UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

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

	For the quarterly period ended September 30, 2010

	OR

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

For the Transition Period from _________to_________

Commission File No. 001-16413

FIRST CENTURY BANCORP.

(Exact name of registrant as specified in its charter)

Georgia		58-2554464
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

807 Dorsey Street

Gainesville, Georgia 30501

(Address of principal executive offices)

(770) 297-8060

(Registrant’s telephone number, including area code)

________________________________________________

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. Yes x No ¨

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). Yes ¨ No ¨

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 “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	x
Do not check if smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 8,121,293 shares of common stock, no par value per share, were issued and outstanding as of November 11, 2010.

		Page No.
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements		3

	Consolidated Balance Sheets –
	September 30, 2010 (Unaudited) and December 31, 2009	3

	Consolidated Statements of Operations (Unaudited) –
	Three and Nine Months Ended September 30, 2010 and 2009	5

	Consolidated Statements of Comprehensive Income (Loss) (Unaudited) –
	Three and Nine Months Ended September 30, 2010 and 2009	6

	Consolidated Statement of Changes in Shareholders’ Equity –
	For the Nine Months Ended September 30, 2010 (Unaudited)	7

	Consolidated Statements of Cash Flows (Unaudited) –
	For the Nine Months Ended September 30, 2010 and 2009	8

	Notes to Consolidated Financial Statements (Unaudited)	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

Item 3. Quantitative and Qualitative Disclosures About Market Risk		30

Item 4. Controls and Procedures		30

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		30

Item 1A. Risk Factors		30

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30

Item 3. Defaults upon Senior Securities		30

Item 4. (Removed and Reserved)		30

Item 5. Other Information		30

Item 6. Exhibits		31

	Signatures	32

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST CENTURY BANCORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS
	September 30,
	2010			December 31,
	(Unaudited)			2009

Cash and Cash Equivalents
Cash and Due from Banks	$	3,684,391		$	2,531,126

Investment Securities
Available for Sale, at Fair Value		3,306,196			7,594,425
Held to Maturity, at Cost (Fair Value of $12,938,753, and $18,048,359 as of
September 30, 2010 and December 31, 2009, respectively)		11,977,807			16,794,363

		15,284,003			24,388,788

Other Investments		553,400			400,800

Loans Held for Sale		17,684,983			9,637,123

Loans		34,340,392			36,630,587
Allowance for Loan Losses		(644,722	)		(414,670	)

Loans, Net		33,695,670			36,215,917

Premises and Equipment		2,118,927			2,276,681

Other Real Estate		556,501			653,501

Other Assets		644,147			462,021

Total Assets	$	74,222,022		$	76,565,957

The accompanying notes are an integral part of these consolidated balance sheets.

FIRST CENTURY BANCORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS’ EQUITY

	September 30,
	2010			December 31,
	(Unaudited)			2009

Deposits
Non-interest-Bearing	$	2,950,015		$	3,076,222
Interest-Bearing		58,616,200			66,490,456

Total Deposits		61,566,215			69,566,678

Borrowings		5,500,000			2,000,000

Other Liabilities		683,166			600,370

Total Liabilities		67,749,381			72,167,048

Shareholders’ Equity
Preferred Stock, Non-voting; Non-participating; Variable Rate Cumulative; No Par Value; 10,000,000 Shares Authorized; -0- and 75,000 Shares Issued and Outstanding at September 30, 2010 and December 31, 2009, Respectively; Liquidation Preference of $10 Per Share Plus Accumulated Undeclared Dividends;		-			750,000
Common Stock, No Par Value; 50,000,000 Shares Authorized; 8,121,293 and 4,998,820, Shares Issued at September 30, 2010 and December 31, 2009, Respectively		17,021,823			14,948,028
Accumulated Deficit		(10,620,168	)		(11,031,585	)
Treasury Stock, 670 shares, at cost		(1,005	)		(1,005	)
Accumulated Other Comprehensive Income (Loss)		71,991			(266,529	)

Total Shareholders’ Equity		6,472,641			4,398,909

Total Liabilities and Shareholders’ Equity	$	74,222,022		$	76,565,957

The accompanying notes are an integral part of these consolidated balance sheets.

FIRST CENTURY BANCORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30

(UNAUDITED)

	Three Months Ended					Nine Months Ended
	2010		2009			2010		2009
Interest Income
Loans, Including Fees	$	646,838	$	570,555		$	1,849,485	$	1,736,699
Investments		372,731		634,926			1,368,668		1,937,006
Interest Bearing Deposits		3,230		500			7,700		552
Federal Funds Sold		-		11			-		176

Total Interest Income		1,022,799		1,205,992			3,225,853		3,674,433

Interest Expense
Deposits		245,217		367,800			807,741		1,298,075
Borrowings		14,510		15,468			40,063		48,911
Total Interest Expense		259,727		383,268			847,804		1,346,986

Net Interest Income		763,072		822,724			2,378,049		2,327,447

Provision for Loan Losses		127,880		136,080			438,619		206,080

Net Interest Income After Provision for Loan Losses		635,192		686,644			1,939,430		2,121,367

Non-interest Income
Service Charges and Fees on Deposits		14,906		15,396			56,368		46,737
Gain (Loss) on Sale of Investment Securities, net		-		-			145,602		(37,436	)
Mortgage Banking Income		1,511,062		322,062			3,416,702		1,330,996
Other		4,621		17,323			50,403		17,574

Total Non-interest Income		1,530,589		354,781			3,669,075		1,357,871

Non-interest Expense
Salaries and Employee Benefits		1,046,492		522,278			2,876,554		1,618,167
Occupancy and Equipment		107,229		95,149			346,160		309,624
Professional Fees		98,724		69,952			277,749		207,323
Advertising and Marketing		60,381		76,999			173,714		185,072
Data Processing		173,265		140,162			514,316		387,464
Telephone		20,546		13,167			66,355		37,684
Postage and Delivery Services		17,006		7,110			56,297		18,662
Insurance, Tax, and Regulatory Assessments		83,038		96,160			253,517		188,608
Office Supplies		8,704		7,736			24,586		17,347
Lending Related Expense		159,660		61,632			424,263		247,894
Other Non-interest Expense		39,915		102,928			103,228		182,822

