
    474
    
    
    
    
    
    
    
    562
    
    
    
    Other
    
    
    156
    
    
    
    136
    
    
    
    
    
    
    
    136
    
    
    
    
    
    
    
    137
    
    
    
    1
    
    
    
    142
    
    
    
    1Commercial:
    
    
    8,945
    
    
    
    3,380
    
    
    
    4,656
    
    
    
    8,036
    
    
    
    1,071
    
    
    
    8,056
    
    
    
    36
    
    
    
    7,825
    
    
    
    17Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer:Prime
    
    
    235
    
    
    
    225
    
    
    
    
    
    
    
    225
    
    
    
    
    
    
    
    234
    
    
    
    2
    
    
    
    235
    
    
    
    3Subprime
    
    
    262
    
    
    
    
    
    
    
    262
    
    
    
    262
    
    
    
    38
    
    
    
    252
    
    
    
    
    
    
    
    169
    
    
    
    Auto-Subprime
    
    
    501
    
    
    
    
    
    
    
    501
    
    
    
    501
    
    
    
    50
    
    
    
    490
    
    
    
    
    
    
    
    457
    
    
    
    Other:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    195,365
    
    
    $
    102,204
    
    
    $
    55,104
    
    
    
    157,308
    
    
    
    20,684
    
    
    
    161,242
    
    
    
    578
    
    
    
    208,447
    
    
    
    579
   12




---



##### Table of Contents



NOTE 3  LOANS (Continued)
 Impaired loans by class are presented below as of December 31, 2010:
 Unpaid
    
    
    
    
    
    
    Average
    
    
    InterestRecorded
    
    
    Principal
    
    
    Related
    
    
    Recorded
    
    
    IncomeInvestment
    
    
    Balance
    
    
    Allowance
    
    
    Investment
    
    
    RecognizedCommercial Real Estate:Speculative 1-4 Family
    
    $
    72,138
    
    
    $
    98,141
    
    
    $
    11,830
    
    
    $
    85,487
    
    
    $
    2,292Construction
    
    
    56,758
    
    
    
    69,355
    
    
    
    8,366
    
    
    
    63,710
    
    
    
    2,565Owner Occupied
    
    
    13,590
    
    
    
    14,513
    
    
    
    851
    
    
    
    14,119
    
    
    
    644Non-owner Occupied
    
    
    25,824
    
    
    
    27,561
    
    
    
    1,823
    
    
    
    28,786
    
    
    
    1,375Other
    
    
    1,865
    
    
    
    2,090
    
    
    
    69
    
    
    
    2,278
    
    
    
    66Residential Real Estate:HELOC
    
    
    2,807
    
    
    
    2,894
    
    
    
    346
    
    
    
    2,603
    
    
    
    88Mortgage-Prime
    
    
    4,539
    
    
    
    4,722
    
    
    
    590
    
    
    
    4,661
    
    
    
    209Mortgage-Subprime
    
    
    370
    
    
    
    370
    
    
    
    57
    
    
    
    370
    
    
    
    Other
    
    
    981
    
    
    
    1,285
    
    
    
    34
    
    
    
    2,419
    
    
    
    47Commercial:
    
    
    6,149
    
    
    
    7,510
    
    
    
    722
    
    
    
    6,729
    
    
    
    171Consumer:Prime
    
    
    217
    
    
    
    228
    
    
    
    32
    
    
    
    252
    
    
    
    13Subprime
    
    
    228
    
    
    
    228
    
    
    
    35
    
    
    
    228
    
    
    
    Auto-Subprime
    
    
    525
    
    
    
    525
    
    
    
    79
    
    
    
    525
    
    
    
    Other:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    185,991
    
    
    
    229,422
    
    
    
    24,834
    
    
    
    212,167
    
    
    
    7,470
  Prime credit risk rating:
   13




---



##### Table of Contents



NOTE 3  LOANS (Continued)
 Desirable credit risk rating:
 Satisfactory I credit risk rating or pass credit rating:
 Satisfactory II credit risk rating:
 Acceptable with care credit risk rating:
 Management watch credit risk rating:
 Substandard credit risk rating:
 Loss credit rating:
   14




---



##### Table of Contents



NOTE 3  LOANS (Continued)
 Credit quality indicators by class are presented below as of June 30, 2011:
 Speculative 1-4
    
    
    
    
    
    
    Owner
    
    
    Non-OwnerFamily
    
    
    Construction
    
    
    Occupied
    
    
    Occupied
    
    
    OtherCommercial Real
Estate Credit
ExposurePrime
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Desirable
    
    
    
    
    
    
    1,585
    
    
    
    905
    
    
    
    168
    
    
    
    Satisfactory tier I
    
    
    2,535
    
    
    
    910
    
    
    
    24,776
    
    
    
    26,888
    
    
    
    654Satisfactory tier II
    
    
    12,294
    
    
    
    19,052
    
    
    
    101,512
    
    
    
    155,877
    
    
    
    6,171Acceptable with care
    
    
    57,686
    
    
    
    42,313
    
    
    
    58,237
    
    
    
    172,882
    
    
    
    6,005Management Watch
    
    
    24,454
    
    
    
    14,637
    
    
    
    7,535
    
    
    
    35,457
    
    
    
    2,024Substandard
    
    
    73,833
    
    
    
    32,509
    
    
    
    16,645
    
    
    
    32,427
    
    
    
    2,984Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    170,802
    
    
    
    111,006
    
    
    
    209,610
    
    
    
    423,699
    
    
    
    17,838
 Credit quality indicators by class are presented below as of December 31, 2010:
 Speculative 1-4
    
    
    
    
    
    
    Owner
    
    
    Non-OwnerFamily
    
    
    Construction
    
    
    Occupied
    
    
    Occupied
    
    
    OtherCommercial Real
Estate Credit
ExposurePrime
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Desirable
    
    
    
    
    
    
    1,573
    
    
    
    968
    
    
    
    177
    
    
    
    Satisfactory tier I
    
    
    2,836
    
    
    
    978
    
    
    
    38,623
    
    
    
    56,221
    
    
    
    4,246Satisfactory tier II
    
    
    14,010
    
    
    
    34,239
    
    
    
    102,383
    
    
    
    130,850
    
    
    
    17,999Acceptable with care
    
    
    69,902
    
    
    
    47,093
    
    
    
    62,198
    
    
    
    159,216
    
    
    
    45,597Management Watch
    
    
    27,383
    
    
    
    15,259
    
    
    
    5,298
    
    
    
    26,415
    
    
    
    2,965Substandard
    
    
    91,845
    
    
    
    61,388
    
    
    
    16,289
    
    
    
    38,037
    
    
    
