UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2008~~2009

ORor


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 number0-14289~~0-14289~~

GREEN BANKSHARES, INC.

(Exact name of registrant as specified in its charter)


Tennessee		62-1222567

(State or other jurisdiction of incorporation or ~~organization)~~		(I.R.S. Employer Identification No.)
organization)

100 North Main Street, Greeneville, Tennessee		37743-4992

(Address of ~~principal~~principle executive offices)		(Zip Code)

Registrant’s telephone number, including area code:(~~(423)~~423) 639-5111

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of each Exchange on which Registered

Common Stock — $2.00 par value		Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.YESo NOþ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.YESo NOþ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESþ NOo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).YESo NOo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange ~~Act. ):~~Act:


Large accelerated filero	Accelerated filerþ	Non-accelerated filero	~~Smaller reporting company~~o
		(Do not check if a smaller reporting company)	Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YESo NOþ

The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, ~~2008,~~2009, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately ~~$165~~$53 million. The market value calculation was determined using the closing sale price of the registrant’s common stock on June 30, ~~2008,~~2009, as reported on the Nasdaq Global Select Market. For purposes of this calculation, the term “affiliate” refers to all directors, executive officers and 10% shareholders of the registrant. As of the close of business on ~~March 12, 2009, 13,176,681~~February 25, 2010, 13,176,036 shares of the registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following lists the documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated:

1. Portions of Proxy Statement for ~~2009~~2010 Annual Meeting of Shareholders. (Part III)

TABLE OF CONTENTS


PART I
	ITEM 1. ~~BUSINESS~~BUSINESS.
	ITEM 1A. RISK FACTORS
	ITEM 1B. UNRESOLVED STAFF COMMENTS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	ITEM 9A. CONTROLS AND PROCEDURES
	ITEM 9B. OTHER INFORMATION
PART III
	ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
	ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
SIGNATURES
EXHIBIT INDEX
Exhibit ~~10.8~~
~~Exhibit 10.35~~
~~Exhibit 10.36~~
~~Exhibit 10.37~~
~~Exhibit 10.38~~
~~Exhibit 10.39~~
~~Exhibit~~ 10.40
Exhibit 10.41
Exhibit 10.42
Exhibit 10.43
Exhibit 10.44
Exhibit 10.46
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1
Exhibit 99.2

PART I

Forward-Looking Statements

The information contained herein contains forward-looking statements that involve a number of risks and uncertainties. A number of factors, including those discussed herein, could cause results to differ materially from those anticipated by such forward-looking statements which are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, such forward-looking statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized. Forward-looking statements can be identified by, among other things, the use of forward-looking terminology such as ~~“intends,~~“trends,” ~~“believes,~~“assumptions,” ~~“expects,~~“target,” “guidance,” “outlook,” “opportunity,” “future,” “plans,” “goals,” “objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,” “will,” ~~“should,~~“would,” ~~“seeks,~~“could,” ~~“pro forma”~~“expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” “regular,” or ~~“anticipates,”~~“continue” or the negatives thereof, or other variations thereon of comparable terminology, or by discussions of strategy or intentions. Such statements may include, but are not limited to, projections of revenue, income or loss, expenditures, acquisitions, plans for future operations, financing needs or plans relating to services of the Company, as well as assumptions relating to the foregoing. The Company’s actual results may differ materially from the results anticipated in forward-looking statements due to a variety of factors, including, but not limited to those identified in “Item 1A. Risk Factors” in thisForm 10-K and (1) ~~unanticipated~~ deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses; (2) ~~continued deterioration~~continuation of the historically low short-term interest rate environment; (3) changes in ~~the residential real estate market; (3) lack of sustained growth in the economy in the markets that the Bank serves;~~loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (4) increased competition with other financial institutions in the markets that the Bank serves; (5) greater than anticipated deterioration or lack of sustained growth in the national or local economies; (6) rapid fluctuations or unanticipated changes in interest rates; (7) the impact of governmental restrictions on entities participating in the Capital Purchase Program of the United States Department of the Treasury; (8) changes in state and federal legislation, regulations or policies applicable to banks or other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy and ~~regulatory environment; (6) the Company’s failure to successfully implement its growth strategy; and (7)~~(9) the loss of key personnel.

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 ~~herein are based on information available to us as of the date~~included in this Annual Report onForm 10-K ~~was~~ are expressly qualified in their entirety by the cautionary statements in this section and to the more detailed risk factors included below under Part I, Item 1A “Risk Factors”. The Company has no obligation and does not intend to publicly update or revise any forward-looking statements contained in or incorporated by reference into this Annual Report on Form 10-K, to reflect events or circumstances occurring after the date of this document or to reflect the occurrence of unanticipated events. Readers are advised, however, to consult any further disclosures the Company may make on related subjects in its documents filed with or furnished to the Securities and Exchange Commission (“SEC”). or in its other public disclosures.

ITEM 1. BUSINESS.

Presentation of Amounts

All dollar amounts set forth below, other than share and per-share amounts, are in thousands unless otherwise noted. Unless thisForm 10-K indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “the Company” or “Green ~~Bancshares”~~Bankshares” as used herein refer to Green Bankshares, Inc. and its subsidiaries, including GreenBank, which we sometimes refer to as “GreenBank,” “the Bank” or “our Bank”.

Green Bankshares, ~~Inc~~Inc.

We are the third-largest bank holding company headquartered in Tennessee, with ~~$2.9~~$2.6 billion in assets as of December 31, ~~2008.~~2009. Incorporated in 1985, Green Bankshares ~~(the “Company”)~~ is the parent of GreenBank (the “Bank”) and owns 100% of the capital stock of the Bank. The primary business of the Company is operating the Bank.

At December 31, ~~2008,~~2009, the Company maintained a main office in Greeneville, Tennessee and 64 full-service bank branches (of which eleven are in leased operating premises), a location for mortgage banking and nine separate locations operated by the Bank’s subsidiaries.

The Company’s assets consist primarily of its investment in the Bank and liquid investments. Its primary activities are conducted through the Bank. At December 31, ~~2008,~~2009, the Company’s consolidated total assets were ~~$2,944,671,~~$2,619,139, its consolidated net loans were ~~$2,223,390,~~$2,043,807, its total deposits were ~~$2,184,147~~$2,084,096 and its total shareholders’ equity was ~~$381,231.~~$226,769.

The Company’s net income is dependent primarily on its net interest income, which is the difference between the interest income earned on its loans and other interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. Also favorably influencing the Company’s net income is its noninterest income, derived principally from service charges and fees. Offsetting these positive factors contributing to net income are the levels of the Company’s loan loss provision expense and other non-interest expenses such as salaries and employee ~~benefits.~~benefits and other real estate expenses.

Lending Activities:

General:The Bank’s lending activities reflect its community banking philosophy, emphasizing secured loans to individuals and businesses in its primary market areas.

~~Consumer Lending:~~~~The Bank makes consumer loans for personal, family or household purposes, such as home purchases, debt consolidation, financing of home improvements, automobiles, vacations and education.~~

The Bank’s consumer lending origination activity primarily consists of home equity real estate secured lending. It also includes originating loans secured by personal property and to a limited extent, unsecured personal loans. Consumer loans may be made on a revolving line of credit or fixed-term basis.

Commercial Real Estate Lending:Commercial real estate loans are loans originated by the Bank that are secured by commercial real estate and includes commercial real estate construction loans to developers, mainly to borrowers based in its primary markets.

Residential Real Estate Lending:The Bank originates traditional one-to-four family, owner occupied, residential mortgages secured by property located in its primary market area. Further detail on consumer residential real estate lending may be found on page 6 of this report.

Commercial Business Lending:Commercial business loans are loans originated by the Bank that are generally secured by various types of business assets including inventory, receivables, equipment, financial instruments and commercial real estate. In limited cases, loans may be made on an unsecured basis. Commercial business loans are used for a variety of purposes including working capital and financing the purchase of equipment.

The Bank concentrates on originating commercial business loans to middle-market companies with borrowing requirements of less than $25 million. Substantially all of the Bank’s commercial business loans outstanding at December 31, ~~2008,~~2009, were to borrowers based in its primary markets.

Consumer Lending:The Bank makes consumer loans for personal, family or household purposes, such as debt consolidation, automobiles, vacations and education. Consumer lending loans are typically secured by personal property but may also be unsecured personal loans. They may also be made on a revolving line of credit or fixed-term basis.

Investment Activities:

The Bank has authority to invest in various types of liquid assets, including U.S. Treasury obligations and securities of various federal agencies and U.S. Government sponsored enterprises, deposits of insured banks and federal funds. The Bank’s investments do not include commercial paper, asset-backed commercial paper, asset-backed securities secured by credit cards or car loans or preferred stock of Fannie Mae or Freddie Mac. The Bank also does not participate in structured investment vehicles. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the returns on loans and leases. The Bank must also meet reserve requirements of the ~~Federal Reserve Board,~~FRB, which are imposed based on amounts on deposit in various deposit categories.

Sources of Funds:

Deposits:Deposits are the primary source of the Bank’s funds for use in lending and for other general business purposes. Deposit inflows and outflows are significantly influenced by economic and competitive conditions, interest rates, money market conditions and other factors. Consumer, small business and commercial deposits are attracted principally from within the Bank’s primary market areas through the offering of a broad selection of deposit instruments including consumer, small business and commercial demand deposit accounts, interest-bearing checking accounts, money market accounts, regular savings accounts, certificates of deposit and retirement savings plans.

The Bank’s marketing strategy emphasizes attracting core deposits held in checking, savings, money- market and certificate of deposit accounts. These accounts are a source of low-interest cost funds and in some cases, provide significant fee income. The composition of the Bank’s deposits has a significant impact on the overall cost of funds. At December 31, ~~2008,~~2009, interest-bearing deposits comprised ~~92%~~91% of total deposits, as compared with ~~90%~~92% at December 31, ~~2007.~~2008.

Borrowings:Borrowings may be used to compensate for reductions in deposit inflows or net deposit outflows, or to support expanded lending activities. These borrowings include Federal Home Loan Bank (“FHLB”) advances, repurchase agreements, federal funds and other borrowings.

The Bank, as a member of the FHLB system, is required to own a minimum level of FHLB stock and is authorized to apply for advances on the security of such stock, mortgage-backed securities, loans secured by real estate and other assets (principally securities which are obligations of, or guaranteed by, the United States Government), provided certain standards related to creditworthiness have been met. FHLB advances are made pursuant to several different credit programs. Each credit program has its own interest rates and range of maturities. The FHLB prescribes the acceptable uses to which the advances pursuant to each program may be made as well as limitations on the size of advances. In addition to the program limitations, the amounts of advances for which an institution may be eligible are generally based on the FHLB’s assessment of the institution’s creditworthiness.

As an additional source of funds, the Bank may sell securities subject to its obligation to repurchase these securities (repurchase agreements) with major customers utilizing government securities or mortgage-backed securities as collateral. Generally, securities with a value in excess of the amount borrowed are required to be maintained as collateral to a repurchase agreement.

Information concerning the Bank’s FHLB advances, repurchase agreements, subordinated notes, junior subordinated notes (trust preferred) and other borrowings is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources “” and in Note 8 of Notes to Consolidated Financial Statements.

We are significantly affected by prevailing economic conditions, competition and the monetary, fiscal and regulatory policies of governmental agencies. Lending activities are influenced by the general credit needs of individuals and small and medium-sized businesses in the Company’s market areas, competition among lenders, the level of interest rates and the availability of funds. Deposit flows and costs of funds are influenced by prevailing market rates of interest, primarily the rates paid on competing funding alternatives, account maturities and the levels of personal income and savings in the Company’s market areas.

Our principal executive offices are located at 100 North Main Street, ~~Greenville,~~Greeneville, Tennessee 37743-4992 and our telephone number at these offices is (423) 639-5111. Our internet address iswww.greenbankusa.com. Please note that our website is provided as an inactive textual reference and the information on our website is not incorporated by reference.

Our Bank also offers other financial services through three wholly-owned subsidiaries. Through Superior Financial Services, Inc. (“Superior Financial”), the Bank operates eight consumer finance company offices located in Greene, Blount, Hamblen, Washington, Sullivan, Sevier, Knox and Bradley Counties, Tennessee. Through GCB Acceptance Corporation (“GCB Acceptance”), the Bank operates a sub-prime automobile lending company with a sole office in Johnson City, Tennessee. Through Fairway Title Co., the Bank operates a title company headquartered in Knox County, Tennessee. At December 31, ~~2008,~~2009, these three subsidiaries had total combined assets of ~~$39,846~~$42,251 and total combined loans, net of unearned interest and loan loss reserve, of ~~$37,305.~~$39,955.

Deposits of our Bank are insured by the Bank Insurance Fund (“BIF”) of the Federal Deposit Insurance Corporation (“FDIC”). Our ~~bank~~Bank is subject to comprehensive regulation, examination and supervision by the Tennessee Department of Financial Institutions (the “TDFI”), the ~~Board of Governors of the Federal Reserve System~~FRB and the FDIC.

~~On October 7, 2005, our Company purchased five bank branches in Montgomery County, Tennessee. This purchase also added to the Bank’s presence in Middle Tennessee.~~

On May 18, 2007, our Company completed its acquisition of Franklin, Tennessee-based Civitas BankGroup, Inc. (“CVBG”). Our Company was the surviving corporation of the merger with CVBG. CVBG was the bank holding company for Cumberland Bank which had 12 offices in the Nashville Metropolitan Statistical Area (“MSA”). Cumberland Bank was subsequently merged into our Bank, with our Bank as the surviving entity. The aggregate purchase price was $164,268, including $45,793 in cash and 3,091,495 shares of the Company’s common stock.

Growth and Business Strategy

The Company expects that over the short term, given the current economic environment, there will be little to no growth until this recessionary environment stabilizes and the economy begins to improve.

Over the intermediate term, ~~its~~defined as over the next 24 to 48 months, we believe our growth from in-market mergers and acquisitions including acquisitions of both entire financial institutions and selected branches of financial ~~institutions,~~institution’s, is expected to continue. De novo branching is also expected to be a method of growth, particularly in high-growth and other demographically-desirable markets.

The Company’s long-term strategic plan outlines geographic expansion within a 300-mile radius of its headquarters in Greene County, Tennessee. This could result in the Company expanding westward and eastward up to and including Nashville, Tennessee and Roanoke, Virginia, respectively, east/southeast up to and including the Piedmont area of North Carolina and western North Carolina, southward to northern Georgia and northward into eastern and central Kentucky. In particular, the Company believes the markets in and around Knoxville, Nashville and Chattanooga, Tennessee are highly desirable areas with respect to expansion and growth plans.

The Bank had historically operated under a single bank charter while conducting business under 18 bank brands with a distinct community-based brand in almost every market. On March 31, 2007 the Bank announced that it had changed all brand names to GreenBank throughout all the communities it serves to better enhance recognition and customer convenience. The Bank continues to offer local decision making through the presence of its regional executives in each of its markets, while maintaining a cost effective organizational structure in its back office and support areas.

The Bank focuses its lending efforts predominately on individuals and small to medium-sized businesses while it generates deposits primarily from individuals in its local communities. To aid in deposit generation efforts, the Bank offers its customers extended hours of operation during the week as well as Saturday and Sunday ~~banking.~~banking in many of its markets. The Bank also offers free online banking along with its High Performance Checking Program which since its inception has generated a significant number of core transaction accounts.

Lending Activities

General. The loan portfolio of the Company is comprised of commercial real estate, residential real estate, commercial and consumer loans. Such loans are primarily originated within the Company’s market areas of East and Middle Tennessee and are generally secured by residential or commercial real estate or business or personal property located in its market footprint.

Loan Composition. The following table sets forth the composition of the Company’s loans at December 31 for each of the periods indicated:


	2008			2007			2006			2005			2004			2009			2008			2007			2006			2005

Commercial real estate	$	1,430,225		$	1,549,457		$	921,190		$	729,254		$	484,088		$	1,306,398		$	1,430,225		$	1,549,457		$	921,190		$	729,254
Residential real estate		397,922			398,779			281,629			319,797			319,713			392,365			397,922			398,779			281,629			319,797
Commercial		315,099			320,264			258,998			245,285			165,975			274,346			315,099			320,264			258,998			245,285
Consumer		89,733			97,635			87,111			90,682			82,532			83,382			89,733			97,635			87,111			90,682
Other		4,656			3,871			2,203			3,476			4,989			2,117			4,656			3,871			2,203			3,476
Unearned interest		(14,245	)		(13,630	)		(11,502	)		(9,852	)		(10,430	)		(14,801	)		(14,245	)		(13,630	)		(11,502	)		(9,852	)

Loans, net of unearned interest	$	2,223,390		$	2,356,376		$	1,539,629		$	1,378,642		$	1,046,867		$	2,043,807		$	2,223,390		$	2,356,376		$	1,539,629		$	1,378,642


Allowance for loan losses	$	(48,811	)	$	(34,111	)	$	(22,302	)	$	(19,739	)	$	(15,721	)	$	(50,161	)	$	(48,811	)	$	(34,111	)	$	(22,302	)	$	(19,739	)

Residential Real Estate. The Company also originates one-to-four family, owner-occupied residential mortgage loans secured by property located in the Company’s primary market areas. The majority of the Company’s residential mortgage loans consists of loans secured by owner-occupied, single-family residences. At December 31, ~~2008,~~2009, the Company had ~~$397,922,~~$392,365, or ~~18%~~19%, of its net loan portfolio in residential real estate loans. Residential real estate loans generally have a loan-to-value ratio of 85% or less. These loans are underwritten by giving consideration to the ability to pay, stability of employment, source of income, credit history and ~~loan-to- value~~loan-to-value ratio. Home equity loans make up approximately ~~36%~~43% of residential real estate loans. Home equity loans may have higher loan-to-value ratios when the borrower’s repayment capacity and credit history conform to underwriting standards. Superior Financial extends sub-prime mortgages to borrowers who generally have a higher risk of default than mortgages extended by the Bank. Sub-prime mortgages totaled ~~$15,988,~~$17,636, or 4%, of the Company’s residential real estate loans at December 31, ~~2008.~~2009.

The Company sells most of its one-to-four family mortgage loans in the secondary market to Freddie Mac and other mortgage investors through the Bank’s mortgage banking operation. Sales of such loans to Freddie Mac and other mortgage investors totaled $43,050 and $51,962 during 2009 and ~~$84,282 during~~ 2008, ~~and 2007,~~ respectively, and the related mortgage servicing rights were sold together with the loans.

Commercial Loans. Commercial loans are made for a variety of business purposes, including working capital, inventory and equipment and capital expansion. At December 31, ~~2008,~~2009, commercial loans outstanding totaled ~~$315,099,~~$274,346, or ~~14%~~13%, of the Company’s net loan portfolio. Such loans are usually amortized over one to seven years and generally mature within five years. Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, financial strength of any guarantor, liquidity, leverage, management experience, ownership structure, economic conditions and industry-specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally speaking, accounts receivable are financed between 70% and 80% of accounts receivable less than 90 days past due. If other collateral is taken to support the loan, the loan to value of accounts receivable may approach 85%. Inventory financing will range between 50% and 60% depending on the borrower and nature of the inventory. The Company requires a first lien position for such loans. These types of loans are generally considered to be a higher credit risk than other loans originated by the Company.

Consumer Loans. At December 31, ~~2008,~~2009, the Company’s consumer loan portfolio totaled ~~$89,733,~~$83,382, or 4%, of the Company’s total net loan portfolio. The Company’s consumer loan portfolio is composed of secured and unsecured loans originated by the Bank, Superior Financial and GCB Acceptance. The consumer loans of the Bank have a higher risk of default than other loans originated by the Bank. Further, consumer loans originated by Superior Financial and GCB Acceptance, which are finance companies rather than banks, generally have a greater risk of default than such loans originated by commercial banks and, accordingly, carry a higher interest rate. Superior Financial and GCB Acceptance consumer loans totaled approximately ~~$38,801,~~$40,618, or ~~43%~~49%, of the Company’s installment consumer loans at December 31, ~~2008.~~2009. The performance of consumer loans will be affected by the local and regional economy as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.

Past Due, Special Mention, Classified and Nonaccrual Loans. The Company classifies its ~~problem~~ loans of concern into three categories: past due loans, special mention loans and classified loans (both accruing and non-accruing interest).

When management determines that a loan is no longer performing and that collection of interest appears doubtful, the loan is placed on nonaccrual status. All loans that are 90 days past due are considered nonaccrual unless they are adequately secured and there is reasonable assurance of full collection of principal and interest. Management closely monitors all loans that are contractually 90 days past due, treated as “special mention” or otherwise classified or on nonaccrual status. Nonaccrual loans that are 120 days past due without assurance of repayment are charged off against the allowance for loan losses.

The Company may elect to formally restructure a loan due to the weakening credit status of a borrower so that the restructuring may facilitate a repayment plan that minimizes the potential losses that the Company may have to otherwise incur. At December 31, 2009, the Company had $16,061 of restructured loans of which $4,429 was classified as non-accrual and the remaining were performing. There were no restructured loans at December 31, 2008.

The following table sets forth information with respect to the Company’s nonperforming assets at the dates indicated. ~~At these dates, the Company did not have any troubled debt restructurings.~~


	At December 31,										At December 31,
	2008		2007		2006		2005		2004		2009		2008		2007		2006		2005

Loans accounted for on a non-accrual basis	$	30,926	$	32,060	$	3,479	$	5,915	$	6,242	$	75,411	$	30,926	$	32,060	$	3,479	$	5,915
Accruing loans which are contractually past due 90 days or more as to interest or principal payments		509		18		28		809		664		147		509		18		28		809

Total non-performing loans		31,435		32,078		3,507		6,724		6,906		75,558		31,435		32,078		3,507		6,724
Real estate owned:
Foreclosures		44,964		4,401		1,445		2,920		1,353		56,952		44,964		4,401		1,445		2,920
Other real estate held and repossessed assets		407		458		243		823		213		216		407		458		243		823

Total non-performing assets	$	76,806	$	36,937	$	5,195	$	10,467	$	8,472	$	132,726	$	76,806	$	36,937	$	5,195	$	10,467


Restructured loans not included above											$	11,632	$	—	$	—	$	—	$	—

Total non-performing assets increased by ~~$39,869~~$55,920 from December 31, ~~2007~~2008 to December 31, ~~2008.~~2009. This increase was principally a function of the ~~rapid~~continued deterioration in the economy during 2009 which was reflected principally in the Company’s residential real estate construction and development ~~portfolio~~portfolio. The deterioration that began in the fourth quarter of 2007 ~~and escalated throughout 2008~~continued to escalate through the first half of 2009 in the Company’s urban markets, primarily Nashville and ~~Knoxville, and~~Knoxville. In 2009, the ~~aggressive action taken~~Company continued to aggressively identify and appropriately classify these ~~assets.~~assets resulting in the increase of these non-performing assets over this time period. The Company’s continuing efforts to resolve nonperforming loans include ~~foreclosures, which result in~~enhancement of its credit administration resources dedicated to the ~~Company’s ownership~~residential construction and residential development portfolios through the assignment of senior executives and bankers, including workout specialists, to these portfolios. These individuals meet frequently to discuss the performance of the ~~real estate underlying~~portfolio and specific relationships with emphasis on the ~~mortgage.~~underperforming assets. These individuals then recommend an action plan, which could include foreclosure, restructuring the loan, issuing demand letters or other actions. If nonaccrual loans at December 31, ~~2008~~2009 had been current according to their original terms and had been outstanding throughout ~~2008,~~2009, or since origination if originated during the year, interest income on these loans in 2009 would have been approximately ~~$2,754.~~$3,400. Interest actually recognized on these loans during ~~2008~~2009 was ~~$2,134.~~$2,842. Interest income not recognized on restructured loans was not significant for 2009.

~~Foreclosed~~

Other real estate owned (“OREO”) increased ~~$40,563~~$11,988 to $56,952 at December 31, 2009 from $44,964 at December 31, ~~2008 from $4,401 at December 31, 2007.~~2008. The real estate consists of 8941 properties, of which 50eleven are ~~single~~1-4 family residential properties with a carrying value of ~~$6,680, four~~$1,405, seventeen are construction development of 1-4 residential properties with a carrying value of ~~$21,778, seven are multi-acre~~$46,230, one is a parcel of commercial vacant land with a carrying value of ~~$710, 23~~$800, ten are vacant 1-4 family residential lots with a carrying value of ~~$10,850, four are~~$2,980, one was a commercial ~~buildings~~building with a carrying value of ~~$977~~$1,485 and one is a ~~multi-famliy unit~~commercial construction project with a carrying value of ~~$3,969.~~$4,052. Management has recorded these properties at estimated fair value, based on current appraisals, less estimated selling costs. Other repossessed assets decreased ~~$51~~$191 to $216 at December 31, 2009 from $407 at December 31, ~~2008 from $458 at December 31, 2007.~~2008. The decrease is due primarily to the disposition of repossessed automobiles at one of the Company’s subsidiaries.

Total impaired loans, defined under ~~Statement of Accounting Standards (“SFAS”) No. 114~~“~~Accounting by Creditors for Impairment of a Loan—an amendment of FASB Statements No. 5 and 15“~~ASC 310 as loans which, based upon current information and events, it is considered probable that the Company will be unable to collect all amounts of contractual interest and principal as scheduled in the loan agreement, increased by ~~$10,948~~$68,023 from ~~$36,267 at December 31, 2007 to~~ $47,215 at December 31, ~~2008.~~2008 to $115,238 at December 31, 2009. Under ~~SFAS No. 114,~~accounting guidance for impaired loans, the impairment is probable if the future events indicate that the Bank will not collect principal and interest in accordance with ~~contractural~~contractual terms. Impaired loans may, or may not, be included in non-performing loans. This increase is primarily attributable to the ~~rapid deterioration during the fourth quarter of 2007 and escalating~~continued deterioration throughout ~~2008~~2009 in residential real estate construction loans located in ~~its~~the Company’s urban markets. The impaired loans at year end of $115,238 are net of balances previously charged-off of $27,937.

At December 31, ~~2008,~~2009, the Company had approximately ~~$15,576~~$39,680 in loans that are not currently classified as nonaccrual or 90 days past due or otherwise restructured but which known information about possible credit problems of borrowers caused management to have concerns as to the ability of the borrowers to comply with present loan repayment terms. Such loans were considered classified by the Company and were composed primarily of various commercial, commercial real estate and consumer loans. The Company believes that these loans are adequately secured and management currently does not expect any material loss.

Allowance for Loan Losses. The allowance for loan losses is maintained at a level which management believes is adequate to absorb all probable losses on loans then present in the loan portfolio. The amount of the allowance is affected by: (1) loan charge-offs, which decrease the allowance; (2) recoveries on loans previously charged-off, which increase the allowance; and (3) the provision for possible loan losses charged against income, which increases the allowance. In determining the provision for possible loan losses, it is necessary for management to monitor fluctuations in the allowance resulting from actual charge-offs and recoveries, and to periodically review the size and composition of the loan portfolio in light of current and anticipated economic conditions, including residential real estate prices and transaction volume in the Company’s market areas, in an effort to evaluate portfolio risks. In evaluating residential real estate market conditions, the Company’s internal policies require new appraisals on adversely rated collateral dependent loans to be obtained at least annually. On a quarterly basis, the Company receives a written report from an independent nationally recognized organization which provides updated valuation trends, by price point and by zip code, for each of the major markets in which the Company is conducting business. The information is then used in the Company’s impairment analysis of collateral dependent loans. If actual losses exceed the amount of the allowance for loan losses, earnings of the Company could be adversely affected. The amount of the provision is based on management’s judgment of those risks. During the year ended December 31, ~~2008,~~2009, the Company’s provision for loan losses ~~increased~~decreased by ~~$38,327~~$2,564 to ~~$52,810~~$50,246 from ~~$14,483~~$52,810 for the year ended December 31, ~~2007,~~2008, while the allowance for loan losses increased by ~~$14,700~~$1,350 to $50,161 at December 31, 2009 from $48,811 at December 31, 2008 from $34,111 at December 31, 2007. The increase in the provision for loan losses was attributable primarily to weakened economic conditions experienced in the Company’s urban markets, principally in the Nashville and Knoxville markets, beginning in the fourth quarter of 2007 and escalating throughout 2008 accompanied by deteriorating credit quality associated primarily with residential real estate construction and development loans in those markets.2008.

The ~~increase in the~~continued elevated allowance for loan losses was attributable primarily to weakened economic conditions experienced in the Company’s urban markets, principally the Nashville and Knoxville markets, beginning in the fourth quarter of 2007 and ~~escalating throughout 2008,~~continuing through the first half of 2009, accompanied by deteriorating credit quality associated primarily with residential real estate construction and development loans in these markets. After recognizing net charge-offs of $38,110 for the year, the Company reviewed loan concentrations in the residential real estate construction category along with continued economic weaknesses in its urban markets and provided an additional $14,700 to cover estimated losses inherent in the portfolio. The allowance for loan losses as a percentage of total loans was ~~2.20%~~2.45% at the end of ~~2008~~2009 versus ~~1.45%~~2.20% at December 31, ~~2007.~~2008. The loan loss reserves reflected the higher level of non-performing banking assets, and losses inherent in this segment of the Company’s business, as noted in Note 17 of Notes to Consolidated Financial Statements. Although Management believes that the allowance for loan losses is adequate to cover estimated losses inherent in the portfolio, there can be no assurances that additional reserves may not be required in the future.

The following is a summary of activity in the allowance for loan losses for the periods indicated:


	Year Ended December 31,															Year Ended December 31,
	2008			2007			2006			2005			2004			2009			2008			2007			2006			2005

Balance at beginning of year	$	34,111		$	22,302		$	19,739		$	15,721		$	14,564		$	48,811		$	34,111		$	22,302		$	19,739		$	15,721
Reserve acquired in acquisition		—			9,022			—			1,467			363			—			—			9,022			—			1,467

Subtotal		34,111			31,324			19,739			17,188			14,927			48,811			34,111			31,324			19,739			17,188
Charge-offs:
Commercial real estate		(28,759	)		(7,516	)		(494	)		(189	)		(1,044	)		(40,893	)		(28,759	)		(7,516	)		(494	)		(189	)
Commercial		(6,177	)		(2,065	)		(879	)		(1,500	)		(1,538	)		(6,941	)		(6,177	)		(2,065	)		(879	)		(1,500	)

Subtotal		(34,936	)		(9,581	)		(1,373	)		(1,689	)		(2,582	)		(47,834	)		(34,936	)		(9,581	)		(1,373	)		(1,689	)

Residential real estate		(2,275	)		(840	)		(947	)		(622	)		(424	)		(3,176	)		(2,275	)		(840	)		(947	)		(622	)
Consumer		(4,058	)		(3,050	)		(2,009	)		(3,250	)		(3,962	)		(3,880	)		(4,058	)		(3,050	)		(2,009	)		(3,250	)
Other		—			—			(28	)		(22	)		(12	)		—			—			—			(28	)		(22	)

Total charge-offs		(41,269	)		(13,471	)		(4,357	)		(5,583	)		(6,980	)		(54,890	)		(41,269	)		(13,471	)		(4,357	)		(5,583	)


Recoveries:
Commercial real estate		1,691			289			17			180			66			3,066			1,691			289			17			180
Commercial		221			227			171			160			304			1,669			221			227			171			160

Subtotal		1,912			516			188			340			370			4,735			1,912			516			188			340

Residential real estate		138			213			284			166			63			402			138			213			284			166
Consumer		1,106			1,038			936			1,246			1,504			853			1,106			1,038			936			1,246
Other		3			8			5			17			1			4			3			8			5			17

Total recoveries		3,159			1,775			1,413			1,769			1,938			5,994			3,159			1,775			1,413			1,769

Net charge-offs		(38,110	)		(11,696	)		(2,944	)		(3,814	)		(5,042	)		(48,896	)		(38,110	)		(11,696	)		(2,944	)		(3,814	)

Provision for loan losses		52,810			14,483			5,507			6,365			5,836			50,246			52,810			14,483			5,507			6,365

Balance at end of year	$	48,811		$	34,111		$	22,302		$	19,739		$	15,721		$	50,161		$	48,811		$	34,111		$	22,302		$	19,739


Ratio of net charge-offs to average loans outstanding, net of unearned discount, during the period		1.63	%		.57	%		.20	%		.32	%		0.51	%		2.25	%		1.63	%		.57	%		.20	%		.32	%

Ratio of allowance for loan losses to non-performing loans		155.28	%		106.34	%		635.93	%		293.56	%		227.64	%		66.39	%		155.28	%		106.34	%		635.93	%		293.56	%

Ratio of allowance for loan losses to total loans, net of unearned income		2.20	%		1.45	%		1.45	%		1.43	%		1.50	%		2.45	%		2.20	%		1.45	%		1.45	%		1.43	%

Investment Activities

General. The Company maintains a portfolio of investments to cover minimum pledging requirements for municipal deposits and borrowings.

Securities by Category. The following table sets forth the carrying value of the securities, by major categories, held by the Company at December 31, 2009, 2008 ~~2007~~ and ~~2006:~~2007:

At December 31,
2008 2007 2006

Securities Held to Maturity:
Obligations of state and political subdivisions $ 404 $ 1,049 $ 1,794
Corporate Securities 253 254 751

Total $ 657 $ 1,303 $ 2,545

Securities Available for Sale:
U.S. Government, corporations and agencies $ 169,265 $ 197,908 $ 33,814
Obligations of state and political subdivisions 31,804 34,388 1,702
Trust Preferred Securities 2,493 2,977 2,224

Total $ 203,562 $ 235,273 $ 37,740


	At December 31,
	2009		2008		2007

Securities Held to Maturity:
State and political subdivisions	$	251	$	404	$	1,049
Other securities		375		253		254


Total	$	626	$	657	$	1,303


Securities Available for Sale:
U.S. government agencies	$	52,048	$	98,806	$	41,737
State and political subdivisions		32,192		31,804		34,388
Collateralized mortgage obligations		44,677		68,373		16,381
Mortgage-backed securities		16,892		2,086		139,790
Trust preferred securities		1,915		2,493		2,977


Total	$	147,724	$	203,562	$	235,273

Maturity Distributions of Securities. The following table sets forth the distributions of maturities of securities at amortized cost as of December 31, ~~2008:~~2009:

Due After One Due After Five
Due in One Year Through Years Through Due
Year or Less Five Years 10 Years After 10 Years Total

U.S. Government agency obligations — available for sale $ — $ 930 $ 43,763 $ 124,365 $ 169,058
Obligations of state and political subdivisions — available for sale 155 2,623 17,760 12,103 32,641
Obligations of state and political subdivisions — held to maturity — 404 — — 404
Other securities — available for sale — — — 2,954 2,954
Other securities — held to maturity — 253 — — 253

Subtotal $ 155 $ 4,210 $ 61,523 $ 139,422 $ 205,310

Market value adjustment on available for sale securities 1 25 217 (1,335 ) (1,092 )

Total $ 156 $ 4,235 $ 61,740 $ 138,087 $ 204,218

Weighted average yield (a) 5.43 % 6.60 % 5.81 % 5.56 % 5.66 %


				Due After One
	Due in One			Year through			Due After Five Years			Due
	Year or Less			Five Years			through 10 Years			After 10 Years			Total

Securities Held to Maturity:
State and political subdivisions	$	—		$	251		$	—		$	—		$	251
Other securities		100			275			—			—			375

Securities Available for Sale:
U.S. government agencies		—			2,998			12,994			36,945			52,937
State and political subdivisions		—			3,709			22,344			5,712			31,765
Collateralized mortgage obligations		—			762			2,458			40,798			44,018
Mortgage-backed securities		—			2,801			6,357			7,448			16,606
Trust preferred securities		—			—			—			2,088			2,088


Subtotal	$	100		$	10,796		$	44,153		$	92,991		$	148,040

Market value adjustment on available for sale securities		2			176			795			(651	)		322


Total	$	102		$	10,972		$	44,948		$	92,340		$	148,362


Weighted average yield (a)		4.68	%		4.56	%		5.15	%		4.58	%		4.78	%


(a)		Weighted average yields on tax-exempt obligations have been computed on a fully taxable-equivalent basis using a tax rate of 35%.

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Deposits

Deposits are the primary source of funds for the Company. Such deposits consist of noninterest bearing and interest-bearing demand deposit accounts, regular savings deposits, Money Market accounts and market rate ~~Certificates~~certificates of ~~Deposit.~~deposit. Deposits are attracted from individuals, partnerships and corporations in the Company’s market areas. In addition, the Company obtains deposits from state and local entities and, to a lesser extent, U.S. Government and other depository institutions. The Company’s Asset/Liability Management Policy permits the acceptance of limited amounts of brokered deposits. At December 31, 2009 the percentage of the Company’s brokered deposits to total deposits was 0.30%, which was within the limits of the Asset/Liability Management Policy. The Company’s brokered deposits were also within the limits of the Asset/Liability Management Policy at December 31, 2008 and 2007, respectively.