Total Non-interest Expense		1,814,960		1,191,273			5,116,739		3,400,667

Income (Loss) Before Income Taxes		350,821		(149,848	)		491,766		78,571
Provision for Income Taxes		-		-			-		-

Net Income (Loss)	$	350,821	$	(149,848	)	$	491,766	$	78,571

Basic Earnings (Loss) Per Share	$	.04	$	(.03	)	$	.08	$	.02
Fully Diluted Earnings (Loss) Per Share	$	.04	$	(.04	)	$	.08	$	.00

Weighted Average Shares Outstanding		8,039,734		4,998,820			6,107,948		4,658,766

The accompanying notes are an integral part of these consolidated statements of operations.

FIRST CENTURY BANCORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30

(UNAUDITED)

	Three Months Ended					Nine Months Ended
	2010		2009			2010			2009

Net Income (Loss)	$	350,821	$	(149,848	)	$	491,766		$	78,571

Other Comprehensive Income (Loss)
Unrealized Gains (Losses) on Securities Available for Sale Arising During the period		154,393		40,160			484,122			(52,374	)
Reclassification Adjustments for (gains) losses included in net income (loss)		-		-			(145,602	)		37,436

Other comprehensive income (loss)		154,393		40,160			338,520			(14,938	)

Comprehensive Income (Loss)	$	505,214	$	(109,688	)	$	830,286		$	63,633

The accompanying notes are an integral part of these consolidated statements.

FIRST CENTURY BANCORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

																	Accumulated Other
	Preferred Stock						Common Stock				Accumulated			Treasury			Comprehensive
	Shares			Amount			Shares		Amount		Deficit			Stock			(Income) Loss			Total

Balance, December 31, 2009		75,000		$	750,000			4,998,820	$	14,948,028	$	(11,031,585	)	$	(1,005	)	$	(266,529	)	$	4,398,909

Exchange of Preferred Stock plus accrued dividends for Common Stock		(75,000	)	$	(750,000	)		1,239,328		830,349		(80,349	)		-			-			-
Issuance of Common Stock, net of stock issuance costs		-			-			1,883,145		1,243,038		-			-			-			1,243,038
Stock Compensation Costs		-			-			-		408		-			-			-			408
Net Change in Unrealized Gain on Securities Available for Sale		-			-			-		-		-			-			338,520			338,520
Net Income		-			-			-		-		491,766			-			-			491,766

Balance, September 30, 2010		-		$	-			8,121,293	$	17,021,823	$	(10,620,168	)	$	(1,005	)	$	71,991		$	6,472,641

The accompanying notes are an integral part of these consolidated statements

FIRST CENTURY BANCORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30

(UNAUDITED)

	2010			2009
Cash Flows from Operating Activities
Net Income	$	491,766		$	78,571
Adjustments to Reconcile Net Income to
Net Cash Used by Operating Activities
Depreciation		143,587			152,561
Amortization and Accretion		(586,986	)		(735,875	)
Provision for Loan Losses		438,619			206,080
Write-down of Other Real Estate		34,644			-
Loss on Sale of Other Assets		10,544			7,263
(Gains) Losses on Investment Securities		(145,602	)		37,436
Stock Compensation Expense		408			53,206
Change In
Loans Held for Sale		(8,047,860	)		(197,123	)
Other Assets		(212,815	)		(98,634	)
Other Liabilities		82,796			58,821

Net Cash Used by Operating Activities		(7,790,899	)		(437,694	)

Cash Flows from Investing Activities
Purchases of Investment Securities Available for Sale		(1,000,000	)		(9,691,104	)
Proceeds from Sales of Investment Securities Available for Sale		3,524,842			6,642,492
Proceeds from Maturities, Calls and Paydowns of
Investment Securities Available for Sale		2,148,056			5,801,011
Purchases of Investment Securities Held to Maturity		-			(11,599,250	)
Proceeds from Sales of Investment Securities Held to Maturity		2,014,129			-
Proceeds from Maturities, Calls and Paydowns of
Investment Securities Held to Maturity		3,488,866			2,144,055
Net Purchases of Other Investments		(152,600	)		(21,850	)
Net Change in Loans		2,081,629			(1,511,056	)
Proceeds from Sale of Other Real Estate		62,356			-
Proceeds from Sale of Other Assets		24,107			25,000
Proceed from sale (purchases) of Premises and Equipment		10,206			(37,121	)

Net Cash Provided (Used) by Investing Activities		12,201,591			(8,247,823	)

Cash Flows from Financing Activities
Net Change in Deposits		(8,000,463	)		3,021,219
Proceeds from Borrowings		3,500,000			3,500,000
Proceeds from the Issuance of Common Stock		1,261,706			1,529,541
Payment of Stock Issuance Costs		(18,670	)		(231,570	)

Net Cash Provided (Used) by Financing Activities		(3,257,427	)		7,819,190

Net Increase (Decrease) in Cash and Cash Equivalents		1,153,265			(866,327	)

Cash and Cash Equivalents, Beginning		2,531,126			2,225,027

Cash and Cash Equivalents, Ending	$	3,684,391		$	1,358,700

Supplemental Disclosure of Cash Flow Information:
Interest Paid	$	834,223		$	1,262,457
Change in Unrealized Gains (Losses) on Securities Available for Sale	$	338,520		$	(14,938	)
Loans transferred to other real estate	$	-		$	653,501
Preferred stock exchanged for Common Stock	$	830,349		$	-

See accompanying notes to consolidated financial statements.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

First Century Bancorp. (the “Company”), a bank holding company, owns 100% of the outstanding common stock of First Century Bank, National Association (the “Bank”), which is headquartered in Gainesville, Georgia.

The consolidated financial statements include the accounts of the Company and the Bank. All inter-company accounts and transactions have been eliminated in consolidation.