    6,817Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    205,976
    
    
    
    160,530
    
    
    
    225,759
    
    
    
    410,916
    
    
    
    77,624
   15




---



##### Table of Contents



NOTE 3  LOANS (Continued)
 June 30,
    
    
    December 31,2011
    
    
    2010Commercial
    
    
    CommercialCommercial Credit ExposurePrime
    
    $
    1,421
    
    
    $
    1,236Desirable
    
    
    4,595
    
    
    
    7,951Satisfactory tier I
    
    
    29,006
    
    
    
    33,859Satisfactory tier II
    
    
    76,894
    
    
    
    91,505Acceptable with care
    
    
    63,420
    
    
    
    72,286Management Watch
    
    
    5,077
    
    
    
    8,511Substandard
    
    
    12,745
    
    
    
    7,579Loss
    
    
    
    
    
    
    Total
    
    
    193,158
    
    
    
    222,927
 As of June 30, 2011
 Mortgage HELOC
    
    
    Mortgage
    
    
    Subprime
    
    
    OtherConsumer Real
Estate Credit
ExposurePass
    
    $
    192,875
    
    
    $
    147,183
    
    
    $
    11,682
    
    
    $
    3,304Management Watch
    
    
    797
    
    
    
    2,076
    
    
    
    
    
    
    
    Substandard
    
    
    3,055
    
    
    
    4,750
    
    
    
    
    
    
    
    122Total
    
    
    196,727
    
    
    
    154,009
    
    
    
    11,682
    
    
    
    3,426
 As of December 31, 2010
 Mortgage HELOC
    
    
    Mortgage
    
    
    Subprime
    
    
    OtherConsumer Real
Estate Credit
ExposurePass
    
    $
    188,086
    
    
    $
    131,845
    
    
    $
    11,692
    
    
    $
    29,833Management Watch
    
    
    1,017
    
    
    
    317
    
    
    
    
    
    
    
    Substandard
    
    
    2,807
    
    
    
    5,117
    
    
    
    50
    
    
    
    1,529Total
    
    
    191,910
    
    
    
    137,279
    
    
    
    11,742
    
    
    
    31,362
   16




---



##### Table of Contents



NOTE 3  LOANS (Continued)
 Consumer 
    
    
    Consumer AutoAs of June 30, 2011
    
    Consumer  Prime
    
    
    Subprime
    
    
     SubprimeConsumer Credit ExposurePass
    
    $
    32,195
    
    
    $
    13,515
    
    
    $
    19,453Management Watch
    
    
    
    
    
    
    
    
    
    
    Substandard
    
    
    225
    
    
    
    8
    
    
    
    92Total
    
    
    32,420
    
    
    
    13,523
    
    
    
    19,545
 Consumer 
    
    
    Consumer AutoAs of December 31, 2010
    
    Consumer  Prime
    
    
    Subprime
    
    
     SubprimeConsumer Credit ExposurePass
    
    $
    35,029
    
    
    $
    13,093
    
    
    $
    18,588Management Watch
    
    
    
    
    
    
    
    
    
    
    Substandard
    
    
    217
    
    
    
    39
    
    
    
    474Total
    
    
    35,246
    
    
    
    13,132
    
    
    
    19,062
    17




---



##### Table of Contents



NOTE 3  LOANS (Continued)
 Age analysis of past due loans by class are presented below as of June 30, 2011:
 RecordedInvestmentGreater
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 90 Days30-59 Days
    
    
    60-89 Days
    
    
    Than 90
    
    
    Total Past
    
    
    
    
    
    
    
    
    
    
    andPast Due
    
    
    Past Due
    
    
    Days
    
    
    Due
    
    
    Current
    
    
    Total Loans
    
    
    AccruingCommercial real estate:Speculative 1-4 Family
    
    $
    6,221
    
    
    $
    331
    
    
    $
    38,835
    
    
    $
    45,387
    
    
    $
    125,415
    
    
    $
    170,802
    
    
    $
    Construction
    
    
    19
    
    
    
    18,225
    
    
    
    3,332
    
    
    
    21,576
    
    
    
    89,430
    
    
    
    111,006
    
    
    
    Owner Occupied
    
    
    1,262
    
    
    
    1,865
    
    
    
    9,374
    
    
    
    12,501
    
    
    
    197,109
    
    
    
    209,610
    
    
    
    Non-owner Occupied
    
    
    4,293
    
    
    
    3,411
    
    
    
    6,495
    
    
    
    14,199
    
    
    
    409,500
    
    
    
    423,699
    
    
    
    Other
    
    
    232
    
    
    
    507
    
    
    
    114
    
    
    
    853
    
    
    
    16,985
    
    
    
    17,838
    
    
    
    160Residential real estate:HELOC
    
    
    1,264
    
    
    
    221
    
    
    
    612
    
    
    
    2,097
    
    
    
    194,630
    
    
    
    196,727
    
    
    
    Mortgage-Prime
    
    
    2,773
    
    
    
    930
    
    
    
    2,270
    
    
    
    5,973
    
    
    
    148,036
    
    
    
    154,009
    
    
    
    Mortgage-Subprime
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    11,607
    
    
    
    11,682
    
    
    
    Other
    
    
    148
    
    
    
    46
    
    
    
    115
    
    
    
    309
    
    
    
    3,117
    
    
    
    3,426
    
    
    
    Commercial
    
    
    4,330
    
    
    
    42
    
    
    
    3,401
    
    
    
    7,773
    
    
    
    185,385
    
    
    
    193,158
    
    
    
    248Consumer:Prime
    
    
    153
    
    
    
    39
    
    
    
    31
    
    
    
    223
    
    
    
    32,196
    
    
    
    32,419
    
    
    
    Subprime
    
    
    164
    
    
    
    62
    
    
    
    10
    
    
    
    236
    
    
    
    13,287
    
    
    
    13,523
    
    
    
    Auto-Subprime
    
    
    572
    
    
    
    139
    
    
    
    134
    
    
    
    845
    
    
    
    18,701
    
    
    
    19,546Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,058
    
    
    
    3,058
    
    
    
    Total
    
    
    21,506
    
    
    
    25,818
    
    
    
    64,723
    
    
    
    112,047
    
    
    
    1,448,456
    
    
    
    1,560,503
    
    
    
    408
   18




---



##### Table of Contents



NOTE 3  LOANS (Continued)
 Age analysis of past due loans by class are presented below for December 31, 2010:
 RecordedInvestmentGreater
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 90 Days30-59 Days
    
    
    60-89 Days
    
    
    Than 90
    
    
    Total Past
    
    
    
    
    
    
    
