Prominent Greeneville businessman Scott M. Niswonger, the largest shareholder in Green Bankshares, Inc., has asked the bank holding company's directors to consider substantially increasing the bank's capital assets by selling new common stock.

Niswonger suggests that as much as $25-40 million in new common stock be issued as a way of bringing a major infusion of fresh capital to the Bank.

Green Bankshares is the holding company that owns GreenBank, the publicly-held financial institution based in Greeneville. Green Bankshares is the third largest bank holding company in the state based on assets.

Niswonger, who is the founder and CEO of Greeneville-based trucking company Landair, owns 1,309,330 shares of the common stock of Green Bankshares -- 9.94 percent, worth some $1.3 million.

In connection with his most recent stock purchase -- 111,166 shares for $833,647.48 -- he filed this week a Schedule 13D/A form reporting the purchase to the U.S. Securities and Exchange Commission (SEC).

He attached to the form a copy of a letter from him to the board of directors of Green Bankshares. The letter was hand-delivered on Monday.

In the letter, Niswonger explains that he is concerned that the bank might not currently have enough capital to safely withstand possible further losses related to the bank's large number of real estate-based loans.

"I am writing to request that you as a Board consider a proposal to bolster the capital of the Bank and, thereby attempt to resolve any market and regulatory concerns related to future credit deterioration," his letter states.

"Additional capital would also provide an opportunity to position the Bank as a viable candidate for any asset dispositions that may become available as other institutions in our service area are resolved through the regulatory process.

"I am particularly concerned about the underlying and ongoing deterioration in asset quality due to the relative concentration in real estate lending.

"This deterioration, combined with recently announced management changes presents the Bank with a significant challenge going forward."

He went on to say that he believes that creating and selling additional stock -- "possibly $25-40 million"-- would greatly improve the bank's financial strength, reduce its risk profile, and allow it to expand in desirable ways.

He also states that he would expect to participate in purchasing some of the new stock that he asks the board to consider issuing, if a review of the bank's current portfolio by his representative indicated that buying more shares was justified.

In addition, Niswonger asks in the letter that the Bank waive, with qualifications if the Board desires, the provision in the Bank's charter "that limits the rights of shareholders that acquire in excess of 10 percent of the outstanding shares without your consent."

Neither Niswonger nor Stan Puckett, chairman and CEO of both Green Bankshares and GreenBank, was available for comment this morning.

RECENT REPORT OF LOSSES

On Friday, Oct. 16, Green Bankshares reported net losses for both the third quarter and for the nine months that ended Sept. 30.

For the third quarter, a Green Bankshares news release stated, the Greeneville-based banking company announced a net loss of $7.7 million, or 59 cents per diluted share, "reflecting primarily higher credit costs as the company continues its efforts to identify credit quality issues in the loan portfolio."

Analysts surveyed by Thomson Reuters had expected a loss of $.20 per share, according to a news article Friday on the Knoxville News-Sentinel Web site.

For the first nine months of 2009, GreenBank reported a "net operating loss of $18,186,000, or $1.40 per diluted share, excluding the after-tax, non-recurring, non-cash goodwill impairment charge of $137,414,000 recorded in the second quarter of 2009 ...

"This compares with net income of $9,8743,00, or 76 cents per diluted share for the same period a year ago."

Green Bankshares Chairman and CEO Puckett said in a written statement that "Economic conditions remain challenging with high unemployment and weak real estate activity. We will continue to work aggressively to identify and address problem loans."

He also said in the banking company's press release, "Although our third quarter results were disappointing, we are encouraged by the positive economic data that has been released recently and look forward to actively participating in the (economic) recovery when it occurs."

Puckett, 53, announced in early September that he will retire as chairman and CEO of Green Bankshares and GreenBank, on March 31, 2010.

CAPITAL PURCHASE PROGRAM

Green Bankshares, Inc., late last year agreed to participate in the U.S. Treasury Department's Capital Purchase Program.

Under the program, the Treasury Department was to invest $72,278,000 in newly issued preferred equity stock of Green Bankshares.

They carry a 5 percent coupon for five years, and 9 percent thereafter.

Puckett said in late November 2008, "We intend to deploy this capital prudently, using it not only to strengthen our capital base cost effectively, but also to grow customer relationships and expand our banking franchise.

"Participation in this program should enhance our already-strong capital base."

DIVIDEND SUSPENDED

In April 2009, the bank announced that the first quarter had been profitable, a welcome turnaround from the fourth quarter of 2008.

But there was a net loss in the second quarter, and in June, Green Bancshares, Inc., announced that, because of the uncertain economic environment, the bank "has decided to suspend the payment of cash dividends to common shareholders in order to prudently preserve capital levels."

It was the first time in Puckett's two decades at the bank's helm that the bank has not paid a quarterly dividend.

On Tuesday of this week, the Knoxville News-Sentinel reported that Chattanooga developer John "Thunder" Thornton is suing Maryville developer Michael Ross in connection with the failure of Ross's company to complete Rarity Club on Nickajack Lake in Marion County, Tenn.

Ross is president of Rarity Communities, Inc.

The News-Sentinel article noted that "In September, Greeneville-based GreenBank took over most of the unsold portion of Rarity Club after Ross defaulted on more than $15 million of bank loans for the Marion County project."

The Knoxville newspaper also reported today that real estate developer Benji Shuler, brother of North Carolina Congressman and University of Tennessee football great Heath Shuler, had filed for Chapter 7 bankruptcy in the U.S. Bankruptcy Court in Knoxville.

According to Benji Shuler's filing, the News-Sentinel story stated, his creditors include GreenBank, which is listed with claims of $5.4 million.