The accompanying financial statements have been prepared in accordance with the requirements for interim financial statements and, accordingly, they omit disclosures, which would substantially duplicate those contained in the most recent annual report to shareholders on Form 10-K. The financial statements as of September 30, 2010 and 2009 are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. The results of operations for the quarter and nine months ended September 30, 2010 are not necessarily indicative of the results of a full year’s operations. The financial information as of December 31, 2009 has been derived from the audited financial statements as of that date. For further information, refer to the financial statements and the notes included in the Company’s 2009 Form 10-K.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2010, the FASB issued 2010-20 Accounting Standards Update (ASU) No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This ASU amends the guidance in the FASB Accounting Standards CodificationTM (Codification) to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate, by portfolio segment or class of financing receivable, certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. The ASU is effective for interim and annual reporting periods ending on or after December 15, 2010.

NOTE 2 – CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company has adopted various accounting policies, which govern the application of accounting principles generally accepted in the United States of America in the preparation of our financial statements. The Company’s significant accounting policies are described in the footnotes to the consolidated financial statements at December 31, 2009 as filed on its annual report on Form 10-K.

Certain accounting policies involve significant estimates and assumptions by the Company, which have a material impact on the carrying value of certain assets and liabilities. The Company considers these accounting policies to be critical accounting policies. The estimates and assumptions used are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the estimates and assumptions made, actual results could differ from these estimates and assumptions which could have a material impact on carrying values of assets and liabilities and results of operations.

The Company believes that the provision and allowance for loan losses, income taxes, and valuation of investment securities for other-than-temporary impairment are critical accounting policies that require the most significant judgments and estimates used in preparation of its consolidated financial statements. Refer to the portion of management’s discussion and analysis of financial condition and results of operations that addresses the provision for allowance for loan losses and income taxes for a description of the Company’s processes and methodology for determining the allowance for loan losses and income taxes.

NOTE 3 – STOCK COMPENSATION PLANS

The Company did not grant any options and no options were exercised during the quarter or nine month period ended September 30, 2010.

NOTE 4 – NET INCOME (LOSS) PER SHARE

Net income (loss) per common share is based on the weighted average number of common shares outstanding during the period. The effects of potential common shares outstanding, including warrants and options, are included in diluted earnings per share. No common stock equivalents were considered in 2010 and 2009 as the effects of such would be anti-dilutive to the income (loss) per share calculation. Dividends accumulated on cumulative preferred stock totaled $0 and $64,123 at September 30, 2010, and September 30, 2009, respectively, and reduced the earnings available to common stockholders in the computation.

NOTE 5 – INVESTMENT SECURITIES

Investment securities as of September 30, 2010 and December 31, 2009 are summarized as follows.

	September 30, 2010
Securities Available for Sale	Amortized Cost		Gross Unrealized		Gross Unrealized			Fair Value
Securities Available for Sale			Gains		Losses
Obligations of States and Political Subdivisions	$	331,031	$	-	$	(15,996	)	$	315,035
Mortgage Backed Securities-GNMA		368,666		11,804		-			380,470
Mortgage Backed Securities-FNMA and FHLMC		483,478		8,907		(2,886	)		489,499
Private Label Residential Mortgage Backed Securities		1,378,289		84,144		(14,426	)		1,448,007
Private Label Commercial Mortgage Backed Securities		672,741		444		-			673,185
	$	3,234,205	$	105,299	$	(33,308	)	$	3,306,196
Securities Held to Maturity
Private Label Residential Mortgage Backed Securities	$	868,848	$	100,995	$	-		$	969,843
Private Label Commercial Mortgage Backed Securities		11,108,959		859,951		-			11,968,910
	$	11,977,807	$	960,946	$	-		$	12,938,753

	December 31, 2009
Securities Available for Sale	Amortized Cost		Gross Unrealized		Gross Unrealized			Fair Value
Securities Available for Sale			Gains		Losses
Obligations of U.S. Government Agencies	$	983,146	$	28,888	$	-		$	1,012,034
Obligations of States and Political Subdivisions		326,855		-		(87,693	)		239,162
Mortgage Backed Securities-GNMA		1,435,829		71,850		-			1,507,679
Mortgage Backed Securities-FNMA and FHLMC		794,697		9,750		(1,928	)		802,519
Private Label Residential Mortgage Backed Securities		2,720,521		4,331		(288,440	)		2,436,412
Private Label Commercial Mortgage Backed Securities		726,226		12,223		-			738,449
Corporate Debt Securities		575,000		6,700		(9,490	)		572,210
Equity Securities		298,680		-		(12,720	)		285,960
	$	7,860,954	$	133,742	$	(400,271	)	$	7,594,425
Securities Held to Maturity
Private Label Residential Mortgage Backed Securities	$	1,963,140	$	255,583	$	-		$	2,218,723
Private Label Commercial Mortgage Backed Securities		14,831,223		1,056,040		(57,627	)		15,829,636
	$	16,764,363	$	1,311,623	$	(57,627	)	$	18,048,359

Securities with a carrying value of $13,609,930 and $20,150,917 at September 30, 2010, and December 31, 2009, respectively, were pledged to institutions with which the Company has available lines of credit outstanding.

The following outlines the unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2010 and December 31, 2009:

	September 30, 2010
	Less than 12 Months				12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Total Unrealized Losses
Securities Available for Sale
Obligations of States and Political Subdivisions	$	-	$	-	$	315,035	$	(15,996	)	$	315,035	$	(15,996	)
Mortgage Backed Securities-FNMA and FHLMC		-		-		264,039		(2,886	)		264,039		(2,886	)
Private Label Residential Mortgage Backed Securities		-		-		216,902		(14,426	)		216,902		(14,426	)

	$	-	$	-	$	795,976	$	(33,308	)	$	795,976	$	(33,308	)

	December 31, 2009
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Total Unrealized Losses
Securities Available for Sale
Obligations of States and Political Subdivisions	$	239,162	$	(87,693	)	$	-	$	-		$	239,162	$	(87,693	)
Mortgage Backed Securities-FNMA and FHLMC		-		-			492,889		(1,928	)		492,889		(1,928	)
Private Label Residential Mortgage Backed Securities		1,463,016		(117,778	)		416,654		(170,662	)		1,879,670		(288,440	)
Corporate Debt Securities		315,510		(9,490	)		-		-			315,510		(9,490	)
Equity Securities		-		-			285,960		(12,720	)		285,960		(12,720	)

	$	2,017,688	$	(214,961	)	$	1,195,503	$	(185,310	)	$	3,213,191	$	(400,271	)

Securities Held to Maturity
Private Label Commercial Mortgage Backed Securities	$	887,578	$	(57,627	)	$	-	$	-		$	887,578	$	(57,627	)

Management evaluates investment securities for other-than-temporary impairment on a quarterly basis.