    
    
    
    andPast Due
    
    
    Past Due
    
    
    Days
    
    
    Due
    
    
    Current
    
    
    Total Loans
    
    
    AccruingCommercial real estate:Speculative 1-4 Family
    
    $
    22,267
    
    
    $
    1,777
    
    
    $
    30,802
    
    
    $
    54,846
    
    
    $
    151,130
    
    
    $
    205,976
    
    
    $
    1,758Construction
    
    
    14,541
    
    
    
    
    
    
    
    26,915
    
    
    
    41,456
    
    
    
    119,074
    
    
    
    160,530
    
    
    
    Owner Occupied
    
    
    8,114
    
    
    
    1,633
    
    
    
    4,137
    
    
    
    13,884
    
    
    
    211,875
    
    
    
    225,759
    
    
    
    Non-owner Occupied
    
    
    4,014
    
    
    
    5,961
    
    
    
    8,814
    
    
    
    18,789
    
    
    
    392,127
    
    
    
    410,916
    
    
    
    170Other
    
    
    116
    
    
    
    865
    
    
    
    1,491
    
    
    
    2,472
    
    
    
    75,152
    
    
    
    77,624
    
    
    
    18Residential real estate:HELOC
    
    
    747
    
    
    
    358
    
    
    
    644
    
    
    
    1,749
    
    
    
    190,161
    
    
    
    191,910
    
    
    
    Mortgage-Prime
    
    
    1,359
    
    
    
    915
    
    
    
    1,779
    
    
    
    4,053
    
    
    
    133,226
    
    
    
    137,279
    
    
    
    8Mortgage-Subprime
    
    
    100
    
    
    
    51
    
    
    
    98
    
    
    
    249
    
    
    
    11,493
    
    
    
    11,742
    
    
    
    Other
    
    
    403
    
    
    
    176
    
    
    
    566
    
    
    
    1,145
    
    
    
    30,217
    
    
    
    31,362
    
    
    
    19Commercial
    
    
    2,422
    
    
    
    593
    
    
    
    3,922
    
    
    
    6,937
    
    
    
    215,990
    
    
    
    222,927
    
    
    
    92Consumer:Prime
    
    
    315
    
    
    
    86
    
    
    
    108
    
    
    
    509
    
    
    
    34,737
    
    
    
    35,246
    
    
    
    29Subprime
    
    
    155
    
    
    
    64
    
    
    
    6
    
    
    
    225
    
    
    
    12,907
    
    
    
    13,132
    
    
    
    Auto-Subprime
    
    
    476
    
    
    
    166
    
    
    
    101
    
    
    
    743
    
    
    
    18,319
    
    
    
    19,062
    
    
    
    18Other
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    1,840
    
    
    
    1,913
    
    
    
    Total
    
    
    55,102
    
    
    
    12,645
    
    
    
    79,383
    
    
    
    147,130
    
    
    
    1,598,248
    
    
    
    1,745,378
    
    
    
    2,112
   19




---



##### Table of Contents



NOTE 3  LOANS (Continued)
 Non-accrual loans by class are presented below:
 June 30, 2011
    
    
    December 31, 2010Commercial real estate:Speculative 1-4 Family
    
    $
    61,521
    
    
    $
    63,298Construction
    
    
    29,550
    
    
    
    41,789Owner Occupied
    
    
    12,808
    
    
    
    5,511Non-owner Occupied
    
    
    12,747
    
    
    
    18,772Other
    
    
    1,119
    
    
    
    1,865Residential real estate:HELOC
    
    
    1,797
    
    
    
    1,668Mortgage-Prime
    
    
    3,355
    
    
    
    3,350Mortgage-Subprime
    
    
    275
    
    
    
    254Other
    
    
    115
    
    
    
    957Commercial
    
    
    7,754
    
    
    
    5,813Consumer:Prime
    
    
    126
    
    
    
    130Subprime
    
    
    167
    
    
    
    107Auto-Subprime
    
    
    215
    
    
    
    193Other
    
    
    
    
    
    
    Total
    
    
    131,549
    
    
    
    143,707
  June 30, 2011
    
    
    December 31, 2010Loans past due 90 days still on accrual
    
    $
    408
    
    
    $
    2,112Nonaccrual loans
    
    
    131,549
    
    
    
    143,707Total
    
    $
    131,957
    
    
    $
    145,819
    20




---



##### Table of Contents



NOTE 3  LOANS (Continued)
     21




---



##### Table of Contents



NOTE 4  EARNINGS PER SHARE OF COMMON STOCK
   Three Months EndedJune 30,2011
    
    
    2010Basic Earnings (loss) Per ShareNet income (loss)
    
    $
    (11,134
    )
    
    $
    2,811Less: preferred stock dividends and accretion of discount on
warrants
    
    
    1,250
    
    
    
    1,250Net income (loss) available to common shareholders
    
    $
    (12,384
    )
    
    $
    1,561Weighted average common shares outstanding
    
    
    13,126,923
    
    
    
    13,097,611Basic earnings (loss) per share available to common shareholders
    
    $
    (0.94
    )
    
    $
    0.12Diluted Earnings (loss) Per ShareNet income (loss)
    
    $
    (11,134
    )
    
    $
    2,811Less: preferred stock dividends and accretion of discount on
warrants
    
    
    1,250
    
    
    
    1,250Net income (loss) available to common shareholders
    
    $
    (12,384
    )
    
    $
    1,561Weighted average common shares outstanding
    
    
    13,126,923
    
    
    
    13,097,611Add: Dilutive effects of assumed conversions of restricted stock
and exercises of stock options and warrants
    
    
    
    
    
    
    60,520Weighted average common and dilutive potential
common shares outstanding
    
    
    13,126,923
    
    
    
    13,158,131Diluted earnings (loss) per share available to common
shareholders
    
    $
    (0.94
    )
    
    $
    0.12
 1
    
    Diluted weighted average shares outstanding exclude 105,734 restricted average
shares for the three month period ended June 30, 2011 because their impact would be anti-dilutive.   22




---



##### Table of Contents



NOTE 4  EARNINGS PER SHARE OF COMMON STOCK
 Six Months EndedJune 30,2011
    
    
    2010Basic Earnings (Loss) Per Common ShareNet income (loss)
    
    $
    (21,445
    )
    
    $
    6,007Less: preferred stock dividends and accretion of discount on
warrants
    
    
    2,500
    
    
    
    2,500Net income (loss) available to common shareholders
    
    $
    (23,945
    )
    
    $
    3,507Weighted average common shares outstanding
    
    
    13,117,811
    
    
    
    13,090,021Basic earnings (loss) per share available to common shareholders
    
    $
    (1.83
    )
    
    $
    .27Diluted Earnings (Loss) Per Common ShareNet income (loss)
    
