For the second time in two weeks, Green Bankshares, Inc.'s largest shareholder has written to GreenBank's top leadership to express serious concern about the bank's financial condition, and offer help. (Please see text of letter in related article.)

Prominent Greeneville businessman Scott M. Niswonger, the largest shareholder of Green Bankshares, the holding company for GreenBank, wrote a letter to the holding company board of directors on Oct. 26.

On Monday, exactly two weeks after sending the first letter, he sent the board of directors a follow-up letter in which he repeated his original concerns and his offer of help, but also said he was "surprised and disappointed" at having received no response to the original letter.

Both the Oct. 26 letter and the Nov. 9 letter were marked for hand-delivery to Stan Puckett, chairman and CEO of both Green Bankshares and GreenBank.

It was announced in early September that Puckett would be retiring from those positions as of March 31, 2010.

On Monday night, Green Bankshares released a brief official reply to Niswonger's Oct. 26 letter stating that the holding company's board of directors "has declined to accept an unsolicited proposal, dated Oct. 26, 2009, from Scott Niswonger to invest additional capital."

In the Oct. 26 letter, Niswonger expressed serious concern that the bank might not currently have enough capital to enable it to withstand possible further losses related to the bank's large number of real estate-based loans.

He went on to suggest that the bank board consider substantially increasing the bank's capital assets by selling new common stock.

Specifically, he suggested 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.

He noted in the Oct. 26 letter that "I would like to help the bank through this difficult period by identifying and participating in a material injection of additional capital -- possibly $25-40 million."

Niswonger added that, "As leading stakeholders we have a duty to the shareholders and employees to obtain additional insight into [the bank's real estate-related loan exposure] and the potential impact to the bank.

"I would anticipate a confidential third-party review of the loan portfolio to provide me with that insight prior to making any investment."

He also noted that he was willing "to execute a standard confidentiality agreement before receiving any non-public information."

Niswonger, the founder and CEO of Greeneville-based trucking company Landair, owns 1,309,330 shares of Green Bankshares stock, an amount which totals 9.94 percent of the total common stock of the holding company. The stock is publicly traded on the NASDAQ (GRNB).

His Nov. 9 letter, like the Oct. 26 letter, was filed with the Securities and Exchange Commission as an amendment to SEC Schedule 13D/A.

The Oct. 26 letter was officially included as part of Amendment No. 5 to Schedule 13D/A. The amendment also included the purchase of additional shares of common stock.

The Nov. 9 letter was filed as Amendment No. 6 to Schedule 13D/A, and does not include any additional stock purchase.

The letter sent this week is shorter than the earlier letter, but conveys a noticeably stronger note of intensity.

In the new letter, Niswonger not only expresses his disappointment and surprise at having received no response to the first letter but notes that the decline in the value of the Green Bankshares share price has reduced the value of his own investment to less than a third of its original value, from $18 million to $5 million.

He notes that "I understand that you have resigned, but you have set the effective date for March 31, 2010. While I wish you well in whatever you're going on to next, my concern is with the bank.

"If you are 'done,' should I be communicating with your Lead Director? Related to this, I would like to have input in the selection process for the new CEO."

He also states that "I have been asked if I am trying to buy the bank. Let me assure you that I am not ...

"I have never intended to provide all of the future capital needs. In these times, I can assure you that I am not interested in spending more money unless it is necessary for the health of the bank."

The official response from Green Bankshares, which was posted on the Internet's Business Wire early Monday evening, states:

"Green Bankshares, Inc. (NASDAQ: GRNB), the holding company for GreenBank, today announced that its Board of Directors has declined to accept an unsolicited proposal, dated Oct. 26, 2009, from Scott Niswonger to invest additional capital.

"After reviewing the terms of Mr. Niswonger's proposal and its timing, as well as other relevant factors relating to Green Bankshares' business and operations, the board concluded that it is not in the best interests of Green Bankshares and its shareholders to pursue the proposal.

"Robert K. Leonard, the lead independent director of the board, noted that GreenBank's estimated regulatory capital levels remained strong at Sept. 30, 2009, with Tier 1 Leverage at 10.49 percent, Tier 1 Risk-Based Capital at 13.17 percent, and Total Risk-Based Capital at 14.43 percent, all surpassing regulatory requirements.

"Our board remains committed to improving our business and building value for all of our shareholders,' " Leonard added.

The news release also noted that Green Bankshares has total assets of approximately $2.794 billion.

Leonard -- who has transitioned into the role of spokesman for the bank, Puckett said today -- declined in a brief interview this morning to elaborate on the process through which the bank board analyzed Niswonger's Oct. 26 letter and determined its response.

Leonard also declined comment on whether the board would make any response to the Nov. 9 letter.

He said that the board preferred at this time to let its official filings, such as Monday night's news release, speak for themselves.

Contacted by The Greeneville Sun this morning, Niswonger provided the following brief comment on the bank board's news release concerning his Oct. 26 letter:

"With respect to the board's response, obviously, no one likes to be dismissed without even a meeting or discussion.

"The management and board have access to information that I don't have. My conclusion is that management and the board evaluated my concerns about future loan losses.

"I have to believe that they are satisfied that help is not needed. For all shareholders of GreenBank, this should be good news.

"I continue to hold my shares and hope to realize the potential of my investment."

In his Nov. 9 letter, Niswonger summarizes his reasons for both the original letter and the new letter:

"Should you have any misunderstanding with respect to my prior letter and my concerns," he writes, "I will clarify my position:

"* As the largest shareholder of the bank, I have suffered a significant decrease in the value of my investment. Many smaller shareholders have sustained losses that are even more devastating to them.

"* The primary reason I have made my request for an independent review is my concern that the bank's assessment of the value of its loans is not reliable. For example:

"* In the 4th quarter of 2008, the bank added $32.3 million to loan loss reserves, at which time I believe you made the statement that 'We threw in everything, including the kitchen sink.' However, since the 4th quarter of 2008, the bank has written off or reserved more than $46.7 million.

"* In mid-December, 2008, the bank accepted the government's $72 million 'investment' under the TARP program, but we shareholders were led to believe that the bank did not even need this 'investment.' Since then, the adjustments and write-offs have totaled more than $79 million. This amount is obviously more than the total TARP 'investment.'

"* In its simplest form, I offered to enter into a confidentiality agreement so that we could get a third-party review of the bank's largest loans. The information from this review will tell you and the board whether present reserves and capital are adequate.

"Internal reviews and FDIC audits are important, but it is my understanding that government reviews typically do not include visits to real estate projects the bank has financed.

"Given the area newspaper accounts of our loan problems, I cannot understand why we would not want to have an outside independent review of this critical information as soon as possible."

He concludes:

"In my years of business experience, I have never found a stone-wall approach to be helpful. Too much time has been wasted over issues that are not productive for the future of the bank.

"GreenBank has a 100-plus-year history and plays a major role in our community and the state of Tennessee. We should all put forth our best efforts to help make it a success.

"The bank is too important to our customers, employees and shareholders to do any less.

"To that end, I would ask that the board do the following:

"* direct GreenBank's lead counsel to prepare a confidentiality agreement with the intent of expediting this process; and

* appoint a committee of independent directors, and designate a member of that committee to communicate directly with me.

"I look forward to working with the board in a constructive fashion toward a resolution that will help GreenBank, its community, and its shareholders."

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 an Oct. 23 news article 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."

Puckett said in a written statement Oct. 16 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."

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.

The preferred equity stock shares 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."

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 had not paid a quarterly dividend.

Loan-Related Legal Filings

On Oct. 27, 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.