At September 30, 2010, 3 of the 8 debt securities available for sale, and none of the 15 debt securities held to maturity contained unrealized losses with an aggregate depreciation of 4.02% from the Company’s amortized cost basis.

In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. Although the issuers may have shown declines in earnings and a weakened financial condition as a result of the weakened economy, no credit issues have been identified that cause management to believe the declines in market value are other than temporary. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other than temporary.

Obligations of States and Political Subdivisions. The unrealized loss on the one investment in obligations of states and political subdivisions was caused by interest rate increases. The contractual terms of this investment does not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investment and it is not more likely than not that the Company will be required to sell the investment before recovery of its amortized cost basis, which may be maturity, the Company does not consider this investment to be other-than-temporarily impaired at September 30, 2010.

GSE Residential Mortgage-backed Securities. The unrealized loss on the Company’s investment in one GSE mortgage-backed security was caused by interest rate increases. The Company purchased this investment at a discount relative to its face amount, and the contractual cash flows of this investment are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the security would not be settled at a price less than the amortized cost basis of the Company’s investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investment and it is not more likely than not that the Company will be required to sell the investment before recovery of their amortized cost basis, which may be maturity, the Company does not consider this investment to be other-than-temporarily impaired at September 30, 2010.

Private Label Residential Mortgage-backed Securities. The unrealized losses associated with one private label residential mortgage-backed securities is primarily driven by higher projected collateral losses, wider credit spreads, and changes in interest rates. The Company assesses for credit impairment using a cash flow model. Based upon our assessment of the expected credit losses of the security given the performance of the underlying collateral compared to our credit enhancement, the Company expects to recover the entire amortized cost basis of this security. Because the Company does not intend to sell the investment and it is not more likely than not that the Company will be required to sell the investment before recovery of their amortized cost basis, which may be maturity, the Company does not consider this investment to be other-than-temporarily impaired at September 30, 2010.

Gross realized gains on securities totaled $228,899 and $24,984 for the nine months ended September 30, 2010 and 2009, respectively. Gross realized losses, including impairment losses, on securities totaled $83,297 and $62,420 for the nine months ended September 30, 2010 and 2009, respectively. Gains and losses from sales of securities are computed using the specific identification method and recorded on the trade date.

Three investment securities that were categorized as held to maturity were sold during the second quarter 2010. These securities were sold because they experienced significant credit deterioration and were downgraded by nationally recognized rating agencies. Since these securities were purchased at a substantial discount during the market disruption that occurred in late 2008 and early 2009, they were sold for a gain of $159,329.

Other investments on the balance sheet at September 30, 2010 and December 31, 2009 include restricted equity securities consisting of Federal Reserve Bank stock of $168,400 and $137,300, respectively, and Federal Home Loan Bank stock of $385,000 and $263,500, respectively. These securities are carried at cost since they do not have readily determinable fair values due to their restricted nature and the Bank does not exercise significant influence.

The amortized cost, estimated fair value, and weighted average contractual yields of investment securities held at September 30, 2010, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale							Held to Maturity
	Amortized Cost		Fair Value		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Yield
Obligations of States and Political Subdivisions
1 to 5 Years	$	331,031	$	315,035		8.71	%	$	-	$	-		-
Mortgage Backed Securities
Less than 1 Year		266,926		264,039		5.65	%		236,639		245,351		10.35	%
1 to 5 Years		1,489,288		1,496,017		6.92	%		11,498,802		12,401,043		10.04	%
5 to 10 Years		1,146,960		1,231,105		7.33	%		242,366		292,359		9.58	%
	$	3,234,205	$	3,306,196		6.27	%	$	11,977,807	$	12,938,753		10.03	%

NOTE 6 - LOANS

The composition of loans as of September 30, 2010 and December 31, 2009 are:

	September 30, 2010		December 31, 2009

Commercial, Financial and Agricultural	$	2,783,878	$	3,698,597
Real Estate-Mortgage		24,636,065		26,564,533
Real Estate-Construction		5,843,944		4,744,401
Consumer		1,027,856		1,526,295
Net deferred costs		48,649		96,761

	$	34,340,392	$	36,630,587

Activity in the allowance for loan losses for the nine month periods ended September 30 is summarized as follows:

	2010			2009

Beginning Balance	$	414,670		$	838,234
Provision Charged to Operations		438,619			206,080
Loan Charge-Offs		(211,892	)		(555,946	)
Loan Recoveries		3,325			21,078

Ending Balance	$	644,722		$	509,446

NOTE 7 – SHAREHOLDERS’ EQUITY

In June 2010, the Company commenced a private offering of up to 2,000,000 shares of its common stock at of price of $0.67 per share to a limited number of accredited investors. The private offering closed August 13, 2010. During the third quarter of 2010 the Company received net proceeds of $265,289 from the sale of 423,818 shares in the offering. Total net proceeds raised in the offering were $1,243,038 from the sale of 1,883,145 shares. For each share issued, a warrant to purchase one share of common stock at a price of $0.67 was also granted, resulting in the issuance of 1,883,145 warrants. The Company is using the net proceeds from the private offering for working capital purposes. The common stock sold in the offering has not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

In June 2010, the holders of Series B Preferred Stock exchanged their shares of preferred stock for shares of common stock at an exchange rate of $0.67 per share. The Company redeemed 75,000 shares of Series B Preferred Stock and issued an aggregate of 1,239,328 shares of common stock, which included the payment of accrued dividends, to accredited investors in transactions exempt from registration under Section 4(2) of the Securities Act.