    $
    (21,445
    )
    
    $
    6,007Less: preferred stock dividends and accretion of discount on
warrants
    
    
    2,500
    
    
    
    2,500Net income (loss) available to common shareholders
    
    $
    (23,945
    )
    
    $
    3,507Weighted average common shares outstanding
    
    
    13,117,811
    
    
    
    13,090,021Add: Dilutive effects of assumed conversions of restricted stock
and exercises of stock options and warrants1
    
    
    
    
    
    
    58,025Weighted average common and dilutive potential
common shares outstanding
    
    
    13,117,811
    
    
    
    13,148,226Diluted earnings (loss) per share available to common
shareholders
    
    $
    (1.83
    )
    
    $
    .27
 1
    
    Diluted weighted average shares outstanding exclude 92,524 and 85,697 restricted
average shares for the three and six month periods ended June 30, 2011 respectively because their
impact would be anti-dilutive.   23




---



##### Table of Contents



NOTE 5  SEGMENT INFORMATION
   Three months ended June 30, 2011
    
    Bank
    
    
    Other Segments
    
    
    Holding Company
    
    
    Eliminations
    
    
    TotalsNet interest income (expense)
    
    $
    17,777
    
    
    $
    2,186
    
    
    $
    (511
    )
    
    $
    
    
    
    $
    19,452Provision for loan losses
    
    
    14,119
    
    
    
    214
    
    
    
    
    
    
    
    
    
    
    
    14,333Noninterest income
    
    
    8,019
    
    
    
    381
    
    
    
    64
    
    
    
    (228
    )
    
    
    8,236Noninterest expense
    
    
    23,110
    
    
    
    1,184
    
    
    
    704
    
    
    
    (228
    )
    
    
    24,770Income tax expense (benefit)
    
    
    (285
    )
    
    
    464
    
    
    
    (460
    )
    
    
    
    
    
    
    (281
    )Segment profit (loss)
    
    $
    (11,148
    )
    
    $
    705
    
    
    $
    (691
    )
    
    $
    
    
    
    $
    (11,134
    )Segment assets at June 30, 2011
    
    $
    2,242,705
    
    
    $
    43,448
    
    
    $
    7,662
    
    
    $
    
    
    
    $
    2,293,815
 Three months ended June 30, 2010
    
    Bank
    
    
    Other Segments
    
    
    Holding Company
    
    
    Eliminations
    
    
    TotalsNet interest income (expense)
    
    $
    19,859
    
    
    $
    2,103
    
    
    $
    (489
    )
    
    $
    
    
    
    $
    21,473Provision for loan losses
    
    
    4,439
    
    
    
    310
    
    
    
    
    
    
    
    
    
    
    
    4,749Noninterest income
    
    
    8,529
    
    
    
    417
    
    
    
    52
    
    
    
    (227
    )
    
    
    8,771Noninterest expense
    
    
    19,948
    
    
    
    1,141
    
    
    
    412
    
    
    
    (227
    )
    
    
    21,274Income tax expense (benefit)
    
    
    1,287
    
    
    
    418
    
    
    
    (295
    )
    
    
    
    
    
    
    1,410Segment profit (loss)
    
    $
    2,714
    
    
    $
    651
    
    
    $
    (554
    )
    
    $
    
    
    
    $
    2,811Segment assets at June 30, 2010
    
    $
    2,477,386
    
    
    $
    42,234
    
    
    $
    9,712
    
    
    $
    
    
    
    $
    2,529,332
 Six months ended June 30, 2011
    
    Bank
    
    
    Other Segments
    
    
    Holding Company
    
    
    Eliminations
    
    
    TotalsNet interest income (expense)
    
    $
    35,387
    
    
    $
    4,334
    
    
    $
    (1,003
    )
    
    $
    
    
    
    $
    38,718Provision for loan losses
    
    
    27,745
    
    
    
    484
    
    
    
    
    
    
    
    
    
    
    
    28,229Noninterest income
    
    
    15,399
    
    
    
    857
    
    
    
    78
    
    
    
    (470
    )
    
    
    15,864Noninterest expense
    
    
    45,226
    
    
    
    2,427
    
    
    
    615
    
    
    
    (470
    )
    
    
    47,798Income tax expense (benefit)
    
    
    (331
    )
    
    
    900
    
    
    
    (569
    )
    
    
    
    
    
    
    Segment profit (loss)
    
    
    (21,854
    )
    
    $
    1,380
    
    
    $
    (971
    )
    
    $
    
    
    
    $
    (21,445
    )
 Six months ended June 30, 2010
    
    Bank
    
    
    Other Segments
    
    
    Holding Company
    
    
    Eliminations
    
    
    TotalsNet interest income (expense)
    
    $
    39,927
    
    
    $
    4,166
    
    
    $
    (961
    )
    
    $
    
    
    
    $
    43,132Provision for loan losses
    
    
    7,795
    
    
    
    843
    
    
    
    
    
    
    
    
    
    
    
    8,638Noninterest income
    
    
    16,057
    
    
    
    788
    
    
    
    66
    
    
    
    (454
    )
    
    
    16,457Noninterest expense
    
    
    39,417
    
    
    
    2,256
    
    
    
    601
    
    
    
    (454
    )
    
    
    41,820Income tax expense (benefit)
    
    
    2,915
    
    
    
    727
    
    
    
    (518
    )
    
    
    
    
    
    
    3,124Segment profit (loss)
    
    
    5,857
    
    
    $
    1,128
    
    
    $
    (978
    )
    
    $
    
    
    
    $
    6,007
   24




---



##### Table of Contents



NOTE 5  SEGMENT INFORMATION
 Asset Quality Ratios
 As of and for the period ended June 30, 2011
    
    Bank
    
    
    Other
    
    
    TotalNonperforming loans as percentage of total loans, net of unearned income
    
    
    8.51
    %
    
    
    1.58
    %
    
    
    8.46
    %Nonperforming assets as a percentage of total assets
    
    
    9.17
    %
    
    
    2.03
    %
    
    
    9.23
    %Allowance for loan losses as a percentage of total loans, net of
unearned income
    
    
    3.87
    %
    
    
    6.86
    %
    
    
    4.02
    %Allowance for loan losses as a percentage of nonperforming loans
    
    
    45.44
    %
    
    
    532.56
    %
    
    
    47.52
    %YTD net charge-offs to average total loans, net of unearned income
    
    
    1.91
    %
    
    
    1.42
    %
    
    
    1.93
    %
 As of and for the period ended June 30, 2010
    
    Bank
    
    
    Other
    
    
    TotalNonperforming loans as percentage of total loans, net of unearned income
    
    
    3.37
    %
    
    
    1.28
    %
    
    
    3.37
    %Nonperforming assets as a percentage of total assets
    
    
    5.59
    %
    
    
    1.38
    %
    
    
    5.61
    %Allowance for loan losses as a percentage of total loans, net of
unearned income
    