The following table sets forth the average balances and average interest rates based on daily balances for deposits for the periods indicated:


	Year Ended December 31,															Year Ended December 31,
	2008					2007					2006					2009					2008					2007
	Average		Average			Average		Average			Average		Average			Average		Average			Average		Average			Average		Average
	Balance		Rate Paid			Balance		Rate Paid			Balance		Rate Paid			Balance		Rate Paid			Balance		Rate Paid			Balance		Rate Paid

Types of deposits (all in domestic offices):
Noninterest bearing demand deposits	$	187,058		—		$	184,529		—		$	147,947		—		$	162,765		—		$	187,058		—		$	184,529		—
Interest-bearing demand deposits		577,024		1.57	%		581,340		2.78	%		420,041		2.38	%		700,586		1.30	%		577,024		1.57	%		581,340		2.78	%
Savings deposits		68,612		.77	%		73,355		.75	%		72,978		.70	%		83,549		1.13	%		68,612		.77	%		73,355		.75	%
Time deposits		1,317,362		3.68	%		951,455		4.70	%		641,672		3.98	%		1,166,640		3.06	%		1,317,362		3.68	%		951,455		4.70	%

Total deposits	$	2,150,056				$	1,790,679				$	1,282,638				$	2,113,540				$	2,150,056				$	1,790,679

Competition

To compete effectively, the Company relies substantially on local commercial activity; personal contacts by its directors, officers, other employees and shareholders; personalized services; and its reputation in the communities it serves.

According to data as of June 30, ~~2008~~2009 published by SNL Financial LC and using information from the FDIC, the Bank ranked as the largest independent commercial bank headquartered in East Tennessee, and its major market areas include Greene, Blount, Davidson, Hamblen, Hawkins, Knox, Lawrence, Loudon, Macon, McMinn, Montgomery, Rutherford, Smith, Sullivan, Sumner, Washington and Williamson Counties, Tennessee and portions of Cocke ~~Monroe~~ and ~~Jefferson~~Monroe Counties, Tennessee. In Greene County, in which the Company enjoyed its largest deposit share as of June 30, ~~2008,~~2009, there were seven commercial banks and one savings bank, operating 26 branches and holding an aggregate of approximately ~~$1.3~~$1.1 billion in deposits as of June 30, ~~2008.~~2009. The following table sets forth the Bank’s deposit share, excluding credit unions, in each county in which it has a full-service branch(s) as of June 30, ~~2008,~~2009, according to data published by the FDIC:


County	Deposit Share
Greene, TN		~~49.53~~35.16	%
Hawkins, TN		~~18.66~~17.99	%
Lawrence, TN		~~14.81~~16.95	%
Smith, TN		~~12.08~~12.28	%
Sumner, TN		~~12.04~~11.03	%
Macon, TN		9.32	%
Blount, TN		~~9.94~~8.52	%
Cocke, TN		8.49	%
Hamblen, TN		8.05	%
Montgomery, TN		~~8.74~~7.64	%
~~Macon, TN~~Madison, NC		~~8.64~~	%
~~Hamblen, TN~~		~~8.33~~	%
~~Cocke, TN~~		~~8.10~~5.96	%
Washington, TN		~~5.45~~	%
~~Madison, NC~~		~~5.32~~5.54	%
McMinn, TN		~~5.23~~5.48	%
Loudon, TN		~~4.44~~	%
~~Williamson, TN~~		~~3.84~~4.96	%
Bristol, VA¹		~~3.63~~4.33	%
Rutherford, TN		~~2.55~~3.25	%
Williamson, TN		2.74	%
Sullivan, TN		~~2.17~~2.40	%
Monroe, TN		~~1.28~~1.19	%
Davidson, TN		~~0.64~~0.68	%
Knox, TN		~~0.50~~0.65	%


¹		Bristol, VA is deemed a city.

Employees

As of December 31, ~~2008~~2009 the Company employed ~~737~~716 full-time equivalent employees. None of the Company’s employees are presently represented by a union or covered under a collective bargaining agreement. Management considers relations with employees to be good.

Regulation, Supervision and Governmental Policy

The following is a brief summary of certain statutes, rules and regulations affecting the Company and the Bank. A number of other statutes and regulations have an impact on their operations. These laws and regulations are generally intended to protect depositors and borrowers, not shareholders. The following discussion describes the material elements of the regulatory framework that currently apply. However, Congress and the executive branch are currently considering and are likely to adopt in the near future significant new regulatory reform initiatives, which could result in material changes to the current oversight structure. The following summary of applicable statutes and regulations does not purport to be complete and is qualified in its entirety by reference to such statutes and regulations.

Bank Holding Company Regulation. The Company is registered as a bank holding company under the Bank Holding Company Act (the “Holding Company Act”) and, as such, is subject to supervision, regulation and examination by the Board of Governors of the FRB.

Acquisitions and Mergers. Under the Holding Company Act, a bank holding company must obtain the prior approval of the FRB before (1) acquiring direct or indirect ownership or control of any voting shares of any bank or bank holding company if, after such acquisition, the bank holding company would directly or indirectly own or control more than 5% of such shares; (2) acquiring all or substantially all of the assets of another bank or bank holding company; or (3) merging or consolidating with another bank holding company. Also, any company must obtain approval of the FRB prior to acquiring control of the Company or the Bank. For purposes of the Holding Company Act, “control” is defined as ownership of more than 25% of any class of voting securities of ~~the Company~~a bank holding company or ~~the Bank,~~bank, the ability to control the election of a majority of the directors, or the exercise of a controlling influence over management or policies of the ~~Company~~a bank holding company or bank. Control is rebuttably presumed to exist if a person or company acquires 10% or more, but less than 25%, of any class of voting securities and either:

The bank holding company has registered securities under Section 12 of the ~~Bank.~~Securities Exchange Act of 1934; or

No other person owns a greater percentage of that class of voting securities immediately after the transaction.

Our common stock is registered under the Securities Exchange Act of 1934. The regulations provide a procedure for challenge of the rebuttable control presumption.

The Change in Bank Control Act and the related regulations of the FRB require any person or persons acting in concert (except for companies required to make application under the Holding Company Act), to file a written notice with the FRB before such person or persons may acquire control of ~~the Company~~a bank holding company or ~~the Bank.~~bank. The Change in Bank Control Act defines “control” as the power, directly or indirectly, to vote 25% or more of any voting securities or to direct the management or policies of a bank holding company or an insured bank.

Bank holding companies like the Company are currently prohibited from engaging in activities other than banking and activities so closely related to banking or managing or controlling banks as to be a proper incident thereto. The FRB’s regulations contain a list of permissible nonbanking activities that are closely related to banking or managing or controlling banks. A bank holding company must file an application or notice with the FRB prior to acquiring more than 5% of the voting shares of a company engaged in such activities. The Gramm-Leach-Bliley Act of 1999 (the “GLB Act”), however, greatly broadened the scope of activities permissible for bank holding companies. The GLB Act permits bank holding companies, upon election and classification as financial holding companies, to engage in a broad variety of activities “financial” in nature. The Company has not filed an election with the FRB to be a financial holding company, but may ~~chose~~choose to do so in the future.

Capital Requirements. The Company is also subject to FRB guidelines that require bank holding companies to maintain specified minimum ratios of capital to total assets and capital to risk-weighted assets. See “Capital Requirements.”

Dividends. The FRB has the power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices. The FRB has issued a policy statement expressing its view that a bank holding company should pay cash dividends only to the extent that the company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the company’s capital needs, asset quality, and overall financial condition. ~~The Company does not believe compliance with this policy statement will limit the Company’s ability to maintain its dividend payment rate.~~

The Company is a legal entity separate and distinct from the Bank. Over time, the principal source of the Company’s cash flow, including cash flow to pay dividends to its holders of trust preferred securities, holders of the Series A preferred stock the Company issued to the U.S. Treasury in connection with the Capital Purchase Program (“CPP”) and to the Company’s common stock shareholders, will be dividends that the Bank pays to the Company as its sole shareholder. Under Tennessee law, the Company is not permitted to pay dividends if, after giving effect to such payment, the Company would not be able to pay its debts as they become due in the normal course of business or the Company’s total assets would be less than the sum of its total liabilities plus any amounts needed to satisfy any preferential rights if the Company were dissolving. In addition, in deciding whether or not to declare a dividend of any particular size, the Company’s board of directors must consider the Company’s current and prospective capital, liquidity, and other needs.

In addition to the limitations on the Company’s ability to pay dividends under Tennessee law, the Company’s ability to pay dividends on its common stock is also limited by the Company’s participation in the CPP and by certain statutory or regulatory limitations. Prior to December 23, 2011, unless the Company has redeemed the Series A preferred stock issued to the U.S. Treasury in the CPP or the U.S. Treasury has transferred the Series A preferred stock to a third party, the consent of the U.S. Treasury must be received before the Company can declare or pay any dividend or make any distribution on the Company’s common stock in excess of $0.13 per quarter. Furthermore, if the Company is not current in the payment of quarterly dividends on the Series A preferred stock, it can not pay dividends on its common stock.

Statutory and regulatory limitations also apply to the Bank’s payment of dividends to the Company. Under Tennessee law, the Bank can only pay dividends to the Company in an amount equal to ~~or less than the total~~ or less than the total amount of its net income for that year combined with retained net income for the preceding two years. Payment of dividends in excess of this amount requires the consent of the Commissioner of the ~~Tennessee Department~~TDFI (the “Commissioner”). Because the Bank incurred a loss in 2009, dividends from the Bank to the Company, including, if necessary, dividends to support the Company’s payment of ~~Financial Institutions.~~interest on its subordinated debt and dividends on the Series A preferred stock it sold to the U.S. Treasury will require prior approval by the Commissioner.

The payment of dividends by the Bank and the Company may also be affected by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. Recent supervisory guidance from the FRB indicates that bank holding companies that are participants in the CPP that are experiencing financial difficulty generally should eliminate, reduce or defer dividends on Tier 1 capital instruments including trust preferred securities, preferred stock or common stock, if the holding company needs to conserve capital for safe and sound operation and to serve as a source of strength to its subsidiaries.

Support of Banking Subsidiaries. Under FRB policy, the Company is expected to act as a source of financial strength to its banking subsidiaries and, where required, to commit resources to support each of such subsidiaries. Further, if the Bank’s capital levels were to fall below minimum regulatory guidelines, the Bank would need to develop a capital plan to increase its capital levels and the Company would be required to guarantee the Bank’s compliance with the capital plan in order for such plan to be accepted by the federal regulatory authority.

Under the “cross guarantee” provisions of the Federal Deposit Insurance Act (the “FDI Act”), any FDIC-insured subsidiary of the Company such as the Bank could be liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of any other FDIC-insured subsidiary also controlled by the Company or (ii) any assistance provided by the FDIC to any FDIC-insured subsidiary of the Company in danger of default.

Transactions with Affiliates. The Federal Reserve Act, as amended by Regulation W, imposes legal restrictions on the quality and amount of credit that a bank holding company or its non-bank subsidiaries (“affiliates”) may obtain from bank subsidiaries of the holding company. For instance, these restrictions generally require that any such extensions of credit by a bank to its affiliates be on non-preferential terms and be secured by designated amounts of specified collateral. Further, a bank’s ability to lend to its affiliates is limited to 10% per affiliate (20% in the aggregate to all affiliates) of the bank’s capital and surplus.

Bank Regulation. As a Tennessee banking institution, the Bank is subject to regulation, supervision and regular examination by the Tennessee Department of Financial Institutions. Tennessee and federal banking laws and regulations control, among other things, required reserves, investments, loans, mergers and consolidations, issuance of securities, payment of dividends, and establishment of branches and other aspects of the Bank’s operations. Supervision, regulation and examination of the Company and the Bank by the bank regulatory agencies are intended primarily for the protection of depositors rather than for ~~holders of~~ the ~~Common Stock of the Company.~~Company’s security holders.

Extensions of Credit. Under joint regulations of the federal banking agencies, including the FDIC, banks must adopt and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate or are made for the purpose of financing permanent improvements to real estate. These policies must establish loan portfolio diversification standards, prudent underwriting standards, including loan-to-value limits that are clear and measurable, loan administration procedures and documentation, approval and reporting requirements. A bank’s real estate lending policy must reflect consideration of the Interagency Guidelines for Real Estate Lending Policies (the “Interagency Guidelines”) that have been adopted by the federal banking regulators. The Interagency Guidelines, among other things, call upon depository institutions to establish internal loan-to-value limits for real estate loans that are not in excess of the loan-to-value limits specified in the Interagency Guidelines for the various types of real estate loans. The Interagency Guidelines state that it may be appropriate in individual cases to originate or purchase loans with loan-to-value ratios in excess of the supervisory loan-to-value limits. The aggregate amount of loans in excess of the supervisory loan-to-value limits, however, should not exceed 100% of total capital, and the total of such loans secured by commercial, agricultural, multifamily and other non-one-to-four family residential properties should not exceed 30% of total capital.

Federal Deposit Insurance. The deposits of the Bank are insured by the FDIC to the maximum extent provided by law, and the Bank is subject to FDIC deposit insurance assessments. The FDIC has adopted a ~~risk- based~~risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. In early 2006, Congress passed the Federal Deposit Insurance Reform Act of 2005, which made certain changes to the Federal deposit insurance program. These changes included merging the Bank Insurance Fund and the Savings Association Insurance Fund, increasing retirement account coverage to $250,000 and providing for inflationary adjustments to general coverage beginning in 2010, providing the FDIC with authority to set the fund’s reserve ratio within a specified range, and requiring dividends to banks if the reserve ratio exceeds certain levels. The ~~new~~ statute grants banks an assessment credit based on their share of the assessment base on December 31, 1996, and the amount of the credit can be used to reduce assessments in any year subject to certain limitations.

The Emergency Economic Stabilization Act of 2008 (“EESA”) provides for a temporary increase in the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. This ~~legislation provides that the~~increased level of basic deposit insurance ~~limit will~~is scheduled to return to $100,000 on December 31, ~~2009.~~2013. In addition, on October 14, 2008, the FDIC instituted a Temporary Liquidity Guarantee Program that provided for FDIC guarantees of unsecured debt of depository institutions and certain holding companies and for temporary unlimited FDIC coverage of non-interest bearing deposit transaction accounts. Institutions were automatically covered, without cost, under these programs for 30 days (later extended until December 5, 2008); however, after the specified deadline (December 5, 2008), institutions were required to opt-out of these programs if they did not wish to participate and incur fees thereunder. The Company has elected to participate in the transaction account guarantee program, which ~~expires~~is scheduled to expire on ~~December 31, 2009.~~June 30, 2010. Under the transaction account guarantee program, an institution can provide full coverage on non-interest bearing transaction accounts for an annual assessment of 10, 20 or 25 basis points, depending on the institution’s risk category, of any deposit amounts exceeding the $250,000 deposit insurance limit, in addition to the normal risk-based assessment.

Safety and Soundness Standards. The FDICIA required the federal bank regulatory agencies to prescribe, by regulation, non-capital safety and soundness standards for all insured depository institutions and depository institution holding companies. The FDIC and the other federal banking agencies have adopted guidelines prescribing safety and soundness standards pursuant to FDICIA. The safety and soundness guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. Among other things, the guidelines require banks to maintain appropriate systems and practices to identify and manage risks and exposures identified in the guidelines.

Participation in the Capital Purchase Program of the Troubled Asset Relief Program. On October 3, 2008, the EESA became law. Under the Troubled Asset Relief Program (“TARP”) authorized by EESA, the U.S. ~~Department of the~~ Treasury established athe CPP providing for the purchase of senior preferred shares of qualifying U.S. controlled banks, savings associations and certain bank and savings and loan holding companies. On December 23, 2008, the Company sold 72,278 shares of Series A preferred stock and warrants to acquire 635,504 shares of common stock to the U.S. Treasury pursuant to the CPP for aggregate consideration of $83 million. As a result of the Company’s participation in the CPP, the Company ~~has~~ agreed to certain limitations on executive compensation. On February 17, 2009, President Obama signed into law The American Recovery and Reinvestment Act of 2009 (“ARRA”), more commonly known as the economic stimulus or economic recovery package. ARRA, which amends EESA, includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. Under ARRA, the Company is subject to additional and more extensive executive compensation limitations and corporate governance requirements. ARRA also permits the Company to redeem the preferred shares it sold to the U.S. Treasury without penalty and without the need to raise new capital, subject to the U.S. Treasury’s consultation with the Company’s and the Bank’s appropriate regulatory agency.

For as long as the U.S. Treasury owns any debt or equity securities of the Company issued in connection with the ~~TARP capital purchase program,~~CPP, the Company will be required to take all necessary action to ensure that its benefit plans with respect to its senior executive officers comply in all respects with Section 111(b) of the ~~Emergency Economic Stabilization Act of 2008,~~EESA, as amended by the ARRA, and the regulations issued and in effect thereunder, ~~as of~~including the ~~closing date of~~interim final rule related to executive compensation and corporate governance issued by the ~~sale of the preferred shares to the United States Treasury.~~U.S. Treasury on June 15, 2009 (the “IFR”). This means that, among other things, while the U.S. Treasury owns debt or equity securities issued by the Company in connection with the ~~TARP capital purchase program,~~CPP, the Company must:

Ensure that the incentive compensation programs for its senior executive officers do not encourage unnecessary and excessive risks that threaten the value of the Company;

Implement a required clawback of any bonus or incentive compensation paid to the Company’s senior executive officers and the next twenty most highly compensated employees based on materially inaccurate financial statements or any other materially inaccurate performance metric;

Not make any bonus, incentive or retention payment to any of ~~earnings, gains, or other criteria that are later proven to be materially inaccurate;~~the Company’s five most highly compensated employees, except as permitted under the IFR;

Not make any “golden parachute payment” (as defined in the ~~Internal Revenue Code)~~IFR) to any of the Company’s senior executive ~~officers;~~officers or next five most highly compensated employees; and

Agree not to deduct for tax purposes executive compensation in excess of $500,000 in any one fiscal year for each of the Company’s senior executive officers.

On February 17, 2009 President Obama signed into law The American Recovery and Reinvestment Act of 2009 (“ARRA”), more commonly known as the economic stimulus or economic recovery package. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients, including the Company, that are in addition to those previously announced by the U.S. Treasury, until the institution has repaid the U.S. Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to the U.S. Treasury’s consultation with the recipient’s appropriate regulatory agency.

As of March 13, 2009, it is unclear how these executive compensation standards imposed under ARRA will relate to the similar standards announced by the U.S. Treasury in its guidelines on February 4, 2009, or whether the standards will be considered effective immediately or only after implementing regulations are issued by the U.S. Treasury. The new standards include (but are not limited to) (i) prohibitions on bonuses, retention awards and other incentive compensation, other than restricted stock grants which do not fully vest during the TARP period and which do not exceed one-third of an employee’s total annual compensation, (ii) prohibitions on any payments to senior executives (other than payments for services performed or benefits accrued) for departure for any reason from a company, (iii) an expanded clawback of bonuses, retention awards, and incentive compensation if payment is based on materially inaccurate statements of earnings, revenues, gains or other criteria, (iv) prohibition on compensation plans that encourage manipulation of reported earnings, (v) retroactive review of bonuses, retention awards and other compensation previously provided by TARP recipients if found by the Treasury to be inconsistent with the purposes of TARP or otherwise contrary to public interest, (vi) required establishment of a company-wide policy regarding “excessive or luxury expenditures,” and (vii) inclusion in a participant’s proxy statements for annual shareholder meetings of a nonbinding “Say on Pay” shareholder vote on the compensation of executives. The Company is reviewing these legislative and regulatory matters to determine what impact, if any, they will have on the Company’s executive compensation program for 2009 and beyond.

Capital Requirements. The FRB has established guidelines with respect to the maintenance of appropriate levels of capital by registered bank holding companies, and the FDIC has established similar guidelines for state-chartered banks, such as the Bank, that are not members of the FRB. The regulations of the FRB and FDIC impose two sets of capital adequacy requirements: minimum leverage rules, which require the maintenance of a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to “risk-weighted” assets. At December 31, ~~2008,~~2009, the Company and the Bank exceeded the minimum required regulatory capital requirements necessary to be well capitalized. See Note 12 of Notes to Consolidated Financial Statements.

The FDIC has issued final regulations that classify insured depository institutions by capital levels and require the appropriate federal banking regulator to take prompt action to resolve the problems of any insured institution that fails to satisfy the capital standards. Under such regulations, a “well-capitalized” bank is one that is not subject to any regulatory order or directive to meet any specific capital level and that has or exceeds the following capital levels: a total risk-based capital ratio of 10%, a Tier 1 risk-based capital ratio of 6%, and a leverage ratio of 5%. As of December 31, ~~2008,~~2009, the Bank was “well-capitalized” as defined by the regulations. See Note 12 of Notes to Consolidated Financial ~~Statements for further information.~~Statements.

Legislative, Legal and Regulatory Developments: The banking industry is generally subject to extensive regulatory oversight. The Company, as a publicly held bank holding company, and the Bank, as a state-chartered bank with deposits insured by the FDIC, are subject to a number of laws and regulations. Many of these laws and regulations have undergone significant change in recent years. These laws and regulations impose restrictions on activities, minimum capital requirements, lending and deposit restrictions and numerous other requirements. Future changes to these laws and regulations, and other new financial services laws and regulations, are likely and cannot be predicted with certainty. The United States Congress and the President have proposed a number of new regulatory initiatives. Future legislative or regulatory change, or changes in enforcement practices or court rulings, may have a dramatic and potentially adverse impact on the Company and the Bank and other subsidiaries.

Among other things, the Patriot Act prohibits financial institutions from doing business with foreign “shell” banks and requires increased due diligence for private banking transactions and correspondent accounts for foreign banks. In addition, financial institutions will have to follow new minimum verification of identity standards for all new accounts and will be permitted to share information with law enforcement authorities under circumstances that were not previously permitted. These and other provisions of the Patriot Act became effective at varying times and the Treasury and various federal banking agencies are responsible for issuing regulations to implement the new law.

Additional Information

The Company maintains a website at www.greenbankusa.com and is not including the information contained on this website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. The Company makes available free of charge (other than an investor’s own internet access charges) through its website its Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after the Company electronically files such material with, or furnishes such material to, the SEC.

ITEM 1A. RISK FACTORS.

Investing in our common stock involves various risks which are particular to our company, our industry and our market area. Several risk factors regarding investing in our common stock are discussed below. This listing should not be considered as all-inclusive. If any of the following risks were to occur, we may not be able to conduct our business as currently planned and our financial condition or operating results could be negatively impacted. These matters could cause the trading price of our common stock to decline in future periods.

We could sustain losses if our asset quality declines further.

Our earnings are affected by our ability to properly originate, underwrite and service loans. We could sustain losses if we incorrectly assess the creditworthiness of our borrowers or fail to detect or respond to deterioration in asset quality in a timely manner. Recent problems with asset quality have caused, and could continue to cause, our interest income and net interest margin to decrease and our provisions for loan losses to increase, which could adversely affect our results of operations and financial condition. Further increases in non-performing loans would reduce net interest income below levels that would exist if such loans were performing.

~~Recent negative~~Our loan portfolio includes an elevated, although shrinking level, of residential construction and land development loans, which loans have a greater credit risk than residential mortgage loans.

The Company engages in both traditional single-family residential lending and residential construction and land development loans to developers. The percentage of construction and land development loans to developers in the Bank’s portfolio was approximately 16.1% at December 31, 2009 compared to 21.8% of total loans at December 31, 2008. This type of lending is generally considered to have more complex credit risks than traditional single-family residential lending because the principal is concentrated in a limited number of loans with repayment dependent on the successful operation of the related real estate project. Consequently, these loans are more sensitive to the current adverse conditions in the real estate market and the general economy. These loans are generally less predictable and more difficult to evaluate and monitor and collateral may be difficult to dispose of in a market decline. Furthermore, during adverse general economic conditions, such as we believe are now being experienced in residential real estate construction nationwide, borrowers involved in the residential real estate construction and development business may suffer above normal financial strain. Throughout 2009, the number of newly constructed homes or lots sold in our market areas has continued to decline, negatively affecting collateral values. As the residential real estate development and construction market in our markets has deteriorated, our borrowers in this segment have begun to experience

difficulty repaying their obligations to us. As a result, our loans to these borrowers have deteriorated and may deteriorate further and may result in additional charge-offs negatively impacting our results of operations. Additionally, to the extent repayment is dependent upon the sale of newly constructed homes or of lots, such sales are likely to be at lower prices or at a slower rate than as expected when the loan was made, which may result in such loans being placed on non-accrual status and subject to higher loss estimates even if the borrower keeps interest payments current. These adverse economic and real estate market conditions may lead to further increases in non-performing loans and other real estate owned, increased charge-offs from the disposition of non-performing assets, and increases in provision for loan losses, all of which would negatively impact our financial condition and results of operations.

Negative developments in the U.S. and local economy and in local real estate markets have adversely impacted our operations and results and may continue to adversely impact our results in the future.

Economic conditions in the markets in which we operate have deteriorated significantly since early 2008. As a result, we have experienced a significant reduction in our earnings, resulting primarily from provisions for loan losses related to declining collateral values in our construction and development loan portfolio. Although the Federal Reserve has issued statements that economic data suggests strongly that the recession ended in the latter half of 2009, we believe that this difficult economic environment will continue at least into the first half of 2010, and we expect that our results of operations will continue to be negatively impacted as a result. There can be no assurance that the economic conditions that have adversely affected the financial services industry, and the capital, credit and real estate markets generally or us in particular, will improve, in which case we could continue to experience significant losses and write-downs of assets, and could face capital and liquidity constraints or other business challenges.

Negative developments in the financial services industry and U.S. and global credit markets may adversely impact our operations and results.

Negative developments ~~in the latter half of 2007~~throughout 2008 and ~~throughout 2008~~into 2009 in the capital markets have resulted in uncertainty in the financial markets in general with the expectation of the general economic downturn continuing ~~throughout 2009.~~into 2010. Loan portfolio performances have deteriorated at many institutions resulting from, amongst other factors, a weak economy and a decline in the value of the collateral supporting their loans. The competition for our deposits has increased significantly due to liquidity concerns at many of these same institutions. Stock prices of bank holding companies, like us, have been negatively affected by the current condition of the financial markets, as has our ability, if needed, to raise capital at reasonable prices or borrow in the debt markets compared to recent years. As a result, there is a potential for new federal or state laws and regulations regarding lending and funding practices and liquidity standards, and financial institution regulatory agencies are expected to be very aggressive in responding to concerns and trends identified in examinations, including the expected issuance of many formal enforcement actions. Negative developments in the financial services industry and the impact of new legislation in response to those developments could negatively impact our operations by restricting our business operations, including our ability to originate or sell loans, and adversely impact our financial performance. In addition, industry, legislative or regulatory developments may cause us to materially change our existing strategic direction, capital strategies, compensation or operating plans.

The enactment of Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009 may not be able to stabilize the U.S. financial system or the economy and may significantly affect the Company’s financial condition, results of operation or liquidity.

On October 3, 2008, President Bush signed into law the EESA. The legislation was the result of a proposal by Treasury Secretary Henry Paulson to the U.S. Congress on September 20, 2008 in response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions. On February 17, 2009, President Obama signed the ARRA in an effort to stimulate the economy and provide for broad infrastructure, energy, health, and education needs. The U.S. Treasury and banking regulators are implementing a number of programs under this legislation to address capital and liquidity issues in the banking system. There can be no assurance, however, as to the actual impact that the EESA or ARRA will have on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced. The failure of the EESA or ARRA to help stabilize the financial markets and a continuation or worsening of current financial market conditions could materially affect the registrant’s business, financial condition, results of operations, access to credit or the trading price of the registrant’s common stock.

There have been numerous actions undertaken in connection with or following EESA and ARRA by the FRB, Congress, the Treasury, the FDIC, the SEC and others in efforts to address the current liquidity and credit crisis in the financial industry that followed the sub-prime mortgage market meltdown which began in late 2007. These measures include homeowner relief that encourages loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; emergency temporary action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to address illiquidity and other weaknesses in the banking sector. The purpose of these legislative and regulatory actions is to help stabilize the U.S. banking system. EESA, ARRA and the other regulatory initiatives described above may not have their desired effects. If the volatility in the markets continues and economic conditions fail to improve or worsen, the Company’s business, financial condition and results of operations could be materially and adversely affected.

Our business is subject to the success of the local economies where we operate.

Our success significantly depends upon the growth in population, income levels, deposits, residential real estate stability and housing starts in our market areas. If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally ~~continue to deteriorate or remain~~are unfavorable, our business may not succeed. Adverse economic conditions in our specific market areas could ~~reduce our~~cause us to continue to experience negative, or limited, growth, ~~rate,~~ affect the ability of our customers to repay their loans to us and generally affect our financial condition and results of operations. Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic conditions in our primary market areas if they do occur.

Continued adverse market or economic conditions in the state of Tennessee may increase the risk that our borrowers will be unable to timely make their loan payments. In addition, the market value of the real estate securing loans as collateral has been and may continue to be adversely affected by continued unfavorable changes in market and economic conditions. As of December 31, ~~2008,~~2009, approximately ~~70%~~52% of our loans held for investment were secured by commercial real estate. Of this amount, approximately ~~54%~~31% were ~~commercial real estate~~residential construction and land development loans ~~of which 19%~~to developers, 30% were commercial construction and development ~~loans. The remaining 16%~~loans and 38% were ~~residential~~non-owner occupied commercial real estate loans. We experienced increased payment delinquencies with respect to these loans throughout 2008 and 2009 which negatively impacted our results of operations and a sustained period of increased payment delinquencies, foreclosures or losses caused by continuing adverse market or economic conditions in the state of Tennessee could adversely affect the value of our assets, revenues, results of operations and financial condition.

~~Continued deterioration in residential real estate construction and development markets could adversely affect our loan portfolio quality and our results of operations.~~

We have a loan concentration to residential real estate contractors and developers. During adverse general economic conditions, such as we believe are now being experienced in residential real estate construction nationwide, borrowers involved in the residential real estate construction and development business may suffer above normal financial strain. As the residential real estate development and construction market in our markets has deteriorated, our borrowers in this segment have begun to experience difficulty repaying their obligations to us. As a result, our loans to these borrowers have deteriorated and may deteriorate further and may result in additional charge-offs negatively impacting our results of operations.

An inadequate allowance for loan losses would reduce our earnings.

The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan. Management maintains an allowance for loan losses based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, management makes various assumptions and judgments about the ultimate ~~collectibility~~collectability of the loan portfolio and provides an allowance for loan losses based upon a percentage of the outstanding balances and takes a charge against earnings with respect to specific loans when their ultimate ~~collectibility~~collectability is considered questionable. If management’s assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb losses, or if the bank regulatory authorities require ~~the bank~~us to increase ~~the~~our allowance for loan losses as a part of their examination process, additional provision expense would be incurred and our earnings and capital could be significantly and adversely affected. Moreover, additions to the allowance may be necessary based on changes in economic and real estate market conditions, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our management’s control. These additions may require increased provision expense which would negatively impact our results of operations.

The Company’s policy requires new appraisals on adversely rated collateral dependent loans to be obtained at least annually. On a quarterly basis, the Company receives a written report from an independent nationally recognized organization which provides updated valuation trends, by price point and by zip code, for each of the major markets in which the Company is conducting business. The information obtained is then used in the Company’s impaired loan analysis of collateral dependent loans and potentially could impact the allowance for loan losses.

We have increased levels of other real estate, primarily as a result of foreclosures, and we anticipate higher levels of foreclosed real estate expense.

As we have begun to resolve non-performing real estate loans, we have increased the level of foreclosed properties primarily those acquired from builders and from residential land developers. Foreclosed real estate expense consists of three types of charges: maintenance costs, valuation adjustments due to new appraisal values and gains or losses on disposition. As levels of other real estate increase and also as local real estate values decline these charges will likely increase, negatively affecting our results of operations.

Liquidity needs could adversely affect our results of operations and financial condition.

We rely on dividends from the Bank as our primary source of funds. The primary source of funds of the Bank, are customer deposits and loan repayments. While scheduled loan repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans which may be more difficult in economically challenging environments like those currently being experienced. The ability of borrowers to repay loans can be adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and international instability. Additionally, deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, our financial condition and general economic conditions. Accordingly, we may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include FHLB advances and federal funds lines of credit from correspondent banks. While we believe that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity demands. We may be required to continue to reduce our asset size, slow or discontinue ~~loan growth,~~ capital expenditures or other investments or liquidate assets should such sources not be adequate.

We rely on dividends from our bank subsidiary as our primary source of liquidity and payment of these dividends is limited under Tennessee law.

Under Tennessee law, the amount of dividends that may be declared by the Bank in a year without approval of the Commissioner is limited to net income for that year combined with retained net income for the two preceding years. Because of the loss incurred by the Bank in 2009, dividends from the Bank to us, including, if necessary, dividends to support our payment of interest on our subordinated debt and dividends on our preferred stock, including the preferred stock we issued to the U.S. Treasury, will require prior approval by the Commissioner. If, in the future, we do not have sufficient funds available at the holding company to pay these, or any other, interest payments or dividends, and the Bank is unable to secure permission from the Commissioner to pay dividends to us, we will need to seek other sources of capital to make these payments, or, if other sources of capital are unavailable to us on satisfactory terms, we may need to defer the making of these payments until such time as the Bank receives permission to pay dividends to us, or such permission is no longer required.

Changes in interest rates could adversely affect our results of operations and financial condition.

Changes in interest rates may affect our level of interest income, the primary component of our gross revenue, as well as the level of our interest expense. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities. Accordingly, changes in interest rates could decrease our net interest income. Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affects our earnings.

Legislative and regulatory initiatives that were enacted in response to the recent financial crisis are beginning to wind down.

The U.S. federal, state and foreign governments have taken various actions in an attempt to deal with the worldwide financial crisis that began in the second half of 2008 and the severe decline in the global economy. Some of these programs are beginning to expire and the impact of the wind down on the financial sector and on the economic recovery is unknown. In the United States, EESA was enacted on October 3, 2008. The TARP, established pursuant to EESA, includes the CPP, pursuant to which the U.S. Treasury is authorized to purchase senior preferred stock and common or preferred stock warrants from participating financial institutions. TARP also authorized the purchase of other securities and financial instruments for the purpose of stabilizing and providing liquidity to U.S. financial markets. On September 18, 2009, the U.S. Treasury guarantee on money market mutual funds expired. On October 20, 2009, the FDIC announced that the Temporary Loan Guarantee Program pursuant to which the FDIC guarantees unsecured debt of banks and certain holding companies would expire October 31, 2009, except for a temporary emergency facility allowing certain participating entities to apply to the FDIC to issue FDIC-guaranteed debt during the period beginning October 31, 2009 and running through April 30, 2010. The Transaction Account Guarantee portion of the program, which guarantees non interest bearing bank transaction accounts on an unlimited basis, is scheduled to continue until June 30, 2010.

National or state legislation or regulation may increase our expenses and reduce earnings.

Federal bank regulators are increasing regulatory scrutiny, and additional restrictions on financial institutions have been proposed by the President, regulators and Congress. Changes in federal legislation, regulation or policies, such as bankruptcy laws, deposit insurance, consumer protection laws, and capital requirements, among others, can result in significant increases in our expenses and/or charge-offs, which may adversely affect our earnings. Changes in state or federal tax laws or regulations can have a similar impact. Furthermore, financial institution regulatory agencies are expected to continue to be very aggressive in responding to concerns and trends identified in examinations, including the continued issuance of additional formal or informal enforcement or supervisory actions. If we were required to enter into such actions with our regulators, we could be required to agree to limitations or take actions that limit our operational flexibility, restrict our growth or increase our capital or liquidity levels. Failure to comply with any formal or informal regulatory restrictions, including informal supervisory actions, could lead to further regulatory enforcement actions. Negative developments in the financial services industry and the impact of recently enacted or new legislation in response to those developments could negatively impact our operations by restricting our business operations, including our ability to originate or sell loans, and adversely impact our financial performance. In addition, industry, legislative or regulatory developments may cause us to materially change our existing strategic direction, capital strategies, compensation or operating plans.

Competition from financial institutions and other financial service providers may adversely affect our profitability.

The banking business is highly competitive and we experience competition in each of our markets from many other financial institutions. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other community banks and super-regional and national financial institutions that operate offices in our primary market areas and elsewhere.

Additionally, we face competition from de novo community banks, including those with senior management who were previously affiliated with other local or regional banks or those controlled by investor groups with strong local business and community ties. These de novo community banks may offer higher deposit rates or lower cost loans in an effort to attract our customers, and may attempt to hire our management and employees.

We compete with these other financial institutions both in attracting deposits and in making loans. In addition, we have to attract our customer base from other existing financial institutions and from new residents. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to successfully compete with an array of financial institutions in our market areas.

If we continue to experience losses at levels that we experienced during ~~the fourth quarter of~~ 2008 and 2009 we may need to raise additional capital in the future, but that capital may not be available when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. While we believe our capital resources will satisfy our capital requirements for the foreseeable future, we may at some point, if we continue to experience losses, need to raise additional capital to support or strengthen our capital position.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. In addition, we have from time to time supported our capital position with the issuance of trust preferred securities. The trust preferred market has deteriorated significantly since the second half of 2007 and it is unlikely that we would be able to issue trust preferred securities in the future on terms consistent with our previous issuances, if at all. Accordingly, we cannot assure our shareholders that we will be able to raise additional capital if needed on terms acceptable to us. If we cannot raise additional capital when needed, we may be subject to increased regulatory restrictions, including restrictions on our ability to expand our operations.

Our ability to maintain required capital levels and adequate sources of funding and liquidity could be impacted by changes in the capital markets and deteriorating economic and market conditions.

We, and the Bank, are required to maintain certain capital levels established by banking regulations or specified by bank regulators. We must also maintain adequate funding sources in the normal course of business to support our operations and fund outstanding liabilities. Our ability to maintain capital levels, sources of funding and liquidity could be impacted by changes in the capital markets and deteriorating economic and market conditions. In addition, we have from time to time supported our capital position with the issuance of trust preferred securities, the market for which has deteriorated significantly. Failure by the Bank to meet applicable capital guidelines or to satisfy certain other regulatory requirements could subject the Bank to a variety of enforcement remedies available to the federal regulatory authorities. These include limitations on the ability to pay dividends, the issuance by the regulatory authority of a capital directive to increase capital, and the termination of deposit insurance by the FDIC.