NOTE 8 – INCOME TAXES

The Company accounts for income taxes under the liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets are subject to management’s judgment based upon available evidence that future realization is more likely than not. For financial reporting purposes, a valuation allowance of 100 percent of the deferred tax assets as of September 30, 2010 and December 31, 2009 has been recognized to offset the deferred tax assets related to cumulative temporary differences and tax loss carry-forwards. If management determines that the Company may be able to realize all or part of the deferred tax asset in the future, a credit to income tax expense may be required to increase the recorded value of net deferred tax assets to their expected realizable amounts.

NOTE 9 – REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under certain adequacy guidelines and the regulatory framework for prompt corrective action, specific capital guidelines that involve quantitative measures of the assets, liabilities and certain off-balance sheet items, as calculated under regulatory accounting practices, must be met. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Bank’s actual ratios as of September 30, 2010 are as follows:

											To Be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(In Thousands)

Total Capital to
Risk-Weighted Assets	$	6,670		14.40	%	$	3,705		8.00%	%	$	4,631		10.00	%
Tier I Capital to
Risk-Weighted Assets		6,090		13.15			1,852		4.00			2,778		6.00
Tier I Capital to
Average Assets		6,090		8.69			2,802		4.00			3,502		5.00

NOTE 10 – FAIR VALUE DISCLOSURES

Fair Value of Financial Instruments

ASC Topic 825, Disclosures about Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair value of the Company’s financial instruments are detailed below. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance.

Cash and Short-Term Investments - For cash, due from banks and federal funds sold, the carrying amount is a reasonable estimate of fair value.

Investment Securities - Fair values for investment securities are based on quoted market prices.

Other Investments - The fair value of other investments approximates carrying value.

Loans Held for Sale - The fair value of loans held for sale are based on third party quotes.

Loans - The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For variable rate loans, the carrying amount is a reasonable estimate of fair value. Fair values of nonperforming loans are estimated using discounted cash flow analysis or underlying collateral values, where applicable.

Deposit Liabilities - The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

Borrowings - Due to their short-term nature, the fair value of FRB advances approximates carrying amount. The fair value of FHLB advances are provided by the FHLB and approximate fair value derived from their proprietary models.

Accrued Interest - The carrying amounts of accrued interest approximate fair value.

Standby Letters of Credit and Unfulfilled Loan Commitments - Fair values are based on fees currently charged to enter into similar agreements taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fees associated with these instruments are not considered material.

The carrying amount and estimated fair values of the Company’s financial instruments as of September 30, 2010 and December 31, 2009 are presented hereafter:

	September 30, 2010				December 31, 2009
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
	(in Thousands)
Assets
Cash and Short-Term Investments	$	3,684	$	3,684	$	2,531	$	2,531
Investment Securities Available for Sale		3,306		3,306		7,594		7,594
Investment Securities Held to Maturity		11,978		12,939		16,794		18,048
Other Investments		553		553		401		401
Loans Held for Sale		17,685		17,685		9,637		9,637
Loans, Net		33,696		33,610		36,215		36,572
Accrued Interest Receivable		178		178		279		279

Liabilities
Deposits		61,566		61,505		69,567		69,596
Borrowings		5,500		5,591		2,000		2,062
Accrued Interest Payable		292		292		279		279

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on-and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include the deferred income taxes, other real estate, and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic (FASB ASC 820), the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The recent fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 - Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 - Valuation is based on 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 determination of fair value requires significant management judgment or estimation.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Investment Securities Available for Sale

Where quoted prices are available in an active market, investment securities are classified within level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where Level 1 and Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Loans Held for Sale

Loans held for sale are reported at the lower of cost or fair value. Fair Value is determined based on the expected proceeds based on sales contracts and commitments and are considered Level 2 inputs.

Following is a description of the valuation methodologies used for instruments measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Impaired loans

ASC Topic 820 applies to loans measured for impairment using the practical expedients permitted by ASC Section 310-30-30, including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation which is then adjusted for the cost related to liquidation of the collateral.

Other Real Estate

Other real estate is reported at fair value less selling costs. Fair value is based on third party or internally developed appraisals considering the assumptions in the valuation and is considered Level 2 or Level 3 inputs.

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2010 and December 31, 2009

			Fair Value Measurements at September 30, 2010 Using
	Total		Level 1		Level 2		Level 3

Investment Securities Available for Sale	$	3,306,196		-	$	3,306,196		-
Loans Held for Sale		17,684,983		-		17,684,983		-

			Fair Value Measurements at December 31, 2009 Using
	Total		Level 1		Level 2		Level 3

Investment Securities Available for Sale	$	7,594,425		-	$	7,594,425		-
Loans Held for Sale		9,637,123		-		9,637,123		-

The following table presents the financial instruments carried on the consolidated balance sheets by caption and by level in the fair value hierarchy at September 30, 2010 and December 31, 2009, for which a nonrecurring change in fair value has been recorded:

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis as of September 30, 2010 and December 31, 2009

	Fair Value Measurements at September 30, 2010 Using
	Level 1		Level 2		Level 3		Total (Losses)

Impaired Loans		-		-	$	988,407	$	(420,254	)
Other Real Estate		-		-		556,501		-

	Fair Value Measurements at December 31, 2009 Using
	Level 1		Level 2		Level 3		Total (Losses)

Impaired Loans		-		-	$	935,284	$	(299,427	)
Other Real Estate		-		-		653,501		(34,644	)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

This discussion and analysis is intended to assist you in understanding our financial condition and results of operations. You should read this commentary in conjunction with the financial statements and the related notes and the other statistical information included elsewhere in this report and in our 2009 Form 10-K.