    
    2.44
    %
    
    
    7.89
    %
    
    
    2.60
    %Allowance for loan losses as a percentage of nonperforming loans
    
    
    72.35
    %
    
    
    616.49
    %
    
    
    77.02
    %YTD net charge-offs to average total loans, net of unearned income
    
    
    0.40
    %
    
    
    2.09
    %
    
    
    0.44
    %
 As of and for the year ended December 31, 2010
    
    Bank
    
    
    Other
    
    
    TotalNonperforming loans as percentage of total loans, net of unearned income
    
    
    8.40
    %
    
    
    1.30
    %
    
    
    8.35
    %Nonperforming assets as a percentage of total assets
    
    
    8.52
    %
    
    
    1.34
    %
    
    
    8.56
    %Allowance for loan losses as a percentage of total loans, net of
unearned income
    
    
    3.68
    %
    
    
    7.33
    %
    
    
    3.83
    %Allowance for loan losses as a percentage of nonperforming loans
    
    
    43.80
    %
    
    
    562.24
    %
    
    
    45.83
    %Net charge-offs to average total loans, net of unearned income
    
    
    2.76
    %
    
    
    4.20
    %
    
    
    2.84
    %
 Net charge-offs
    
    Bank
    
    
    Other
    
    
    TotalFor the six month period ended June 30, 2011
    
    $
    31,700
    
    
    $
    631
    
    
    $
    32,331For the six month period ended June 30, 2010
    
    $
    7,847
    
    
    $
    903
    
    
    $
    8,750For the year ended December 31, 2010
    
    $
    52,615
    
    
    $
    1,823
    
    
    $
    54,438
   25




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##### Table of Contents



NOTE 6  FAIR VALUE DISCLOSURES
  Level 1
  Level 2
  Level 3
   Investment Securities Available-for-Sale
  Loans Held for Sale
    26




---



##### Table of Contents



NOTE 6  FAIR VALUE DISCLOSURES (continued)
 Impaired Loans
 Other Real Estate
    27




---



##### Table of Contents



NOTE 6  FAIR VALUE DISCLOSURES (continued)
 Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  Total Carrying
    
    
    Assets/LiabilitiesFair Value Measurement Using
    
    
    Amount in
    
    
    Measured at FairDescription
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Balance Sheet
    
    
    ValueJune 30, 2011Securities available for saleU.S. government agencies
    
    $
    
    
    
    $
    68,878
    
    
    $
    
    
    
    $
    68,878
    
    
    $
    68,878States and political subdivisions
    
    
    
    
    
    
    29,344
    
    
    
    
    
    
    
    29,344
    
    
    
    29,344CMO Agency
    
    
    
    
    
    
    90,954
    
    
    
    
    
    
    
    90,954
    
    
    
    90,954CMO Non-Agency
    
    
    
    
    
    
    3,311
    
    
    
    
    
    
    
    3,311
    
    
    
    3,311Mortgage-backed securities
    
    
    
    
    
    
    23,388
    
    
    
    
    
    
    
    23,388
    
    
    
    23,388Trust preferred securities
    
    
    
    
    
    
    1,043
    
    
    
    638
    
    
    
    1,681
    
    
    
    1,681December 31, 2010Securities available for saleU.S. government agencies
    
    $
    
    
    
    $
    83,299
    
    
    $
    
    
    
    $
    83,299
    
    
    $
    83,299States and political subdivisions
    
    
    
    
    
    
    31,501
    
    
    
    
    
    
    
    31,501
    
    
    
    31,501CMO Agency
    
    
    
    
    
    
    64,182
    
    
    
    
    
    
    
    64,182
    
    
    
    64,182CMO Non-Agency
    
    
    
    
    
    
    3,393
    
    
    
    
    
    
    
    3,393
    
    
    
    3,393Mortgage-backed securities
    
    
    
    
    
    
    17,964
    
    
    
    
    
    
    
    17,964
    
    
    
    17,964Trust preferred securities
    
    
    
    
    
    
    1,025
    
    
    
    638
    
    
    
    1,663
    
    
    
    1,663
 Level 3 Valuations
     28




---



##### Table of Contents



NOTE 6  FAIR VALUE DISCLOSURES (continued)
  June 30,
    
    
    June 30,2011
    
    
    2010Beginning balance, January 1
    
    $
    638
    
    
    $
    638Total gains or (loss) (realized/unrealized)Included in earnings
    
    
    
    
    
    
    (75
    )Included in other comprehensive income
    
    
    
    
    
    
    11Paydowns and maturities
    
    
    
    
    
    
    Transfers into Level 3
    
    
    
    
    
    
    Ending balance
    
    $
    638
    
    
    $
    574
 Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
  Total Carrying
    
    
    Assets/LiabilitiesFair Value Measurement Using
    
    
    Amount in
    
    
    Measured at FairDescription
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Balance Sheet
    
    
    ValueJune 30, 2011Other real estate
    
    $
    
    
    
    $
    
    
    
    $
    76,690
    
    
    $
    76,690
    
    
    $
    76,690Impaired loans
    
    
    
    
    
    
    
    
    
    
    92,270
    
    
    
    92,270
    
    
    
    92,270Total assets at fair value
    
    $
    
    
    
    $
    
    
    
    $
    168,960
    
    
    $
    168,960
    
    
    $
    168,960December 31, 2010Other real estate
    
    $
    
    
    
    $
    
    
    
    $
    60,095
    
    
    $
    60,095
    
    
    $
    60,095Impaired loans
    
    
    
    
    
    
    
    
    
    
    129,088
    
    
    
    129,088
    
    
    
    129,088Total assets at fair value
    
    $
    
    
    
    $
    
    
    
    $
    189,183
    
    
    $
    189,183
    
    
    $
    189,183
   29




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##### Table of Contents



NOTE 6  FAIR VALUE DISCLOSURES
  June 30,
    
    
    December 31,2011
    
    
    2010Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueFinancial assets:Cash and cash equivalents
    
    $
    344,265
    
    
    $
    344,265
    
    
    $
    294,214
    
    
    $
    294,214Securities available for sale
    
    
    217,556
    
    
    
    217,556
    
    
    
    202,002
    
    
    
    202,002Securities held to maturity
    
    
    
    
    
    
    
    
    
    
    465
    
    
    
    467Loans held for sale
    
    
    617
    
    
    
    624
    
    
    
    1,299
    
    
    