We have a significant deferred tax asset and cannot assure you that it will be fully realized.

We had net deferred tax assets of $13.6 million as of December 31, 2009. We did not establish a valuation allowance against our federal net deferred tax assets as of December 31, 2009 because we believe that it is more likely than not that all of these assets will be realized. In evaluating the need for a valuation allowance, we estimated future taxable income based on management prepared forecasts. This process required significant judgment by management about matters that are by nature uncertain. If future events differ significantly from our current forecasts, we may need to establish a valuation allowance, which could have a material temporary adverse effect on our results of operations and financial condition.

We rely heavily on the services of key personnel.

We depend substantially on the strategies and management services of R. Stan Puckett, our Chairman of the Board and Chief Executive Officer. Although we have entered into an employment agreement with him, the loss of the services of Mr. Puckett could have a material adverse effect on our business, results of operations and financial condition. We are ~~also~~ dependent on certain ~~other~~ key officers who have important customer relationships or are instrumental to our operations. Changes in key personnel and their responsibilities may be disruptive to our business and could have a material adverse effect on our business, financial condition and results of operations.

We believe that our future results will also depend in part upon our attracting and retaining highly skilled and qualified management and sales and marketing personnel, particularly in those areas where we may open new branches.

Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting or retaining such personnel.

On September 2, 2009, we announced that R. Stan Puckett, our Chief Executive Officer, will be retiring on March 31, 2010. We have commenced a search for a replacement for Mr. Puckett and expect to have a replacement prior to Mr. Puckett’s retirement date, but there can be no assurance that we will have found a suitable replacement prior to that that date.

The limitations on bonuses, retention awards, severance payments and incentive compensation contained in ARRA may adversely affect our ability to retain our highest performing employees.

For so long as any equity securities that we issued to the U.S. Treasury under the CPP remain outstanding, ARRA and regulations issued thereunder, including the IFR, severely restrict bonuses, retention awards, severance and change in control payments and other incentive compensation payable to our most highly compensated employees including our five senior executive officers. It is possible that we may be unable to create a compensation structure that permits us to retain such officers or other key employees or recruit additional employees, especially if we are competing against institutions that are not subject to the same restrictions. Failure to retain our key employees could materially adversely affect our business and results of operations.

We are subject to extensive regulation that could limit or restrict our activities.

We operate in a highly regulated industry and are subject to examination, supervision, and comprehensive regulation by various federal and state agencies including the ~~Federal Reserve Board,~~FRB, the FDIC and the ~~Tennessee Department of Financial Institutions.~~TDFI. Our regulatory compliance is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. We are also subject to capitalization guidelines established by our regulators, which require us to maintain adequate capital to support our ~~growth.~~operations.

The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, our cost of compliance could adversely affect our ability to operate profitably.

The Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by the Securities and Exchange Commission and the Nasdaq Stock Market that are applicable to us, have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices. As a result, we have experienced, and may continue to experience, greater compliance costs.

The amount of common stock owned by, and other compensation arrangements with, our officers and directors may make it more difficult to obtain shareholder approval of potential takeovers that they oppose.

As of ~~March 12,~~December 31, 2009, directors and executive officers beneficially owned approximately ~~10.85%~~11.50% of our common stock. Agreements with selected members of our senior management also provide for certain payments under various circumstances following a change in control. These compensation arrangements, although limited so long as we have an outstanding obligation to the U.S. Treasury under the CPP, together with the common stock and option ownership of our board of directors and management, could make it difficult or expensive to obtain majority support for shareholder proposals or potential acquisition proposals.

Maintaining adequate management personnel and information systems to oversee such growth; and,

Maintaining adequate control and compliance functions.

Operating Results:There is no assurance that existing offices or future offices will maintain or achieve deposit levels, loan balances or other operating results necessary to avoid losses or produce profits. Our growth and de novo branching strategy necessarily entails growth in overhead expenses as it routinely adds new offices and staff. Our historical results may not be indicative of future results or results that may be achieved as we continue to increase the number and concentration of our branch offices.

Development of Offices:There are considerable costs involved in opening branches, and new branches generally do not generate sufficient revenues to offset their costs until they have been in operation for at least a year or more. Accordingly, our de novo branches may be expected to negatively impact our earnings during this period of time until the branches reach certain economies of scale.

Expansion into New Markets:Much of our growth over the last ~~three~~five years has been focused in the highly competitive Nashville, Knoxville and Clarksville metropolitan markets. The customer demographics and financial services offerings in these markets are unlike those found in the smaller, more rural East Tennessee markets that we ~~have~~ historically served. In the Nashville, Knoxville and Clarksville markets, we face competition from a wide array of financial institutions. Our expansion ~~into~~efforts in these new markets may be impacted if we are unable to meet customer demands or compete effectively with the financial institutions operating in these markets.

Regulatory and Economic Factors:Our growth and expansion plans may be adversely affected by a number of regulatory and economic developments or other events. Failure to obtain required regulatory approvals, changes in laws and regulations or other regulatory developments and changes in prevailing economic conditions or other unanticipated events may prevent or adversely affect our continued growth and expansion.

Failure to successfully address the issues identified above could have a material adverse effect on our business, future prospects, financial condition or results of operations, and could adversely affect our ability to successfully implement our longer term business strategy.

We may face risks with respect to future expansion.

From time to time we may engage in additional de novo branch expansion as well as the acquisition of other financial institutions or parts of those institutions. We may also consider and enter into new lines of business or offer new products or services. Acquisitions and mergers involve a number of risks, including:

the time and costs associated with identifying and evaluating potential acquisitions and merger partners;

inaccuracies in the estimates and judgments used to evaluate credit, operations, management and market risks with respect to the target institution;

the time and costs of evaluating new markets, hiring experienced local management and opening new offices, and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion;

our ability to finance an acquisition and possible dilution to our existing shareholders;

the diversion of our management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the combining businesses;

entry into new markets where we lack experience;

the introduction of new products and services into our business;

the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and

the risk of loss of key employees and customers.

We are subject to Tennessee anti-takeover statutes and certain charter provisions which could decrease our chances of being acquired even if the acquisition is in our shareholders’ best interests.

As a Tennessee corporation, we are subject to various legislative acts which impose restrictions on and require compliance with procedures designed to protect shareholders against unfair or coercive mergers and acquisitions. These statutes may delay or prevent offers to acquire us and increase the difficulty of consummating any such offers, even if the acquisition of us would be in our shareholders’ best interests. Our amended and restated charter also contains provisions which may make it difficult for another entity to acquire us without the approval of a majority of the disinterested directors on our board of directors.

The success and growth of our business will depend on our ability to adapt to technological changes.

The banking industry and the ability to deliver financial services is becoming more dependent on technological advancement, such as the ability to process loan applications over the Internet, accept electronic

signatures, provide process status updates instantly and on-line banking capabilities and other customer expected conveniences that are cost efficient to our business processes. As these technologies are improved in the future, we may, in order to remain competitive, be required to make significant capital expenditures.

Even though our common stock is currently traded on The Nasdaq Global Select Market, the trading volume in our common stock has been thin and the sale of substantial amounts of our common stock in the public market could depress the price of our common stock.

We cannot say with any certainty when a more active and liquid trading market for our common stock will develop or be sustained. Because of this, our shareholders may not be able to sell their shares at the volumes, prices, or times that they desire.

We cannot predict the effect, if any, that future sales of our common stock in the market, or availability of shares of our common stock for sale in the market, will have on the market price of our common stock. We, therefore, can give no assurance that sales of substantial amounts of our common stock in the market, or the potential for large amounts of sales in the market, would not cause the price of our common stock to decline or impair our ability to raise capital through sales of our common stock.

The market price of our common stock may fluctuate in the future, and these fluctuations may be unrelated to our performance. General market price declines or overall market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.

If our stock price continues to trade at a level below book value of the organization, we would evaluate our goodwill balances for impairment, and if the value of our business has declined, we could recognize an impairment charge for our goodwill.

We performed an annual goodwill impairment assessment as of December 31, 2008. Based on our analyses, we concluded that the fair value of our reporting unit exceeded our current book value. It is possible that our assumptions and conclusions regarding the valuation of our business could change adversely, which could result in the recognition of impairment for our goodwill. Although any non-cash charges associated with goodwill impairment would impact reported earnings, there would be no impact on the risk based capital ratios of the Company.

We may issue additional common stock or other equity securities in the future which could dilute the ownership interest of existing common shareholders.

In order to maintain our capital at desired levels or required regulatory levels, or to fund future growth, our board of directors may decide from time to time to issue additional shares of common stock, preferred stock or securities convertible into, exchangeable for or representing rights to acquire shares of our common stock. The sale of these shares may significantly dilute our ~~shareholders~~shareholders’ ownership interest ~~as a shareholder~~ and the per share book value of our common stock. New investors in the future may also have rights, preferences and privileges senior to our current shareholders which may adversely impact our current shareholders.

Our ability to declare and pay dividends is limited by law and by the terms of the Series A preferred stock and we may be unable to pay future dividends.

We derive our income solely from dividends on the shares of common stock of the Bank. The Bank’s ability to declare and pay dividends to us is limited by its obligations to maintain sufficient capital and by other general restrictions on its dividends that are applicable to banks that are regulated by the FDIC and the ~~Tennessee Department of Financial Institutions.~~TDFI. In addition, the FRB and the terms of the Series A preferred stock ~~may~~ impose restrictions on our ability to pay dividends on our common stock. As a result, we cannot assure our shareholders that we will declare or pay dividends on shares of our common stock in the future.

Holders of our junior subordinated debentures have rights that are senior to those of our common and Series A preferred shareholders.

We have supported our continued growth through the issuance of trust preferred securities from special purpose trusts and accompanying junior subordinated debentures. At December 31, ~~2008,~~2009, we had outstanding trust preferred securities and accompanying junior subordinated debentures totaling $88.7 million. Payments of the principal and interest on the trust preferred securities of these trusts are conditionally guaranteed by us. Further, the accompanying junior subordinated debentures we issued to the trusts are senior to our shares of common stock and the Series A preferred stock. As a result, we must make payments on the junior subordinated debentures before any dividends can be paid on our common stock or the Series A preferred stock and, in the event of our bankruptcy, dissolution or liquidation, the holders of the junior subordinated debentures must be satisfied before any distributions can be made on our common stock or Series A preferred stock. We have the right to defer distributions on our junior subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid on our common stock or our Series A preferred stock.

The Series A preferred stock impacts net income available to our common shareholders and our earnings per share.

As long as shares of our Series A preferred stock are outstanding, no dividends may be paid on our common stock unless all dividends on the Series A preferred stock have been paid in full. Additionally, ~~for so long as the U.S. Treasury owns shares of~~prior to December 23, 2011, unless we redeem the Series A preferred stock or the U.S. Treasury has transferred the Series A preferred stock to a third party, we are not permitted to pay cash dividends on our common stock in excess of $0.13 per quarter without the U.S. Treasury’s consent. The dividends declared on shares of our Series A preferred stock will reduce the net income available to common shareholders and our earnings per common share. Additionally, warrants to purchase our common stock issued to the ~~U.S.~~ Treasury, in conjunction with the issuance of the Series A preferred stock, may be dilutive to our earnings per share. The shares of our Series A preferred stock will also receive preferential treatment in the event of our liquidation, dissolution or winding up.

Holders of the Series A preferred stock have rights that are senior to those of our common shareholders.

The Series A preferred stock that we have issued to the U.S. Treasury is senior to our shares of common stock, and holders of the Series A preferred stock have certain rights and preferences that are senior to holders of our common stock. The Series A preferred stock will rank senior to our common stock and all other equity securities of ours designated as ranking junior to the Series A preferred stock. So long as any shares of the Series A preferred stock remain outstanding, unless all accrued and unpaid dividends on shares of the Series A preferred stock for all prior dividend periods have been paid or are contemporaneously declared and paid in full, no dividend whatsoever shall be paid or declared on our common stock or other junior stock, other than a dividend payable solely in common stock. WePrior to December 23, 2011, unless we redeem the Series A preferred stock or the U.S. Treasury has transferred the Series A preferred stock to a third party we and our subsidiaries also may not, with certain limited exceptions, purchase, redeem or otherwise acquire any shares of our common stock or other junior stock without the U.S. Treasury’s consent. During that three-year period, and thereafter, we and our subsidiaries may not purchase, redeem or otherwise acquire for consideration any shares of our common stock or other junior stock unless we have paid in full all accrued and unpaid dividends on the Series A preferred stock, ~~for all prior dividend periods,~~ other than in certain circumstances. Furthermore, the Series A preferred stock is entitled to a liquidation preference over shares of our common stock in the event of our liquidation, dissolution or winding up.

Holders of the Series A preferred stock may, under certain circumstances, have the right to elect two directors to our board of directors.

In the event that we fail to pay dividends on the Series A preferred stock for an aggregate of six quarterly dividend periods or more (whether or not consecutive), the authorized number of directors then constituting our board of directors will be increased by two. Holders of the Series A preferred stock, together with the holders of any outstanding parity stock with like voting rights, referred to as voting parity stock, voting as a single class, will be entitled to elect the two additional members of our board of directors, referred to as the preferred stock directors, at the next annual meeting (or at a special meeting called for the purpose of electing the preferred stock directors prior to the next annual meeting) and at each subsequent annual meeting until all accrued and unpaid dividends for all past dividend periods have been paid in full.

~~Holders of the Series A preferred stock have limited voting rights.~~

Except as otherwise required by law and in connection with the election of directors to our board of directors in the event that we fail to pay dividends on the Series A preferred stock for an aggregate of at least six quarterly dividend periods (whether or not consecutive), holders of the Series A preferred stock have limited voting rights. So long as shares of the Series A preferred stock are outstanding, in addition to any other vote or consent of shareholders required by law or our amended and restated charter, the vote or consent of holders owning at least 66 2/3% of the shares of Series A preferred stock outstanding is required for (1) any authorization or issuance of shares ranking senior to the Series A preferred stock; (2) any amendment to the rights of the Series A preferred stock so as to adversely affect the rights, preferences, privileges or voting power of the Series A preferred stock; or (3) consummation of any merger, share exchange or similar transaction unless the shares of Series A preferred stock remain outstanding, or if we are not the surviving entity in such transaction, are converted into or exchanged for preference securities of the surviving entity and the shares of Series A preferred stock remaining outstanding or such preference securities have such rights, preferences, privileges and voting power as are not materially less favorable to the holders than the rights, preferences, privileges and voting power of the shares of Series A preferred stock.

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Moreover, there are a number of federal and state banking policies and regulations that restrict the Bank’s ability to pay dividends to the Company and the Company’s ability to pay dividends to its shareholders. In particular, because the Bank is a depository institution and its deposits are insured by the FDIC, it may not pay dividends or distribute capital assets if it is in default on any assessment due to the FDIC. In addition, the Tennessee Banking Act prohibits the Bank from declaring dividends in excess of net income for the calendar year in which the dividend is declared plus retained net income for the preceding two years without the approval of the Commissioner of the Tennessee Department of Financial Institutions. Because of the loss incurred by the Bank in 2009, the Bank will need to receive the approval of the Commissioner of the TDFI before if pays dividends to the Company. Also, the Bank is subject to regulations which impose certain minimum regulatory capital and minimum state law earnings requirements that affect the amount of cash available for distribution to the Company. In addition, as long as shares of Series A preferred stock are outstanding, no dividends may be paid on our common stock unless all dividends on the Series A preferred stock have been paid in full and in no event may dividends on our common stock exceed $0.13 per quarter without the consent of the U.S. Treasury for the first three years following our sale of Series A preferred stock to the U.S. Treasury. Lastly, under Federal Reserve policy, the Company is required to maintain adequate regulatory capital, is expected to serve as a source of financial strength to the Bank and to commit resources to support the Bank. These policies and regulations may have the effect of reducing or eliminating the amount of dividends that the Company can declare and pay to its shareholders in the future. For information regarding restrictions on the payment of dividends by the Bank to the Company, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and “Business — Regulation, Supervision and Governmental Policy — Dividends” in this Annual Report. See also Note 12 of Notes toof Consolidated Financial Statements.

ITEM 6. SELECTED FINANCIAL DATA.


	2008			2007⁽¹⁾			2006			2005			2004			2009			2008			2007⁽¹⁾			2006			2005
	(in thousands, except per share data, ratios and percentages)															(in thousands, except per share data, ratios and percentages)

Total interest income	$	170,516		$	176,626		$	117,357		$	87,191		$	65,076		$	138,456		$	170,516		$	176,626		$	117,357		$	87,191
Total interest expense		75,491			81,973			45,400			28,405			16,058			57,931			75,491			81,973			45,400			28,405

Net interest income		95,025			94,653			71,957			58,786			49,018			80,525			95,025			94,653			71,957			58,786
Provision for loan losses		(52,810	)		(14,483	)		(5,507	)		(6,365	)		(5,836	)		(50,246	)		(52,810	)		(14,483	)		(5,507	)		(6,365	)

Net interest income after provision for loan losses		42,215			80,170			66,450			52,421			43,182			30,279			42,215			80,170			66,450			52,421
Noninterest income		33,614			27,602			20,710			14,756			13,028			31,578			33,614			27,602			20,710			14,756
Noninterest expense		(85,837	)		(69,252	)		(52,708	)		(44,340	)		(36,983	)		(229,587	)		(85,837	)		(69,252	)		(52,708	)		(44,340	)

Income (loss) before income taxes		(10,008	)		38,520			34,452			22,837			19,227			(167,730	)		(10,008	)		38,520			34,452			22,837
Income tax (expense) benefit		4,648			(14,146	)		(13,190	)		(8,674	)		(7,219	)		17,036			4,648			(14,146	)		(13,190	)		(8,674	)

Net income (loss)		(5,360	)		24,374			21,262			14,163			12,008			(150,694	)		(5,360	)		24,374			21,262			14,163
Preferred stock dividend and accretion of discount on warrants		(92	)		—			—			—			—			(4,982	)		(92	)		—			—			—

Net income (loss) available to common shareholders	$	(5,452	)	$	24,374		$	21,262		$	14,163		$	12,008		$	(155,676	)	$	(5,452	)	$	24,374		$	21,262		$	14,163


Per Share Data:
Net income (loss), basic	$	(0.42	)	$	2.07		$	2.17		$	1.73		$	1.57		$	(11.91	)	$	(0.42	)	$	2.07		$	2.17		$	1.73
Net income (loss), assuming dilution	$	(0.42	)	$	2.07		$	2.14		$	1.71		$	1.55		$	(11.91	)	$	(0.42	)	$	2.07		$	2.14		$	1.71
Net income (loss), assuming dilution adjusted for goodwill impairment charge⁽⁷⁾																$	(1.40	)	$	(0.42	)	$	2.07		$	2.14		$	1.71
Dividends declared	$	0.52		$	0.68		$	0.64		$	0.62		$	0.61		$	0.13		$	0.52		$	0.68		$	0.64		$	0.62
Common book value⁽²⁾	$	23.56		$	24.94		$	18.80		$	17.20		$	14.22
Tangible book value⁽³⁾	$	11.70		$	12.73		$	14.87		$	13.15		$	11.12
Common book value⁽²⁾⁽⁷⁾																$	12.15		$	24.09		$	24.94		$	18.80		$	17.20
Tangible common book value⁽³⁾⁽⁷⁾																$	11.44		$	12.23		$	12.73		$	14.87		$	13.15

Financial Condition Data:
Assets	$	2,944,671		$	2,947,741		$	1,772,654		$	1,619,989		$	1,233,403		$	2,619,139		$	2,944,671		$	2,947,741		$	1,772,654		$	1,619,989
Loans, net of unearned interest	$	2,223,390		$	2,356,376		$	1,539,629		$	1,378,642		$	1,046,867		$	2,043,807		$	2,223,390		$	2,356,376		$	1,539,629		$	1,378,642
Cash and investments	$	415,607		$	314,615		$	91,997		$	104,872		$	76,637		$	382,578		$	415,607		$	314,615		$	91,997		$	104,872
Federal funds sold	$	—		$	—		$	25,983		$	28,387		$	39,921		$	—		$	—		$	—		$	25,983		$	28,387
Deposits	$	2,184,147		$	1,986,793		$	1,332,505		$	1,295,879		$	988,022		$	2,084,096		$	2,184,147		$	1,986,793		$	1,332,505		$	1,295,879
FHLB advances and notes payable	$	229,349		$	318,690		$	177,571		$	105,146		$	85,222		$	171,999		$	229,349		$	318,690		$	177,571		$	105,146
Subordinated debentures	$	88,662		$	88,662		$	13,403		$	13,403		$	10,310		$	88,662		$	88,662		$	88,662		$	13,403		$	13,403
Federal funds purchased and repurchase agreements	$	35,302		$	194,525		$	42,165		$	17,498		$	13,868		$	24,449		$	35,302		$	194,525		$	42,165		$	17,498
Shareholders’ equity	$	381,231		$	322,477		$	184,471		$	168,021		$	108,718		$	226,769		$	381,231		$	322,477		$	184,471		$	168,021
Common shareholders’ equity⁽²⁾	$	308,953		$	322,477		$	184,471		$	168,021		$	108,718
Tangible common shareholders’ equity⁽³⁾	$	153,479		$	164,650		$	145,931		$	128,399		$	85,023
Tangible shareholders’ equity⁽⁴⁾	$	225,757		$	164,650		$	145,931		$	128,399		$	85,023
Common shareholders’ equity⁽²⁾⁽⁷⁾																$	160,034		$	315,885		$	322,477		$	184,471		$	168,021
Tangible common shareholders’ equity⁽³⁾⁽⁷⁾																$	150,699		$	160,411		$	164,650		$	145,931		$	128,399
Tangible shareholders’ equity⁽⁴⁾⁽⁷⁾																$	217,434		$	225,757		$	164,650		$	145,931		$	128,399

Selected Ratios:
Interest rate spread		3.48	%		3.83	%		4.32	%		4.30	%		4.53	%		3.19	%		3.48	%		3.83	%		4.32	%		4.30	%
Net interest margin⁽⁶⁾		3.70	%		4.25	%		4.77	%		4.61	%		4.75	%		3.34	%		3.70	%		4.25	%		4.77	%		4.61	%
Total tangible equity to tangible assets⁽⁴⁾⁽⁵⁾		8.09	%		5.90	%		8.42	%		8.12	%		7.03	%
Tangible common equity to tangible assets⁽³⁾⁽⁵⁾		5.50	%		5.90	%		8.42	%		8.12	%		7.03	%
Total tangible equity to tangible assets^(4)(5)(7)																	8.33	%		8.09	%		5.90	%		8.42	%		8.12	%
Tangible common equity to tangible assets^(3)(5)(7)																	5.77	%		5.75	%		5.90	%		8.42	%		8.12	%
Return on average assets		(0.18	%)		0.98	%		1.28	%		1.02	%		1.06	%		(5.59	%)		(0.18	%)		0.98	%		1.28	%		1.02	%
Return on average equity		(1.64	%)		8.96	%		11.91	%		11.09	%		11.23	%		(50.44	%)		(1.64	%)		8.96	%		11.91	%		11.09	%
Return on average common equity⁽²⁾		(1.65	%)		8.96	%		11.91	%		11.09	%		11.23	%
Return on average common tangible equity⁽³⁾		(3.14	%)		15.41	%		15.25	%		14.04	%		13.95	%
Return on average common equity⁽²⁾⁽⁷⁾																	(64.25	%)		(1.65	%)		8.96	%		11.91	%		11.09	%
Return on average common tangible equity⁽³⁾⁽⁷⁾																	(96.77	%)		(3.14	%)		15.41	%		15.25	%		14.04	%
Average equity to average assets		11.24	%		10.91	%		10.78	%		9.20	%		9.47	%		11.09	%		11.24	%		10.91	%		10.78	%		9.20	%
Dividend payout ratio		123.81	%		32.85	%		29.49	%		35.84	%		38.85	%		N/M			N/M			32.85	%		29.49	%		35.84	%
Ratio of nonperforming assets to total assets		2.61	%		1.25	%		0.29	%		0.65	%		0.69	%
Ratio of nonperforming assets to total assets assets																	5.07	%		2.61	%		1.25	%		0.29	%		0.65	%
Ratio of allowance for loan losses to nonperforming loans		155.28	%		106.34	%		635.93	%		293.56	%		227.64	%		66.39	%		155.28	%		106.34	%		635.93	%		293.56	%
Ratio of allowance for loan losses to total loans, net of unearned income loans		2.20	%		1.45	%		1.45	%		1.43	%		1.50	%		2.45	%		2.20	%		1.45	%		1.45	%		1.43	%

GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures

Certain financial information included in the selected financial data is determined by methods other than in accordance with accounting principles generally accepted within the United States (“GAAP”). These non-GAAP financial measures are “net income (loss) per share assuming dilution adjusted for goodwill impairment charge,” “common shareholders’ equity,” “tangible assets,” “tangible shareholders’ equity,” “tangible common book value per share,” “tangible common shareholders’ equity,” “return on average common equity,” and “return on average common tangible equity.” The Company’s management, the entire financial services sector, bank stock analysts, and bank regulators use these non-GAAP measures in their analysis of the Company’s performance.

•		“Net income (loss) per share assuming dilution adjusted for goodwill impairment charge” is defined as net income (loss) available to common shareholders reduced by goodwill impairment charge, net of tax.

•		“Common shareholders’ equity” is shareholders’ equity less preferred stock.

•		“Tangible assets” are total assets less goodwill and other intangible assets.

•		“Tangible shareholders’ equity” is shareholders’ equity less goodwill and other intangible assets.

•		“Tangible common book value per share” is defined as total equity reduced by recorded goodwill, other intangible assets and preferred stock ~~and common stock warrants~~ divided by total common shares outstanding. This measure discloses changes from period-to-period in book value per share exclusive of changes in intangible assets and preferred stock. Goodwill, an intangible asset that is recorded in a purchase business combination, has the effect of increasing total book value while not increasing the tangible assets of a company. ~~For companies such as the Company that have engaged in business combinations,~~Companies utilizing purchase accounting ~~can result~~ in ~~the recording of significant amounts of~~a business combination, as required by GAAP, must record goodwill related to such transactions.

•		“Tangible common shareholders’ equity” is shareholders’ equity less goodwill, other intangible assets and preferred ~~stock and~~stock.

•		“Return on average common ~~stock warrants.~~equity” is defined as net income (loss) available to common shareholders’ for the period divided by average equity reduced by average preferred stock.

•		“Return on average common tangible equity” is defined as ~~earnings~~net income (loss) available to common shareholders’ for the period divided by average equity reduced by average goodwill, other intangible assets and preferred ~~stock and common stock warrants.~~stock.

These disclosures should not be viewed as a substitute for results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP performance measures which may be presented by other companies. The following reconciliation table provides a more detailed analysis of these non-GAAP performance measures:


																At and for the Fiscal Years Ended December 31,
																2009			2008			2007			2006			2005
Total shareholders’ equity																$	226,769		$	381,231		$	322,477		$	184,471		$	168,021
Less: Preferred stock																	(66,735	)		(65,346	)		—			—			—

Common shareholders’ equity																$	160,034		$	315,855		$	322,477		$	184,471		$	168,021


Total shareholders’ equity																$	226,769		$	381,231		$	322,477		$	184,471		$	168,021
Less:
Goodwill																	—			(143,389	)		(143,140	)		(31,327	)		(31,327	)
Core Deposit and other intangibles																	(9,335	)		(12,085	)		(14,687	)		(7,213	)		(8,295	)
Preferred stock																	(66,735	)		(65,346	)		—			—			—

Tangible common shareholders’ equity																$	150,699		$	160,411		$	164,650		$	145,931		$	128,399


Total shareholders’ equity																$	226,769		$	381,231		$	322,477		$	184,471		$	168,021
Less:
Goodwill																	—			(143,389	)		(143,140	)		(31,327	)		(31,327	)
Core Deposit and other intangibles																	(9,335	)		(12,085	)		(14,687	)		(7,213	)		(8,295	)

Tangible shareholders’ equity																$	217,434		$	225,757		$	164,650		$	145,931		$	128,399


Total assets																$	2,619,139		$	2,944,671		$	2,947,741		$	1,772,654		$	1,619,989
Less:
Goodwill																	—			(143,389	)		(143,140	)		(31,327	)		(31,327	)
Core Deposit and other intangibles																	(9,335	)		(12,085	)		(14,687	)		(7,213	)		(8,295	)

Tangible assets																$	2,609,804		$	2,789,197		$	2,789,914		$	1,734,114		$	1,580,367
	At and for the Fiscal Years Ended December 31,
	2008			2007			2006			2005			2004
Common book value per share	$	23.56		$	24.94		$	18.80		$	17.20		$	14.22		$	12.15		$	24.09		$	24.94		$	18.80		$	17.20
Effect of intangible assets	$	(11.86	)	$	(12.21	)	$	(3.93	)	$	(4.05	)	$	(3.10	)	$	(0.71	)	$	(11.86	)	$	(12.21	)	$	(3.93	)	$	(4.05	)
Tangible book value per share	$	11.70		$	12.73		$	14.87		$	13.15		$	11.12
Tangible common book value per share																$	11.44		$	12.23		$	12.73		$	14.87		$	13.15

Return on average common equity		(1.65	%)		8.96	%		11.91	%		11.09	%		11.23	%		(64.25	%)		(1.65	%)		8.96	%		11.91	%		11.09	%
Effect of intangible assets		(1.49	%)		6.45	%		3.34	%		2.95	%		2.72	%		(32.52	%)		(1.49	%)		6.45	%		3.34	%		2.95	%
Return on average common tangible equity		(3.14	%)		15.41	%		15.25	%		14.04	%		13.95	%		(96.77	%)		(3.14	%)		15.41	%		15.25	%		14.04	%

The Company reported a net loss available to common shareholders of ~~$5,452~~$155,676 for the full year ~~2008~~2009 compared with a net ~~income~~loss available to common shareholders of ~~$24,374~~$5,452 for the same period last year. The loss for the year ~~2008~~2009 was primarily attributable to an after-tax charge taken for the ~~significant~~impairment of goodwill of $137,414 and the continued weaknesses in the economy ~~surfacing during the fourth quarter of 2007 and escalating throughout 2008, which were~~through 2009. This weakness was manifested primarily in the Company’s residential real estate construction and development portfolio. As a result, the Company’s provision for loan losses for the full year ~~2008 amounted~~2009 remained elevated at $50,246 compared to $52,810 ~~compared with a loan loss provision of~~in 2008 and $14,483 in 2007. Additionally, Other Real Estate Owned (“OREO”) charges totaled $8,156 in 2009 compared with $7,028 for 2008 ~~compared with~~versus a net recovery of $76 in 2007. ~~Net~~As the economy continued to weaken during 2009, net loan charge-offs rose to $48,896 in 2009 compared with net loan charge-offs of $38,110 in 2008 ~~from~~and $11,696 in 2007. On a diluted per share basis, the net operating loss available to common shareholders, excluding the goodwill impairment charge, was $1.40 (please see “ITEM 6 — GAAP Reconciliation and Management Explanations of Non-GAAP Financial Measures” above for more information) for 2009 compared with a net operating loss available to common shareholders of $0.42 for 2008 ~~compared with~~and net operating earnings available to common shareholders of $2.07 for 2007. Including the ~~same period~~goodwill impairment charge, on a ~~year ago.~~diluted per share basis the net loss available to common shareholders for 2009 was $11.91 compared with a net loss available to common shareholders of $0.42 for 2008 and net income available to common shareholders of $2.07 in 2007.

Net interest income for ~~2008~~2009 totaled $80,525 compared with $95,025 in 2008 including the impact of interest reversals of ~~2,024, a modest improvement over the same period a year ago.~~$2,606 in 2009 and $2,024 in 2008. The ~~increase~~decrease in net interest income was due to the impact of ~~an increase~~a decline in higher yielding average earning assets, primarily loans and investment securities, ~~stemming from the CVBG acquisition~~accompanied by a reduction in ~~the second quarter of 2007.~~market interest rates throughout 2009. The Company experienced a contraction throughout ~~2008~~2009 in the net interest margin moving from ~~4.25% in 2007 to~~ 3.70% in ~~2008.~~2008 to 3.34% in 2009. This contraction was principally a result of the actions undertaken by the Federal Open Market Committee (“FOMC”) during ~~the year~~2008 and 2009 to ~~significantly~~further reduce and maintain market interest rates toat historically low ~~levels.~~levels in order to stabilize the economy and the higher levels of nonaccrual loans in 2009. Noninterest income ~~grew by $6,012, or 22%, and totaled~~declined to $31,578 in 2009 from $33,614 for 2008. The decline was principally due to lower securities gains taken in 2009, including other than temporary impairment charges, which were partially offset by an increase in service charge income. Included in non-interest income ~~during 2008~~ were net securities gains of $439 in 2009 compared with $2,661 ~~versus net securities losses of $41~~ for ~~2007.~~2008. The continued success of a deposit account gathering program ~~also~~ contributed ~~approximately $4,007~~$23,738 to ~~this improvement. Noninterest~~non-interest income in 2009 compared with $23,176 in 2008. Operating expenses for 2009 totaled $229,587, or $86,198, excluding the goodwill impairment charge of $143,389 (please see “ITEM 6 — GAAP Reconciliation and Management Explanations of Non-GAAP Financial Measures” above for more information) compared with $85,837 for 2008. The increase in operating expenses was principally driven by the ~~year, up $16,585 from the prior year driven principally~~special assessment levied against all banks for an increase in FDIC insurance and higher OREO related costs offset in part by higher losses on Other Real Estate Owned as the recession’s impact was realized through increased foreclosures plus the normal incremental operating costs associated with the CVBG acquisition completed in May 2007.lower employee compensation costs.

The Company believes its critical accounting policies and estimates include the valuation of the allowance for loan losses and the fair value of financial instruments and other accounts. Based on management’s calculation, an allowance of ~~$48,811,~~$50,161, or ~~2.20%~~2.45%, of total loans, net of unearned interest was an adequate estimate of losses inherent in the loan portfolio as of December 31, ~~2008.~~2009. This estimate resulted in a provision for loan losses on the income statement of ~~$52,810~~$50,246 during ~~2008.~~2009. If the mix and amount of future charge-off percentages differ significantly from those assumptions used by management in making its determination, the allowance for loan losses and provision for loan losses on the income statement could be materially affected. For further discussion of the allowance for loan losses and a detailed description of the methodology management uses in determining the adequacy of the allowance, see “ITEM 1. Business — Lending Activities — Allowance for Loan Losses” located above, and “Changes in Results of Operations -— Provision for Loan Losses” located below.

The consolidated financial statements include certain accounting and disclosures that require management to make estimates about fair values. Estimates of fair value are used in the accounting for securities available for sale, loans held for sale, goodwill, other intangible assets, and acquisition purchase accounting adjustments. Estimates of fair values are used in disclosures regarding securities held to maturity, stock compensation, commitments, and the fair values of financial instruments. Fair values are estimated using relevant market information and other assumptions such as interest rates, credit risk, prepayments and other factors. The fair values of financial instruments are subject to change as influenced by market conditions.

In conjunction with significant acquisitions, the Company engages a third party to assist in the valuation of financial assets acquired and liabilities assumed. Annually thereafter, the goodwill and intangible assets are evaluated for impairment. An impairment loss is recognized to the extent that the carrying value exceeds the asset’s fair value. The impairment analysis is a two step process. First, a comparison of the reporting unit’s estimated fair value is compared to its carrying value, including goodwill and if the estimated fair value of the reporting unit exceeds its carrying value, goodwill is deemed to be non-impaired. If the first step is not successfully achieved, a second step involving the calculation of an implied fair value, as determined in a manner similar to the amount of the goodwill calculated in a business combination is conducted. This second step process involves the measurement of the excess of the estimated fair value over the aggregate estimated fair value as if the reporting unit was being acquired in a business combination. ~~Historically,~~Based on the results and analysis of the step one assessment, management determined that there was impairment of goodwill during 2009 and the steps taken are described in the following paragraph.