Discussion of Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, and can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “could,” “should,” “projects,” “plans,” “goal,” “targets,” “potential,” “estimates,” “pro forma,” “seeks,” “intends,” or “anticipates” or the negative thereof or comparable terminology. We caution our shareholders and other readers not to place undue reliance on such statements. Our businesses and operations are and will be subject to a variety of risks, uncertainties and other factors. Consequently, actual results and experience may materially differ from those contained in any forward-looking statements. Such risks, uncertainties and other factors that could cause actual results and experience to differ from those projected include, but are not limited to, the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2009, as well as the following:

●

our ability to successfully implement our business plan;

●

our ability to raise capital;

●

the failure of our assumptions underlying the establishment of allowances for loan losses and other estimates, or dramatic changes in those underlying assumptions or judgments in future periods, that, in either case, render the allowance for loan losses inadequate or require that further provisions for loan losses be made;

●

our ability to identify and retain experienced management and other employees;

●

the strength of our overall credit risk management process;

●

general economic conditions, either nationally or regionally and especially in our primary service areas, becoming less favorable than expected resulting in, among other things, a deterioration in credit quality;

●

the effects of the current global economic crisis, including, without limitation, the recent and dramatic deterioration of real estate values and credit and liquidity markets, as well as the Federal Reserve Board’s actions with respect to interest rates, may lead to a further deterioration in credit quality, thereby requiring increases in our provision for loan losses, or a reduced demand for credit, which would reduce earning assets;

●

governmental monetary and fiscal policies, the impact of the Dodd-Frank Act and related regulations and other changes in financial services laws and regulations, including changes in accounting standards and banking, securities and tax laws and regulations and governmental intervention in the U.S. financial system, as well as changes affecting financial institutions’ ability to lend and otherwise do business with consumers;

●

the effect of any regulatory or judicial proceedings, board resolutions, informal memorandums of understanding or formal enforcement actions imposed by;

●

our ability to maintain liquidity or access other sources of funding and control costs, expenses, and loan delinquency rates;

●

changes in interest rates and their effect on the level and composition of deposits, loan demand, and the values of loan collateral, securities and other interest-sensitive assets and liabilities;

●

changes occurring in business conditions and inflation;

●

the anticipated rate of loan growth and the lack of seasoning of our loan portfolio;

●

the amount of residential and commercial construction and development loans and commercial real estate loans, and the weakness in the residential and commercial real estate markets;

●

risks with respect to future expansion and acquisitions;

●

losses due to fraudulent and negligent conduct of our loan customers, third party service providers or employees;

●

adverse changes in asset quality and resulting credit risk-related losses and expenses;

●

loss of consumer confidence and economic disruptions resulting from terrorist activities;

●

the effects of competition from financial institutions and other financial service providers;

●

changes in the banking system and financial markets; and

●

other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission.

All forward-looking statements in this report are based on information available to us as of the date of this report. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee you that these expectations will be achieved. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

These risks are exacerbated by the recent developments in national and international financial markets, and we are unable to predict what effect these uncertain market conditions will have on our Company. For more than two years, the capital and credit markets have experienced extended volatility and disruption. There can be no assurance that these unprecedented recent developments will not materially and adversely affect our business, financial condition and results of operations.

General

First Century Bancorp (the “Company”) was incorporated in 2000 for the purpose of becoming a bank holding company. We are subject to extensive federal and state banking laws and regulations, including the Bank Holding Company Act, and the bank holding company laws of Georgia. We have one bank subsidiary, First Century Bank, National Association (the “Bank”), which opened for business on March 25, 2002. The Bank is also subject to various federal banking laws and regulations.

The following discussion describes our results of operations for the three and nine months ended September 30, 2010 as compared to the same periods in 2009 and also analyzes our financial condition at September 30, 2010 compared to December 31, 2009. Like most community banks, we derive a significant portion of our income from interest we receive on our loans and investments. Our primary sources of funds for making these loans and investments are our deposits and borrowings, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits and borrowings. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.

Of course, there are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings. In the “Provision and Allowance for Loan Losses” section we have included a detailed discussion of this process.

In addition to earning interest on our loans and investments, we earn income through fees and other expenses we charge to our customers. Specifically, our growing mortgage division is a substantial source of this non-interest income. We describe the various components of our non-interest income, as well as our non-interest expense, in the following discussion.

The following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included herein.

Critical Accounting Policies

We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States and with general practices within the banking industry in the preparation of our financial statements. Our significant accounting policies are described in the footnotes to our audited consolidated financial statements as of December 31, 2009 included in the Company’s 2009, as filed in our Annual Report on Form 10-K.

Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgment and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgment and assumptions we make, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

Allowance for Loan Losses

The allowance for loan losses represents management’s best estimate of the losses known and inherent in the loan portfolio that are both probable and reasonable to estimate, based on, among other factors, prior loss experience, volume and type of lending conducted, estimated value of any underlying collateral, economic conditions (particularly as such conditions relate to the Bank’s market area), regulatory guidance, peer statistics, management’s judgment, past due loans in the loan portfolio, loan charge off experience and concentrations of risk. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant estimates, assumptions, and judgments. The loan portfolio also represents the largest asset type on our consolidated balance sheets.

The evaluation of the adequacy of the allowance for loan losses is based upon loan categories except for impaired loans and loans for which management has knowledge about possible credit problems of the borrower or knowledge of problems with loan collateral, which are evaluated separately and assigned loss amounts based upon the evaluation. Estimated losses are determined by applying risk ratings, and historical loss experience to each category of loans.

Management has significant discretion in making the judgments inherent in the determination of the provision and allowance for loan losses, including the valuation of collateral and the financial condition of the borrower, and in establishing loss ratios and risk ratings. The establishment of allowance factors is a continuing exercise and allowance factors may change over time, resulting in an increase or decrease in the amount of the provision or allowance based upon the volume and classification of loans.

Changes in allowance factors or in management’s interpretation of those factors will have a direct impact on the amount of the provision, and a corresponding effect on income and assets. Also, errors in management’s perception and assessment of the allowance factors could result in the allowance not being adequate to cover losses in the portfolio and may result in additional provisions or charge-offs, which would adversely affect income and capital. For additional information regarding the allowance for loan losses, see the “Provision and Allowance for Loan Losses” section below.