    1,317Loans, net
    
    
    1,497,775
    
    
    
    1,481,977
    
    
    
    1,678,548
    
    
    
    1,664,126FHLB and other stock
    
    
    12,734
    
    
    
    12,734
    
    
    
    12,734
    
    
    
    12,734Cash surrender value of life insurance
    
    
    32,040
    
    
    
    32,040
    
    
    
    31,479
    
    
    
    31,479Accrued interest receivable
    
    
    6,830
    
    
    
    6,830
    
    
    
    7,845
    
    
    
    7,845Financial liabilities:Deposit accounts
    
    $
    1,883,388
    
    
    $
    1,905,599
    
    
    $
    1,976,854
    
    
    $
    1,987,105Federal funds purchased and repurchase
Agreements
    
    
    18,713
    
    
    
    18,713
    
    
    
    19,413
    
    
    
    19,413FHLB Advances and notes payable
    
    
    157,859
    
    
    
    167,017
    
    
    
    158,653
    
    
    
    166,762Subordinated debentures
    
    
    88,662
    
    
    
    60,552
    
    
    
    88,662
    
    
    
    64,817Accrued interest payable
    
    
    2,808
    
    
    
    2,808
    
    
    
    2,140
    
    
    
    2,140
    30




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##### Table of Contents



NOTE 7  CAPITAL
    Required
    
    
    Required
    
    
    Required by BanksMinimum
    
    
    to be
    
    
    Informal CommitmentRatio
    
    
    Well Capitalized
    
    
    to Regulators
    
    
    Bank
    
    
    CompanyTier 1 risk-based
capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    12.00
    %
    
    
    11.97
    %
    
    
    9.03
    %Total risk-based capital
    
    
    8.00
    %
    
    
    10.00
    %
    
    
    14.00
    %
    
    
    13.25
    %
    
    
    13.09
    %Leverage Ratio
    
    
    4.00
    %
    
    
    5.00
    %
    
    
    10.00
    %
    
    
    8.47
    %
    
    
    6.39
    %
 NOTE 8  CONTINGENCIES
  NOTE
9 INVESTMENT AGREEMENT WITH NORTH AMERICAN FINANCIAL HOLDINGS, INC.
    31




---



##### Table of Contents




    
    completion of the North Americans initial investment in the Company;
 
    
    termination of the Investment Agreement in accordance with its terms,
before certain third party acquisitions or acquisition proposals, except a
termination of the Investment Agreement by North American based on a breach
by the Company of a representation, warranty, covenant or other agreement
contained in the Investment Agreement (unless the breach is non-volitional)
or a termination based on the Company breaching its obligations under the
non-solicitation/exclusivity provisions of the Investment Agreement or based
on the Board of Directors having withdrawn its recommendation that the
Companys shareholders approve the transactions or recommended a competing
transaction; or
 
    
    the passage of 18 months, subject to certain limited extensions
described in the Option Agreement, after termination of the Investment
Agreement, if the termination follows the occurrence of certain third party
acquisitions or acquisition proposals or is a termination of the Investment
Agreement by North American based on a breach by the Company of a
representation, warranty, covenant or other agreement contained in the
Investment Agreement (unless the breach is non-volitional) or a termination
based on the Company breaching its obligations under the
non-solicitation/exclusivity provisions of the Investment Agreement or based
on the Board of Directors having withdrawn its recommendation that the
Companys shareholders approve the transactions or recommended a competing
transaction.
     32




---



##### 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.
 Although the Company believes that the assumptions underlying any forward-looking
statements are reasonable, any of the assumptions could be inaccurate, and therefore, actual
results may differ materially from those projected in or implied by the forward-looking statements.
Factors and risks that may result in actual results differing from this forward-looking information
include, but are not limited to, those contained in the 2010 10-K as Part I, Item 1A thereof and in
Part II, Item 1A of this Form 10-Q and the Companys Form 10-Q for the quarter ended March 31,
2011, including (1) the occurrence of any event, change or other circumstances that could give rise
to the termination of the Investment Agreement by and among the Company, the Bank and North
American Financial Holdings, Inc. (North American), dated as of May 5, 2011 (the Investment
Agreement); (2) the outcome of any legal proceedings that have been or may be instituted against
the Company and others following announcement of the Investment Agreement; (3) the inability to
complete the transactions contemplated by the Investment Agreement due to the failure to obtain
shareholder approval or the failure to satisfy other conditions to completion of the transaction,
including the receipt of regulatory approval; (4) risks that the proposed transaction contemplated
by the Investment Agreement disrupts current plans and operations and the potential difficulties in
employee retention as a result of the proposed transaction; (5) the amount of the costs, fees,
expenses and charges related to the proposed transaction contemplated by the Investment Agreement;
(6) deterioration in the financial condition of borrowers resulting in significant increases in
loan losses and provisions for those losses; (7) continuation of the historically low short-term
interest rate environment; (8) changes in loan underwriting, credit review or loss reserve policies
associated with economic conditions, examination conclusions, or regulatory developments; (9)
increased levels of non-performing and repossessed assets and the ability to resolve these may
result in future losses; (10) greater than anticipated deterioration or lack of sustained growth in
the national or local economies; (11) rapid fluctuations or unanticipated changes in interest
rates; (12) the impact of governmental restrictions on entities participating in the Capital
Purchase Program (the CPP) of the United States Department of the Treasury; (13) changes in state
and federal legislation, regulations or policies applicable to banks or other financial service
providers, including regulatory or legislative developments, like the Dodd-Frank Wall Street Reform
and Consumer Protection Act, arising out of current unsettled conditions in the economy; (14) the
results of regulatory examinations; (15) the remediation efforts related to the Companys material
weakness in its internal control over financial reporting; (16) increased competition with other
financial institutions in the markets that the Bank serves; (17) the Companys recording a further
valuation allowance related to its deferred tax asset; (18) exploring alternatives available for
   33




---



##### Table of Contents



the future
repayment or conversion of the preferred stock issued in the CPP, including in the transaction
contemplated by the Investment Agreement; (19) further deterioration in the valuation of other real
estate owned; (20) the failure to comply with the terms of regulatory enforcement actions,
including informal commitments and formal agreements, including the proposed cease and desist order
described in more detail below; (21) inability to comply with regulatory capital requirements and
to secure any required regulatory approvals for capital actions to raise capital if necessary to
comply with any regulatory capital requirements; and (22) the loss of key personnel, as well as
other factors discussed throughout this document, including, without limitation the factors
described under Critical Accounting Policies and
Estimates on page 35 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 2010 10-K as updated in Part II, Item 1A below and in Part II, Item 1A of the Companys
Quarterly Report on Form 10-Q for the Quarter ended March 31, 2011. The Company has no obligation
and does not intend to publicly update or revise any forward-looking statements contained in or
incorporated by reference into this 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.
  Business Strategy
      34