At year-end 2008 the Company obtained an independent evaluation of goodwill based upon a discounted present value analysis of cash flows. The results obtained at that time, compared with the market price of the stock at year-end 2008, indicated that there was no goodwill impairment. During the latter part of the first quarter of 2009, the Company’s stock price began to decline and by the end of the quarter the stock price was trading relatively close to tangible book value. In the Company’s 2009 first quarter Form 10-Q, the Company indicated that it would monitor this situation closely and if this condition were deemed to be other than a temporary aberration in the market, it would re-evaluate goodwill for impairment. During the second quarter of 2009, the Company’s stock price declined from a high of $9.73 per share to a low of $4.14 per share, closing on June 30, 2009 at $4.48 per share. From the end of June 2009 the Company consistently observed the price of the ~~Company has exceeded~~Company’s stock trading in the ~~Company’s book value. However, the sharp downturn in general economic conditions and its effect on the housing industry coupled with the unusual short~~mid $3.00 per share range. Short sale ~~trading~~ activity ~~and share price volatility~~ in the Company’s stock continued to escalate and totaled 2,510,519 shares by June 30, 2009 or 19.1% of outstanding shares. During the latter part of the second quarter, the Company performed an interim impairment valuation analysis on its intangible assets and placed more emphasis on the trading value of the Company’s stock due to the steep market price ~~negatively impacted~~decline and the duration of time its stock was trading below both book value and tangible book value. As a result of the continued and prolonged decline in the second quarter of the Company’s stock price, ~~throughout 2008. This activity culminated~~compared with the ~~short sale activity,~~tangible common book value of $11.88 per share at June 30, 2009, the non-cash goodwill impairment charge was deemed appropriate. During the final days of June, the Company’s stock was removed from the Russell 3000 Index based upon the Russell’s market capitalization criteria and on June 25, 2009, 2,286,900 shares of the Company’s stock were traded during market hours as ~~reported by NASDAQ, registering 24%~~institutional investors rebalanced their positions creating significant downward pressure on the price of the Company’s stock. This event, in conjunction with the adverse trend noted during the quarter in updated real estate valuations, created a triggering event for the revaluation of goodwill impairment at ~~year-end 2008~~June 30, 2009. The Company undertook a Step 2 analysis of ~~our total share volume outstanding. The closing~~goodwill in accordance with GAAP, based upon the then current market value of ~~our~~the Company’s stock ~~as reported on NASDAQ, was $13.54 per share compared with our book value per share of $23.56. We engaged two independent third parties to assist management in its~~price. The Step 2 analysis of potential impairment of goodwill, given the differences between the market value per share and the book value per share. Management provided what it felt like were conservative assumptions in regards to short-term earning asset growth and return on average assets. These assumptions projected contraction of earning assets through 2009 with moderate growth beginning in mid 2010. Growth projections for 2011 forward were increased but still remained below historical average growth levels. Return on average assets assumptions did not have the Company reaching the bottom of the historical earnings range until 2014. The assumptions used also assumed that dividends would be held constant with 2008 levels throughout the projection period and that TARP funds would be repaid at the end of 2013. Both independent third parties reported, after completing their various analyses,indicated that the ~~implied~~fair value of the ~~enterprise exceeded~~Company was less than the aggregate fair values of assets and liabilities assigned, relative to tangible book value, and determined that a Goodwill Impairment charge of ~~the enterprise. Management reviewed each separate report and also concluded that no indications of impairment were present~~$143,389 was appropriate. The previously described events did not exist at December 31, ~~2008.~~2008 and as such, the Company did not believe a charge from evaluating goodwill impairment using a discounted cash flow analysis was warranted at that time.

Changes in Results of Operations

Net income/loss. The net loss available to common shareholders was $155,676 for 2009 compared with net loss available to common shareholders of $5,452 for 2008. The net loss for the year 2009 was primarily attributable to a charge taken for the impairment of goodwill of $137,414, net of tax of $5,975 and the continued weaknesses in the economy through 2009. Excluding the goodwill impairment charge, net of tax, of $137,414 the Company’s net operating loss was $18,262 for 2009 (please see “ITEM 6 — GAAP Reconciliation and Management Explanations of Non-GAAP Financial Measures” above for more information). When comparing the net operating loss of $18,262, excluding the goodwill impairment charge, for 2009 to the net operating loss of $5,452 for 2008, the primary reason for the continued decrease of $12,810 is the decline in net interest income of $14,500 from $80,525 in 2009 to $95,025 in 2008. The decrease is primarily due to the continued downturn in economic conditions throughout 2009 that resulted in lower loan demand and continued charge-offs of loans.

The net loss available to common shareholders’ for 2008 was $5,452 compared to ~~record~~ net income of $24,374 for 2007. The net loss is primarily attributable to an increase in provision for loan losses of $38,327 to $52,810 in 2008 from $14,483 in 2007 from continued deteriorating economic conditions throughout 2008 impacting residential real estate construction lending. Also negatively impacting net income was an increase in noninterest expense of $16,585 to $85,837 in 2008 from $69,252 in 2007. The increase in noninterest expense resulted primarily from a full year of normal operating expenses throughout 2008 associated with the CVBG acquisition in May of 2007 and increased levels of expenses associated with the repossession of assets and losses on the sale of OREO and repossessed assets totaling $7,028. Offsetting, in part, these negative effects on net income was an increase in total noninterest income of $6,012 to $33,614 in 2008 from $27,602 in 2007. The increase in noninterest income can be primarily attributed to higher fee income associated with the continued development of the Company’s High Performance Checking Account product as well as gains on sale of securities.

Net income for 2007 was $24,374, an increase of $3,112, or 15%, compared to net income of $21,262 for 2006. The increase is primarily attributable to an increase in net interest income of $22,696, or 32%, to $94,653 in 2007 from $71,957 in 2006 and resulted principally from higher average balances of loans from the CVBG acquisition in the second quarter of 2007 and continued organic loan growth during 2007. In addition, total noninterest income increased by $6,900, or 33%, to $27,678 in 2007 from $20,778 in 2006. The increase in noninterest income can be primarily attributed to higher fee income associated with further development of the Company’s High Performance Checking Account product. Offsetting, in part, these positive effects on net income was an increase in the loan loss provision of $8,976 over 2006 levels due to deteriorating economic conditions impacting residential real estate construction lending during the fourth quarter of 2007 and an increase in noninterest expense of $16,552, or 31%, to $69,328 in 2007 from $52,776 in 2006. The increase in noninterest expense resulted primarily from the Company’s CVBG acquisition in the second quarter of 2007.

Net Interest Income. The largest source of earnings for the Company is net interest income, which is the difference between interest income on earning assets and interest paid on deposits and other interest-bearing liabilities. The primary factors that affect net interest income are changes in volumes and rates on earning assets and interest-bearing liabilities, which are affected in part by management’s anticipatory responses to changes in interest rates through asset/liability management. During 2009, net interest income was $80,525 as compared to $95,025 in 2008. The Company experienced a decline in average balances of interest-earning assets, with average total interest-earning assets decreasing by $156,713, or 6%, to $2,433,476 in 2009 from $2,590,189 in 2008. Most of the decline occurred in loans, with average loan balances decreasing by $202,724, or 9%, to $2,096,181 in 2009 from $2,298,905 in 2008. The decrease is primarily due to the continued downturn in economic conditions throughout 2009 that resulted in lower loan demand and heightened levels of loan charge-offs. Average investment securities also decreased $83,966, or 31%, to $189,377 in 2009 from $273,343 in 2008 as the Company focused on de-levering the balance sheet and reducing excess liquidity. Average balances of total interest-bearing liabilities also decreased in 2009 from 2008, with average total interest-bearing deposit balances decreasing by $12,223, or 1%, to $1,950,775 in 2009 from $1,962,998 in 2008, and average securities sold under repurchase agreements and short-term borrowings, and subordinated debentures and FHLB advances and notes payable decreased by $111,132, or 25%, to $337,993 in 2009 from $449,125 in 2008. These decreases are primarily related to the reduction in securities sold under repurchase agreements and short-term borrowings along with the maturities and early payoffs of FHLB advances.

During 2008, net interest income was $95,025 as compared to $94,653 in 2007. The Company experienced growth in average balances of interest-earning assets, with average total interest-earning assets increasing by $350,743, or 16%, to $2,590,189 in 2008 from $2,239,446 in 2007. Most of the growth occurred in loans, with average loan balances increasing by $239,186, or 12%, to $2,298,905 in 2008 from $2,059,719 in 2007. Average investment securities also increased $94,670, or 53%, to $273,343 in 2008 from $178,673 in 2007. Both of these increases are principally attributable to the CVBG acquisition that took place in the second quarter of 2007. Average balances of total interest-bearing liabilities also increased in 2008 from 2007, with average total interest-bearing deposit balances increasing by $356,847, or 22%, to $1,962,998 in 2008 from $1,606,151 in 2007, and average securities sold under repurchase agreements and short-term borrowings, subordinated debentures and FHLB advances and notes payable ~~increased~~increasing by $45,673, or 11%, to $449,125 in 2008 from $403,452 in 2007. These increases are primarily related to the Company’s CVBG acquisition which closed May 18, 2007 and in which the Company acquired approximately $631,000 in loans, $200,000 in investment securities, $699,000 in deposits and $145,000 in securities sold under repurchase agreements and short-term borrowings, subordinated debentures and FHLB advances and notes payable. These balances had a full year effect on average balances of interest-earning assets and interest-bearing liabilities for 2008.

During 2007, net interest income was $94,653 as compared to $71,957 in 2006, an increase of 32%. The Company experienced solid growth in average balances of interest-earning assets, with average total interest-earning assets increasing by $730,979, or 48%, to $2,239,446 in 2007 from $1,508,467 in 2006. Most of the growth occurred in loans, with average loan balances increasing by $609,203, or 42%, to $2,059,719 in 2007 from $1,450,516 in 2006. Average investment securities also increased $123,521, or 224%, to $178,673 in 2007 from $55,152 in 2006. Both of these increases are attributable to the CVBG acquisition that took place in the second quarter of 2007. Average balances of total interest-bearing liabilities also increased in 2007 from 2006, with average total interest-bearing deposit balances increasing by $471,460, or 42%, to $1,606,151 in 2007 from $1,134,691 in 2006, average securities sold under repurchase agreements and short-term borrowings, subordinated debentures and FHLB advances and notes payable increased by $226,810, or 128%, to $403,452 in 2007 from $176,642 in 2006. These increases are primarily related the Company’s CVBG acquisition which closed May 18, 2007 and in which the Company acquired approximately $631,000 in loans, $200,000 in investment securities, $699,000 in deposits and $145,000 in securities sold under repurchase agreements and short-term borrowings, subordinated debentures and FHLB advances and notes payable. These balances had approximately a seven and one-half month effect on full year average balances of interest-earning assets and interest-bearing liabilities.

Average Balances, Interest Rates and Yields.Net interest income is affected by (i) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (“interest rate spread”) and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. When the total of interest-earning assets approximates or exceeds the total of interest-bearing liabilities, any positive interest rate spread will generate net interest income. An indication of the effectiveness of an institution’s net interest income management is its “net yield on interest-earning assets,” which is net interest income on a fully taxable equivalent basis divided by average interest-earning assets.

3133

The following table sets forth certain information relating to the Company’s consolidated average interest-earning assets and interest-bearing liabilities and reflects the average fully taxable equivalent yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the periods presented.


	2008							2007							2006							2009							2008							2007
	Average				Average			Average				Average			Average				Average			Average				Average			Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets:
Loans⁽¹⁾⁽⁴⁾
Real estate loans	$	1,890,209	$	121,168		6.41	%	$	1,661,640	$	127,459		7.67	%	$	1,104,471	$	82,857		7.50	%	$	1,719,026	$	99,796		5.81	%	$	1,890,209	$	121,168		6.41	%	$	1,661,640	$	127,459		7.67	%
Commercial loans		319,131		20,020		6.27	%		303,799		24,180		7.96	%		259,264		20,214		7.80	%		295,913		16,284		5.50	%		319,131		20,020		6.27	%		303,799		24,180		7.96	%
Consumer and other loans- net⁽²⁾		89,565		10,516		11.74	%		94,280		10,903		11.56	%		86,781		9,746		11.23	%		81,242		9,660		11.89	%		89,565		10,516		11.74	%		94,280		10,903		11.56	%
Fees on loans		—		3,979					—		4,217					—		1,768					—		3,532					—		3,979					—		4,217


Total loans (including fees)	$	2,298,905	$	155,683		6.77	%	$	2,059,719	$	166,759		8.10	%	$	1,450,516	$	114,585		7.90	%	$	2,096,181	$	129,272		6.17	%	$	2,298,905	$	155,683		6.77	%	$	2,059,719	$	166,759		8.10	%


Investment securities⁽³⁾
Taxable	$	227,710	$	12,770		5.61	%	$	146,642	$	8,415		5.76	%	$	45,446	$	2,273		5.00	%	$	144,881	$	7,035		4.86	%	$	227,710	$	12,770		5.61	%	$	146,642	$	8,415		5.76	%
Tax-exempt⁽⁴⁾		32,743		1,995		6.09	%		22,227		1,334		6.00	%		2,922		166		5.68	%		31,660		1,938		6.12	%		32,743		1,995		6.09	%		22,227		1,334		6.00	%

FHLB and other stock		12,890		647		5.02	%		9,804		617		6.29	%		6,784		345		5.09	%		12,836		573		4.46	%		12,890		647		5.02	%		9,804		617		6.29	%


Total investment securities	$	273,343	$	15,412		5.64	%	$	178,673	$	10,366		5.80	%	$	55,152	$	2,784		5.05	%	$	189,377	$	9,546		5.04	%	$	273,343	$	15,412		5.64	%	$	178,673	$	10,366		5.80	%

Other short-term investments		17,941		175		0.98	%		1,054		54		5.12	%		2,799		138		4.93	%		147,918		376		0.25	%		17,941		175		0.98	%		1,054		54		5.12	%


Total interest- earning assets	$	2,590,189	$	171,270		6.61	%	$	2,239,446	$	177,179		7.91	%	$	1,508,467	$	117,507		7.79	%	$	2,433,476	$	139,194		5.72	%	$	2,590,189	$	171,270		6.61	%	$	2,239,446	$	177,179		7.91	%


Noninterest-earning assets:
Cash and due from banks	$	51,181						$	47,436						$	39,068						$	45,870						$	51,181						$	47,436
Premises and equipment		83,411							73,176							53,304							83,478							83,411							73,176
Other, less allowance for loan losses		231,499							135,296							55,939							219,831							231,499							135,296


Total noninterest- earning assets	$	366,091						$	255,908						$	148,311						$	349,179						$	366,091						$	255,908


Total assets	$	2,956,280						$	2,495,354						$	1,656,778						$	2,782,655						$	2,956,280						$	2,495,354


	2008							2007							2006							2009							2008							2007
	Average				Average			Average				Average			Average				Average			Average				Average			Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate
Interest-bearing liabilities:
Deposits
Savings, interest checking, and money market accounts	$	645,636	$	9,588		1.49	%	$	654,696	$	16,703		2.55	%	$	493,019	$	10,524		2.13	%	$	784,135	$	10,078		1.29	%	$	645,636	$	9,588		1.49	%	$	654,696	$	16,703		2.55	%
Time deposits		1,317,362		48,502		3.68	%		951,455		44,669		4.69	%		641,672		25,566		3.98	%		1,166,640		35,690		3.06	%		1,317,362		48,502		3.68	%		951,455		44,669		4.69	%


Total deposits	$	1,962,998	$	58,090		2.96	%	$	1,606,151	$	61,372		3.82	%	$	1,134,691	$	36,090		3.18	%	$	1,950,775	$	45,768		2.35	%	$	1,962,998	$	58,090		2.96	%	$	1,606,151	$	61,372		3.82	%

Securities sold under repurchase agreements and short-term borrowings		106,309		2,111		1.99	%		95,715		4,183		4.37	%		32,487		1,469		4.52	%		28,049		29		0.10	%		106,309		2,111		1.99	%		95,715		4,183		4.37	%
Subordinated debentures		88,662		4,555		5.14	%		60,730		4,512		7.43	%		13,403		1,043		7.78	%		88,662		2,577		2.91	%		88,662		4,555		5.14	%		60,730		4,512		7.43	%
FHLB advances and notes payable		254,154		10,735		4.22	%		247,007		11,906		4.82	%		130,752		6,798		5.20	%		221,282		9,557		4.32	%		254,154		10,735		4.22	%		247,007		11,906		4.82	%


Total interest-bearing liabilities	$	2,412,123	$	75,491		3.13	%	$	2,009,603	$	81,973		4.08	%	$	1,311,333	$	45,400		3.46	%	$	2,288,768	$	57,931		2.53	%	$	2,412,123	$	75,491		3.13	%	$	2,009,603	$	81,973		4.08	%

Noninterest bearing liabilities:

Demand deposits	$	187,058						$	184,529						$	147,947						$	162,765						$	187,058						$	184,529

Other liabilities		24,832							29,067							18,952							22,477							24,832							29,067

Total non-interest- bearing liabilities	$	211,890						$	213,596						$	166,899						$	185,242						$	211,890						$	213,596

Shareholders’ equity		332,267							272,155							178,546							308,645							332,267							272,155


Total liabilities and shareholders’ equity	$	2,956,280						$	2,495,354						$	1,656,778						$	2,782,655						$	2,956,280						$	2,495,354


Net interest income			$	95,799						$	95,206						$	72,107						$	81,263						$	95,799						$	95,206


Margin analysis:
Interest rate spread						3.48	%						3.83	%						4.33	%						3.19	%						3.48	%						3.83	%


Net yield on interest- earning assets (net interest margin)						3.70	%						4.25	%						4.78	%						3.34	%						3.70	%						4.25	%

Rate/Volume Analysis. The following table analyzes net interest income in terms of changes in the volume of interest-earning assets and interest-bearing liabilities and changes in yields and rates. The table reflects the extent to which changes in the interest income and interest expense are attributable to changes in volume (changes in volume multiplied by prior year rate) and changes in rate (changes in rate multiplied by prior year volume). Changes attributable to the combined impact of volume and rate have been separately identified.


	2008 vs. 2007												2007 vs. 2006												2009 vs. 2008												2008 vs. 2007
							Rate/			Total									Rate/			Total									Rate/			Total									Rate/			Total
	Volume			Rate			Volume			Change			Volume			Rate			Volume			Change			Volume			Rate			Volume			Change			Volume			Rate			Volume			Change
Interest income:

Loans, net of unearned income	$	19,449		$	(27,349	)	$	(3,176	)	$	(11,076	)	$	48,133		$	2,846		$	1,195		$	52,174		$	(13,729	)	$	(13,909	)	$	1,227		$	(26,411	)	$	19,449		$	(27,349	)	$	(3,176	)	$	(11,076	)
Investment securities:
Taxable		4,709			(227	)		(127	)		4,355			5,030			346			766			6,142			(4,645	)		(1,713	)		623			(5,735	)		4,709			(227	)		(127	)		4,355
Tax-exempt		631			20			10			661			1,097			9			62			1,168			(66	)		9			—			(57	)		631			20			10			661
FHLB and other stock, at cost		211			(129	)		(47	)		35			170			65			37			272			13			(88	)		1			(74	)		211			(129	)		(47	)		35
Other short-term investments		841			(44	)		(681	)		116			(86	)		5			(3	)		(84	)		1,272			(127	)		(944	)		201			841			(44	)		(681	)		116


Total interest income		25,841			(27,729	)		(4,021	)		(5,909	)		54,344			3,271			2,057			59,672			(17,155	)		(15,828	)		907			(32,076	)		25,841			(27,729	)		(4,021	)		(5,909	)


Interest Expense:

Savings, interest checking, and money market accounts		(651	)		(6,846	)		382			(7,115	)		3,248			2,065			866			6,179			2,128			(1,347	)		(291	)		490			(651	)		(6,846	)		382			(7,115	)
Time deposits		17,215			(9,665	)		(3,717	)		3,833			12,343			4,559			2,201			19,103			(5,549	)		(8,201	)		938			(12,812	)		17,215			(9,665	)		(3,717	)		3,833
Short-term borrowings		511			(2,334	)		(249	)		(2,072	)		2,800			(31	)		(55	)		2,714			(1,671	)		(1,379	)		968			(2,082	)		511			(2,334	)		(249	)		(2,072	)
Subordinated debentures		2,081			(1,396	)		(642	)		43			3,683			(47	)		(167	)		3,469			—			(1,978	)		—			(1,978	)		2,081			(1,396	)		(642	)		43
Notes payable		349			(1,477	)		(43	)		(1,171	)		6,065			(501	)		(456	)		5,108			(1,389	)		242			(31	)		(1,178	)		349			(1,477	)		(43	)		(1,171	)


Total interest expense		19,505			(21,718	)		(4,269	)		(6,482	)		28,139			6,045			2,389			36,573			(6,481	)		(12,663	)		1,584			(17,560	)		19,505			(21,718	)		(4,269	)		(6,482	)


Net interest income	$	6,336		$	(6,011	)	$	248		$	573		$	26,205		$	(2,774	)	$	(332	)	$	23,099		$	(10,674	)	$	(3,165	)	$	(677	)	$	(14,516	)	$	6,336		$	(6,011	)	$	248		$	573

Provision for Loan Losses. Management assesses the adequacy of the allowance for loan losses by considering a combination of regulatory and credit risk criteria. The entire loan portfolio is graded and potential loss factors are assigned accordingly. The potential loss factors for impaired loans are assigned based on independent valuations of underlying collateral and management’s judgment. The potential loss factors associated with unimpaired loans are based on a combination of both internal and industry net loss experience, as well as management’s review of trends within the portfolio and related industries.

Generally, commercial real estate, residential real estate and commercial loans are assigned a level of risk at inception. Thereafter, these loans are reviewed on an ongoing basis. The review includes loan payment and collateral status, borrowers’ financial data and borrowers’ internal operating factors such as cash flows, operating income, liquidity, leverage and loan documentation, and any significant change can result in an increase or decrease in the loan’s assigned risk grade. Aggregate dollar volume by risk grade is monitored on an ongoing basis. The establishment of and any changes to risk grades for consumer loans are generally based upon payment performance.

The Bank’s loan loss allowance is increased or decreased based on management’s assessment of the overall risk of its loan portfolio. Occasionally, a portion of the allowance may be allocated to a specific loan to reflect unusual circumstances associated with that loan.

Management reviews certain key loan quality indicators on a monthly basis, including current economic conditions, historical charge-offs, delinquency trends and ratios, portfolio mix changes and other information management deems necessary. This review process provides a degree of objective measurement that is used in conjunction with periodic internal evaluations. To the extent that this process yields differences between estimated and actual observed losses, adjustments are made to provisions and/or the level of the allowance for loan losses.

Increases and decreases in the allowance for loan losses due to changes in the measurement of impaired loans are reviewed monthly given the current economic environment. To the extent that impairment is deemed probable, an adjustment is reflected in the provision for loan ~~losses.~~losses, if necessary, to reflect the losses inherent in the loan portfolio. Loans continue to be classified as impaired unless payments are brought fully current and satisfactory performance is observed for a period of at least six months and management further considers the collection of scheduled interest and principal to be probable.

The Company’s provision for loan losses ~~increased $38,327~~decreased slightly for the year 2009 by $2,564 to $50,246 from $52,810 in 2008 while the total loan loss reserve increased from ~~$14,483 in 2007. During~~$48,811 at December 31, 2008 ~~the loss experience increased due~~ to rapidly deteriorating economic conditions during this recessionary period and resulting credit quality concerns in residential real estate construction and development loans primarily located in the Nashville and Knoxville markets.$50,161 at December 31, 2009. In ~~2008, net charge-offs in the Bank, Superior Financial and GCB Acceptance were $35,563, $631 and $1,916, respectively, totaling $38,110. In 2007, these~~2009, net charge-offs were ~~$10,193, $172 and $1,331, respectively, totaling $11,696. Management attributes the increase in~~$48,896 compared with net charge-offs ~~to continued enforcement~~ of ~~underwriting policies and management controls~~$38,110 in a recessionary economy. These controls, along with the loan review process, identified weakness developing in the residential real estate construction portfolio during the year and led to actions taken to identify charge-offs and further potential weaknesses.2008. Management continually evaluates the existing portfolio in light of loan concentrations, current general economic conditions and economic trends. Beginning in the fourth quarter of 2009, on a monthly basis, the Company undertakes an extensive review of every loan in excess of $1 million that is adversely risk graded. Prior to the fourth quarter of 2009 this review had been performed during the final month of each quarter. Throughout 2009 and as a result of this review process, the Company ordered new appraisals of adversely graded real estate secured loans and, following receipt of those appraisals, began aggressively charging off collateral shortfalls/balances as appropriate. Appraisals received by the Company during the second quarter of 2009 on existing OREO and targeted loans reflected significant deterioration in the value of the underlying properties, which along with the deterioration of previously performing relationships, triggered increased charge-offs during this quarter and continued into the third quarter of 2009. Management believes ~~these evaluations strongly suggest an~~that the economic slowdown in the Company’s markets occurred throughout 2008 and most ~~likely will continue throughout~~of 2009 with beginning signs of economic stabilization in Tennessee occurring late in 2009. Based on its evaluation of the allowance for loan loss calculation and review of the loan portfolio, management believes the allowance for loan losses is adequate at December 31, ~~2008.~~2009. However, the provision for loan losses could further increase throughout ~~2009~~2010 if the general economic trends begin to reverse and conditions continue to weaken or the residential real estate markets in Nashville or Knoxville or the financial conditions of borrowers deteriorate beyond management’s current expectations.

The ratio of nonperforming assets to total assets was 5.07% at December 31, 2009 and 2.61% at December 31, 2008 ~~and 1.25% at December 31, 2007~~ reflecting not only the ~~economic downturn~~recessionary environment but also the rise in ~~2008. The ratio of the Company’s allowance for loan losses to nonperforming loans increased in 2008 to 155.28% from 106.34% in 2007.~~non-performing asset levels combined with a shrinking Balance Sheet. Total nonperforming ~~loans decreased $643~~assets increased to ~~$31,435~~$132,726 in 2009 from $76,806 at ~~December 31, 2008 from $32,078 at December 31, 2007 reflecting the increase in loan charge-offs and Other Real Estate Owned (“OREO”).~~year-end 2008. Nonaccrual loans, included in non-performing ~~loans, decreased $1,134~~assets, increased to $75,411 at December 31, 2009 from $30,926 at December 31, ~~2008 from $32,060 at December 31, 2007.~~2008. Further reflecting the economic downturn, OREO and repossessed assets increased from ~~$4,859~~$45,371 at the end of ~~2007~~2008 to ~~$45,371~~$57,168 at year-end ~~2008.~~2009. Management believes that, based upon recent appraisals, these assets ~~are adequately secured~~have been appropriately written down and ~~does~~they do not anticipate any material losses, based on current economic conditions. Total impaired loans, which include substandard loans as well as nonaccrual loans, increased ~~by $10,948~~ from ~~$36,267 at December 31, 2007 to~~ $47,215 at December 31, ~~2008.~~2008 to $115,238 at December 31, 2009. The Company records a risk allocation allowance for loan losses on ~~all~~impaired loans ~~in this category; further,~~where the risk of loss is deemed to be probable and the amount can be reasonably estimated. Further, the Company specifically records additional allowance amounts for individual loans when the circumstances so warrant. For further discussion of nonperforming assets as it relates to foreclosed real estate and impaired loans, see “ITEM 1. Business — Lending Activities — Past Due, Special Mention, Classified and Nonaccrual Loans” located above.

To further manage its credit risk on loans, the Company maintains a “watch list” of loans that, although currently performing, have characteristics that require closer supervision by management. At December 31, ~~2008,~~2009, the Company had indentified ~~due to current deteriorating economic conditions in its markets,~~ approximately ~~$182,984~~$212,288 in loans that were placed on its “watch list” compared to ~~$91,832~~$182,984 as of December 31, ~~2007.~~2008. If, and when, conditions are identified that would require additional loan loss reserves to be established due to potential losses inherent in these loans, action would then be taken.

~~Noninterest~~Non-interest Income. The generation of ~~noninterest~~non-interest income, which is income that is not related to interest-earning assets and consists primarily of service charges, commissions and fees, has become more important as increases in levels of interest-bearing deposits and other liabilities continually challenge interest rate spreads.

Total ~~noninterest~~non-interest income for ~~2008 increased~~2009 decreased slightly to $31,578 compared to $33,614 ~~as compared to~~in 2008 and $27,602 in ~~2007 and $20,710 in 2006.~~2007. The largest components of ~~noninterest~~non-interest income are service charges on deposit accounts, which totaled $23,738 in 2009, $23,176 in 2008 and $19,169 in ~~2007 and $13,217~~2007. The decrease in ~~2006. The increase~~total non-interest income in ~~2008~~2009 primarily reflects a decrease in net securities gains of $2,222 to $439 in 2009 from $2,661 ~~and~~in 2008. This decrease is a result of lower realized gains on the sale of securities of $1,415 in 2009 compared to $2,661 in 2008 coupled with additional charges taken in 2009 of $976 for other-than-temporary impairment on certain investment portfolio securities. This decrease was partially offset by the aforementioned increase in service charges on deposit accounts which amounted to $562. These fees ~~of $4,007~~are generated from the higher volume of deposit-related products, ~~especially~~specifically fees associated with the continued success of the Bank’s High Performance Checking Program. From the inception of this new product during the first quarter of 2005, the company experienced “net” new checking account growth of 7,665 in 2005 to net new checking account growth of ~~12,465 and 14,510 in 2006 and 2007, respectively, and 7,919 in 2008.~~15,810 during 2009.

~~Noninterest~~Non-interest Expense. Control of ~~noninterest~~non-interest expense also is an important aspect in ~~managing net income. Noninterest~~generating earnings. Non-interest expense includes, among other expenses, personnel, occupancy, goodwill impairment charges, write downs and net losses from the sales on OREO and expenses such as data processing, printing and supplies, legal and professional fees, postage and FDIC assessments. Total ~~noninterest~~non-interest expense was $229,587 in 2009 compared to $85,837 in 2008 ~~compared to~~and $69,252 in ~~2007 and $52,708 in 2006.~~2007. The increase of ~~$16,585, or 24%,~~$143,750 in ~~2008 as~~2009 compared to ~~2007~~2008 principally reflects the one-time non-cash charge taken for goodwill impairment of $143,389. Additionally contributing to the increases in non-interest expense levels in 2009 was the special assessment levied against all ~~functional expense categories primarily as a result~~banks by the FDIC for additional deposit insurance of, ~~a full year~~in the case of the ~~normal ongoing operating cost associated with the CVBG acquisition during the second quarter~~Bank, $3,329, and an increase of ~~2007, as well as increased expenses of $7,028 associated with loss of sale of~~$1,128 in losses incurred on OREO and repossessed assets. ~~FDIC assessments increased to $1,631~~These increases were partially offset by a decrease in ~~2008, up from $213 in 2007,~~employee compensation and the Company expects that its FDIC assessments for 2009 will increase significantly over 2008 levels. In addition, on February 27, 2009, the FDIC proposed amendments to the restoration plan for the Deposit Insurance Fund. This amendment proposes the impositionemployee benefit costs of a 20 basis point emergency special assessment on insured depository institutions as of June 30, 2009. The assessment is proposed to be collected on September 30, 2009. As of our filing date for this document, March 13, 2009, there were still discussions as to what the final rate will be. This special assessment if implemented as proposed will have a significant impact on the results of operations of the Company for 2009.$3,957.

Employee compensation and employee benefit costs are the primary element of the Company’s ~~noninterest expenses.~~non-interest expenses, excluding the one-time, non-cash write-off of goodwill in 2009. For the years ended December 31, ~~2008~~2009 and ~~2007,~~2008, compensation and benefits represented $34,446, or 40% (excluding the goodwill impairment charge of $143,389 — see “ITEM 6 — GAAP Reconciliation and Management Explanations of Non-GAAP Financial Measures” above for more information) and $38,403, or 45%~~, and $35,491, or 51%~~, respectively, of total ~~noninterest~~non-interest expense. This was ~~an increase~~a decrease of ~~$2,912,~~$3,957, or 8%10% in ~~2008.~~2009. This decrease is the result of fewer full time equivalent employees and a reduction in employee benefit costs. Including Bank branches and non-Bank office locations, the Company had 75 locations at December 31, 2009 and 2008, ~~compared to 76 at December 31, 2007,~~ and the number of full-time equivalent employees decreased 7%3% from ~~789 at December 31, 2007 to~~ 737 at December 31, ~~2008. This~~2008 to 716 at December 31, 2009.

The increases in FDIC assessments were due to changes in the fee assessment rates during 2009 and a special assessment applied to all insured institutions as of June 30, 2009. With regard to the increase in ~~personnel cost is primarily~~fee assessment rates, the ~~result~~FDIC finalized a rule in December 2008 that raised the then current assessment rates uniformly by 7 basis points for the first quarter of 2009 assessment. The new rule resulted in annualized assessment rates for Risk Category 1 institutions ranging from 12 to 14 basis points. In February 2009, the FDIC issued final rules to amend the deposit insurance fund restoration plan, change the risk-based assessment system and set assessment rates for Risk Category 1 institutions beginning in the second quarter of 2009. The new initial base assessment rates for Risk Category 1 institutions ranged from 12 to 16 basis points, on an annualized basis, and from 7 to 24 basis points after the effect of potential base-rate adjustments, in each case depending upon various factors. The increase in deposit insurance expense during 2009 compared to 2008 was also partly related to the Company’s utilization of available credits to offset assessments during 2008. The increases were also partly related to the additional 10 basis point assessment paid on covered transaction accounts exceeding $250 under the Temporary Liquidity Guaranty Program.

In May 2009, the FDIC issued a final rule which levied a special assessment applicable to all insured depository institutions totaling 5 basis points of each institution’s total assets less Tier 1 capital as of June 30, 2009, not to exceed 10 basis points of domestic deposits. The special assessment was part of the FDIC’s efforts to rebuild the Deposit Insurance Fund (“DIF”). The final rule also allowed the FDIC to impose additional special assessments of 5 basis points for the third and fourth quarters of 2009, if the FDIC estimates that the DIF reserve ratio will fall to a level that would adversely affect public confidence in federal deposit insurance or to a level that would be close to or below zero. In November 2009, the FDIC issued a final rule that, in lieu of a ~~full year~~further special assessment in 2009, required all insured depository institutions, with limited exceptions, to prepay their estimated quarterly risk-based assessments for the fourth quarter of ~~personnel cost associated with~~2009 and for all of 2010, 2011 and 2012. The FDIC also adopted a uniform three basis point increase in assessment rates effective on January 1, 2011. The Company prepaid approximately $12.9 million in risk-based assessments in the ~~CVBG acquisition.~~fourth quarter 2009.

Income Taxes. The Company’s effective income tax rate (benefit) was (10.2%) in 2009 compared to (46.4%) in 2008 ~~compared to~~and 36.7% in ~~2007 and 38.3% in 2006.~~2007. The ~~unusual~~effective tax ~~benefit~~ rate infor the ~~current~~ year ~~as compared to~~ended December 31, 2009 was significantly impacted by the goodwill impairment charge recognized during the second quarter of 2009. The effective tax rate for this period reflects the tax ~~rate in prior years is due primarily~~treatment of the $143,389 goodwill impairment charge, of which $126,317 was non-deductible for tax purposes.

At December 31, 2009, the Company had net deferred tax assets of $13,600. GAAP requires companies to ~~the effect~~assess whether a valuation allowance should be established against their deferred tax assets based on the ~~rate~~consideration of all available evidence using a “more likely than not” standard. As part of this assessment, significant weight is given to evidence that can be objectively verified. The analysis performed as of December 31, 2009 determined that no valuation allowance was needed at this time. The deferred tax ~~exempt income on municipal securities~~assets will be analyzed quarterly for changes affecting realization, and ~~bank owned life insurance on top of the book loss of the Company.~~there can be no assurance that a valuation allowance will not be necessary in future periods.

Changes in Financial Condition

Total assets at December 31, 2009 were $2,619,139, a decrease of $325,532 from total assets of $2,944,671 at December 31, 2008. Major changes in the balance sheet categories reflect a decline in loan balances of $179,583 from the prior year comprised of loan charge-offs of $48,896 and transfers to foreclosures of $75,545 accompanied with a decline in lending associated with the current recessionary conditions in the economy. Also impacting the decline in assets was the goodwill impairment charge of $143,389 and the net reduction in securities available-for-sale of $55,838. These decreases were offset by an increase of $23,136 in cash and cash equivalents and interest earning deposits in banks and the booking of a pre-paid FDIC insurance asset of $12,853. Average assets for 2009 also decreased to $2,782,655, a reduction of $173,625, or 6%, from the average asset balance of $2,956,280 for 2008. This decrease in average assets was also due primarily to the items mentioned previously. The Company’s return on average assets was (5.59%) in 2009, principally as a result of the goodwill impairment charge in 2009, and (0.18%) in 2008.

Total assets at December 31, 2008 were $2,944,671, a decrease of $3,070 from total assets of $2,947,741 at December 31, 2007. Major changes in the balance sheet categories reflect a decline in loan balances of $132,986 from the prior year comprised of loan charge-offs of $38,110 and transfers to foreclosures of $40,512 accompanied with ~~the normal~~a decline in lending associated with recessionary conditions in the economy. An increase of $132,641 in cash and cash equivalents from year-end 2007 was driven principally by the issuance of $72,278 of Series A preferred stock to the U. S. Treasury on December 23, 2008 and the disposition of $123,701 of securities during the fourth quarter of the year. Average assets for 2008 also increased to $2,956,280, an increase of $460,926, or 18%, from the average asset balance of $2,495,354 for 2007. This increase in average assets was also due primarily to the CVBG acquisition in the second quarter of 2007. The Company’s return on average assets was (0.18%) in 2008 and 0.98% in 2007 principally as a result of significantly higher credit costs in 2008 versus 2007.

Total assets at December 31, 2007 were $2,947,741, an increase of $1,175,087, or 66%, over total assets of $1,772,654 at December 31, 2006. This increase reflects an increase in loans, net of unearned interest, of $816,747, or 53%, to $2,356,376 at December 31, 2007 from $1,539,629 at December 31, 2006 and an increase in investment securities available for sale of $197,533 to $235,273 at December 31, 2007 from $37,740 at December 31, 2006. The increase in loans and securities available for sale can be attributed to the Company’s CVBG acquisition that took place in the second quarter of 2007. Average assets for 2007 also increased to $2,495,354, an increase of $838,576, or 51%, from the average asset balance of $1,656,778 for 2007. This increase in average assets was also due primarily to the CVBG acquisition in the second quarter of 2007. The Company’s return on average assets decreased in 2007 to 0.98% from 1.28% in 2006 as a result of significantly higher loan loss provision in 2007 versus 2006.