Recent Legislative and Regulatory Initiatives to Address Financial and Economic Crisis

Markets in the United States and elsewhere have been experienced extreme volatility and disruption for more than 2 years. These circumstances have exerted significant downward pressure on prices of equity securities and virtually all other asset classes, and have resulted in substantially increased market volatility, severely constrained credit and capital markets, particularly for financial institutions, and an overall loss of investor confidence. Credit quality has deteriorated at many institutions resulting from, among other factors, a weak economy and a decline in the value of the collateral supporting their loans. Dramatic slowdowns in the housing industry, due in part to falling home prices and increasing foreclosures and unemployment, have negatively affected the performance of residential construction and development loans and created other strains on financial institutions. The economic recession has also lowered commercial and residential real estate values and substantially reduced general business activity and investment. Many borrowers are now unable to repay their loans, and the collateral securing these loans has, in some cases, declined below the loan balance.

Like many financial institutions across the United States, our operations have been negatively affected by this current economic crisis. Combined, the deterioration in the residential and the commercial real estate markets has materially increased our level of nonperforming assets and charge-offs of problem loans over the past two years. These market conditions and the tightening of credit have led to increased delinquencies in our loan portfolio, increased market volatility, and increased pressure on our capital and net-interest margin. The following discussion and analysis describes our performance in this challenging economic environment. We encourage you to read this discussion and analysis in conjunction with our financial statements and the other statistical information included in this report.

Results of Operations

Three and Nine Months Ended September 30, 2010 and 2009

Net income for the third quarter of 2010 was $351,000 as compared to net loss of $150,000 for the same period in 2009. Net income for the nine months ended September 30, 2010 was $492,000 as compared to a net income of $79,000 for the same period in 2009. Our operational results depend to a large degree on several components: net interest income, provision for loan losses, income from mortgage banking activities, and non-interest income and expenses.

There are several factors, described in the discussion below, which have contributed towards increased earnings in 2010 as compared to the same period in 2009. The primary driver of increased earnings is the expansion of the Bank’s mortgage division. The expansion and corresponding integration of the mortgage division into the Bank has resulted in an increase in non-interest income partially offset by an increase in non-interest expense for the nine month period ended September 30, 2010 over the same period in 2009.

Net Interest Income

Net interest income is the difference between the interest income received on earning assets (such as loans, investment securities, and federal funds sold) and the interest expense on deposit liabilities and borrowings. For the three months ended September 30, 2010 and 2009, net interest income totaled $763,000 and $823,000, respectively. For the nine months ended September 30, 2010 and 2009, net interest income totaled $2,378,000 and $2,327,000, respectively. Interest income from loans, including fees, was $647,000 and $571,000 for the three months ended September 30, 2010 and 2009, respectively. Interest income from loans, including fees, was $1,849,000 and $1,737,000 for the nine months ended September 30, 2010 and 2009, respectively. The loan yield increased to 6.04% during the nine months ended September 30, 2010, compared to the 5.74% loan yield during the same period in 2009. Interest income from investment securities was $373,000 and $635,000 for the three months ended September 30, 2010 and 2009, respectively. Interest income from investment securities was $1,369,000 and $1,937,000 for the nine months ended September 30, 2010 and 2009, respectively. The Bank had previously purchased high yield securities which produced significant interest income in 2009. The principal balances have been paid down since the first half of 2009 resulting in less volume of interest income, which was the primary reason for the quarterly and nine-month year-over-year declines in interest income from investment securities. In addition, the investment yield decreased slightly to 9.13% during the nine months ended September 30, 2010, compared to the 9.14% yield earned during the same period in 2009.

Interest expense totaled $260,000 for the three months ended September 30, 2010, compared to $383,000 for the same period in 2009. Interest expense totaled $848,000 for the nine months ended September 30, 2010, compared to $1,347,000 for the same period in 2009. The primary reason for the decline in our interest expense is that our cost of funds decreased to 1.83% during the nine months ended September 30, 2010, compared to the 2.81% during the same period in 2009, as we were able to reduce higher cost time deposits with lower cost core deposits.

The net interest margin we realized on our earning assets climbed to 4.75% for the nine months ended September 30, 2010 from 4.55% for the same period in 2009. The Bank’s ability to maintain a high net interest margin and recent growth in net interest margin has been supported by the dual strategy of increasing lower cost wholesale funding in the short-term to allow time for a build up of low cost core funding to be developed over the longer-term. Since September 30, 2009, core deposits have grown approximately $10.4 million, or 73%. The Bank has been successful implementing this strategy resulting in an increase in net interest margin of 0.20%.

Average Balances and Interest Rates

The table below details the average balances outstanding for each category of interest earning assets and interest-bearing liabilities for the nine months ended September 30, 2010 and 2009 and the average rate of interest earned or paid thereon. Average balances have been derived from the daily balances throughout the period indicated.

	For the Nine Months Ended September 30, 2010								For the Nine Months Ended September 30, 2009
	(Amounts presented in thousands)

	Average					Yield/				Average					Yield/
	Balance			Interest		Rate				Balance			Interest		Rate
Assets:
Interest earning assets:
Loans (including loan fees)	$	34,893		$	1,576		6.04	%		$	36,811		$	1,581		5.74	%
Loans held for sale		8,328			273		4.39	%			2,433			156		8.57	%
Investment securities and other investments		20,047			1,369		9.13	%			28,322			1,937		9.14	%
Interest bearing deposits		3,798			8		0.28	%			888			-		0.15	%
Total interest earning assets		67,065			3,226		6.43	%			68,454			3,674		7.18	%

Other non-interest earnings assets		3,484									4,010

Total assets	$	70,549								$	72,464

Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	6,572		$	27		0.55	%		$	1,059		$	8		0.98	%
Savings and money market		13,924			186		1.79	%			8,470			138		2.18	%
Time		38,718			595		2.05	%			49,585			1,152		3.11	%
Borrowings		2,616			40		2.05	%			4,992			49		1.31	%
Total interest-bearing liabilities		61,830			848		1.83	%			64,106			1,347		2.81	%
Other non-interest bearing liabilities		3,693									4,184
Shareholders’ equity		5,026									4,174

Total liabilities and shareholders’ equity	$	70,549								$	72,464

Excess of interest-earning assets over interest-bearing liabilities	$	5,235								$	4,348

Ratio of interest-earning assets to interest-bearing liabilities		108	%								107	%

Net interest income				$	2,378								$	2,327

Net interest spread							4.60	%								4.38	%

Net interest margin							4.74	%								4.55	%

Non-accrual loans are excluded from average loan balances and totaled $495,000 and $650,000 for the nine months ended September 30, 2010 and 2009, respectively.