---



##### Table of Contents



Overview
  Critical Accounting Policies and Estimates
      35




---



##### Table of Contents



36




---



##### Table of Contents



Changes in Results of Operations
 Net Loss.
 Net Interest Income.
      37




---



##### Table of Contents



Three Months EndedJune 30,2011
    
    
    2010Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Loans(1) (2)
    
    $
    1,482,864
    
    
    $
    23,816
    
    
    
    6.44
    %
    
    $
    1,896,071
    
    
    $
    29,390
    
    
    
    6.22
    %Investment securities (2)
    
    
    251,231
    
    
    
    2,254
    
    
    
    3.60
    %
    
    
    193,961
    
    
    
    1,996
    
    
    
    4.13
    %Other short-term investments
    
    
    277,133
    
    
    
    170
    
    
    
    0.24
    %
    
    
    158,208
    
    
    
    99
    
    
    
    0.25
    %Total interest-earning assets
    
    $
    2,011,228
    
    
    $
    26,240
    
    
    
    5.23
    %
    
    $
    2,248,240
    
    
    $
    31,485
    
    
    
    5.62
    %Non-interest earning assets
    
    
    335,683
    
    
    
    
    
    
    
    
    
    
    
    305,374Total assets
    
    $
    2,346,911
    
    
    
    
    
    
    
    
    
    
    $
    2,553,614Interest-bearing liabilities:Deposits:Interest checking, savings and money
market
    
    $
    1,070,869
    
    
    $
    1,428
    
    
    
    0.53
    %
    
    $
    970,304
    
    
    $
    2,487
    
    
    
    1.03
    %Time deposits
    
    
    691,008
    
    
    
    3,133
    
    
    
    1.82
    %
    
    
    884,038
    
    
    
    5,138
    
    
    
    2.33
    %Total interest-bearing deposits
    
    $
    1,761,877
    
    
    $
    4,561
    
    
    
    1.04
    %
    
    $
    1,854,342
    
    
    $
    7,625
    
    
    
    1.65
    %Securities sold under repurchase
agreements and short-term borrowings
    
    
    16,710
    
    
    
    4
    
    
    
    0.10
    %
    
    
    21,943
    
    
    
    5
    
    
    
    0.09
    %Notes payable
    
    
    158,493
    
    
    
    1,570
    
    
    
    3.97
    %
    
    
    171,847
    
    
    
    1,712
    
    
    
    4.00
    %Subordinated debentures
    
    
    88,662
    
    
    
    488
    
    
    
    2.21
    %
    
    
    88,662
    
    
    
    489
    
    
    
    2.21
    %Total interest-bearing liabilities
    
    $
    2,025,742
    
    
    $
    6,623
    
    
    
    1.31
    %
    
    $
    2,136,794
    
    
    $
    9,831
    
    
    
    1.85
    %Non-interest bearing liabilities:Demand deposits
    
    
    166,387
    
    
    
    
    
    
    
    
    
    
    
    165,554Other liabilities
    
    
    19,064
    
    
    
    
    
    
    
    
    
    
    
    17,477Total non-interest bearing liabilities
    
    
    185,451
    
    
    
    
    
    
    
    
    
    
    
    183,031Total liabilities
    
    
    2,211,193
    
    
    
    
    
    
    
    
    
    
    
    2,319,825Shareholders equity
    
    
    135,718
    
    
    
    
    
    
    
    
    
    
    
    233,789Total liabilities and shareholders
Equity
    
    $
    2,346,911
    
    
    
    
    
    
    
    
    
    
    $
    2,553,614Net interest income
    
    
    
    
    
    $
    19,617
    
    
    
    
    
    
    
    
    
    
    $
    21,654Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.91
    %
    
    
    
    
    
    
    
    
    
    
    3.77
    %Net yield on interest-earning assets
    
    
    
    
    
    
    
    
    
    
    3.91
    %
    
    
    
    
    
    
    
    
    
    
    3.86
    %
 1
    
    Average loan balances excluded nonaccrual loans for the periods presented.2
    
    Fully Taxable Equivalent (FTE) at the rate of 35%. The FTE basis adjusts for the tax
benefits of income on certain tax-exempt loans and investments using the federal statutory rate of
35% for each period presented. The Company believes this measure to be the preferred industry
measurement of net interest income and provides relevant comparison between taxable and non-taxable
amounts.   38




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##### Table of Contents



Six Months EndedJune 30,2011
    
    
    2010Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Loans(1) (2)
    
    $
    1,525,077
    
    
    $
    48,430
    
    
    
    6.40
    %
    
    $
    1,924,943
    
    
    $
    59,470
    
    
    
    6.23
    %Investment securities (2)
    
    
    239,562
    
    
    
    4,261
    
    
    
    3.59
    %
    
    
    181,559
    
    
    
    3,902
    
    
    
    4.33
    %Other short-term investments
    
    
    285,969
    
    
    
    350
    
    
    
    0.25
    %
    
    
    153,328
    
    
    
    193
    
    
    
    0.25
    %Total interest-earning assets
    
    $
    2,050,608
    
    
    $
    53,041
    
    
    
    5.22
    %
    
    $
    2,259,830
    
    
    $
    63,565
    
    
    
    5.67
    %Non-interest earning assets
    
    
    338,258
    
    
    
    
    
    
    
    
    
    
    
    305,977Total assets
    
    $
    2,388,866
    
    
    
    
    
    
    
    
    
    
    $
    2,565,807Interest-bearing liabilities:Deposits:Interest checking, savings and money
market
    
    $
    1,075,322
    
    
    $
    3,240
    
    
    
    0.61
    %
    
    $
    956,174
    
    
    $
    4,885
    
    
    
    1.03
    %Time deposits
    
    
    727,286
    
    
    
    6,652
    
    
    
    1.84
    %
    
    
    912,057
    
    
    
    10,801
    
    
    
    2.39
    %Total interest-bearing deposits
    
    $
    1,802,608
    
    
    $
    9,892
    
    
    
    1.11
    %
    
    $
    1,868,231
    
    
    $
    15,686
    
    
    
    1.69
    %Securities sold under repurchase
agreements and short-term borrowings
    
    
    16,851
    
    
    
    8
    
    
    
    0.10
    %
    
    
    22,774
    
    
    
    11
    
    
    
    0.10
    %Notes payable
    
    
    158,551
    
    
    
    3,113
    
    
    
    3.96
    %
    
    
    171,897
    
    
    
    3,406
    
    
    