Earning assets consist of loans, investment securities and short-term investments that earn interest. Average earning assets during ~~2008~~2009 were ~~$2,590,189, an increase~~$2,433,476, a decrease of ~~16%~~6% from an average of ~~$2,239,446~~$2,590,189 in ~~2007.~~2008. The ~~increase~~decrease in average earnings assets is due primarily to the ~~full year effect~~reduction of loan and investment securities balances throughout 2009 as the Company de-levered the Balance Sheet accompanied with a decline in ~~2008 for the CVBG acquisition that took place~~lending associated with recessionary conditions in the ~~second quarter of 2007.~~economy.

Nonperforming loans include nonaccrual loans and loans past due 90 days and still on accrual. The Company has a policy of placing loans 90 days delinquent in nonaccrual status and charging them off at 120 days past due. Other loans past due that are well secured and in the process of collection continue to be carried on the Company’s balance sheet. For further information, see Note 1 of the Notes to Consolidated Financial Statements. The Company has aggressive collection practices in which senior management is significantly and directly involved.

~~Principally as a result of the Company’s high loan to deposit ratio, the~~The Company maintains an investment portfolio to primarily cover pledging requirements for deposits and borrowings and secondarily as a source of liquidity while modestly adding to earnings. Investments at December 31, ~~2008~~2009 had an amortized cost of ~~$205,310~~$148,040 and a market value of ~~$204,163~~$148,362 as compared to an amortized cost of ~~$234,098~~$205,310 and market value of ~~$236,553~~$204,163 at December 31, ~~2007.~~2008. The decrease in available for ~~sales~~sale securities from December 31, ~~2007~~2008 to December 31, ~~2008 is~~2009 was attributable to ~~the sales of the Company’s Mortgage Backed Securities portfolio~~a reduction in ~~the fourth quarter of 2008 due to the risk assessment that this segment of the portfolio exposed~~pledging requirements for deposits occurring throughout 2009 which allowed the Company to ~~a high level of potential default in 2009. The Company realized a $2,661 net gain on this transaction.~~reduce portfolio balances by allowing securities to be called or mature without replacement. The Company invests principally in callable federal agency securities. These callable federal securities will provide a higher yield than non-callable securities with similar maturities. The primary risk involved in callable securities is that they may be called prior to maturity and the call proceeds received would be re-invested at lower yields. In ~~2008,~~2009, the Company purchased ~~$100,583~~$55,256 of callable federal agency securities, which have a high likelihood of being called on the first call date, purchased ~~$55,175~~$16,393 of collateralized mortgage obligations, purchased ~~$4,712~~$16,951 of mortgage-backed securities and purchased ~~$20,156~~$3,500 of U.S. Treasury bills. Also in ~~2008,~~2009, the Company received ~~$22,506~~$6,020 from the pay down of ~~SBA and~~collateralized mortgage obligations, received $2,256 from the pay down of mortgage-backed securities, received ~~$63,842~~$100,440 on the maturity or call of various U.S. agency securities, received ~~$2,413~~$1,165 from the maturity or call of municipal securities, ~~held to~~received $3,500 from the maturity of U.S. Treasury bills and received ~~$110~~$69 from the call of trust preferred securities. The Company sold ~~$120,565~~$34,851 of ~~mortgage-backed securities~~collateralized mortgage obligations in ~~2008.~~2009 netting $36,266 in proceeds while recording a gain of $1,415.

The Company’s deposits totaled $2,084,096 at December 31, 2009, which represents a decrease of $100,051, or 5%, from $2,184,147 at December 31, ~~2008, which represents an increase of $197,354, or 10%, from $1,986,793 at December 31, 2007. Noninterest~~2008. Non-interest bearing demand deposit balances ~~decreased 12%~~increased slightly, by less than 1% to $177,602 at December 31, 2009 from $176,685 at December 31, ~~2008 from $201,289~~2008. The decrease in total deposits is due primarily to the reduction of brokered deposits throughout 2009 but offset in part by the continued success of the Bank’s High Performance Checking Program. Average interest-bearing deposits decreased $12,223, or 1%, to $1,950,775 at December 31, ~~2007. Average~~2009 from $1,962,998 at December 31, 2008. In 2007, average interest-bearing deposits increased $356,847, or 22%, to $1,962,998 inat December 31. 2008 from $1,606,151 inat December 31, 2007. The increase in average deposits is due primarily to the full year effect in 2008 of the CVBG acquisition in the second quarter of 2007 and the continued success of the Bank’s High Performance Checking Program. In 2007, average interest-bearing deposits increased $471,460, or 42%, over 2006. The 2007 increase in average deposits is due primarily to the effect of the CVBG acquisition in the second quarter of 2007 and the continued success of the Bank’s High Performance Checking Program

Interest paid on deposits in ~~2008~~2009 totaled ~~$58,090,~~$45,768, reflecting a ~~2.96%~~2.35% cost for average interest-bearing deposits of $1,950,775. In 2008, interest of $58,090 was paid at a cost of 2.96% on average deposits of $1,962,998. In 2007, interest of $61,372 was paid at a cost of 3.82% on average deposits of $1,606,151. ~~In 2006, interest of $36,090 was paid at a cost of 3.18% on average deposits of $1,134,691.~~

3740

Liquidity and Capital Resources

Liquidity. Liquidity refers to the ability or the financial flexibility to manage future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining appropriate levels of liquidity allows the Company to have sufficient funds available for reserve requirements, customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities. The Company’s primary source of liquidity is dividends paid by the Bank. Applicable Tennessee statutes and regulations impose restrictions on the amount of dividends that may be declared by the Bank. Under Tennessee law, the Bank can only pay dividends to the Company in an amount equal to or less than the total amount of its net income for that year combined with retained net income for the preceding two years. Payment of dividends in excess of this amount requires the consent of the Commissioner of the TDFI. Further, any dividend payments are subject to the continuing ability of the Bank to maintain compliance with minimum federal regulatory capital requirements and to retain its characterization under federal regulations as a “well-capitalized” institution. In addition, the Company maintains borrowing availability with the ~~Federal Home Loan Bank of Cincinnati (“FHLB”) approximating $308~~FHLB which was fully utilized at December 31, ~~2008.~~2009. The Company also maintains federal funds lines of credit totaling ~~$131,000~~$70,000 at ~~seven~~four correspondent banks of which ~~$131,000~~$70,000 was available at December 31, ~~2008.~~2009, and $10,000 of the federal funds lines of credit is secured by cash on deposit. The Company believes it has sufficient liquidity to satisfy its current operating needs.

In ~~2008,~~2009, operating activities of the Company provided ~~$44,642~~$30,016 of cash flows. Cash flows from operating activities were positively affected by various non-cash items, including (i) ~~$52,810~~a $143,389 goodwill impairment charge, (ii) $50,246 in provision for loan losses, ~~(ii) $7,030~~(iii) $7,117 of depreciation and amortization, and ~~(iii)~~(iv) a ~~$7,028~~$8,156 net loss on OREO and repossessed assets. The increase of $21,375 in ~~accrued interest payable and~~ other ~~liabilities~~assets primarily relates to the ~~CVBG acquisition.~~$12,853 of pre-paid FDIC insurance funded in the fourth quarter of 2009 and the increase of approximately $12,012 in income taxes receivable related to the net loss for 2009. This was offset in part by (i) a net loss of ~~$5,360,~~$150,694, (ii) a decrease of ~~$10,875~~$3,177 in accrued interest payable and other liabilities and (iii) a decrease of ~~$4,374~~$1,654 in deferred tax benefit. In addition, cash flows from operating activities were increased by the proceeds from the sale of held-for-sale loans of ~~$51,962,~~$43,050, offset by cash used to originate held-for-sale loans of ~~$49,501.~~$43,879.

Investing activities, including lending, provided ~~$73,595~~$155,319 of the Company’s cash flows in ~~2008, a change of $304,251 from $230,656 used in 2007.~~2009. Cash flows from investing activities increased from (i) the sale of OREO in the amount of ~~$20,654,~~$11,930, (ii) from the excess of maturities and sale of securities available for sale over the purchases of securities in the amount of ~~$32,431,~~$57,636, and (iii) the net decrease in loans of ~~$27,754.~~$99,111. Investments in interest-bearing deposits with banks of $11,000 and premises and equipment of ~~$5,814 were also undertaken~~$3,542 in ~~2008 and~~2009 reduced cash provided from investing activities.

Net ~~additional~~ cash flows of ~~$14,404~~$173,199 were ~~provided~~used by financing ~~activities, a decrease of $156,961 from $171,365 in 2007.~~activities. The financing cash flow activity in ~~2008~~2009 with respect to notes payable reflected a ~~net~~ repayment of funds in the amount of ~~$89,342~~$57,350 and ~~during 2007 reflected~~ a net ~~source~~repayment of funds of ~~$109,120.~~$89,342 during 2008. The Company elected to repay FHLB advances with the raising of funds through deposits. In addition, federal funds purchased and repurchase agreements were reduced by ~~$159,223~~$10,853 during ~~2008. Cash flow was positively increased by the issuance $72,278 in preferred stock with the TARP program.~~2009. Cash flows ~~provided~~used by the net change in total deposits ~~were positive at $197,354. As in prior years,~~reduced deposits by $100,051, as the Company continued to reduce brokered deposits and increase core deposits. The Company’s cash flow from financing activities was also decreased by the Company’s dividend payments during ~~2008~~2009 of ~~$6,779~~$4,945 on preferred and common stock.

Capital Resources. The Company’s strong regulatory capital position is reflected in its shareholders’ equity, subject to certain adjustments for regulatory purposes. Shareholders’ equity, or capital, is a measure of the Company’s net worth, soundness and viability. The Company’s capital continued to exceed regulatory requirements at December 31, ~~2008.~~2009. Management believes the capital base of the Company allows it to ~~take advantage of~~consider business opportunities while maintaining the level of resources deemed appropriate by management of the Company to address business risks inherent in the Company’s daily operations.

On September 25, 2003, the Company issued $10,310 of subordinated debentures, as part of a privately placed pool of trust preferred securities. The securities, due in 2033, bear interest at a floating rate of 2.85% above the three-month LIBOR rate, reset quarterly, and are currently callable ~~in five years~~by the Company without penalty. The Company used the proceeds of the offering to support its acquisition of Independent Bankshares Corporation, and the capital raised from the offering qualified as Tier I1 capital for regulatory purposes.

On June 28, 2005, the Company issued an additional $3,093 of subordinated debentures, as part of a privately placed pool of trust preferred securities. The securities, due in 2035, bear interest at a floating rate of 1.68% above the three-month LIBOR rate, reset quarterly, and are callable inby the Company five years from the date of issuance without penalty. The Company used the proceeds to augment its capital position in connection with its significant asset growth, and the capital raised from the offering qualifies as Tier 1 capital for regulatory purposes.

3841

On May 16, 2007, the Company issued $57,732 of subordinated debentures, as part of a privately placed pool of trust preferred securities. The securities, due in 2037, bear interest at a floating rate of 1.65% above the three-month LIBOR rate, reset quarterly, and are callable inby the Company five years from the date of issuance without penalty. The Company used the proceeds of the offering to support its acquisition of CVBG, and the capital raised from the offering qualified as Tier I capital for regulatory purposes.

On May 18, 2007 the Company assumed the obligations of the following two trusts in the CVBG acquisition.

	•		On December 28, 2005, CVBG issued $13,403 of subordinated debentures, as part of a privately placed pool of trust preferred securities. The securities, due in 2036, bear interest at a floating rate of 1.54% above the three-month LIBOR rate, reset quarterly, and are callable in five years from the date of issuance without penalty.

	•		On July 31, 2001, CVBG issued $4,124 of subordinated debentures, as part of a privately placed pool of trust preferred securities. The securities, due in 2031, bear interest at a floating rate of 3.58% above the three-month LIBOR rate, reset quarterly, and are currently callable ~~in five years~~ without penalty.

During 2007 the FRB issued regulations which allow continued inclusion of outstanding and prospective issuances of trust preferred securities as Tier 1 capital subject to stricter quantitative and qualitative limits than allowed under prior regulations. The new limits will phase in over a five-year transition period and would permit the Company’s trust preferred securities, including those obligations assumed in the CVBG acquisition, to continue to be treated as Tier 1 capital.

The Company’s ability to repurchase the trust preferred securities or pay dividends on the trust preferred securities, may be limited as a result of the Company’s participation in the CPP, as described above.

Shareholders’ equity on December 31, ~~2008~~2009 was ~~$381,231, an increase~~$226,769, a decrease of ~~$58,754,~~$154,462, or ~~18%~~41%, from ~~$322,477~~$381,231 on December 31, ~~2007.~~2008. The ~~increase~~decrease in shareholders’ equity arises ~~primarily~~ from ~~the issuance of 72,278 shares of Series A preferred stock for $72,278 to the U.S. Treasury. This increase was offset in part by~~ the net loss available to common shareholders for ~~2008~~2009 of ~~$5,452~~$155,676 (($~~0.42)~~11.91) per share, assuming dilution) ~~and dividend payments during 2008 that totaled $6,779 ($0.52 per share)~~.

On December 23, 2008 the Company entered into a definitive agreement with the U.S. Treasury. Pursuant to the Agreement, we sold to the U.S. Treasury 72,280 shares of Series A preferred stock, having a liquidation amount equal to $1,000 per share, with an attached warrant (the “Warrant”) to purchase 635,504 shares of our common stock, par value $2.00 per share, for $17.06 per share.

The preferred stock qualifies as Tier 1 capital and ~~will pay~~pays cumulative dividends at a rate of 5% per year, for the first five years, and 9% per year thereafter. Under the original terms of the CPP, the preferred stock could be redeemed with the approval of the Federal Reserve in the first three years with the proceeds from the issuance of certain qualifying Tier 1 capital (a “Qualified Offering”) or after three years at par value plus accrued and unpaid dividends.

The Warrant has a 10-year term ~~with 50% vesting immediately upon issuance~~ and ~~the remaining 50% vesting on January 1, 2010 if the Company does not redeem all of the Series A preferred stock with the proceeds of a Qualified Offering. The Warrant has~~ an exercise price, subject to anti-dilution adjustments, equal to $17.06 per share of common stock.

~~Under the provisions of the ARRA, the~~The Company is ~~now~~ permitted to redeem the Series A preferred stock at any time ~~including within the first three years after issuance,~~ without penalty ~~and without the need to raise new Tier 1 capital pursuant to a Qualified Offering,~~ subject to the U.S. Treasury’s consultation with the Company’s and the Bank’s appropriate regulatory agency.

3942

Risk-based capital regulations adopted by the FRB and the FDIC require both bank holding companies and banks to achieve and maintain specified ratios of capital to risk-weighted assets. The risk-based capital rules are designed to measure “Tier 1” capital (consisting of stockholders’ equity and trust preferred securities, less goodwill) and total capital in relation to the credit risk of both on- and off-balance sheet items. Under the guidelines, one of four risk weights is applied to the different on-balance sheet items. Off-balance sheet items, such as loan commitments, are also subject to risk weighting after conversion to balance sheet equivalent amounts. All bank holding companies and banks must maintain a minimum total capital to total risk-weighted assets ratio of 8.00%, at least half of which must be in the form of core, or Tier 1, capital. At December 31, ~~2008,~~2009, the Company and the Bank each satisfied their respective minimum regulatory capital requirements, and the Bank was “well-capitalized” within the meaning of federal regulatory requirements. Actual capital levels and minimum levels (in millions) were:


									Minimum Amounts to												Minimum Amounts to be
									be Well Capitalized								Minimum Required				Well Capitalized Under
					Minimum Required				Under Prompt								for Capital				Prompt Corrective
					for Capital				Corrective				Actual				Adequacy Purposes				Action Provisions
	Actual				Adequacy Purposes				Action Provisions				Actual		Ratio (%)		Actual		Ratio (%)		Actual		Ratio (%)
2009
Total Capital (to Risk Weighted Assets)
Consolidated													$	318.5		14.9	$	171.0		8.0	$	213.8		10.0
Bank														317.4		14.9		170.7		8.0		213.4		10.0
Tier 1 Capital (to Risk Weighted Assets)
Consolidated													$	291.5		13.6	$	85.5		4.0	$	128.3		6.0
Bank														290.4		13.6		85.4		4.0		128.0		6.0
Tier 1 Capital (to Average Assets)
Consolidated													$	291.5		10.7	$	108.6		4.0	$	135.8		5.0
Bank														290.4		10.7		108.6		4.0		135.7		5.0
	Actual		Ratio (%)		Actual		Ratio (%)		Actual		Ratio (%)
2008
Total Capital (to Risk Weighted Assets)
Consolidated	$	344.0		14.9	$	184.8		8.0	$	231.1		10.0	$	344.0		14.9	$	184.8		8.0	$	231.1		10.0
Bank		335.8		14.6		184.4		8.0		230.5		10.0		335.8		14.6		184.4		8.0		230.5		10.0
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	315.0		13.6	$	92.4		4.0	$	138.6		6.0	$	315.0		13.6	$	92.4		4.0	$	138.6		6.0
Bank		306.8		13.3		92.2		4.0		138.3		6.0		306.8		13.3		92.2		4.0		138.3		6.0
Tier 1 Capital (to Average Assets)
Consolidated	$	315.0		11.3	$	111.9		4.0	$	139.9		5.0	$	315.0		11.3	$	111.9		4.0	$	139.9		5.0
Bank		306.8		11.0		111.8		4.0		137.7		5.0		306.8		11.0		111.8		4.0		137.7		5.0

2007
Total Capital (to Risk Weighted Assets)
Consolidated	$	280.2		11.5	$	194.3		8.0	$	242.8		10.0
Bank		270.6		11.1		194.6		8.0		243.3		10.0
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	249.8		10.3	$	97.1		4.0	$	145.7		6.0
Bank		240.1		9.9		97.3		4.0		146.0		6.0
Tier 1 Capital (to Average Assets)
Consolidated	$	249.8		9.0	$	111.1		4.0	$	138.9		5.0
Bank		240.1		8.7		111.0		4.0		138.8		5.0

Asset/Liability Management

The Company’s Asset/Liability Committee (“ALCO”) actively measures and manages interest rate risk using a process developed by the Bank. The ALCO is also responsible for ~~approving~~recommending the Company’s asset/liability management policies to the Board of Directors for approval, overseeing the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviewing the Company’s interest rate sensitivity position.

The primary tool that management uses to measure short-term interest rate risk is a net interest income simulation model prepared by an independent national consulting firm and reviewed by another separate and independent national consulting firm. These simulations estimate the impact that various changes in the overall level of interest rates over one- and two-year time horizons would have on net interest income. The results help the Company develop strategies for managing exposure to interest rate risk.

Like any forecasting technique, interest rate simulation modeling is based on a large number of assumptions. In this case, the assumptions relate primarily to loan and deposit growth, asset and liability prepayments, interest rates and balance sheet management strategies. Management believes that both individually and in the aggregate the assumptions are reasonable. Nevertheless, the simulation modeling process produces only a sophisticated estimate, not a precise calculation of exposure.

The Company’s current guidelines for interest rate risk management call for preventive measures if a gradual 200 basis point increase or decrease in short-term rates over the next 12 months would affect net interest income over the same period by more than 18.5%. The Company ~~exceeded the upper guideline for a 200 basis point increase in rates by 0.93%, but remained~~has been operating well within the stated guideline for a 200 basis point decrease in rates. The Company contends that the reasons for the upper guideline breach is to strategically maximize net interest income potential for the moment interest rates start to increase.guidelines. As of December 31, ~~2008~~2009 and ~~2007,~~2008, based on the results of the independent consulting firm’s simulation model, the Company could expect net interest income to increase by approximately ~~19.43%~~12.75% and ~~11.15%~~19.43%, respectively, if short-term interest rates immediately increase by 200 basis points. Conversely, if short-term interest rates immediately decrease by 200 basis points, net interest income could be expected to decrease by approximately ~~14.42%~~14.20% and ~~1.52%~~14.42%, respectively. The primary reason for less exposure in a ~~declining~~rising rate environment is attributable to variable rate loan floors ~~being reached~~priced higher than underlying variable rate loan structures in the loan portfolio. Furthermore, the reason the 200 basis point down scenario increased significantly from the prior year was the result of the modeled assumption that time deposit rates would reprice more aggressively than the environment allowed in 2008 as a result of the credit crisis, and the Bank elected to adjust the repricing assumptions of time deposits to match closer to what the Bank experienced in 2008.

The scenario described above, in which net interest income increases when interest rates increase and decreases when interest rates decline, is typically referred to as being “asset sensitive” because interest-earning assets exceed interest-bearing liabilities. At December 31, ~~2008,~~2009, approximately 50% of the Company’s gross loans had adjustable rates. While management believes, based on its asset/liability modeling, that the Company is liability sensitive as measured over the one year time horizon, it also believes that a rapid, significant and prolonged increase or decrease in rates could have a substantial adverse impact on the Company’s net interest margin.

The Company’s net interest income simulation model incorporates certain assumptions with respect to interest rate floors on certain deposits and other liabilities. Further, given the relatively low interest rates on some deposit products, a 200 basis point downward shock could very well reduce the costs on some liabilities below zero. In these cases, the Company’s model incorporates constraints which prevent such a shock from simulating liability costs to zero.

The Company also uses an economic value of equity model, prepared and reviewed by the same independent national consulting firm, to complement its short-term interest rate risk analysis. The benefit of this model is that it measures exposure to interest rate changes over time frames longer than the two-year net interest income simulation. The economic value of the Company’s equity is determined by calculating the net present value of projected future cash flows for current asset and liability positions based on the current yield curve.

Economic value analysis has several limitations. For example, the economic values of asset and liability balance sheet positions do not represent the true fair values of the positions, since economic values reflect an analysis at one particular point in time and do not consider the value of the Company’s franchise. In addition, we must estimate cash flow for assets and liabilities with indeterminate maturities. Moreover, the model’s present value calculations do not take into consideration future changes in the balance sheet that will likely result from ongoing loan and deposit activities conducted by the Company’s core business. Finally, the analysis requires assumptions about events which span several years. Despite its limitations, the economic value of equity model is a relatively sophisticated tool for evaluating the ~~longer-term~~long term effect of possible interest rate movements.

4144

The Company’s current guidelines for risk management call for preventive measures if an immediate 200 basis point increase or decrease in interest rates would reduce the economic value of equity by more than 23%. The Company has been operating well within these guidelines. As of December 31, ~~2008~~2009 and ~~2007,~~2008, based on the results of an independent national consulting firm’s simulation model and reviewed by a separate independent national consulting firm, the Company could expect its economic value of equity to increase by approximately ~~3.63%~~10.48% and ~~5.29%~~3.63%, respectively, if short-term interest rates immediately increased by 200 basis points. Conversely, if short-term interest rates immediately decrease by 200 basis points, economic value of equity could be expected to decrease by approximately ~~12.13%~~21.94% and ~~12.78%~~12.13%, at December 31, ~~2008~~2009 and ~~2007,~~2008, respectively. The ~~lower~~higher percentage changes in economic value of equity as of December 31, ~~2008,~~2009, compared to December 31, ~~2007,~~2008, are primarily related to an increase in ~~variable rate loans meeting floors, as well shorter liability durations.~~transaction account balances coupled with a decrease in brokered time deposit balances.

Disclosure of Contractual Obligations

In the ordinary course of operations, the Company enters into certain contractual obligations. Such obligations include the funding of operations through debt issuances as well as leases for premises and equipment. The following table summarizes the Company’s significant fixed and determinable contractual obligations as of December 31, ~~2008:~~2009:


											Less than 1						More than 5
	Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Total		Year		1-3 Years		3-5 Years		Years		Total

Certificate of deposits	$	1,283,669	$	121,834	$	3,812	$	3,934	$	1,413,249	$	807,132	$	153,481	$	18,888	$	3,559	$	983,060
Federal funds purchased		—		—		—		—		—
Repurchase agreements		35,302		—		—		—		35,302		24,449		—		—		—		24,449
FHLB advances and notes payable		29,928		52,845		65,918		80,658		229,349		12,354		80,698		10,745		68,202		171,999
Subordinated debentures		—		—		—		88,662		88,662		—		—		—		88,662		88,662
Operating lease obligations		1,300		1,887		1,361		1,483		6,031		1,121		1,918		1,170		1,082		5,291
Deferred compensation		1,919		—		—		2,026		3,945		1,652		—		240		745		2,637
Purchase obligations		203		—		—		—		203		457		—		—		—		457

Total	$	1,352,321	$	176,566	$	71,091	$	176,763	$	1,776,741	$	847,165	$	236,097	$	31,043	$	162,250	$	1,276,555

FASB ASC 320-10 — In April 2009, the FASB issued new guidance impacting FASB ASC 320-10, Investments — Debt and Equity Securities. The guidance (i) changed existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaced the existing requirement that the ~~expected net future cash flows~~entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under these standards, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to ~~the associated servicing~~credit losses. The amount of the ~~loan should be~~impairment related to other factors is recognized in other comprehensive income. These standards were effective for interim and annual periods ending after June 15, 2009 and became effective for the Company on June 15, 2009 and did not have a significant impact on the Company’s financial statements.

FASB ASC 825 — In April 2009, the FASB issued new guidance impacting FASB ASC 825-10-50, Financial Instruments. This guidance requires an entity to provide disclosures about fair value of financial instruments in interim financial information at interim reporting periods. Under these standards, a publicly traded company shall include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. In addition, entities must disclose, in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods, the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position. The new interim disclosures were included in the ~~measurement~~Company’s interim financial statements beginning the second quarter, June 30, 2009.

FASB ASC 855 — In May 2009, the FASB issued FASB ASC 855, Subsequent Events. Under this standard, companies are required to evaluate events and transactions that occur after the balance sheet date but before the date the financial statements are issued, or available to be issued in the case of non-public entities. This standard requires entities to recognize in the financial statements the effect of all ~~written loan commitments~~events or transactions that ~~are accounted~~provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process. Entities shall not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. The standard also requires entities to disclose the date through which subsequent events have been evaluated. This standard was effective for ~~at fair value~~interim and annual reporting periods ending after June 15, 2009. The Company reviewed events for inclusion in the financial statements through ~~earnings. SEC registrants are expected to apply~~February 25, 2010, the ~~views in Question 1~~date that the accompanying financial statements were issued. The Company adopted the provisions of ~~SAB 109 on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The implementation of~~the standard for the quarter ended June 30, 2009, as required, and this ~~guidance~~adoption did not have a material impact on the ~~Company’s consolidated~~ financial ~~statements.~~statements taken as a whole.

FASB ASC 105-10 — In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141(R), “Business Combinations” and SFAS No. 160, “Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51”. These new standards will significantly change the accounting for and reporting of business combination transactions and noncontrolling (minority) interests in consolidated financial statements. SFAS Nos. 141(R) and 160 are required to be adopted simultaneously and are effective for the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. We are currently evaluating the impact of adopting SFAS Nos. 141(R) and 160 on our consolidated financial statements.

~~In December 2007,~~June 2009, the FASB issued ~~SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, Implementation Issue No. E23, “Hedging — General: Issues Involving~~FASB ASC 105-10, Generally Accepted Accounting Principles. This guidance establishes the ~~Application~~FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the ~~Shortcut Method under Paragraph 68” (“Issue E23”). Issue E23 amends SFAS No. 133~~FASB to ~~explicitly permit use~~be applied by nongovernmental entities in the preparation of ~~the shortcut method for hedging relationships~~financial statements in ~~which interest rate swaps have nonzero fair value at the inception of the hedging relationship, provided certain conditions are met. Issue E23~~conformity with U.S. Generally Accepted Accounting Principles. This standard was effective for ~~hedging relationships designated on or~~financial statements issued for interim and annual periods ending after ~~January 1, 2008.~~September 15, 2009, for most entities. On the effective date, all non-SEC accounting and reporting standards were superseded. The ~~implementation of~~Company adopted this ~~guidance~~standard for the quarterly period ended September 30, 2009, as required, and adoption did not have a material impact on ~~our consolidated~~the financial ~~statements.~~statements taken as a whole.

FASB ASC 810 — In ~~March 2008,~~December 2009, the FASB issued ~~SFAS No. 161, “Disclosures about Derivative Instruments~~FASB ASC 810, Consolidations. This accounting guidance was originally issued in June 2009 and ~~Hedging Activities — an amendment of FASB Statement No. 133”. SFAS No. 161 expands quarterly disclosure requirements~~is now included in ~~SFAS No. 133 about an entity’s derivative instruments and hedging activities. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008.~~ASC 810. The ~~Company is currently assessing the impact of SFAS No. 161 on its consolidated financial position and results of operations.~~

~~In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP~~guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”.consolidation guidance applicable for variable interest entities. The ~~objective of this FSP~~guidance is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R), and other U.S. Generally Accepted Accounting Principles. This FSP applies to all intangible assets, whether acquired in a business combination or otherwise and shall be effective for financial statements issued for fiscal years ~~beginning after December 15, 2008,~~ and interim periods ~~within those fiscal years~~beginning after November 15, 2009, and ~~applied prospectively to intangible assets acquired after the effective date. Early~~early adoption is prohibited. We ~~have evaluated~~do not anticipate the ~~new statement and have determined that it~~adoption of this standard will ~~not~~ have a significant impact on the ~~determination or reporting of our financial results.~~

~~In September 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles~~.”SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with Generally Accepted Accounting Principles (“GAAP”) in the United States (the GAAP hierarchy). The hierarchical guidance provided by SFAS No. 162 did not have a significant impact on our consolidatedCompany’s financial statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Annual Report on Internal Control Over Financial Reporting

Management of Green Bankshares, Inc. and subsidiaries (the “Company”) is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the framework inInternal Control — Integrated Framework, management of the Company has concluded the Company maintained effective internal control over financial reporting as of December 31, ~~2008.~~2009.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.

Dixon Hughes PLLC, an independent, registered public accounting firm, has audited the Company’s consolidated financial statements as of and for the year ended December 31, ~~2008,~~2009, and has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2008,~~2009, which is included herein on page ~~45.~~49.

4448

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

THE BOARD OF DIRECTORS
GREEN BANKSHARES, INC.

We have audited Green Bankshares, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, ~~2008,~~2009, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Green Bankshares, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2008,~~2009, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of Green Bankshares, Inc. and subsidiaries as of December 31, ~~2008~~2009 and ~~2007~~2008 and for each of the years in the three-year period ended December 31, ~~2008,~~2009, and our report dated ~~March 13, 2009,~~February 25, 2010, expressed an unqualified opinion on those consolidated financial statements. Our report on the consolidated financial statements referred to above refers to the adoption of ~~Financial Accounting Standards Board Interpretation No. 48,~~~~Accounting~~new accounting standards in relation to other-than-temporary impairments in 2009 and accounting for ~~Uncertainty~~uncertainty in ~~Income Taxes~~income taxes in 2007.

/s/ Dixon Hughes PLLC

Atlanta, Georgia
~~March 13, 2009~~February 25, 2010

4549

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

BOARD OF DIRECTORS AND SHAREHOLDERS
GREEN BANKSHARES, INC.

We have audited the accompanying consolidated balance sheets of Green Bankshares, Inc. and subsidiaries as of December 31, ~~2008~~2009 and ~~2007,~~2008, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the years in the three year period ended December 31, ~~2008.~~2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Green Bankshares, Inc. and subsidiaries as of December 31, ~~2008~~2009 and ~~2007,~~2008, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, ~~2008,~~2009, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 101 to the consolidated financial statements, in response to new accounting standards, effective January 1, 2009, the Company changed its method of accounting for other-than-temporary impairments, and as discussed in Note 10, on January 1, 2007, ~~Green Bankshares, Inc.~~the Company adopted ~~Financial Accounting Standards Board Interpretation No. 48,~~~~Accounting~~interpretive guidance on the accounting for ~~Uncertainty~~uncertainty in ~~Income Taxes~~.income taxes.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Green Bankshares, Inc.’s internal control over financial reporting as of December 31, ~~2008,~~2009, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated ~~March 13, 2009~~February 25, 2010 expressed an unqualified opinion thereon.

