Bank Stock Shareholders: Beware of Scammers and Inadequate Capital

Here’s a recent post from GreenBank’s website:

October 27, 2009:   Recently several GreenBank customers have received an e-mail appearing to be from the FDIC which is absolutely fraudulent in nature.  GreenBank HAS NOT been named as a “failed bank” by the FDIC.  If you are a recipient of this fraudulent email DO NOT open the link.

I have a feeling that scams like this have been proliferating so that some short sellers can benefit illegally from people’s uncertainty regarding the financial health of their local banks.

Well, not coincidentally, GreenBank stock has not been doing well. Mr. Niswonger, a wealthy individual, has even filed a 13D with the SEC declaring his ownership of 9.94% of outstanding shares. Here is a large excerpt from his well-written letter to the bank’s board of directors:

In this context, 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. 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. However, there are many positive attributes of the Bank which I am convinced make it a viable player in the Tennessee market. I would like to help the Bank through this difficult period by identifying and participating in a material injection of additional capital – possibly $25 to $40 million. With additional capital and a proactive approach to the real estate exposure I believe the Bank can prosper once again given its established deposit franchise and branch network.

While reported results may not indicate a current need for capital, I do not believe that we can dismiss the trends in real estate values and the impact that trend has had to the Bank and its peers. As the recent earnings and guidance from SunTrust demonstrate (reporting a nearly $400 million dollar after tax quarterly loan loss provisions), it is premature for banks to declare a “bottom” for real estate asset values. I fear the Bank’s concentration of real estate lending will result in additional loan write-downs and will have a negative impact on the capital account. As leading stakeholders we have a duty to the shareholders and employees to obtain additional insight into that 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.

An infusion of capital will reduce the Company’s risk profile in these uncertain times, allowing the Bank to reassert itself as one of Tennessee’s leading financial institutions, and improving the lot of all stakeholders and the communities served by the Bank. Additional capital will allow the Bank to execute an organic expansion plan and to make opportunistic acquisitions, steps that will likely improve shareholder value. Many industry experts have opined that the current industry conditions represent a generational opportunity for healthy, well capitalized regional and community banks. Additional capital would permit management and the Board to consider acquisition of failed/failing banks, and take advantage of loss-share transactions that seems compelling. Additionally, I believe more capital will help improve conditions for the Bank employees. Capital should foster growth and growth in turn should foster career opportunities and attract new management candidates as the Bank addresses the announced departure of Mr. Puckett.

Because the Bank’s charter contains a provision that limits the rights of shareholders that acquire in excess of 10% of the outstanding shares without your consent, I am formally asking that you waive these limitations. Waiver of these limitations can be qualified, and is provided for by Tennessee law. Your consent at this stage in no way limits your ability as a Board to negotiate the terms of any future capital infusion, or to consider if a capital infusion is in the best interest of the Bank and all of its shareholders. My hope is that you will consider this proposal as a positive opportunity to advance the Bank’s best interests.