    4.00
    %Subordinated debentures
    
    
    88,662
    
    
    
    969
    
    
    
    2.20
    %
    
    
    88,662
    
    
    
    961
    
    
    
    2.19
    %Total interest-bearing liabilities
    
    $
    2,066,672
    
    
    $
    13,982
    
    
    
    1.36
    %
    
    $
    2,151,564
    
    
    $
    20,064
    
    
    
    1.88
    %Non-interest bearing liabilities:Demand deposits
    
    
    164,057
    
    
    
    
    
    
    
    
    
    
    
    164,370Other liabilities
    
    
    18,402
    
    
    
    
    
    
    
    
    
    
    
    17,786Total non-interest bearing liabilities
    
    
    182,459
    
    
    
    
    
    
    
    
    
    
    
    182,156Total liabilities
    
    
    2,249,131
    
    
    
    
    
    
    
    
    
    
    
    2,333,720Shareholders equity
    
    
    139,735
    
    
    
    
    
    
    
    
    
    
    
    232,087Total liabilities and shareholders
equity
    
    $
    2,388,866
    
    
    
    
    
    
    
    
    
    
    $
    2,565,807Net interest income
    
    
    
    
    
    $
    39,059
    
    
    
    
    
    
    
    
    
    
    $
    43,501Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.84
    %
    
    
    
    
    
    
    
    
    
    
    3.79
    %Net yield on interest-earning assets
    
    
    
    
    
    
    
    
    
    
    3.84
    %
    
    
    
    
    
    
    
    
    
    
    3.88
    %
 1
    
    Average loan balances excluded nonaccrual loans for the periods presented.2
    
    Fully Taxable Equivalent (FTE) at the rate of 35%. The FTE basis adjusts for the tax
benefits of income on certain tax-exempt loans and investments using the federal statutory rate of
35% for each period presented. The Company believes this measure to be the preferred industry
measurement of net interest income and provides relevant comparison between taxable and non-taxable
amounts.   39




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##### Table of Contents



Provision for Loan Losses.
      Non-interest Income.
    40




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##### Table of Contents



Non-interest Expense.
  Income Taxes.
 Changes in Financial Condition
        41




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##### Table of Contents



Liquidity and Capital Resources
 Liquidity
      42




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##### Table of Contents



Capital Resources.
       43




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##### Table of Contents



Required
    
    
    Required
    
    
    Required by BanksMinimum
    
    
    to be
    
    
    Informal CommitmentRatio
    
    
    Well Capitalized
    
    
    to Regulators
    
    
    Bank
    
    
    CompanyTier 1 risk-based
capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    12.00
    %
    
    
    11.97
    %
    
    
    9.03
    %Total risk-based capital
    
    
    8.00
    %
    
    
    10.00
    %
    
    
    14.00
    %
    
    
    13.25
    %
    
    
    13.09
    %Leverage Ratio
    
    
    4.00
    %
    
    
    5.00
    %
    
    
    10.00
    %
    
    
    8.47
    %
    
    
    6.39
    %
    44




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##### Table of Contents



Off-Balance Sheet Arrangements
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    Years
    
    
    TotalCommitments to make loans  fixed
    
    $
    
    
    
    $
    1,084
    
    
    $
    1,585
    
    
    $
    766
    
    
    $
    3,435Commitments to make loans  variable
    
    
    500
    
    
    
    205
    
    
    
    24
    
    
    
    1,218
    
    
    
    1,947Unused lines of credit
    
    
    111,138
    
    
    
    71,814
    
    
    
    13,370
    
    
    
    14,811
    
    
    
    211,133Letters of credit
    
    
    16,167
    
    
    
    7,501
    
    
    
    
    
    
    
    
    
    
    
    23,668Total
    
    $
    127,805
    
    
    $
    80,604
    
    
    $
    14,979
    
    
    $
    16,795
    
    
    $
    240,183
  45




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##### Table of Contents



Disclosure of Contractual Obligations
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    Years
    
    
    TotalCertificates of deposits
    
    $
    481,029
    
    
    $
    118,214
    
    
    $
    52,178
    
    
    $
    3,441
    
    
    $
    654,862FHLB advances and notes payable
    
    
    25,325
    
    
    
    65,637
    
    
    
    20,686
    
    
    
    46,211
    
    
    
    157,859Subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,662
    
    
    
    88,662Operating lease obligations
    
    
    1,304
    
    
    
    2,177
    
    
    
    949
    
    
    
    571
    
    
    
    5,001Deferred compensation
    
    
    1,487
    
    
    
    
    
    
    
    267
    
    
    
    2,207
    
    
    
    3,961Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    509,145
    
    
    $
    186,028
    
    
    $
    74,080
    
    
    $
    141,092
    
    
    $
    910,345
  Effect of New Accounting Standards
      46




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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
  
 
 
  47




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##### Table of Contents



PART II  OTHER INFORMATION
 Item 1.
    
    Legal Proceedings
 Securities Class Action. Bill Burgraff v. Green Bankshares, Inc., et al., U.S.
District Court, Eastern District of Tennessee, Northeastern Division, Case No. 2:10-cv-00253) Brian Molnar v. Green Bankshares, Inc., et al., U.S. District Court, Eastern District of
Tennessee, Northeastern Division, Case No. 2:11-cv-00014
   North American Transaction Betty Smith v. Green Bankshares, Inc. et al., Case No. 11-625-III,
Davidson County, Tennessee, Chancery Court
   48




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##### Table of Contents



Mark McClinton v. Green Bankshares, Inc. et al., Case No. 11-CV-284ktl,
Greene County Circuit Court, Greeneville, Tennessee)
 Thomas W. Cook Jr. v. Green Bankshares, Inc. et al., Civil Action No.
2:11-cv-00176, United States District Court for the Eastern District of Tennessee, Greeneville
 Barbara N.
Ballard v. Stephen M. Rownd, et al., Civil Action No. 2:11-cv-00201, United States District Court
for the Eastern District of Tennessee, Greeneville)
   General
  49




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##### Table of Contents



Item 1A.
    
    Risk Factors
  If the Bank becomes subject to the cease and desist order to which the FDIC has sought the
Banks consent, its and the Companys operations, liquidity and capital resources could be
negatively impacted.
  Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  Item 3.
    
    Defaults Upon Senior Securities
  Item 4.
    
    (Removed and Reserved)
 Item 5.
    
    Other Information
  Item 6.
    
    Exhibits
   50




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##### Table of Contents



SIGNATURES
  Green Bankshares, Inc.
RegistrantDate: August 11, 2011
    By:
    /s/ Michael J. FowlerMichael J. FowlerSenior Vice President, Chief Financial Officer and
Secretary  51




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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