/s/ Dixon Hughes PLLC

Atlanta, Georgia
~~March 13, 2009~~February 25, 2010

4650

GREEN BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, ~~2008~~2009 and ~~2007~~2008
(Amounts in thousands, except share and per share data)


	2008			2007
							2009			2008
ASSETS
Cash and due from banks	$	193,095		$	65,717		$	206,701		$	193,095
Federal funds sold		5,263			—			3,793			5,263

Cash and cash equivalents		198,358			65,717			210,494			198,358
Interest earning deposits in other banks								11,000			—
Securities available for sale		203,562			235,273			147,724			203,562
Securities held to maturity (with a market value of $601 and $1,280)		657			1,303
Securities held to maturity (with a market value of $638 and $601)								626			657
Loans held for sale		442			2,331			1,533			442
Loans, net of unearned interest		2,223,390			2,356,376			2,043,807			2,223,390
Allowance for loan losses		(48,811	)		(34,111	)		(50,161	)		(48,811	)
Other real estate owned and repossessed assets		45,371			4,859			57,168			45,371
Premises and equipment, net		83,359			82,697			81,818			83,359
FHLB and other stock, at cost		13,030			12,322			12,734			13,030
Cash surrender value of life insurance		29,539			28,466			30,277			29,539
Goodwill		143,389			143,140			—			143,389
Core deposit and other intangibles		12,085			14,687			9,335			12,085
Deferred tax asset								13,600			12,496
Other assets		40,300			34,681			49,184			27,804


Total assets	$	2,944,671		$	2,947,741		$	2,619,139		$	2,944,671


LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Noninterest-bearing deposits	$	176,685		$	201,289
Non-interest-bearing deposits							$	177,602		$	176,685
Interest-bearing deposits		2,007,462			1,785,504			1,899,910			1,630,666
Brokered deposits								6,584			376,796

Total deposits		2,184,147			1,986,793			2,084,096			2,184,147

Federal funds purchased		—			87,787
Repurchase agreements		35,302			106,738			24,449			35,302
FHLB advances and notes payable		229,349			318,690			171,999			229,349
Subordinated debentures		88,662			88,662			88,662			88,662
Accrued interest payable and other liabilities		25,980			36,594			23,164			25,980

Total liabilities	$	2,563,440		$	2,625,264		$	2,392,370		$	2,563,440


Shareholders’ equity
Preferred stock: no par, 1,000,000 shares authorized, 72,278 and - -0- shares outstanding	$	65,346		$	—
Common stock: $2 par, 20,000,000 shares authorized, 13,112,687 and 12,931,015 shares outstanding		26,225			25,862
Preferred stock: no par, 1,000,000 shares authorized, 72,278 shares outstanding							$	66,735		$	65,346
Common stock: $2 par, 20,000,000 shares authorized, 13,171,474 and 13,112,687 shares outstanding								26,343			26,225
Common stock warrants		6,934			—			6,934			6,934
Additional paid-in capital		187,742			185,170			188,310			187,742
Retained earnings		95,647			109,938
Retained earnings (deficit)								(61,742	)		95,647
Accumulated other comprehensive income (loss)		(663	)		1,507			189			(663	)

Total shareholders’ equity		381,231			322,477			226,769			381,231


Total liabilities and shareholders’ equity	$	2,944,671		$	2,947,741		$	2,619,139		$	2,944,671

GREEN BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007
(Amounts in thousands, except share and per share data)


	2008			2007			2006			2009			2008			2007
Interest income
Interest and fees on loans	$	155,627		$	166,673		$	114,493		$	129,212		$	155,627		$	166,673
Taxable securities		12,770			8,415			2,273			7,035			12,770			8,415
Nontaxable securities		1,297			867			108			1,260			1,297			867
FHLB and other stock		647			617			345			573			647			617
Federal funds sold and other		175			54			138			376			175			54

Total interest income		170,516			176,626			117,357			138,456			170,516			176,626

Interest expense
Deposits		58,090			61,372			36,090			45,768			58,090			61,372
Federal funds purchased and repurchase agreements		2,111			4,183			1,469			29			2,111			4,183
FHLB advances and notes payable		10,735			11,905			6,798			9,557			10,735			11,905
Subordinated debentures		4,555			4,513			1,043			2,577			4,555			4,513

Total interest expense		75,491			81,973			45,400			57,931			75,491			81,973

Net interest income		95,025			94,653			71,957			80,525			95,025			94,653

Provision for loan losses		52,810			14,483			5,507			50,246			52,810			14,483


Net interest income after provision for loan losses		42,215			80,170			66,450			30,279			42,215			80,170

Noninterest income
Non-interest income
Service charges on deposit accounts		23,176			19,169			13,217			23,738			23,176			19,169
Other charges and fees		2,192			2,012			1,830			1,999			2,192			2,012
Trust and investment services income		1,878			2,019			2,057			1,977			1,878			2,019
Mortgage banking income		804			1,524			1,116			383			804			1,524
Net gain (loss) on the sale of securities		2,661			(41	)		(8	)
Other income		2,903			2,919			2,498			3,042			2,903			2,919
Securities gains (losses), net
Realized gains (losses), net											1,415			2,661			(41	)
Other-than-temporary impairment											(1,678	)		—			—
Less non-credit portion recognized in other comprehensive income											702			—			—

Total noninterest income		33,614			27,602			20,710
Total securities gains (loss), net											439			2,661			(41	)

Noninterest expense
Total non-interest income											31,578			33,614			27,602

Non-interest expense
Employee compensation		33,615			31,132			22,629			30,611			33,615			31,132
Employee benefits		4,788			4,359			3,679			3,835			4,788			4,359
Occupancy expense		6,900			5,711			4,285			6,956			6,900			5,711
Equipment expense		3,555			2,618			2,130			3,092			3,555			2,618
Computer hardware/software expense		2,752			2,169			1,823			2,816			2,752			2,169
Professional services		2,069			2,184			1,596			2,108			2,069			2,184
Advertising		3,538			2,736			2,584			1,894			3,538			2,736
Loss (gain) on OREO and repossessed assets		7,028			(76	)		559			8,156			7,028			(76	)
FDIC insurance											4,960			1,631			213
Core deposit and other intangibles amortization		2,602			2,011			1,082			2,750			2,602			2,011
Goodwill impairment											143,389			—			—
Other expenses		18,990			16,408			12,341			19,020			17,359			16,195

Total noninterest expense		85,837			69,252			52,708

Total non-interest expense											229,587			85,837			69,252
Income (loss) before income taxes		(10,008	)		38,520			34,452			(167,730	)		(10,008	)		38,520

Provision (benefit) for income taxes		(4,648	)		14,146			13,190			(17,036	)		(4,648	)		14,146


Net income (loss)	$	(5,360	)		24,374		$	21,262			(150,694	)		(5,360	)		24,374

Preferred stock dividends and accretion of discount on warrants		92			—			—

Preferred stock dividends and accretion of discount											4,982			92			—

Net income (loss) available to common shareholders	$	(5,452	)	$	24,374		$	21,262		$	(155,676	)	$	(5,452	)	$	24,374


Earnings per share:
Earnings per common share:
Basic	$	(0.42	)	$	2.07		$	2.17		$	(11.91	)	$	(0.42	)	$	2.07
Diluted		(0.42	)		2.07			2.14			(11.91	)		(0.42	)		2.07

GREEN BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years ended December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007
(Amounts in thousands, except share and per share data)


										Warrants								Accumulated															Warrants								Accumulated
										For		Additional						Other			Total												For		Additional			Retained			Other			Total
	Preferred			Common Stock						Common		Paid-in			Retained			Comprehensive			Shareholders’			Preferred			Common Stock						Common		Paid-in			Earnings			Comprehensive			Shareholders’
	Stock			Shares			Amount			Stock		Capital			Earnings			Income(Loss)			Equity			Stock			Shares			Amount			Stock		Capital			(Deficit)			Income(Loss)			Equity
Balance, January 1, 2006	$	—			9,766,336		$	19,533		$	—	$	70,700		$	78,158		$	(370	)	$	168,021

Common stock transactions:
Exercise of shares under stock option plan		—			49,264			99			—		839			—			—			938
Common stock exchanged for exercised stock options		—			(4,733	)		(10	)		—		(167	)		—			—			(177	)
Stock-based compensation		—			—			—			—		354			—			—			354
Stock option tax benefit		—			—			—			—		102			—			—			102
Dividends paid ($.64 per share)		—			—			—			—		—			(6,270	)		—			(6,270	)
Comprehensive income:
Net income		—			—			—			—		—			21,262			—			21,262

Change in unrealized gains (losses), net of reclassification and taxes		—			—			—			—		—			—			241			241

Total comprehensive income																						21,503


Balance, December 31, 2006		—			9,810,867			19,622			—		71,828			93,150			(129	)		184,471
Balance, January 1, 2007																								$	—			9,810,867		$	19,622		$	—	$	71,828		$	93,150		$	(129	)	$	184,471

Common stock transactions:
Issuance of shares in acquisition		—			3,091,495			6,183			—		112,292			—			—			118,475			—			3,091,495			6,183			—		112,292			—			—			118,475
Exercise of shares under stock option plan		—			38,529			77			—		743			—			—			820			—			38,529			77			—		743			—			—			820
Common stock exchanged for exercised stock options		—			(9,876	)		(20	)		—		(303	)		—			—			(323	)		—			(9,876	)		(20	)		—		(303	)		—			—			(323	)
Stock-based compensation		—			—			—			—		472			—			—			472			—			—			—			—		472			—			—			472
Stock option tax benefit		—			—			—			—		138			—			—			138			—			—			—			—		138			—			—			138
Implementation of FIN 48		—			—			—			—		—			800			—			800			—			—			—			—		—			800			—			800
Dividends paid ($.68 per share)		—			—			—			—		—			(8,386	)		—			(8,386	)		—			—			—			—		—			(8,386	)		—			(8,386	)
Comprehensive income:
Net income		—			—			—			—		—			24,374			—			24,374			—			—			—			—		—			24,374			—			24,374
Change in unrealized gains (losses), net of reclassification and taxes		—			—			—			—		—			—			1,636			1,636
Change in unrealized gains, net of reclassification and taxes																									—			—			—			—		—			—			1,636			1,636

Total comprehensive income																						26,010																							26,010


Balance, December 31, 2007		—			12,931,015			25,862			—		185,170			109,938			1,507			322,477			—			12,931,015			25,862			—		185,170			109,938			1,507			322,477

Preferred stock transactions:
Issuance of 72,278 shares of preferred stock		72,278			—			—			—		—			—			—			72,278			72,278			—			—			—		—			—			—			72,278
Discount associated with 635,504 common stock warrants issued with preferred stock		(6,934	)		—			—			6,934		—			—			—			—			(6,934	)		—			—			6,934		—			—			—			—
Accretion of preferred stock discount		2			—			—			—		—			(2	)		—			—			2			—			—			—		—			(2	)		—			—
Preferred stock dividends accrued		—			—			—			—		—			(90	)		—			(90	)		—			—			—			—		—			(90	)		—			(90	)
Common stock transactions:
Exercise of shares under stock option plan		—			9,759			19			—		201			—			—			220			—			9,759			19			—		201			—			—			220
Common stock exchanged for exercised stock options		—			(7,991	)		(16	)		—		(93	)		—			—			(109	)		—			(7,991	)		(16	)		—		(93	)		—			—			(109	)
Issuance of restricted common shares					60,907			122					(122	)		—			—			—						60,907			122					(122	)		—			—			—
Stock dividend		—			118,997			238			—		1,822			(2,060) -			—			—			—			118,997			238			—		1,822			(2,060	)		—			—
Compensation expense:
Stock options		—			—			—			—		456						—			456			—			—			—			—		456						—			456
Restricted stock		—			—			—			—		303						—			303			—			—			—			—		303						—			303
Stock option tax benefit		—			—			—			—		5			—			—			5			—			—			—			—		5			—			—			5
Dividends paid ($.52 per share)		—			—			—			—		—			(6,779	)		—			(6,779	)		—			—			—			—		—			(6,779	)		—			(6,779	)
Comprehensive income:
Net income		—			—			—			—		—			(5,360	)		—			(5,360	)
Change in unrealized gains (losses), net of reclassification and taxes		—			—			—			—		—			—			(2,170	)		(2,170	)
Comprehensive loss:
Net loss																									—			—			—			—		—			(5,360	)		—			(5,360	)
Change in unrealized losses, net of reclassification and taxes																									—			—			—			—		—			—			(2,170	)		(2,170	)

Total comprehensive income																						(7,530	)
Total comprehensive loss																																													(7,530	)


Balance, December 31, 2008	$	65,346			13,112,687		$	26,225		$	6,934	$	187,742		$	95,647		$	(663	)	$	381,231			65,346			13,112,687			26,225			6,934		187,742			95,647			(663	)		381,231

Preferred stock transactions:
Accretion of preferred stock discount																									1,389			—			—			—		—			(1,389	)		—			—
Preferred stock dividends																									—			—			—			—		—			(3,593	)		—			(3,593	)
Common stock transactions:
Issuance of restricted common shares																									—			58,787			118			—		(118	)		—			—			—
Compensation expense:
Stock options																									—			—			—			—		387			—			—			387
Restricted stock																									—			—			—			—		299			—			—			299
Dividends paid ($.13 per share)																									—			—			—			—		—			(1,713	)		—			(1,713	)
Comprehensive loss:
Net loss																									—			—			—			—		—			(150,694	)		—			(150,694	)
Change in unrealized gains, net of reclassification and taxes																									—			—			—			—		—			—			852			852

Total comprehensive loss																																													(149,842	)


Balance, December 31, 2009																								$	66,735			13,171,474		$	26,343		$	6,934	$	188,310		$	(61,742	)	$	189		$	226,769

GREEN BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007
(Amounts in thousands)


	2008			2007			2006			2009			2008			2007
Cash flows from operating activities
Net income (loss)	$	(5,360	)	$	24,374		$	21,262		$	(150,694	)	$	(5,360	)	$	24,374
Adjustments to reconcile net income to net cash provided from operating activities
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Provision for loan losses		52,810			14,483			5,507			50,246			52,810			14,483
Impairment of goodwill											143,389			—			—
Depreciation and amortization		7,030			5,786			4,143			7,117			7,030			5,786
Security amortization and accretion, net		(983	)		(637	)		(42	)		73			(983	)		(637	)
Write down of investment for impairment		174			—			—
Write down of investments and other securities for impairment											1,272			174			—
(Gain) loss on sale of securities		(2,661	)		41			8			(1,415	)		(2,661	)		41
FHLB stock dividends		(464	)		—			(341	)		—			(464	)		—
Net gain on sale of mortgage loans		(573	)		(1,205	)		(869	)		(264	)		(573	)		(1,205	)
Originations of mortgage loans held for sale		(49,501	)		(74,994	)		(66,964	)		(43,879	)		(49,501	)		(74,994	)
Proceeds from sales of mortgage loans		51,962			84,282			68,747			43,050			51,962			84,282
Increase in cash surrender value of life insurance		(1,073	)		(938	)		(761	)		(1,125	)		(1,073	)		(938	)
Net losses from sales of fixed assets		665			86			1
Gain from settlement of life insurance											(305	)		—			—
Net (gains) losses from sales of fixed assets											(85	)		665			86
Stock-based compensation expense		759			472			354			686			759			472
Net (gain) loss on OREO and repossessed assets		7,028			(76	)		(69	)		8,156			7,028			(76	)
Deferred tax benefit		(4,374	)		(1,111	)		(499	)		(1,654	)		(4,374	)		(1,111	)
Net changes:
Other assets		78			(6,834	)		(4,534	)		(21,375	)		78			(6,834	)
Accrued interest payable and other liabilities		(10,875	)		10,639			2,472			(3,177	)		(10,875	)		10,639

Net cash provided from operating activities		44,642			54,368			28,415			30,016			44,642			54,368
Cash flows from investing activities
Net change in interest-earning deposits with banks											(11,000	)		—			—
Purchase of securities available for sale		(180,626	)		(30,160	)		(13,936	)		(92,100	)		(180,626	)		(30,160	)
Proceeds from sale of securities available for sale		123,701			2,230			1,979			36,266			123,701			2,230
Proceeds from maturities of securities available for sale		88,711			33,762			23,507			113,440			88,711			33,762
Proceeds from sale of securities held to maturity		—			496			—			—			—			496
Proceeds from maturities of securities held to maturity		645			745			835			30			645			745
Purchase of life insurance		—			—			(652	)
Purchase of FHLB stock		(417	)		(2,304	)		—			—			(417	)		(2,304	)
Net change in loans		27,754			(203,894	)		(167,453	)		99,111			27,754			(203,894	)
Proceeds from settlement of life insurance											691			—			—
Net cash paid in acquisitions		—		��	(24,611	)		—			—			—			(24,611	)
Proceeds from sale of other real estate		20,654			4,080			5,469			11,930			20,654			4,080
Improvements to other real estate		(1,071	)		(32	)		(47	)		(307	)		(1,071	)		(32	)
Proceeds from sale of fixed assets		58			175			48			800			58			175
Premises and equipment expenditures		(5,814	)		(11,143	)		(10,383	)		(3,542	)		(5,814	)		(11,143	)

Net cash provided (used) in investing activities		73,595			(230,656	)		(160,633	)		155,319			73,595			(230,656	)
Cash flows from financing activities
Net change in deposits		197,354			(44,806	)		36,626
Net change in core deposits											270,162			48,589			(205,062	)
Net change in brokered deposits											(370,213	)		148,765			160,256
Net change in federal funds purchased and repurchase agreements		(159,223	)		57,070			24,667			(10,853	)		(159,223	)		57,070
Tax benefit resulting from stock options		5			138			126			—			5			138
Proceeds from FHLB advances and notes payable		20,916			189,500			446,321			—			20,916			189,500
Proceeds from subordinated debentures		—			57,732			—			—			—			57,732
Repayment of FHLB advances and notes payable		(110,258	)		(80,380	)		(373,896	)		(57,350	)		(110,258	)		(80,380	)
Preferred stock dividends paid											(3,232	)		—			—
Common stock dividends paid		(6,779	)		(8,386	)		(6,270	)		(1,713	)		(6,779	)		(8,386	)
Proceeds from issuance of preferred stock		72,278			—			—
Proceeds from issuance of preferred stock and common stock warrants											—			72,278			—
Proceeds from issuance of common stock		111			497			761			—			111			497

Net cash provided from financing activities		14,404			171,365			128,335
Net cash provided (used) in financing activities											(173,199	)		14,404			171,365

Net change in cash and cash equivalents		132,641			(4,923	)		(3,883	)		12,136			132,641			(4,923	)
Cash and cash equivalents, beginning of year		65,717			70,640			74,523			198,358			65,717			70,640

Cash and cash equivalents, end of year	$	198,358		$	65,717		$	70,640		$	210,494		$	198,358		$	65,717

Supplemental disclosures — cash and noncash
Interest paid	$	77,761		$	76,385		$	44,424		$	62,198		$	77,761		$	76,385
Income taxes paid		5,674			17,225			13,154			1,675			5,674			17,225
Loans converted to other real estate		37,991			7,955			5,095			75,545			37,991			7,955
Unrealized (loss) gain on available for sale securities, net of tax		(1,905	)		1,636			241
Unrealized gain (loss) on available for sale securities, net of tax											852			(1,905	)		1,636
Fair value of assets acquired		—			1,011,590			—			—			—			1,011,590
Fair value of liabilities assumed		—			847,322			—			—			—			847,322

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include the accounts of Green Bankshares, Inc. (the “Company”) and its wholly owned subsidiary, GreenBank (the “Bank”), and the Bank’s wholly owned subsidiaries, Superior Financial Services, Inc., GCB Acceptance Corp., Inc., and Fairway Title Company, Inc. All significant inter-company balances and transactions have been eliminated in consolidation.

Nature of Operations: The Company primarily provides financial services through its offices in Eastern, Middle and Southeastern Tennessee, Western North Carolina and Southwestern Virginia. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses and fair values of financial instruments are particularly subject to change.

Cash Flows: Cash and cash equivalents, includes cash, deposits with other financial institutions under 90 days, and federal funds sold. Net cash flows are reported for loan, deposit and other borrowing transactions.

Securities: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in accumulated other comprehensive income.

Interest income includes amortization of purchase premium or discount and is recognized based upon the ~~straight-line~~level-yield method. Gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value when a decline in fair value is other than temporary.

Investments in Equity Securities Carried at Cost: Investment in Federal Home Loan Bank (“FHLB”) stock, which is carried at cost because it can only be redeemed at par, is a required investment based on the Bank’s amount of borrowing. The Bank also carries certain other equity investments at cost, which approximates fair value. During 2009, the Bank recognized complete impairment on two of these investments totaling $296.

Loans: Loans are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs.

Interest income is reported on the interest method over the loan term. Loan origination fees, net of certain direct originations costs, are deferred and recognized in interest income using the level-yield method. Interest income includes amortization of purchase premiums or discounts on loans purchased. Premiums and discounts are amortized on the level yield-method. Interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well secured and in process of collection. Most consumer loans are charged off no later than 120 days past due. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is doubtful. Interest accrued but not collected is reversed against interest income when a loan is placed on nonaccrual status.

(Continued)

5155

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Interest received is recognized on the cash basis or cost recovery method until qualifying for return to accrual status. Accrual is resumed when all contractually due payments are brought current and future payments are reasonably assured.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, known and inherent risks in the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Loan losses are charged against the allowance when management believes the uncollectibility of a loan is confirmed.

The Bank uses several factors in determining if a loan is impaired. The internal asset classification procedures include a thorough review of significant loans and lending relationships and include the accumulation of related data. This data includes loan payment and collateral status, borrowers’ financial data and borrowers’ operating factors such as cash flows, operating income, liquidity, leverage and loan documentation, and any significant changes. A loan is considered impaired, based on current information and events, if it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Uncollateralized loans are measured for impairment based on the present value of expected future cash flows discounted at the historical effective interest rate, while all collateral-dependent loans are measured for impairment based on the fair value of the collateral. Larger groups of smaller balance, homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at ~~the lower of cost or market~~fair value less estimated cost to sell when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed.

Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed over the asset useful lives on a straight-line basis. Buildings and related components have useful lives ranging from 10 to 40 years, while furniture, fixtures and equipment have useful lives ranging from 3 to 10 years. Leasehold improvements are amortized over the lesser of the life of the asset or lease term.

Mortgage Banking Activities: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market value. The Company controls its interest rate risk with respect to mortgage loans held for sale and loan commitments expected to close by usually entering into agreements to sell loans. The Company records loan commitments related to the origination of mortgage loans held for sale as derivative instruments. The Company’s commitments ~~are~~ for fixed ~~rated~~rate mortgage loans, generally last 60 to 90 days and are at market rates when initiated. The Company had ~~$3,511~~$2,839 in outstanding loan commitment derivatives at December 31, ~~2008.~~2009. The aggregate market value of mortgage loans held for sale takes into account the sales prices of such agreements. The Company also provides currently for any losses on uncovered commitments to lend or sell. The Company sells mortgage loans servicing released.

Bank Owned Life Insurance: The Company has purchased life insurance policies on certain key executives. Company owned life insurance is recorded at its cash surrender value or the amount that can be realized.

(Continued)

5256

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Goodwill, Core Deposit Intangibles and Other Intangible Assets: Goodwill results from prior business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment ~~will be~~is recognized in the period identified. During the second quarter of 2009 the Company identified impairment in its goodwill and took the appropriate actions. This is explained further in“Note 6 — Goodwill and Other Intangible Assets”.

Core deposit intangibles assets arise from whole bank and branch acquisitions. They are initially measured at fair value and then are amortized on a straight line method over their estimated useful lives, which range from seven to 15 years and are determined by an independent consulting firm. Core deposit intangible assets ~~will be~~are assessed at least annually for impairment and any such impairment ~~will be~~is recognized in the period identified.

Other intangible assets consist of mortgage servicing rights (“MSR’s”). MSR’s represent the cost of acquiring the rights to service mortgage ~~loans and the Company does not intend to further pursue this line of business.~~loans. MSR’s are amortized based on the principal reduction of the underlying loans. The Company is obligated to service the unpaid principal balances of these loans, which was approximately $43 and $55 million as of December 31, ~~2008.~~2009 and 2008, respectively. The Company pays a third party subcontractor to perform servicing and escrow functions with respect to loans sold with retained servicing. MSR’s ~~will be~~are assessed at least annually for impairment. The Company does not intend to further pursue this line of business.

Long-term Assets: Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Repurchase Agreements: All repurchase agreement liabilities represent secured borrowings from existing Bank customers and are not covered by federal deposit insurance.

Benefit Plans: Retirement plan expense is the amount contributed to the plan as determined by Board decision. Deferred compensation expense is recognized during the year the benefit is earned.

Stock Compensation: Compensation cost for stock-based payments is measured based on the fair value of the award, which most commonly includes restricted stock (i.e., unvested common stock), stock options, and stock ~~options,~~appreciation rights at the grant date and is recognized in the consolidated financial statements on a straight-line basis over the requisite service period for service-based awards. The fair value of restricted stock is determined based on the price of ~~GreenBank’s~~the Company’s common stock on the date of grant. The fair value of stock options is estimated at the date of grant using a Black-Scholes option pricing model and related assumptions.

~~(Continued)~~

~~GREEN BANKSHARES, INC.~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Amounts in thousands, except share and per share data)~~
~~December 31, 2008, 2007 and 2006~~

~~NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~~~(Continued)~~

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Loan Commitments and Related Financial Instruments: Financial instruments include credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. Instruments such as standby letters of credit are considered financial guarantees in accordance with ~~Financial Accounting Standards Board (“FASB”) Interpretation No. 45.~~applicable accounting standards. The fair value of these financial guarantees is not material.

(Continued)

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 and 2007

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Earnings Per Common Share: Basic earnings per common share are net income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings available to common shareholders per common share includes the dilutive effect of additional potential common shares issuable under stock options, unvested restricted stock awards and stock warrants associated with the U.S. Treasury Capital Purchase Program.

Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale which are also recognized as a separate component of equity. Comprehensive income is presented in the consolidated statements of changes in shareholders’ equity.

Recent Accounting Pronouncements: FASB ASC 820 — In ~~November 2007,~~April 2009, the ~~Securities and Exchange Commission (“SEC”)~~FASB issued ~~Staff Accounting Bulletin No. 109, “Written Loan Commitments Recorded at~~new guidance impacting FASB ASC 820, Fair Value ~~Through Earnings” (“SAB 109”). SAB 109 expresses~~Measurements and Disclosures. This provides additional guidance on determining fair value when the ~~current view~~volume and level of activity for the asset or liability has significantly decreased and guidance for identifying transactions that are not orderly. This standard affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. This standard further requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the ~~staff that~~evidence. It also amended previous standards to expand certain disclosure requirements. The standard was effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. This standard became effective for the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. SEC registrants are expected to apply the views in Question 1 of SAB 109Company on ~~a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December~~June 15, ~~2007. The implementation of this guidance~~2009 and did not have a ~~material~~significant impact on the Company’s ~~consolidated~~ financial statements.

FASB ASC 320-10 — In ~~December 2007,~~April 2009, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ~~SFAS No. 141(R),~~~~“Business Combinations”~~new guidance impacting FASB ASC 320-10, Investments — Debt and ~~SFAS No. 160, “Accounting~~Equity Securities. The guidance (i) changed existing guidance for determining whether an impairment is other than temporary to debt securities and ~~Reporting~~(ii) replaced the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of ~~Noncontrolling Interest~~its cost basis. Under these standards, declines in ~~Consolidated Financial Statements, an amendment~~the fair value of ~~ARB No. 51”. These new standards will significantly change the accounting for~~held-to-maturity and ~~reporting of business combination transactions and noncontrolling (minority) interests in consolidated financial statements. SFAS Nos. 141(R) and 160~~available-for-sale securities below their cost that are ~~required~~deemed to be ~~adopted simultaneously~~other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. These standards were effective for interim and ~~are~~annual periods ending after June 15, 2009 and became effective for the ~~first annual reporting period beginning~~Company on ~~or after December~~June 15, ~~2008. Earlier adoption is prohibited. We are currently evaluating the impact of adopting SFAS Nos. 141(R)~~2009 and ~~160 on our consolidated financial statements.~~

In December 2007, the FASB issued SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, Implementation Issue No. E23, “Hedging — General: Issues Involving the Application of the Shortcut Method under Paragraph 68” (“Issue E23”). Issue E23 amends SFAS No. 133 to explicitly permit use of the shortcut method for hedging relationships in which interest rate swaps have nonzero fair value at the inception of the hedging relationship, provided certain conditions are met. Issue E23 was effective for hedging relationships designated on or after January 1, 2008. The implementation of this guidance did not have a ~~material~~significant impact on ~~our consolidated~~the Company’s financial statements.

FASB ASC 825 — In April 2009, the FASB issued new guidance impacting FASB ASC 825-10-50, Financial Instruments. This guidance requires an entity to provide disclosures about fair value of financial instruments in interim financial information at interim reporting periods. Under these standards, a publicly traded company shall include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. In addition, entities must disclose, in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods, the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position. The new interim disclosures were included in the Company’s interim financial statements beginning the second quarter, June 30, 2009.

(Continued)

5458

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

FASB ASC 855 — In ~~March 2008,~~May 2009, the FASB issued ~~SFAS No. 161, “Disclosures about Derivative Instruments~~FASB ASC 855, Subsequent Events. Under this standard, companies are required to evaluate events and ~~Hedging Activities — an amendment~~transactions that occur after the balance sheet date but before the date the financial statements are issued, or available to be issued in the case of ~~FASB Statement No. 133”. SFAS No. 161 expands quarterly disclosure requirements~~non-public entities. This standard requires entities to recognize in ~~SFAS No. 133 about an entity’s derivative instruments and hedging activities. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. The Company is currently assessing~~the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process. Entities shall not recognize the impact of ~~SFAS No. 161~~events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. The standard also requires entities to disclose the date through which subsequent events have been evaluated. This standard was effective for interim and annual reporting periods ending after June 15, 2009. The Company reviewed events for inclusion in the financial statements through February 25, 2010, the date that the accompanying financial statements were issued. The Company adopted the provisions of the standard for the quarter ended June 30, 2009, as required, and this adoption did not have a material impact on ~~its consolidated~~the financial ~~position and results of operations.~~statements taken as a whole.

FASB ASC 105-10 — In ~~April 2008,~~June 2009, the FASB issued ~~FSP No. FAS 142-3, “Determination~~FASB ASC 105-10, Generally Accepted Accounting Principles. This guidance establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the ~~Useful Life~~FASB to be applied by nongovernmental entities in the preparation of ~~Intangible Assets.” This FSP amends the factors that should be considered~~financial statements in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The objective of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R), and otherconformity with U.S. Generally Accepted Accounting ~~Principles (“GAAP”).~~Principles. This ~~FSP applies to~~standard was effective for financial statements issued for interim and annual periods ending after September 15, 2009, for most entities. On the effective date, all ~~intangible assets, whether acquired~~non-SEC accounting and reporting standards were superseded. The Company adopted this standard for the quarterly period ended September 30, 2009, as required, and adoption did not have a material impact on the financial statements taken as a whole.

FASB ASC 810 — In December 2009, the FASB issued FASB ASC 810, Consolidations. This accounting guidance was originally issued in ~~a business combination or otherwise~~June 2009 and ~~shall be~~is now included in ASC 810. The guidance amends the consolidation guidance applicable for variable interest entities. The guidance is effective for financial statements issued for fiscal years ~~beginning after December 15, 2008,~~ and interim periods ~~within those fiscal years~~beginning after November 15, 2009, and ~~applied prospectively to intangible assets acquired after the effective date. Early~~early adoption is prohibited. We ~~have evaluated~~do not anticipate the ~~new statement and have determined that it~~adoption of this standard will ~~not~~ have a significant impact on the ~~determination or reporting of our~~Company’s financial ~~results.~~statements.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the financial statements.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank of ~~$17,762~~$19,245 and ~~$25,632~~$17,762 was required to meet regulatory reserve and clearing requirements at year-end ~~2008~~2009 and ~~2007.~~2008. These balances do not earn interest.

Segments: Internal financial reporting is primarily reported and aggregated in five lines of business: banking, mortgage banking, consumer finance, subprime automobile lending, and title insurance. Banking accounts for ~~95.2%~~93.9% of revenues for ~~2008.~~2009.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Reclassifications: Certain items in prior year financial statements have been reclassified to conform to the ~~2008~~2009 presentation. These reclassifications had no effect on net income or shareholders’ equity as previously reported.

(Continued)

5559

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 2 — SECURITIES

Securities are summarized as follows:


			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Available for Sale
2008
2009
U.S. government agencies	$	98,143	$	685	$	(22	)	$	98,806	$	52,937	$	99	$	(988	)	$	52,048
Obligations of states and political subdivisions		32,641		139		(976	)		31,804
Mortgage-backed		70,915		945		(1,401	)		70,459
States and political subdivisions											31,764		877		(449	)		32,192
Collateralized mortgage obligations											44,018		1,281		(622	)		44,677
Mortgage-backed securities											16,607		291		(6	)		16,892
Trust preferred securities		2,954		—		(461	)		2,493		2,088		—		(173	)		1,915


	$	204,653	$	1,769	$	(2,860	)	$	203,562	$	147,414	$	2,548	$	(2,238	)	$	147,724


2007
2008
U.S. government agencies	$	41,287	$	453	$	(3	)	$	41,737	$	98,143	$	685	$	(22	)	$	98,806
Obligations of states and political subdivisions		34,150		310		(72	)		34,388
Mortgage-backed		154,264		2,044		(137	)		156,171
States and political subdivisions											32,641		139		(976	)		31,804
Collateralized mortgage obligations											68,738		945		(1,310	)		68,373
Mortgage-backed securities											2,177		—		(91	)		2,086
Trust preferred securities		3,094		—		(117	)		2,977		2,954		—		(461	)		2,493


	$	232,795	$	2,807	$	(329	)	$	235,273	$	204,653	$	1,769	$	(2,860	)	$	203,562


Held to Maturity
2008
Obligations of states and political subdivisions	$	404	$	7	$	—		$	411
2009
States and political subdivisions										$	251	$	4	$	—		$	255
Other securities		253		—		(63	)		190		375		8		—			383


	$	657	$	7	$	(63	)	$	601	$	626	$	12	$	—		$	638


2007
Obligations of states and political subdivisions	$	1,049	$	8	$	(1	)	$	1,056
2008
States and political subdivisions										$	404	$	7	$	—		$	411
Other securities		254		—		(30	)		224		253		—		(63	)		190


	$	1,303	$	8	$	(31	)	$	1,280	$	657	$	7	$	(63	)	$	601

Securities in a loss position are evaluated for other-than-temporary impairment, considering such factors as the length of time and the extent to which the market value has been below cost, the credit standing of the issuer, and the Company’s ability and intent to hold the security until its market value recovers. Management does not believe any individual unrealized loss represented other-than-temporary impairment as of December 31, 2008 or 2007. During 2008 the Company recognized a write-down of $174, representing other-than-temporary impairment, related to an equity security held by the Bank.


	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
2009
U. S. government agencies	$	40,959	$	(988	)	$	—	$	—		$	40,959	$	(988	)
States and political subdivisions		2,463		(24	)		3,075		(425	)		5,538		(449	)
Collateralized mortgage obligations		4,997		(32	)		3,222		(590	)		8,219		(622	)
Mortgage-backed securities		2,028		(5	)		11		(1	)		2,039		(6	)
Trust preferred securities		1,783		(122	)		132		(51	)		1,915		(173	)

Total temporarily impaired	$	52,230	$	(1,171	)	$	6,440	$	(1,067	)	$	58,670	$	(2,238	)


2008
U. S. government agencies	$	977	$	(22	)	$	—	$	—		$	977	$	(22	)
States and political subdivisions		18,445		(837	)		643		(139	)		19,088		(976	)
Collateralized mortgage obligations		8,721		(1,310	)		—		—			8,721		(1,310	)
Mortgage-backed securities		640		(24	)		1,446		(67	)		2,086		(91	)
Trust preferred securities		1,210		(14	)		1,284		(447	)		2,494		(461	)
Other securities		—		—			190		(63	)		190		(63	)

Total temporarily impaired	$	29,993	$	(2,207	)	$	3,563	$	(716	)	$	33,556	$	(2,923	)

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 32 — ~~LOANS~~SECURITIES(Continued)

~~Loans at year-end were as follows:~~

2008 2007

Commercial real estate $ 1,430,225 $ 1,549,457
Residential real estate 397,922 398,779
Commercial 315,099 320,264
Consumer 89,733 97,635
Other 4,656 3,871
Unearned interest (14,245 ) (13,630 )

Loans, net of unearned interest $ 2,223,390 $ 2,356,376

Allowance for loan losses $ (48,811 ) $ (34,111 )

~~Activity~~The Company reviews its investment portfolio on a quarterly basis judging each investment for other-than-temporary impairment (“OTTI”). The Company has no intent to sell these securities and more likely than not would not be required to sell these securities. The OTTI analysis focuses on the duration and amount a security is below book value and assesses a calculation for both a credit loss and a non credit loss for each measured security considering the security’s type, performance, underlying collateral, and any current or potential debt rating changes. The OTTI calculation for credit loss is reflected in the ~~allowance~~income statement while the non credit loss is reflected in other comprehensive income.

The Company holds a single issue trust preferred security issued by a privately held bank holding company. Based upon available but limited information we have estimated that the likelihood of collecting the security’s principal and interest payments is approximately 50%. In addition, the bank holding company deferred its interest payments beginning in the second quarter of 2009, and we have placed the security on non-accrual. The Federal Reserve Bank of St. Louis entered into an agreement with the bank holding company on October 22, 2009 which was made public on October 30, 2009. Among other provisions of the regulatory agreement, the bank holding company must strengthen its management of operations, strengthen its credit risk management practices, and submit a capital plan. As of December 31, 2009 no other communications between the bank holding company and the FRB of St. Louis have been made public.

The Company valued the security by projecting estimated cash flows given the assumption of collecting approximately 50% of the security’s principal & interest and then discounting the amount back to the present value using a discount rate of 3.50% plus three month LIBOR. As of December 31, 2009, our best estimate for ~~loan losses~~the three month LIBOR over the next twenty-one years (the remaining life of the security) is 3.55%. The difference in the present value and the carrying value of the security was the OTTI credit portion. Due to the illiquid trust preferred market for private issuers and the absence of a credible pricing source, we calculated a 15% illiquidity premium for the security to calculate the OTTI non credit portion. The security is currently booked at a fair value of $638 at December 31, 2009 and during the year ended December 31, 2009 the Company has recognized a write-down of $778, through non-interest income representing other-than-temporary impairment on the security.

The Company holds a private label class A21 collateralized mortgage obligation that was analyzed with multiple stress scenarios using conservative assumptions for underlying collateral defaults, loss severity, and prepayments. The average principal at risk given the stress scenarios was calculated at 4.7%, and then analyzed using the present value of the future cash flows using the fixed rate of the security of 5.5% as ~~follows:~~the discount rate. The difference in the present value and the carrying value of the security was the OTTI credit portion. The security is currently booked at a fair value of $2,282 at December 31, 2009 and during the year ended December 31, 2009 the Company has recognized a write-down of $179, through non-interest income representing other-than-temporary impairment.

2008 2007 2006

Beginning balance $ 34,111 $ 22,302 $ 19,739
Reserve acquired in acquisition — 9,022 —
Provision for loan losses 52,810 14,483 5,507
Loans charged off (41,269 ) (13,471 ) (4,357 )
Recoveries of loans charged off 3,159 1,775 1,413

Balance, end of year $ 48,811 $ 34,111 $ 22,302

~~Impaired loans were~~The Company holds a private label class 2A1 collateralized mortgage obligation that was analyzed with multiple stress scenarios using conservative assumptions for underlying collateral defaults, loss severity, and prepayments. The average principal at risk given the stress scenarios was calculated at 0.34%, and then analyzed using the present value of the future cash flows using the fixed rate of the security of 5.5% as ~~follows:~~

2008 2007 2006

Loans with no allowance allocated $ 29,602 $ — $ —
Loans with allowance allocated $ 17,613 $ 36,267 $ 5,067
Amount of allowance allocated 2,651 5,440 760
Average impaired loan balance during the year 48,347 16,276 6,897
Interest income not recognized during impairment 619 237 207

~~Interest~~the discount rate. The difference in the present value and the carrying value of the security was the OTTI credit portion. The security is currently booked at a fair value of $940 at December 31, 2009 and during the year ended December 31, 2009 the Company has recognized a write-down of $19, through non-interest income ~~actually recognized on these loans during 2008 and 2007 was $2,135 and $1,977, respectively, and this interest income was not significant during 2006.~~representing other-than-temporary impairment.

(Continued)

5862

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 and 2007

NOTE 3 — LOANS

Loans at year-end were as follows:


	2009			2008

Commercial real estate	$	1,306,398		$	1,430,225
Residential real estate		392,365			397,922
Commercial		274,346			315,099
Consumer		83,382			89,733
Other		2,117			4,656
Unearned interest		(14,801	)		(14,245	)

Loans, net of unearned interest	$	2,043,807		$	2,223,390


Allowance for loan losses	$	(50,161	)	$	(48,811	)

Activity in the allowance for loan losses is as follows:


	2009			2008			2007

Beginning balance	$	48,811		$	34,111		$	22,302
Reserve acquired in acquisition		—			—			9,022
Provision for loan losses		50,246			52,810			14,483
Loans charged off		(54,890	)		(41,269	)		(13,471	)
Recoveries of loans charged off		5,994			3,159			1,775


Balance, end of year	$	50,161		$	48,811		$	34,111

Impaired loans were as follows:


	2009		2008		2007

Loans with no allowance allocated	$	89,292	$	29,602	$	—
Loans with allowance allocated	$	25,946	$	17,613	$	36,267
Amount of allowance allocated		5,737		2,651		5,440
Average impaired loan balance during the year		125,280		48,347		16,276
Interest income not recognized during impairment		558		619		237

Interest income actually recognized on these loans during 2009, 2008 and 2007 was $2,842, $2,135 and ~~2006~~$1,977, respectively.

(Continued)

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 4 — FAIR VALUE DISCLOSURES (continued)~~(Continued)~~

~~Government and agency mortgage-backed debt securities, corporate debt securities, derivative contracts and residential mortgage loans held-for-sale.~~

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices of like or similar securities, if available and these securities are classified as Level 1 or Level 2. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions and are classified as Level 3.

Loans Held for Sale

Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies loans held for sale subjected to nonrecurring fair value adjustments as Level 2.

Impaired Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ~~SFAS No. 114, “Accounting by Creditors for Impairment of a Loan~~”~~(“SFAS 114”).~~GAAP. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, ~~2008,~~2009, substantially all of the total impaired loans were evaluated based on either the fair value of the collateral or its liquidation value. In accordance with ~~SFAS No. 157,~~GAAP, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Other Real Estate

Other real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Gains or losses on sale and any subsequent adjustments to the value are recorded as a component of foreclosed real estate expense. Other real estate is included in Level 3 of the valuation hierarchy.

(Continued)

~~GREEN BANKSHARES, INC.~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Amounts in thousands, except share and per share data)~~
~~December 31, 2008, 2007 and 2006~~

~~NOTE 4 — FAIR VALUE DISCLOSURES~~~~(Continued)~~

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Below is a table that presents information about certain assets and liabilities measured at fair ~~value:~~value at year-end 2009 and 2008:


	December 31, 2008
							Total Carrying
							Amount in
							Statement of		Assets/Liabilities								Total Carrying		Assets/Liabilities
	Fair Value Measurement Using						Financial		Measured at Fair		Fair Value Measurement Using						Amount in		Measured at Fair
Description	Level 1		Level 2		Level 3		Position		Value		Level 1		Level 2		Level 3		Balance Sheet		Value
2009
Securities available for sale
U.S. government agencies											$	—	$	52,048	$	—	$	52,048	$	52,048
States and political subdivisions												—		32,192		—		32,192		32,192
Collateralized mortgage obligations												—		44,677		—		44,677		44,677
Mortgage-backed securities												—		16,892		—		16,892		16,892
Trust preferred securities												—		1,277		638		1,915		1,915

2008
Securities available for sale	$	—	$	203,652	$	—	$	203,652	$	203,652
U.S. government agencies											$	—	$	98,806	$	—	$	98,806	$	98,806
States and political subdivisions												—		31,804		—		31,804		31,804
Collateralized mortgage obligations												—		68,373		—		68,373		68,373
Mortgage-backed securities												—		2,086		—		2,086		2,086
Trust preferred securities												—		2,493		—		2,493		2,493

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 and 2007

NOTE 4 — FAIR VALUE DISCLOSURES (continued)

The following table shows a reconciliation of the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs.


	2009

Beginning balance	$	—
Total gains or (loss) (realized/unrealized)
Included in earnings		(778	)
Included in other comprehensive income		(112	)
Paydowns and maturities		—
Transfers into Level 3		1,528

Ending balance	$	638

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table ~~below.~~below for year-end 2009 and 2008.


	December 31, 2008
							Total Carrying
							Amount in
							Statement of		Assets/Liabilities								Total Carrying		Assets/Liabilities
	Fair Value Measurement Using						Financial		Measured at Fair		Fair Value Measurement Using						Amount in		Measured at Fair
Description	Level 1		Level 2		Level 3		Position		Value		Level 1		Level 2		Level 3		Balance Sheet		Value
2009
Other real estate											$	—	$	—	$	23,508	$	23,508	$	23,508
Impaired loans												—		—		57,914		57,914		57,914

Impaired Loans	$	—	$	—	$	43,364	$	43,364	$	43,364
Total assets at fair value											$	—	$	—	$	81,422	$	81,422	$	81,422


2008
Impaired loans												—		—		43,364		43,364		43,364

Total assets at fair value											$	—	$	—	$	43,364	$	43,364	$	43,364

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 4 — FAIR VALUE DISCLOSURES(Continued)

The carrying value and estimated fair value of the Company’s financial instruments are as follows at year-end ~~2008~~2009 and ~~2007.~~2008.


	2008				2007				2009				2008
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value		Value		Value		Value		Value
Financial assets:
Cash and cash equivalents	$	198,358	$	198,358	$	65,717	$	65,717	$	221,494	$	221,494	$	198,358	$	198,358
Securities available for sale		203,562		203,562		235,273		235,273		147,724		147,724		203,562		203,562
Securities held to maturity		657		601		1,303		1,280		626		638		657		601
Loans held for sale		442		445		2,331		2,355		1,533		1,552		442		445
Loans, net		2,174,579		2,135,732		2,322,265		2,304,194		1,993,646		1,950,684		2,174,579		2,135,732
FHLB, Bankers Bank and other stock		13,030		13,030		12,322		12,322
FHLB and other stock										12,734		12,734		13,030		13,030
Cash surrender value of life insurance		29,539		29,539		28,466		28,466		30,277		30,277		29,539		29,539
Accrued interest receivable		10,808		10,808		13,532		13,532		9,130		9,130		10,808		10,808

Financial liabilities:
Deposit accounts	$	2,184,147	$	2,195,459	$	1,986,793	$	1,985,482	$	2,084,896	$	2,095,611	$	2,184,147	$	2,195,459
Federal funds purchased and repurchase agreements		35,302		35,302		194,525		194,525		24,449		24,449		35,302		35,302
FHLB Advances and notes payable		229,349		232,731		318,690		320,661		171,999		176,602		229,349		232,731
Subordinated debentures		88,662		74,570		88,662		87,599		88,662		70,527		88,662		74,570
Accrued interest payable		6,828		6,828		9,098		9,098		2,561		2,561		6,828		6,828

the duration of time its stock was trading below both book value and tangible book value. As a result of the continued and prolonged decline in the second quarter of the Company’s stock price, compared with the tangible common book value of $11.88 per share at June 30, 2009, the non-cash goodwill impairment charge was deemed appropriate. During the final days of June, the Company’s stock was removed from the Russell 3000 Index based upon the Russell’s market capitalization criteria and on June 25, 2009, 2,286,900 shares of the Company’s stock were traded during market hours as institutional investors rebalanced their positions creating significant downward pressure on the price of the Company’s stock. This event, in conjunction with the adverse trend noted during the quarter in updated real estate valuations, created a triggering event for the revaluation of goodwill impairment at June 30, 2009. The Company undertook a Step 2 analysis of goodwill in accordance with GAAP, based upon the then current market value of the Company’s stock price. The Step 2 analysis indicated that the fair value of the Company was less than the aggregate fair values of assets and liabilities assigned, relative to tangible book value, and determined that the Goodwill Impairment charge of $143,389 was appropriate. The previously described events did not exist at December 31, 2008. As such, the Company did not believe a change ~~in core deposit and other intangible is as follows:~~

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 6 — GOODWILL AND OTHER INTANGIBLE ASSETS~~(Continued)~~(continued)

Other intangibles 2008 2007
Beginning of year $ 696 $ —
Mortgage servicing rights from acquisition during year — 745
Accumulated amortization, beginning of year (49 ) —
Amortization (103 ) (49 )

Accumulated amortization, end of year (152 ) (49 )

End of year $ 593 $ 696

Core deposit and other intangible

The change in core deposit and other intangibles is as follows:


Core deposit intangibles	2009			2008

Gross carrying amount	$	19,796		$	19,796

Accumulated amortization, beginning of year		(8,304	)		(5,805	)
Amortization		(2,499	)		(2,499	)

Accumulated amortization, end of year		(10,803	)		(8,304	)


End of year	$	8,993		$	11,492


Other intangibles	2009			2008

Gross carrying amount	$	745		$	745

Accumulated amortization, beginning of year		(152	)		(49	)
Amortization		(251	)		(103	)

Accumulated amortization, end of year		(403	)		(152	)


End of year	$	342		$	593

Estimated amortization expense for each of the next five years is as follows:

2009 $ 2,599
2010 2,595
2011 2,541
2012 2,411
2013 1,728

Total $ 11,874

~~NOTE 7 — DEPOSITS~~

~~Deposits at year-end were as follows:~~

2008 2007
Noninterest-bearing demand deposits $ 176,685 $ 201,289
Interest-bearing demand deposits 531,983 598,984
Savings deposits 62,230 72,277
Time deposits 1,413,249 1,114,243

Total deposits $ 2,184,147 $ 1,986,793

~~Time deposits of $100 or more were $767,240 and $552,963 at year-end 2008 and 2007, respectively.~~

~~Scheduled maturities of all time deposits for the next five years and thereafter were as follows:~~

2009 $ 1,283,669
2010 102,165
2011 19,669
2012 2,511
2013 1,301
Thereafter 3,934

~~The aggregate amount of deposits of executive officers and directors of the Company and their related interests was approximately $3,480 and $5,018 at year-end 2008 and 2007, respectively.~~


2010	$	2,595
2011		2,541
2012		2,411
2013		1,671
2014		117

Total	$	9,335

(Continued)

6572

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 8 — BORROWINGS(Continued)

In December 2005 CS Trust I issued $13,000 of variable rate trust preferred securities as part of a pooled offering of such securities. CVBG issued $13,403 subordinated debentures to the CS Trust I in exchange for the proceeds of the offering, which debentures represent the sole asset of CS Trust I. The debentures pay interest quarterly at the three-month LIBOR plus 1.54% adjusted quarterly ~~(3.54%~~(1.79% and ~~6.53%~~3.54% at year-end ~~2008~~2009 and ~~2007)~~2008). Subject to the limitations on repurchases resulting from the Company’s participation in the CPP, the Company may redeem the subordinated debentures, in whole or in part, beginning March 2011 at a price of 100% of face value. The subordinated debentures must be redeemed no later than March 2036.

In July 2001 CCS Trust II issued $4,000 of variable rate trust preferred securities as part of a pooled offering of such securities. CVBG issued $4,124 subordinated debentures to the CCS Trust II in exchange for the proceeds of the offering, which debentures represent the sole asset of CCS Trust II. The debentures pay interest quarterly at the three-month LIBOR plus 3.58% adjusted quarterly ~~(7.00%~~(3.86% and ~~8.54%~~7.00% at year-end ~~2008~~2009 and ~~2007)~~2008). Subject to the limitations on repurchases resulting from the Company’s participation in the CPP, ~~as of July 2007~~ the Company may redeem the subordinated debentures, in whole or in part, at a price of 100% of face value. The subordinated debentures must be redeemed no later than July 2031.

In accordance with ~~FASB Interpretation No. 46R,~~ASC 810, GC Trust I, GC Trust II, GB Trust I, CS Trust I and CCS Trust II are not consolidated with the Company. Accordingly, the Company does not report the securities issued by GC Trust I, GC Trust II, GB Trust I, CS Trust I and CCS Trust II as liabilities, and instead reports as liabilities the subordinated debentures issued by the Company and held by each Trust. However, the Company has fully and unconditionally guaranteed the repayment of the variable rate trust preferred securities. These trust preferred securities currently qualify as Tier 1 capital for regulatory capital requirements of the Company.

NOTE 9 — BENEFIT PLANS

The Company has a profit sharing plan which allows employees to contribute from 1% to 20% of their compensation. The Company contributes an additional amount at a discretionary rate established annually by the Board of Directors. Company contributions to the Plan were $409, $1,535 and $1,320 for 2009, 2008 and ~~$999 for 2008,~~ 2007, respectively. Effective July 2009 the Company suspended contributions to the profit sharing plan and ~~2006, respectively.~~will reevaluate re-instating these contributions in the future when economic conditions are more favorable.

Directors have deferred some of their fees for future payment, including interest. The amount accrued for deferred compensation was ~~$2,847~~$2,637 and ~~$2,823~~$2,847 at year-end ~~2008~~2009 and ~~2007.~~2008. Amounts expensed under the Plan were $27, $207 and $330 during 2009, 2008, and ~~$350 during~~2007, respectively. During 2009 the Company modified the annual earning crediting rate formula as follows; The annual crediting rate will be 100% of the annual return on stockholders’ equity with a 4% floor and a 12% ceiling, for the year then ended, on balances in the Plan until the director experiences a separation from services, and, thereafter, at a earnings crediting rate based on 75% of the Company’s return on average stockholders’ equity for the year then ending with a 3% floor and a 9% ceiling. During 2008 ~~2007, and 2006, respectively. The~~the Company ~~uses~~used a formula which ~~provides~~provided an annual earnings crediting rate based on 75% of the annual return on average stockholders’ equity, for the year then ended, on balances in the Plan until the director experiences a separation from service, and, thereafter, at an earnings crediting rate of 56.25% of the Company’s return on average stockholders’ equity for the year then ending. The return on annual shareholders’ equity was negative in 2008 and no earnings were credited for 2008. Also certain officers of the Company are participants under a Supplemental Executive Retirement Plan. The amount accrued for future payments under this Plan was ~~$1,098~~$1,409 and ~~$815~~$1,098 at year-end ~~2008~~2009 and ~~2007,~~2008, respectively. Amounts expensed under the Plan were $312, $283 and $253 during 2009, 2008 and ~~$236 during 2008,~~ 2007, ~~and 2006,~~ respectively. Related to these plans, the Company purchased single premium life insurance contracts on the lives of the related participants. The cash surrender value of these contracts is recorded as an asset of the Company.

(Continued)

6876

~~GREEN BANKSHARES, INC.~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Amounts in thousands, except share and per share data)~~
~~December 31, 2008, 2007 and 2006~~

~~NOTE 10 — INCOME TAXES~~~~(Continued)~~

A reconciliation of the beginning and ending amount of unrecognized income tax benefits for 2007 follows:


	2007

Unrecognized tax benefits at the beginning of the year	$	475
Additional based on tax positions related to current year		—
Additional based on tax positions related to prior years		—
Reduction based on lapse of statute		(400	)
Settlements		(75	)

Unrecognized tax benefits at the end of the year	$	—

The Company had no unrecognized tax benefits related to Federal or State income tax matters as of December 31, 2009 and 2008.

The Company recognizes accrued interest and penalties related to uncertain tax positions in tax expense. At the date of adoption of ~~FIN 48,~~interpretive guidance on accounting for uncertainty in income taxes, the Company had recognized approximately $150 for the payment of interest and penalties.

~~A federal net operating loss of $2.3 million remains in connection with the CVBG acquisition. The carryforward loss will expire in 2026.~~

The Company’s Federal returns are open and subject to examination for the years of ~~2005,~~ 2006, 2007 and ~~2007.~~2008. The Company’s State returns are open and subject to examination for the years of ~~2005,~~ 2006, 2007 and ~~2007.~~2008.

(Continued)

7078

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE ~~12 —~~12- CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS~~(Continued)~~(continued)

Based on the most recent notifications from its regulators, the Bank is well capitalized under the regulatory framework for prompt corrective action. Management believes that as of December 31, ~~2008,~~2009, the Company and the Bank met all capital adequacy requirements to which they are subject and was not aware of any conditions or events that would affect the Bank’s well capitalized status. Actual capital levels and minimum required levels (in millions) were as follows:


									Minimum Amounts to												Minimum Amounts to
									be Well Capitalized												be Well Capitalized
					Minimum Required				Under Prompt								Minimum Required				Under Prompt
					for Capital				Corrective								for Capital				Corrective
	Actual				Adequacy Purposes				Action Provisions				Actual				Adequacy Purposes				Action Provisions
													Actual		Ratio (%)		Actual		Ratio (%)		Actual		Ratio (%)
2009
Total Capital (to Risk Weighted Assets)
Consolidated													$	318.5		14.9	$	171.0		8.0	$	213.8		10.0
Bank														317.4		14.9		170.7		8.0		213.4		10.0
Tier 1 Capital (to Risk Weighted Assets)
Consolidated													$	291.5		13.6	$	85.5		4.0	$	128.3		6.0
Bank														290.4		13.6		85.4		4.0		128.0		6.0
Tier 1 Capital (to Average Assets)
Consolidated													$	291.5		10.7	$	108.6		4.0	$	135.8		5.0
Bank														290.4		10.7		108.6		4.0		135.7		5.0
	Actual		Ratio (%)		Actual		Ratio (%)		Actual		Ratio (%)
2008
Total Capital (to Risk Weighted Assets)
Consolidated	$	344.0		14.9	$	184.8		8.0	$	231.1		10.0	$	344.0		14.9	$	184.8		8.0	$	231.1		10.0
Bank		335.8		14.6		184.4		8.0		230.5		10.0		335.8		14.6		184.4		8.0		230.5		10.0
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	315.0		13.6	$	92.4		4.0	$	138.6		6.0	$	315.0		13.6	$	92.4		4.0	$	138.6		6.0
Bank		306.8		13.3		92.2		4.0		138.3		6.0		306.8		13.3		92.2		4.0		138.3		6.0
Tier 1 Capital (to Average Assets)
Consolidated	$	315.0		11.3	$	111.9		4.0	$	139.9		5.0	$	315.0		11.3	$	111.9		4.0	$	139.9		5.0
Bank		306.8		11.0		111.8		4.0		139.7		5.0		306.8		11.0		111.8		4.0		139.7		5.0

2007
Total Capital (to Risk Weighted Assets)
Consolidated	$	280.2		11.5	$	194.3		8.0	$	242.8		10.0
Bank		270.6		11.1		194.6		8.0		243.3		10.0
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	249.8		10.3	$	97.1		4.0	$	145.7		6.0
Bank		240.1		9.9		97.3		4.0		146.0		6.0
Tier 1 Capital (to Average Assets)
Consolidated	$	249.8		9.0	$	111.1		4.0	$	138.9		5.0
Bank		240.1		8.7		111.0		4.0		138.8		5.0

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE ~~12 —~~12- CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS~~(Continued)~~(continued)

On December 23, 2008, the Company entered into a definitive agreement (the “Agreement”) with the U.S. Treasury to participate in the Capital Purchase Program (“CPP”). Due to the Company’s participation in the CPP, we may not repurchase common shares or trust preferred securities or increase our dividend on our common stock for three years from the date of the Agreement, without the U.S. Treasury’s consent, unless the preferred shares sold to the U.S. Treasury have been redeemed in whole or transferred to a third party which is not an affiliate of the U.S. Treasury.

Pursuant to the Agreement, we sold to the U.S. Treasury 72,280 shares of Series A preferred stock, having a liquidation amount equal to $1,000 per share, with an attached warrant (the “Warrant”) to purchase 635,504 shares of our common stock, par value $2.00 per share, for $17.06 per share.

~~Under the provisions of the American Reinvestment and Recovery Act of 2009 (“ARRA”), the~~The Company is ~~now~~ permitted to redeem the Series A preferred stock at any time, ~~including within the first three years after issuance,~~ without penalty, ~~and without the need to raise new Tier 1 capital pursuant to a Qualified Offering,~~ subject to the U.S. Treasury’s consultation with the Company’s and the Bank’s appropriate regulatory agency.

In general, the Bank may not declare or pay a dividend to the Company in excess of 100% of its net retained profits for the current year combined with its net retained profits for the preceding two calendar years without prior approval of our Regulators. The Bank’s ability to make capital distributions in the future may require regulatory approval and may be restricted by its regulatory authorities. The Bank’s ability to make any such distributions will also depend on its earnings and ability to meet minimum regulatory capital requirements in effect during future periods. These capital adequacy standards may be higher in the future than existing minimum regulatory capital requirements. The FDIC also has the authority to prohibit the payment of dividends by a bank when it determines such payments would constitute an unsafe and unsound banking practice. In addition, income tax considerations may limit the ability of the Bank to make dividend payments in excess of its current and accumulated tax “earnings and profits” (“E&P”). Annual dividend distributions in excess of E&P could result in a tax liability based on the amount of excess earnings distributed and current tax rates.

(Continued)

7381

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 13 — STOCK-BASED COMPENSATION

The Company maintains a 2004 Long-Term Incentive Plan, as amended (the “Plan”), whereby a maximum of 500,000 shares of common stock may be issued to directors and employees of the Company and the Bank. The Plan provides for the issuance of awards in the form of stock options, stock appreciation rights, restricted shares, restricted share units, deferred share units and performance awards. Stock options granted under the Plan are typically granted at exercise prices equal to the fair market value of the Company’s common stock on the date of grant and typically have terms of ten years and vest at an annual rate of 20%. Shares of restricted stock awarded under the Plan have restrictions that expire within the vesting period of the award which range from 12 months to 60 months. At December 31, ~~2008, 219,729~~2009, 163,391 shares remained available for future grant. The compensation cost related to options that has been charged against income for the Plan was approximately $387, $456 ~~$472~~ and ~~$354~~$472 for the years ended December 31, 2009, 2008 ~~2007~~ and ~~2006,~~2007, respectively. The compensation cost related to restricted stock that has been charged against income for the Plan was approximately $299 and $303 for the ~~year~~years ended December 31, ~~2008.~~2009 and 2008, respectively. No restricted stock was issued during ~~2007 or 2006.~~2007. As of December 31, ~~2008,~~2009, there was ~~$905~~$511 of total unrecognized compensation cost related to non-vested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of ~~1.8~~1.4 years.

Stock Options

The fair market value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The Company did not grant any incentive stock options for 2009 or 2008. ~~The Company granted 75,473~~

A summary of stock ~~options during~~option activity under the ~~year~~Plan for the three years ended December 31, 2009, 2008 and 2007 ~~with a fair value of $11.85 for each option.~~is presented below:

The risk-free interest rate is based upon a U.S. Treasury instrument with a life that is similar to the expected life of the option grant. Expected volatility is based upon the historical volatility of the Company’s common stock based upon prior year’s trading history. The expected term of the options is based upon the average life of previously issued stock options. The expected dividend yield is based upon current yield on the date of grant. No post-vesting restrictions exist for these options.

The following table illustrates the assumptions for the Black-Scholes model used in determining the fair value of options granted to employees in the quarter ended March 31, 2007. No options were granted during the other quarters for the year ended December 31, 2007.


	~~2007~~
~~Risk-free interest rate~~		~~4.58~~	%
~~Volatility~~		~~26.92~~	%
~~Expected life~~		~~8 years~~
~~Dividend yield~~		~~1.80~~	%


						Weighted
				Weighted		Average
				Average		Remaining	Aggregate
	Stock			Exercise		Contractual	Intrinsic
	Options			Price		Term	Value
Outstanding at January 1, 2007		425,757		$	23.43
Granted		75,473			35.89
Exercised		(38,530	)		19.22
Forfeited		(10,623	)		29.80


Outstanding at December 31, 2007		452,077		$	25.72
Granted		—			—
Exercised		(9,759	)		12.63
Forfeited		(1,565	)		30.65
Expired		(16,310	)		23.00


Outstanding at December 31, 2008		424,443		$	26.10
Granted		—			—
Exercised		—			—
Forfeited		(1,374	)		32.05
Expired		(33,800	)		25.58


Outstanding at December 31, 2009		389,269		$	26.13	4.7 years	$	—


Options exercisable at December 31, 2009		304,809		$	24.44	4.1 years	$	—

(Continued)

7482

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 13 — STOCK-BASED COMPENSATION(Continued)

~~A summary of stock option activity under the Plan for the three years ended December 31, 2008, 2007 and 2006 is presented below:~~

Weighted
Weighted Average
Average Remaining Aggregate
Stock Exercise Contractual Intrinsic
Options Price Term Value
Outstanding at January 1, 2006 396,910 $ 21.65
Granted 90,261 28.90
Exercised (49,264 ) 18.28
Forfeited (12,150 ) 26.79

Outstanding at December 31, 2006 425,757 $ 23.43
Granted 75,473 35.89
Exercised (38,530 ) 19.22
Forfeited (10,623 ) 29.80

Outstanding at December 31, 2007 452,077 $ 25.72
Granted — —
Exercised (9,759 ) 12.63
Forfeited (1,565 ) 30.65
Expired (16,310 ) 23.00

Outstanding at December 31, 2008 424,443 $ 26.10 5.3 years $ 18

Options exercisable at December 31, 2008 288,643 $ 23.73 4.4 years $ 18

The total aggregate intrinsic value of stock options (which is the amount by which the stock price exceeded the exercise price of the stock options) exercised during the years ended December 31, 2009 and 2008, was $0 and ~~2007, was~~ $16, ~~and $550,~~ respectively. The total fair value of stock options vesting during the years ended December 31, 2009 and 2008 was $450 and ~~2007 was~~ $480, ~~and $322,~~ respectively.

During the year-ended December 31, ~~2008, the amount of cash received from the~~2009, there was no exercise of stock options.

Stock options ~~was $111.~~outstanding at year-end 2009 were as follows:


	Outstanding						Exercisable
			Weighted		Weighted				Weighted		Weighted
			Average		Average				Average		Average
	Number		Remaining		Exercise		Number		Remaining		Exercise
Range of Exercise Prices	Outstanding		Contractual Life		Price		Outstanding		Contractual Life		Price

$12.24 - $15.00		24,142		2.8	$	12.95		24,142		2.8	$	12.95

$15.01 - $20.00		77,698		2.8	$	17.63		77,698		2.8	$	17.63

$20.01 - $25.00		50,635		4.1	$	23.36		50,635		4.1	$	23.36

$25.01 - $30.00		138,085		5.7	$	28.02		96,748		5.6	$	27.86

$30.01 - $36.32		98,709		5.5	$	34.82		55,586		4.2	$	34.00


Total		389,269						304,809

(Continued)

7583

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 13 — STOCK-BASED COMPENSATION(Continued)

~~Stock options outstanding at year-end 2008 were as follows:~~

Outstanding Exercisable
Weighted Weighted
Average Weighted Average Weighted
Remaining Average Remaining Average
Number Contractual Exercise Number Contractual Exercise
Range of Exercise Prices Outstanding Life Price Outstanding Life Price

$12.24 – $15.00 33,142 3.1 $ 13.08 33,142 3.1 $ 13.08

$15.01 – $20.00 77,698 3.8 $ 17.63 77,698 3.8 $ 17.63

$20.01 – $25.00 50,635 5.1 $ 23.36 40,382 5.1 $ 23.36

$25.01 – $30.00 163,675 5.8 $ 28.32 96,066 5.1 $ 28.35

$30.01 – $36.32 99,293 6.5 $ 34.83 41,355 4.2 $ 33.36

Total 424,443 288,643

Restricted Stock

A summary of restricted stock activity under the Plan for the year ended December 31, 2009 and 2008 is presented below. No restricted stock activity occurred for ~~years ending~~the year ended December 31, ~~2007 and 2006, respectively:~~2007.


				Weighted					Weighted
				Average					Average
				Price Per					Price Per
	Shares			Share		Shares			Share
Balance at January 1, 2008		—		$	—		—		$	—
Granted:
Non-employee Directors		7,852			16.56		7,852			16.56
Executive officers & management		62,015			19.20		62,015			19.20
Cancelled:
Non-employee Directors		—			—		—			—
Executive officers & management		(8,960	)		19.44		(8,960	)		19.44

Balance at December 31, 2008							60,907			18.83
Granted:
Non-employee Directors							7,060			7.08
Non-executive officers & management							56,934			7.08
Vested:
Non-employee Directors							(7,852	)		16.56
Executive officers, non-executive officers & management							(10,584	)		19.16
Cancelled:
Non-employee Directors							—			—
Non-executive officers & management							(5,207	)		14.98

Balance at December 31, 2008		60,907		$	18.83
Balance at December 31, 2009							101,258		$	11.74


Weighted-average fair value of nonvested stock awards granted during the year ended December 31,
2009						$	7.08

2008	$	18.83				$	18.93

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 13 — STOCK-BASED COMPENSATION(Continued)

Cash Settled Stock Appreciation Rights

During the ~~year~~years ended December 31, 2009 and 2008 the Company granted cash-settled stock appreciation rights (“SAR’s”) awards to non-employee Directors, executive officers and select employees. During the year ended December 31, 2007 only select employees received SAR’s. Each award, when granted, provides the participant with the right to receive payment in cash, upon exercise of each SAR, for the difference between the appreciation in market value of a specified number of shares of the Company’s Common Stock over the award’s exercise price. The SAR’s vest over the same period as the stock option awards issued and the restricted stock grants and can only be exercised in tandem with the stock option awards or vesting of the restricted stock grants. The per-share exercise price of aan SAR is equal to the closing market price of a share of the Company’s ~~Common Stock~~common stock on the date of grant. For the year ended December 31, 2009 the Company recognized a recovery in expense of $24 and for the year ended December 31, 2008 the Company recognized an expense of $39 related to outstanding awarded SAR’s. As of December 31, ~~2008,~~2009, there was an estimated ~~$76~~$26 of unrecognized compensation cost related to SAR’s. The cost, measured at each reporting period until the award is settled, is expected to be recognized over a weighted average period of ~~2.0~~1.9 years. As of December 31, ~~2008,~~2009, no cash settled SAR’s had been exercised and as such, no share-based liabilities were paid.

A summary of the SAR activity during years ended December 31, ~~2007~~2009, 2008 and ~~2008~~2007 is presented below. ~~No SAR activity occurred for the year ended December 31, 2006.~~


				Weighted						Weighted
				Average						Average
				Price Per						Price Per
	SAR’s			Share			SAR’s			Share
Balance at January 1, 2007		—		$	—			—		$	—
Granted:
Executive officers		19,000			34.63			19,000			34.63


Balance at December 31, 2007		19,000			34.63			19,000			34.63
Granted:						��
Non-employee Directors		7,852			16.56			7,852			16.56
Executive officers & management		62,015			19.20			62,015			19.20
Cancelled:
Cancelled/Expired:
Non-employee Directors		—			—			—			—
Executive officers & management		(8,960	)		19.44			(8,960	)		19.44


Balance at December 31, 2008		79,907		$	22.58			79,907		$	22.58
Granted:
Non-employee Directors								7,060			7.08
Non-executive officers & management								56,934			7.08
Cancelled/Expired:
Non-employee Directors								(7,852	)		16.56
Non-executive officers & management								(15,817	)		17.78


Balance at December 31, 2009								120,232		$	15.36


Weighted-average fair value of cash-settled SAR’s granted during the year ended December 31,
2009							$	7.08

2008	$	18.93					$	18.93

2007	$	34.63					$	34.63

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 14 — EARNINGS PER SHARE

A reconciliation of the numerators and denominators of the earnings per common share and earnings per common share assuming dilution computations are presented below.


	2008			2007		2006		2009			2008			2007
Basic Earnings Per Share

Net income (loss)	$	(5,360	)	$	24,374	$	21,262	$	(150,694	)	$	(5,360	)	$	24,374
Less: preferred stock dividends and accretion of discount on warrants		92			—		—		4,982			92			—

Net income (loss) available to common shareholders	$	(5,452	)	$	24,374	$	21,262	$	(155,676	)	$	(5,452	)	$	24,374


Weighted average common shares outstanding		12,932,576			11,756,699		9,788,004		13,068,407			12,932,576			11,756,699


Basic earnings (loss) per share	$	(0.42	)	$	2.07	$	2.17	$	(11.91	)	$	(0.42	)	$	2.07


Diluted Earnings Per Share

Net income (loss)	$	(5,360	)	$	24,374	$	21,262	$	(150,694	)	$	(5,360	)	$	24,374
Less: preferred stock dividends and accretion of discount on warrants		92			—		—		4,982			92			—

Net income (loss) available to common shareholders	$	(5,452	)	$	24,374	$	21,262	$	(155,676	)	$	(5,452	)	$	24,374


Weighted average common shares outstanding		12,932,576			11,756,699		9,788,004		13,068,407			12,932,576			11,756,699

Add: Dilutive effects of assumed conversions of restricted stock and exercises of stock options		58,214			42,443		145,274
Add: Dilutive effects of assumed conversions of restricted stock and exercises of stock options and warrants									—			58,214			42,443


Weighted average common and dilutive potential common shares outstanding		12,990,790			11,799,142		9,933,278
Weighted average common and dilutive potential common shares outstanding^{(1) (2)}									13,068,407			12,990,790			11,799,142


Diluted earnings (loss) per share	$	(0.42	)	$	2.07	$	2.14
Diluted earnings (loss) per share^{(1) (2)}								$	(11.91	)	$	(0.42	)	$	2.07

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 15 — PARENT COMPANY CONDENSED FINANCIAL STATEMENTS(Continued)

STATEMENTS OF CASH FLOWS
Years ended December 31, 2009, 2008, ~~2007,~~ and ~~2006~~2007


	2008			2007			2006			2009			2008			2007
Operating activities
Net income (loss)	$	(5,360	)	$	24,374		$	21,262		$	(150,694	)	$	(5,360	)	$	24,374
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Undistributed (net income) loss of subsidiaries		14,954			(20,810	)		(17,049	)		151,067			14,954			(20,810	)
Increase in cash surrender value of life insurance		—			—			(8	)
Stock compensation expense		759			472			354			686			759			472
Change in other assets		(1,413	)		(3,871	)		(424	)		1,868			(1,413	)		(3,871	)
Change in liabilities		(14	)		(658	)		878			(412	)		(14	)		(658	)

Net cash provided (used) by operating activities		8,926			(493	)		5,013			2,515			8,926			(493	)

Investing activities
Capital investment in bank subsidiary		(77,278	)		(43,141	)		—			—			(77,278	)		(43,141	)

Net cash used in investing activities		(77,278	)		(43,141	)		—			—			(77,278	)		(43,141	)

Financing activities
Preferred stock dividends paid											(3,232	)		—			—
Common stock dividends paid		(6,779	)		(8,386	)		(6,270	)		(1,713	)		(6,779	)		(8,386	)
Proceeds from issuance of preferred stock		72,278			—			—			—			72,278			—
Proceeds from issuance of common stock		111			497			761			—			111			497
Proceeds from subordinated debentures		—			57,732			—			—			—			57,732
Tax benefit resulting from stock options		5			137			126			—			5			137
Repayment of debt		—			—			(1,800	)

Net cash provided (used in) financing activities		65,615			49,980			(7,183	)		(4,945	)		65,615			49,980


Net change in cash and cash equivalents		(2,737	)		6,346			(2,170	)		(2,430	)		(2,737	)		6,346

Cash and cash equivalents, beginning of year		8,248			1,902			4,072			5,511			8,248			1,902


Cash and cash equivalents, end of year	$	5,511		$	8,248		$	1,902		$	3,081		$	5,511		$	8,248

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 17 — SEGMENT INFORMATION

The Company’s operating segments include banking, mortgage banking, consumer finance, subprime automobile lending and title insurance. The reportable segments are determined by the products and services offered, and internal reporting. Loans, mortgage banking, investments, and deposits provide the revenues in the banking operation, loans and fees provide the revenues in consumer finance and subprime lending and insurance commissions provide revenues for the title insurance company. Consumer finance, subprime automobile lending and title insurance do not meet the quantitative threshold for disclosure on an individual basis, and are therefore shown below in “other”. All operations are domestic.

The accounting policies used are the same as those described in the summary of significant accounting policies. Segment performance is evaluated using net interest income and noninterest income. Income taxes are allocated based on income before income taxes and indirect expenses (includes management fees) are allocated based on time spent for each segment. Transactions among segments are made at fair value. Information reported internally for performance assessment follows.


				Other		Holding						Total
2009	Banking			Segments		Company			Eliminations			Segments
Net interest income	$	74,628		$	8,474	$	(2,577	)	$	—		$	80,525
Provision for loan losses		47,483			2,763		—			—			50,246
Noninterest income		30,258			2,127		180			(987	)		31,578
Noninterest expense		223,989			4,868		1,717			(987	)		229,587
Income tax expense (benefit)		(16,712	)		1,164		(1,488	)		—			(17,036	)

Segment profit (loss)	$	(149,874	)	$	1,806	$	(2,626	)	$	—		$	(150,694	)


Segment assets	$	2,568,926		$	42,251	$	7,962		$	—		$	2,619,139


				Other		Holding						Total
2008	Banking			Segments		Company			Eliminations			Segments
Net interest income	$	91,900		$	7,680	$	(4,555	)	$	—		$	95,025
Provision for loan losses		50,074			2,736		—			—			52,810
Noninterest income		32,012			2,231		241			(870	)		33,614
Noninterest expense		79,548			5,137		2,022			(870	)		85,837
Income tax expense (benefit)		(3,118	)		800		(2,330	)		—			(4,648	)

Segment profit (loss)	$	(2,592	)	$	1,238	$	(4,006	)	$	—		$	(5,360	)


Segment assets	$	2,895,163		$	39,846	$	9,662		$	—		$	2,944,671


			Other		Holding						Total
2007	Banking		Segments		Company			Eliminations			Segments
Net interest income	$	92,562	$	6,604	$	(4,513	)	$	—		$	94,653
Provision for loan losses		12,636		1,847		—			—			14,483
Noninterest income		26,158		2,761		145			(1,386	)		27,678
Noninterest expense		64,548		5,246		920			(1,386	)		69,328
Income tax expense (benefit)		15,350		890		(2,094	)		—			14,146

Segment profit (loss)	$	26,186	$	1,382	$	(3,194	)	$	—		$	24,374


Segment assets	$	2,898,094	$	37,992	$	11,655		$	—		$	2,947,741

Other Holding Total
2006 Banking Segments Company Eliminations Segments
Net interest income $ 67,377 $ 5,681 $ (1,101 ) $ — $ 71,957
Provision for loan losses 4,356 1,151 — — 5,507
Noninterest income 18,815 2,524 334 (895 ) 20,778
Noninterest expense 48,355 4,543 773 (895 ) 52,776
Income tax expense (benefit) 12,927 920 (657 ) — 13,190

Segment profit (loss) $ 20,554 $ 1,591 $ (883 ) $ — $ 21,262

Segment assets $ 1,733,995 $ 34,776 $ 3,883 $ — $ 1,772,654

(Continued)

8290

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 17 — SEGMENT INFORMATION(continued)

Asset Quality Ratios


As of and for the period ended December 31, 2009	Bank			Other			Total

Nonperforming loans as percentage of total loans, net of unearned income		3.69	%		1.50	%		3.70	%
Nonperforming assets as a percentage of total assets		5.04	%		2.02	%		5.07	%
Allowance for loan losses as a percentage of total loans, net of unearned income		2.30	%		8.05	%		2.45	%
Allowance for loan losses as a percentage of nonperforming loans		62.29	%		538.31	%		66.39	%
Net charge-offs to average total loans, net of unearned income		2.15	%		5.88	%		2.25	%


As of and for the period ended December 31, 2008	Bank			Other			Total

Nonperforming loans as percentage of total loans, net of unearned income		1.38	%		2.48	%		1.41	%
Nonperforming assets as a percentage of total assets		2.58	%		2.57	%		2.61	%
Allowance for loan losses as a percentage of total loans, net of unearned income		2.06	%		8.27	%		2.20	%
Allowance for loan losses as a percentage of nonperforming loans		149.59	%		333.81	%		155.28	%
Net charge-offs to average total loans, net of unearned income		1.53	%		6.42	%		1.63	%

As of and for the period ended December 31, 2007 Bank Other Total
Nonperforming 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 %

~~NOTE 18 — SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)~~

~~Presented below is a summary of the consolidated quarterly financial data:~~

For the three months ended
Summary of Operations 3/31/08 6/30/08 9/30/08 12/31/08

Net interest income $ 24,472 $ 25,044 $ 24,384 $ 21,125
Provision for loan losses 888 11,019 8,620 32,283
Noninterest income 7,306 8,112 8,010 10,186
Noninterest expense 19,561 20,140 21,944 24,192
Net income (loss) 7,178 1,462 1,234 (15,234 )

Basic earnings per share 0.56 0.11 0.10 (1.18 )
Diluted earning per share 0.56 0.11 0.10 (1.18 )
Dividends per common share 0.13 0.13 0.13 0.13
Average common shares outstanding 12,931,169 12,931,669 12,931,774 12,935,665
Average common shares outstanding — diluted 12,931,169 12,958,439 12,947,618 12,998,685

For the three months ended
Summary of Operations 3/31/07 6/30/07 9/30/07 12/31/07

Net interest income $ 18,821 $ 22,933 $ 27,293 $ 25,606
Provision for loan losses 974 1,259 1,444 10,806
Noninterest income 5,399 6,483 7,688 8,108
Noninterest expense 14,042 16,709 19,010 19,567
Net income 5,616 7,086 8,914 2,758

Basic earnings per share 0.57 0.63 0.69 0.21
Diluted earning per share 0.57 0.62 0.69 0.21
Dividends per common share 0.13 0.13 0.13 0.29
Average common shares outstanding 9,815,452 11,321,822 12,921,240 12,926,673
Average common shares outstanding — diluted 9,910,315 11,395,518 13,008,733 12,962,869

(Continued)

8391

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 ~~2007~~ and ~~2006~~2007

NOTE 18 — SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Presented below is a summary of the consolidated quarterly financial data:


	For the three months ended
Summary of Operations	3/31/09		6/30/09			9/30/09			12/31/09

Net interest income	$	19,429	$	20,180		$	20,338		$	20,578
Provision for loan losses		985		24,384			18,475			6,402
Noninterest income		6,943		7,541			9,189			8,134
Noninterest expense		17,831		169,143			22,365			20,477
Income tax expense (benefit)		2,776		(15,656	)		(4,815	)		659

Net income (loss)	$	4,780	$	(150,150	)	$	(6,498	)	$	1,174

Net income (loss) available to common shareholders	$	3,548	$	(151,400	)	$	(7,748	)	$	(76	)

Comprehensive income	$	5,668	$	(150,557	)	$	(5,073	)	$	120


Basic earnings (loss) per share	$	0.27	$	(11.58	)	$	(0.59	)		(0.01	)

Diluted earnings (loss) per share	$	0.27	$	(11.58	)	$	(0.59	)		(0.01	)

Dividends per common share	$	0.13	$	0.00		$	0.00		$	0.00
Average common shares outstanding		13,062,881		13,070,216			13,070,216			13,070,216
Average common shares outstanding — diluted		13,141,840		13,070,216			13,070,216			13,070,216


	For the three months ended
Summary of Operations	3/31/08		6/30/08			9/30/08		12/31/08

Net interest income	$	24,472	$	25,044		$	24,384	$	21,125
Provision for loan losses		888		11,019			8,620		32,283
Noninterest income		7,306		8,112			8,010		10,186
Noninterest expense		19,561		20,140			21,944		24,192
Income tax expense (benefit)		4,151		535			596		(9,930	)

Net income (loss)	$	7,178	$	1,462		$	1,234	$	(15,234	)

Net income (loss) available to common shareholders	$	7,178	$	1,462		$	1,234	$	(15,326	)

Comprehensive income	$	9,186	$	(2,255	)	$	1,547	$	(16,008	)


Basic earnings (loss) per share	$	0.56	$	0.11		$	0.10	$	(1.18	)

Diluted earnings (loss) per share	$	0.56	$	0.11		$	0.10	$	(1.18	)

Dividends per common share	$	0.13	$	0.13		$	0.13	$	0.13
Average common shares outstanding		12,931,169		12,931,669			12,931,774		12,935,665
Average common shares outstanding — diluted		12,931,169		12,958,439			12,947,618		12,998,685

(Continued)

GREEN BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
December 31, 2009, 2008 and 2007

NOTE 19 — BUSINESS COMBINATION

On May 18, 2007, the Company acquired CVBG, parent of Cumberland Bank. CVBG, headquartered in Franklin, Tennessee, which operated 12 full-service branches in the middle Tennessee area. The primary reason for the acquisition of CVBG, and the premium paid, was to provide accelerated entry for the Company in the Middle Tennessee area in some of the fastest growing areas in the Nashville MSA. Operating results of CVBG are included in the consolidated financial statements since the date of the acquisition.

The acquisition was accounted for under the purchase method of accounting, and accordingly, the purchase price has been allocated to the tangible and identified intangible assets purchased and the liabilities assumed based upon preliminary estimated fair values at the date of acquisition. The aggregate purchase price was $164,268, including $45,793 paid in cash and 3,091,495 shares of the Company’s common stock. The allocation of the purchase price is subject to changes in the estimated fair values of assets acquired and liabilities assumed. Identified intangible assets and purchase accounting fair value adjustments are being amortized under various methods over the expected lives of the corresponding assets and liabilities. Goodwill will not be amortized and is not deductible for tax purposes, but will be reviewed for impairment on an annual basis. Currently, identified intangible assets from the acquisition subject to amortization are $9,485 and total goodwill from the acquisition is $112,062. The goodwill has subsequently been written-off as of June 30, 2009.

The following table summarizes the fair value of assets acquired and liabilities assumed at the date of acquisition.


Cash and due from banks	$	21,182
Securities		200,081
FHLB stock		2,863
Bankers Bank stock		100
Loans held for sale		8,642
Loans, net of unearned income		631,496
Allowance for loan losses		(9,022	)
Premises and equipment		18,332
Goodwill		112,062
Core deposit intangible		8,740
Mortgage servicing rights		745
Other assets		16,369

Total assets acquired		1,011,590
Deposits		(699,089	)
Federal funds purchased		(52,500	)
Repurchase agreements		(42,790	)
FHLB advances		(32,000	)
Subordinated debentures		(17,527	)
Other liabilities		(3,416	)

Total liabilities assumed		(847,322	)

Net assets acquired	$	164,268

The Company also incurred $761 in direct costs that were capitalized into goodwill associated with the merger for legal, advisory and conversion costs.

(Continued)

8493

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by it in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective for the purpose set forth in the definition thereof in Exchange Act Rule 13a-15(e).

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended December 31, ~~2008~~2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15f).

Management Report on Internal Control Over Financial Reporting

The report of the Company’s management on the effectiveness of the Company’s internal control over financial reporting is set forth on page 4448 of this Annual Report on Form 10-K. The attestation of the Company’s independent registered public accounting firm related to the Company’s internal control over financial reporting is set forth on page 4549 of this Annual Report on Form 10-K.

ITEM 9B. OTHER INFORMATION.

None.

8695

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this item is incorporated herein by reference to the sections captioned “Proposal 1 –— Election of Directors”; “Corporate Governance –— Section 16(a) Beneficial Ownership Reporting Compliance”; “Corporate Governance –— Code of Conduct”; “Corporate Governance –— Meetings and Committees of the Board”; and “Executive Officers of Green Bankshares” in the Company’s definitive Proxy Statement for the ~~2009~~2010 Annual Meeting of Shareholders (“Proxy Statement”).

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this item is incorporated herein by reference to the section captioned “Executive Compensation” of the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

(a)		Security Ownership of Certain Beneficial ~~Owners~~ Owners.

		Information required by this item is incorporated herein by reference to the section captioned “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.

(b)		Security Ownership of ~~Management~~ Management.

		Information required by this item is incorporated herein by reference to the section captioned “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.

(c)		Changes in ~~Control~~ Control.

		Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.

(d)		Equity Compensation Plan ~~Information~~ Information.

		The following table sets forth certain information with respect to securities to be issued under the Company’s equity compensation plans as of December 31, ~~2008.~~2009.

(c)

(a)

(b)

Number of securities

(a)

(b)

Number of securities

Weighted-average

remaining available for

Number of securities

Weighted-average

remaining available for

to be issued upon

exercise price of

future issuance under

to be issued upon

exercise price of

future issuance under

exercise of

outstanding

equity compensation plans

exercise of

outstanding

equity compensation plans

outstanding options,

options, warrants

(excluding securities

outstanding options,

options, warrants

(excluding securities

Plan Category

warrants and rights

and rights

reflected in column (a))

warrants and rights

and rights

reflected in column (a))

Equity compensation plans approved by security holders

379,443

27.33

219,729

353,269

27.13

163,391

Equity compensation plans not approved by security holders

45,000

15.75

36,000

16.33

Total

424,443

26.10

219,729

389,269

26.13

163,391


10.3		Employment Agreement between the Company and Ronald E. Mayberry — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.*

10.4		Non-competition Agreement between the Company and R. Stan Puckett — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.*

10.5		Non-competition Agreement between the Company and Kenneth R. Vaught — incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.*

10.6	~~Non-competition Agreement between the Company~~	Green Bankshares, Inc. Amended and ~~R. Stan Puckett~~Restated 2004 Long-Term Incentive Plan. — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2003.~~2008.*

10.7	Non-competition Agreement between the Company and Kenneth R. Vaught — incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.*

~~10.8~~	Green Bankshares, Inc. Amended and Restated 2004 Long-Term Incentive Plan.*

~~10.9~~	Greene County Bancshares, Inc. Amended and Restated Deferred Compensation Plan for Non-employee Directors — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on December 17, 2004.*

~~10.10~~10.8		Form of Stock Option Award Agreement — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*

~~10.11~~10.9		Deferred Fee Agreement between the Bank and John Tolsma dated December 13, 2004 —- - incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*

~~10.12~~10.10		Amendment and Restatement of the Greene County Bank Deferred Compensation Agreements dated March 11, 1997, March 1, 1999 and November 15, 2004 between the Bank and Philip M. Bachman dated March 11, 2005 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*

~~10.13~~10.11		Amendment and Restatement of the Greene County Bank Deferred Compensation Agreement dated March 1, 1999 between the Bank and W.T. Daniels dated March 11, 2005 —- incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 .*

~~10.14~~10.12		Amendment and Restatement of the Greene County Bank Deferred Compensation Agreement dated March 1, 1999 between the Bank and Terry Leonard dated March 11, 2005 —- incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*

~~10.15~~10.13		Amendment and Restatement of the Greene County Bank Deferred Compensation Agreement dated May 1, 1999 between the Bank and Charles S. Brooks dated March 11, 2005 —- - incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*

~~10.16~~10.14		Amendment and Restatement of the Greene County Bank Deferred Compensation Agreement dated May 1, 1999 between the Bank and Jerald K. Jaynes dated March 11, 2005 —- - incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*


~~10.18~~10.16		Greene County Bank Executive Deferred Compensation Agreement between the Bank and R. Stan Puckett dated March 11, 2005 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*

~~10.19~~10.17		Greene County Bank Executive Deferred Compensation Agreement between the Bank and Kenneth R. Vaught dated March 11, 2005 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 .*

~~10.20~~10.18		Greene County Bank Executive Deferred Compensation Agreement between the Bank and Ronald E. Mayberry dated March 11, 2005 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 .*

~~10.21~~10.19		Greene County Bancshares, Inc. Change in Control Protection Plan — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on October 26, 2004.*

~~10.22~~10.20		Greene County Bancshares, Inc. Change in Control Protection Plan Participation Agreement between the Company and Steve L. Droke — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on October 26, 2004.*

~~10.23~~10.21		Greene County Bancshares, Inc. Change in Control Protection Plan Participation Agreement between the Company and Ronald E. Mayberry — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on October 26, 2004.*

~~10.20~~	Revolving Credit Agreement dated as of August 30, 2005, by and between the Company and SunTrust Bank — incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005.

~~10.21~~	~~Form of Revolving Credit Note — incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005.~~

10.22		Summary of Compensation Arrangement for James E. Adams — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on November 15, 2005.*

10.23		Amended and Restated Deferred Compensation Plan for Nonemployee Directors — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on December 21, 2005.*

10.24		Greene County Bancshares, Inc. Change in Control Protection Plan Participation Agreement between the Company and James E. Adams — incorporated by reference to the Company’s Current Report on Form 8-K filed March 12, 2007.*

10.25		Form of Stock Appreciation Right Award Agreement — incorporated by reference to the Company’s Current Report on Form 8-K filed March 23, 2007.*

10.26		Amended and Restated Trust Agreement of GreenBank Capital Trust I (“GB Trust I”) dated as of May 16, 2007 by and among the Greene County Bancshares, Inc., as Depositor, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee and the Administrative Trustees named therein (the “GB Capital Trust Agreement”) — incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

10.27		Form of Certificate for Common Securities of GB Trust I included as Exhibit B to the GB Capital Trust Agreement — incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.


10.30		Form of Certificate for $57,732,000 Note issued pursuant to the Junior Subordinated Indenture included as Sections 2.1 and 2.2 to the Junior Subordinated Indenture — incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

10.31		Guarantee Agreement dated as of May 16, 2007 between Greene County Bancshares, Inc., as Guarantor and Wilmington Trust Company, as Guarantee Trustee — incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

10.32		Form of Restricted Stock Agreement — incorporated by reference to the Company’s Current Report on Form 8-K filed January 23, 2008.*

10.33		Form of Stock Appreciation Right Agreement — incorporated by reference to the Company’s Current Report on Form 8-K filed February 29, 2008.*

10.34		Letter agreement, dated December 23, 2008, between the Company and the United States Department of Treasury, including Securities Purchase Agreement — Standard Terms with respect to the issuance and sale of the Series A preferred shares and the Warrant — incorporated by reference to the Company’s Current Report on Form 8-K filed December 23, 2008.

10.35	Director and Named Executive Officer Compensation Summary.*

~~10.36~~	Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and R. Stan Puckett dated December 23, 2008.2008 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 .

~~10.37~~10.36		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and Kenneth R. Vaught dated December 23, 2008.2008 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 .

~~10.38~~10.37		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and James E. Adams dated December 23, 2008.2008 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 .

~~10.39~~10.38		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and Steve L. Droke dated December 23, 2008.2008 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 .

~~10.40~~10.39		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and William C. Adams dated December 23, ~~2008.~~2008 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 .*

10.40		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and R. Stan Puckett dated December 3, 2009.*

10.41		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and Kenneth R. Vaught dated December 4, 2009.*

10.42		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and James E. Adams dated December 1, 2009.*

10.43		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and Steve L. Droke December 3, 2009.*

10.44		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and William C. Adams dated December 2, 2009.*

10.45		Greene County Bancshares, Inc. Change in Control Protection Plan Participation Agreement between the Company and William C. ~~Adams.~~Adams — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 .*

100


	31.2			Chief Financial Officer Certification Pursuant to Rule 13a-14(a)/15d-14(a).

	32.1			Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.

	32.2			Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.

	99.1			Certification of Chief Executive Officer under the Capital Purchase Program of the Troubled Assets Relief Program.

	99.2			Certification of Chief Financial Officer under the Capital Purchase Program of the Troubled Assets Relief Program.


*		Management contract or compensatory plan.

The Company is a party to certain agreements entered into in connection with the offering by Greene County Capital Trust I, Greene County Capital Trust II, GreenBank Capital Trust I, Civitas Statutory Trust I and Cumberland Capital Statutory Trust II of an aggregate of $86 million of variable rate trust preferred securities, as more fully described in this Annual Report on Form 10-K. In accordance with Item 601(b)(4)(iii) of Regulation S-K, and because the total amount of the trust preferred securities is not in excess of 10% of the Company’s total assets, the Company has not filed the various documents and agreements associated with certain of these trust preferred securities herewith. The Company has, however, agreed to furnish copies the various documents and agreements associated with the trust preferred securities to the SEC upon request.

	(b)		Exhibits. The exhibits required by Item 601 of Regulation S-K are either filed as part of this Annual Report on Form 10-K or incorporated herein by reference.

	(c)		Financial Statements and Financial Statement Schedules Excluded From Annual Report. There are no financial statements and financial statement schedules which were excluded from the Annual Report pursuant to Rule 14a-3(b)(1) which are required to be included herein.

92101

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	GREEN ~~BANCSHARES,~~BANKSHARES, INC.
Date: ~~March 13, 2009~~February 25, 2010	By:	/s/ R. Stan Puckett
		R. Stan Puckett
		Chairman of the Board and Chief Executive Officer ~~(Duly~~ (Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities ~~indicated~~ and on the dates indicated.


SIGNATURE AND TITLE:		DATE:

/s/ R. Stan Puckett R. Stan Puckett		February 25, 2010
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)		~~March 13, 2009~~

/s/ Kenneth R. Vaught Kenneth R. Vaught		February 25, 2010
President, Chief Operating Officer, and Director		~~March 13, 2009~~

/s/ James E. Adams James E. Adams		February 25, 2010
Executive Vice President, Chief Financial Officer and ~~Assistant~~ Secretary
(Principal Financial and Accounting Officer)		~~March 13, 2009~~

/s/ Ronald E. Mayberry Ronald E. Mayberry		February 25, 2010
Regional President, Sumner County and Director		~~March 13, 2009~~

/s/ Martha M. Bachman Martha Bachman ~~Director~~		~~March 13, 2009~~February 25, 2010
Director

/s/ Bruce Campbell Bruce Campbell ~~Director~~		~~March 13, 2009~~February 25, 2010
Director

/s/ W. T. Daniels W.T. Daniels ~~Director~~		~~March 13, 2009~~February 25, 2010
Director

/s/ Robert K. Leonard Robert K. Leonard ~~Director~~		~~March 13, 2009~~February 25, 2010
Director

/s/ Samuel E. Lynch Samuel E. Lynch ~~Director~~		~~March 13, 2009~~February 25, 2010
Director

/s/ Bill Mooningham Bill Mooningham		February 25, 2010
Director

/s/ John Tolsma John Tolsma ~~Director~~		~~March 13, 2009~~February 25, 2010
Director

/s/ Charles H. Whitfield, Jr. Charles H. Whitfield, Jr. ~~Director~~		~~March 13, 2009~~February 25, 2010
Director

93102

EXHIBIT INDEX


	2.1			Merger Agreement, dated as of January 25, 2007, by and between Greene County Bancshares, Inc. and Civitas Bankgroup, Inc.(~~Pursuant~~ (Pursuant to Item 601(b)(2) of Regulation S-K the schedules and exhibits to this agreement have been omitted from this filing) — incorporated herein by reference to the Company’s Current Report on Form 8-K filed January 26, 2007.

~~3.1~~	3.3			Amended and Restated Charter — incorporated herein by reference to the Company’s Current Report on Form 8-K12G3/A filed on January 22, 2009.

~~3.2~~	3.4			Amended and Restated Bylaws — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on November 20, 2007.

	4.1			Form of Certificate for the Series A Preferred Stock — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on December 23, 2008.

	4.2			Warrant for Purchase of Shares of Common Stock dated December 23, 2008 — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on December 23, 2008.

	10.1			Employment Agreement and Amendment to Employment Agreement between the Company and R. Stan Puckett — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on January 7, 2008.*

	10.2			Employment Agreement between the Company and Kenneth R. Vaught — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on January 7, 2008.*

	10.3			Employment Agreement between the Company and Ronald E. Mayberry — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.*

	10.4			Non-competition Agreement between the Company and R. Stan Puckett — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.*

	10.5			Non-competition Agreement between the Company and Kenneth R. Vaught — incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.*

	10.6		~~Non-competition Agreement between the Company~~	Green Bankshares, Inc. Amended and ~~R. Stan Puckett~~Restated 2004 Long-Term Incentive Plan. — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2003.~~2008.*

~~10.7~~		Non-competition Agreement between the Company and Kenneth R. Vaught — incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.*

~~10.8~~10.7		Green Bankshares, Inc. Amended and Restated 2004 Long-Term Incentive Plan.*

~~10.9~~		Greene County Bancshares, Inc. Amended and Restated Deferred Compensation Plan for Non-employee Directors — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on December 17, 2004.*

~~10.10~~	10.8			Form of Stock Option Award Agreement — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*

~~10.11~~	10.9			Deferred Fee Agreement between the Bank and John Tolsma dated December 13, 2004 - - incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*

~~10.12~~	10.10			Amendment and Restatement of the Greene County Bank Deferred Compensation Agreements dated March 11, 1997, March 1, 1999 and November 15, 2004 between the Bank and Philip M. Bachman dated March 11, 2005 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*

103

~~10.15~~
	10.13		Amendment and Restatement of the Greene County Bank Deferred Compensation Agreement dated May 1, 1999 between the Bank and Charles S. Brooks dated March 11, 2005 —- - incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*

~~10.16~~	10.14		Amendment and Restatement of the Greene County Bank Deferred Compensation Agreement dated May 1, 1999 between the Bank and Jerald K. Jaynes dated March 11, 2005 —- - incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*

~~10.17~~	10.15		Amendment and Restatement of the Greene County Bank Deferred Compensation Agreement dated May 1, 2003 between the Bank and Charles H. Whitfield, Jr. dated March 11, 2005 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 .*

~~10.18~~	10.16		Greene County Bank Executive Deferred Compensation Agreement between the Bank and R. Stan Puckett dated March 11, 2005 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*

~~10.19~~	10.17		Greene County Bank Executive Deferred Compensation Agreement between the Bank and Kenneth R. Vaught dated March 11, 2005 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 .*

~~10.20~~	10.18		Greene County Bank Executive Deferred Compensation Agreement between the Bank and Ronald E. Mayberry dated March 11, 2005 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 .*

~~10.21~~	10.19		Greene County Bancshares, Inc. Change in Control Protection Plan — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on October 26, 2004.*

~~10.22~~	10.20		Greene County Bancshares, Inc. Change in Control Protection Plan Participation Agreement between the Company and Steve L. Droke — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on October 26, 2004.*

~~10.23~~	10.21		Greene County Bancshares, Inc. Change in Control Protection Plan Participation Agreement between the Company and Ronald E. Mayberry — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on October 26, 2004.*

~~10.20~~		Revolving Credit Agreement dated as of August 30, 2005, by and between the Company and SunTrust Bank — incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005.

~~10.21~~10.22		~~Form of Revolving Credit Note — incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005.~~

~~10.22~~		Summary of Compensation Arrangement for James E. Adams — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on November 15, 2005.*

~~10.24~~	10.23		Amended and Restated Deferred Compensation Plan for Nonemployee Directors — incorporated herein by reference to the Company’s Current Report on Form 8-K filed on December 21, 2005.*

	10.24		Greene County Bancshares, Inc. Change in Control Protection Plan Participation Agreement between the Company and James E. Adams — incorporated by reference to the Company’s Current Report on Form 8-K filed March 12, 2007.*

104


	10.28			Form of Certificate for Preferred Securities of GB Trust I included as Exhibit C to the GB Capital Trust Agreement — incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

	10.29			Junior Subordinated Indenture dated as of May 16, 2007 between the Company and Wilmington Trust Company, as Trustee included as Exhibit D to the GB Capital Trust Agreement (the “Junior Subordinated Indenture”) — incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

	10.30			Form of Certificate for $57,732,000 Note issued pursuant to the Junior Subordinated Indenture included as Sections 2.1 and 2.2 to the Junior Subordinated Indenture — incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

	10.31			Guarantee Agreement dated as of May 16, 2007 between Greene County Bancshares, Inc., as Guarantor and Wilmington Trust Company, as Guarantee Trustee — incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

	10.32			Form of Restricted Stock Agreement — incorporated by reference to the Company’s Current Report on Form 8-K filed January 23, 2008.*

	10.33			Form of Stock Appreciation Right Agreement — incorporated by reference to the Company’s Current Report on Form 8-K filed February 29, 2008.*

	10.34			Letter agreement, dated December 23, 2008, between the Company and the United States Department of Treasury, including Securities Purchase Agreement — Standard Terms with respect to the issuance and sale of the Series A preferred shares and the Warrant — incorporated by reference to the Company’s Current Report on Form 8-K filed December 23, 2008.

~~10.35~~		Director and Named Executive Officer Compensation Summary.*

~~10.36~~10.35			Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and R. Stan Puckett dated December 23, 2008.2008 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 .

~~10.37~~	10.36			Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and Kenneth R. Vaught dated December 23, 2008.2008 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 .

~~10.38~~	10.37			Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and James E. Adams dated December 23, 2008.2008 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 .

~~10.39~~	10.38			Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and R. Steve L. Droke dated December 23, 2008.2008 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 .

105



~~10.40~~10.39		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and William C. Adams dated December 23, ~~2008.~~2008 — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 .*

	10.40		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and R. Stan Puckett dated December 3, 2009.*

	10.41		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and Kenneth R. Vaught dated December 4, 2009.*

	10.42		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and James E. Adams dated December 1, 2009.*

	10.43		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and Steve L. Droke December 3, 2009.*

	10.44		Senior Executive Officer Letter Agreement by and between Green Bankshares, Inc. and William C. Adams dated December 2, 2009.*

	10.45		Greene County Bancshares, Inc. Change in Control Protection Plan Participation Agreement between the Company and William C. ~~Adams.~~Adams — incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 .*

	10.46		Director and Named Executive Officer Compensation Summary.*

	11.1		Statement re Computation of Per Share Earnings — incorporated by reference to Note 1314 of the Notes to Consolidated Financial Statements herein.

	21.1		Subsidiaries of the ~~Company~~Company.

	23.1		Consent of Dixon Hughes ~~PLLC~~PLLC.

	31.1		Chief Executive Officer Certification Pursuant to Rule 13a-14(a)/15d-14(a).

	31.2		Chief Financial Officer Certification Pursuant to Rule 13a-14(a)/15d-14(a).

	32.1		Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as ~~Adopted Pursuant~~adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.

	32.2		Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as ~~Adopted Pursuant~~adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.

	99.1		Certification of Chief Executive Officer under the Capital Purchase Program of the Troubled Assets Relief Program.

	99.2		Certification of Chief Financial Officer under the Capital Purchase Program of the Troubled Assets Relief Program.


*		Management ~~contact~~contract or compensatory plan.

96106


	Due in One		Due After One Year		Due After				Due in One		Due After One Year		Due After
	Year or Less		Through Five Years		Five Years		Total		Year or Less		Through Five Years		Five Years		Total

Commercial real estate	$	756,134	$	624,142	$	49,949	$	1,430,225	$	652,945	$	614,115	$	39,338	$	1,306,398
Residential real estate⁽¹⁾		63,299		107,994		220,703		391,996		59,237		91,091		235,548		385,876
Commercial		197,727		106,019		11,353		315,099		189,316		76,552		8,478		274,346
Consumer⁽¹⁾		23,691		54,214		3,509		81,414		22,312		50,161		2,597		75,070
Other		4,303		253		100		4,656		1,754		278		85		2,117

Total	$	1,045,154	$	892,622	$	285,614	$	2,223,390	$	925,564	$	832,197	$	286,046	$	2,043,807


	Fixed Rate		Variable Rate		Total		Fixed Rate		Variable Rate		Total

Commercial real estate	$	482,450	$	191,641	$	674,091	$	484,758	$	168,695	$	653,453
Residential real estate		154,260		174,437		328,697		128,732		197,907		326,639
Commercial		79,149		38,223		117,372		47,638		37,392		85,030
Consumer		57,042		681		57,723		52,059		699		52,758
Other		256		97		353		279		84		363

Total	$	773,157	$	405,079	$	1,178,236	$	713,466	$	404,777	$	1,118,243


	Certificates of		Certificates of
Maturity Period	Deposits		Deposits

Three months or less	$	363,137	$	71,027
Over three through six months.		154,442
Over three through six months				89,071
Over six through twelve months		165,903		166,565
Over twelve months		83,758		68,932

Total	$	767,240	$	395,595

	~~(a)~~		A special meeting of shareholders (the “Special Meeting”) of the Company was held on December 19, 2008. The meeting was held to amend the charter of the Company to authorize a class of blank check preferred stock, consisting of one million (1,000,000) authorized shares.

	~~(c)~~		~~The following sets forth the results of voting on each matter at the Special Meeting:~~


Votes	Votes
For	Against	Abstentions

7,592,229	1,793,519	112,423


				Due After One			Due After Five
	Due in One			Year Through			Years Through			Due
	Year or Less			Five Years			10 Years			After 10 Years			Total

U.S. Government agency obligations — available for sale	$	—		$	930		$	43,763		$	124,365		$	169,058
Obligations of state and political subdivisions — available for sale		155			2,623			17,760			12,103			32,641
Obligations of state and political subdivisions — held to maturity		—			404			—			—			404
Other securities — available for sale		—			—			—			2,954			2,954
Other securities — held to maturity		—			253			—			—			253


Subtotal	$	155		$	4,210		$	61,523		$	139,422		$	205,310

Market value adjustment on available for sale securities		1			25			217			(1,335	)		(1,092	)


Total	$	156		$	4,235		$	61,740		$	138,087		$	204,218


Weighted average yield (a)		5.43	%		6.60	%		5.81	%		5.56	%		5.66	%


ITEM 5.		~~ITEM 5.~~ MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.


							High/Low Sales Price		Closing		Dividends Paid
							During Quarter		Price		Per Share
2009:
First quarter							$	14.71 / 4.51	$	8.80	$	0.13
Second quarter								9.73 / 4.14		4.48		—
Third quarter								6.83 / 3.25		5.00		—
Fourth quarter								5.48 / 3.51		3.55		—

	High/Low Sales Price		Closing		Dividends Paid						$	0.13
	During Quarter		Price		Per Share
2008:
First quarter	$	22.36 / 15.18	$	17.53	$	0.13	$	22.36 / 15.18	$	17.53	$	0.13
Second quarter		21.98 / 13.89		13.89		0.13		21.98 / 13.89		13.89		0.13
Third quarter		25.17 / 11.85		23.29		0.13		25.17 / 11.85		23.29		0.13
Fourth quarter		24.61 / 13.20		13.54		0.13		24.61 / 13.20		13.54		0.13

					$	0.52					$	0.52


2007:
First quarter	$	40.50 / 32.83	$	33.91	$	0.13
Second quarter		35.86 / 31.19		31.26		0.13
Third quarter		38.63 / 29.84		36.45		0.13
Fourth quarter		37.49 / 16.76		19.20		0.29

					$	0.68


¹		Information for the 2007 fiscal year includes the operations of CVBG, with which the Company merged on May 18, 2007.

²		Common shareholders’ equity is shareholders’ equity less preferred ~~stock and common stock warrants.~~stock.

³		Tangible common shareholders’ equity is shareholders’ equity less goodwill, other intangible assets and preferred ~~stock and common stock warrants.~~stock.

⁴		Tangible shareholders’ equity is shareholders’ equity less goodwill and other intangible assets.

⁵		Tangible assets is total assets less goodwill and other intangible assets.

⁶		Net interest margin is the net yield on interest earning assets and is the difference between the Fully Taxable Equivalent yield earned on interest-earning assets less the effective cost of supporting liabilities.

⁷		Please refer to the “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures” section following “Selected Financial Data” for more information, including a reconciliation of this non-GAAP financial measure.


	For the Fiscal Years Ended December 31,
	2009			2008			2007		2006		2005
Total non-interest expense	$	229,587		$	85,837		$	69,252	$	52,708	$	44,340
Goodwill impairment charge		(143,389	)		—			—		—		—

Operating expenses	$	86,198		$	85,837		$	69,252	$	52,708	$	44,340


Net income (loss) available to common shareholders	$	(155,676	)	$	(5,452	)	$	24,374	$	21,262	$	14,163
Goodwill impairment charge, net of tax of $5,975		137,414			—			—		—		—

Net operating income (loss)	$	(18,262	)	$	(5,452	)	$	24,374	$	21,262	$	14,163


Per Diluted Share:
Net income (loss) available to common shareholders	$	(11.91	)	$	(0.42	)	$	2.07	$	2.14	$	1.71
Goodwill impairment charge, net of tax of $5,975		10.51			—			—		—		—

Net operating income (loss)	$	(1.40	)	$	(0.42	)	$	2.07	$	2.14	$	1.71


ITEM 7.		~~ITEM 7~~ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


¹		2009 and 2008 average loan balances exclude nonaccrual loans. 2007 ~~and 2006~~ average loan balances include nonaccrual loans, as they were not material. Interest income collected on nonaccrual loans has been included.

²		Installment loans are stated net of unearned income.

³		The average balance of and the related yield associated with securities available for sale ~~are~~is based on the cost of such securities.

⁴		Fully Taxable Equivalent (“FTE”) at the rate of 35%. The FTE basis adjusts for the tax benefits of income on certain tax-exempt loans and investments using the federal statutory rate of 35% for each period presented. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.


											Present
			Current								Value
			Credit	Book		Fair		Unrealized			Discounted
Description	Cusip#		Rating	Value		Value		Loss			Cash Flow

Collateralized mortgage obligations
Wells Fargo — 2007 — 4 A21		94985RAW2	B3	$	2,820	$	2,281	$	(539	)	$	2,820
Wells Fargo — 2005 — 5 2A1		94982MAE6	Ba1		991		940		(51	)		991

				$	3,811	$	3,221	$	(590	)	$	3,811


Trust preferred securities
PreTSL IV		74040TAD5	Ca	$	183	$	132	$	(51	)	$	184
West Tennessee Bancshares, Inc.		956192AA6	N/A		750		638		(112	)		750

				$	933	$	770	$	(163	)	$	934


Beginning balance of credit losses at January 1, 2009	$	—
Other-than-temporary impairment credit losses		1,678


Ending balance of cumulative credit losses recognized in earnings	$	1,678


¹		Goodwill was adjusted for a correction of a deferred tax asset associated with the CVBG acquisition in 2007.


⁽¹⁾		Net of unearned ~~interest.~~interest


	2008		2007
Noninterest-bearing demand deposits	$	176,685	$	201,289
Interest-bearing demand deposits		531,983		598,984
Savings deposits		62,230		72,277
Time deposits		1,413,249		1,114,243

Total deposits	$	2,184,147	$	1,986,793


¹		Diluted weighted average shares outstanding for 2009 excludes 96,971 shares of unvested restricted stock because they are anti-dilutive and is equal to weighted average common shares outstanding.

²		Stock options and warrants of 1,058,992, 387,121 and 114,115 were excluded from the 2009, 2008 and 2007 diluted earnings per share because their impact was anti-dilutive.


	For the three months ended
Summary of Operations	3/31/07		6/30/07		9/30/07		12/31/07

Net interest income	$	18,821	$	22,933	$	27,293	$	25,606
Provision for loan losses		974		1,259		1,444		10,806
Noninterest income		5,399		6,483		7,688		8,108
Noninterest expense		14,042		16,709		19,010		19,567
Net income		5,616		7,086		8,914		2,758

Basic earnings per share		0.57		0.63		0.69		0.21
Diluted earning per share		0.57		0.62		0.69		0.21
Dividends per common share		0.13		0.13		0.13		0.29
Average common shares outstanding		9,815,452		11,321,822		12,921,240		12,926,673
Average common shares outstanding — diluted		9,910,315		11,395,518		13,008,733		12,962,869


	Year ended				Year ended
	December 31,				December 31,
	2007		2006		2007
Net interest income	$	104,634	$	97,508	$	104,634

Net income	$	27,371	$	27,352	$	27,371


Basic earnings per share	$	2.12	$	2.12	$	2.12

Diluted earnings per share	$	2.11	$	2.10	$	2.11


*		R. Stan Puckett, was the sole participant under this plan, which was a part of Mr. Puckett’s employment agreement. This employment agreement was amended during 2005 to provide that future option grants to the key executive would be made at no less than fair market value on the date of grant in order to comply with Section 409A of the Internal Revenue Code of 1986, as amended.


ITEM 14.		~~ITEM 14.~~ PRINCIPAL ACCOUNTANT FEES AND SERVICES.


ITEM 15.		~~ITEM 15.~~ EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

	1.		Report of Independent Registered Public Accounting Firm.

	2.		Consolidated Balance Sheets — December 31, ~~2008~~2009 and ~~2007.~~2008.

	3.		Consolidated Statements of Income for the Years Ended December 31, 2009, 2008 ~~2007~~ and ~~2006.~~2007.

	4.		Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2009, 2008 ~~2007~~ and ~~2006.~~2007.

	5.		Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 ~~2007~~ and ~~2006.~~2007.

	6.		Notes to Consolidated Financial Statements.


(a)(3)		The following exhibits either are filed as part of this Report or are incorporated herein by reference:


~~10.13~~	10.11	Amendment and Restatement of the Greene County Bank Deferred Compensation Agreement dated March 1, 1999 between the Bank and W.T. Daniels dated March 11, 2005 —- incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 .*

~~10.14~~	10.12	Amendment and Restatement of the Greene County Bank Deferred Compensation Agreement dated March 1, 1999 between the Bank and Terry Leonard dated March 11, 2005 —- incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.*