Non-interest Income and Expense

We look for business opportunities that will enable us to grow and increase our value for all of our stakeholders. Regulatory changes have been a major factor in the remaking of the mortgage delivery system. Some of the changes that are working to channel more of the mortgage business to banks are:

●

FHA has discontinued the correspondent designation in favor of full delegation authority along with an increase in the net worth to $2,500,000 from $25,000.00.

●

Licensing laws have been strengthened creating an elevated threshold that brokers cannot afford to meet.

●

Increased disclosure requirements have encouraged movement to the more regulated banking structure.

●

Wholesale lenders have moved away from the broker community.

●

Losses in the third party origination market have caused conduits to require increased net worth and accountability standards.

Due to these regulatory changes in the mortgage industry, the Bank expanded its mortgage operations to take advantage of the new opportunities that now exist when partnering a bank with a mortgage operation. During the second quarter 2010, the Bank added a new retail mortgage call center in Norcross, Georgia. Our mortgage division was previously comprised of the Gainesville mortgage location, a retail production/operations hub located in Roswell, Georgia, and an online mortgage business, Century Point Mortgage. Retail sales personnel have been added in the Gainesville and Roswell, Georgia locations to expand presence. Century Point Mortgage has been streamlined to enhance profitability and to allow for sustained growth. We anticipate that the partnership of the banking and mortgage worlds will drive higher earnings and greater shareholder value for the Bank in the upcoming year. Revenues from the mortgage division are primarily non-interest income of fees, and gains on sales of the loans. Interest income is earned on the loans from the time they are closed to the time they are sold, which is typically two weeks. Expenses are primarily salaries and commissions, occupancy, and loan origination expenses such as appraisals.

Non-interest income includes service charges on deposit accounts, customer service fees, mortgage banking income and investment security gains (losses). For the quarter ended September 30, 2010, non-interest income grew to $1,531,000 from $355,000 for the quarter ended September 30, 2009, an increase of $1,176,000, or 331%. For the nine months ended September 30, 2010 non-interest income grew to $3,669,000 from $1,358,000 for the nine months ended September 30, 2009, an increase of $2,311,000, or 170%. The increase in non-interest income was primarily due to an increase in fees earned on mortgage originations, due to the growth of the mortgage division. The fees earned are related to the origination of mortgage loans that are sold within 30 days, which investors have committed to purchase before they are funded. The Bank funded $142.0 million in mortgage loans during the nine month period ended September 30, 2010, an increase of $55.7 million, or 65%, from the same period a year ago. There were no securities sales during the third quarter of 2010 and 2009 so net gains (losses) on sales of securities remained unchanged at $146,000 and $(37,000) for the nine months ended September 30, 2010 and 2009, respectively.

With increased resources being directed towards the business areas providing the highest return on investment, management reviewed all the other areas of resource allocation. As a part of this process, management decided to close the loan production offices in Oakwood and Athens, Georgia in the first quarter of 2010. The office closures resulted in the reduction of seven lending and administrative or support personnel beginning in the fourth quarter of 2009 through the second quarter of 2010. The Bank will continue to service its customers out of the Gainesville, Georgia headquarters and will continue to utilize technology to enable its customers to access many of the Bank’s services remotely.

Total non-interest expense for the quarter ended September 30, 2010 was $1,815,000 compared to $1,191,000 for the quarter ended September 30, 2009, an increase of $624,000, or 52%. For the nine months ended September 30, 2010, non-interest expense was $5,117,000 as compared to $3,401,000 for the nine months ended September 30, 2009, an increase of $1,716,000, or 50%.

Salaries and benefits, the largest component of non-interest expense, were $1,046,000 for the quarter ended September 30, 2010, as compared to $522,000 for the quarter ended September 30, 2009, an increase of $524,000, or 100%. Salaries and benefits, for the nine months ended September 30, 2010 were $2,877,000, as compared to $1,618,000 for the nine months ended September 30, 2009, an increase of $1,259,000, or 78%. The increase in salaries and benefits is primarily attributable to the growth in the mortgage division in which salaries and benefits increased $1,720,000 for the nine month period ended September 30, 2010 compared to the same period in 2009. This increase was offset by the reduction in staff and a decrease of $461,000 in salaries and benefits during the first nine months of 2010 due to the closures of the Oakwood and Athens, Georgia offices. We have added 40 full time equivalent employees since mid 2009.

Total occupancy and equipment expenses for the quarter ended September 30, 2010, were $107,000 as compared to $95,000 for the quarter ended September 30, 2009, an increase of $12,000, or 13%. Total occupancy and equipment expenses for the nine months ended September 30, 2010, were $346,000 as compared to $310,000 for the nine months ended September 30, 2009, an increase of $36,000, or 12%. Occupancy expenses attributable to the mortgage division increased $117,000 for the first nine months of 2010 compared to the same period in 2009, while Bank expenses decreased by $81,000 due to the closures of the Oakwood and Athens offices that occurred in the first nine months of 2010.

Professional fees were $99,000 for the quarter ended September 30, 2010, compared to $70,000 for the quarter ended September 30, 2009, an increase of $29,000, or 41%. For the nine months ended September 30, 2010 professional fees were $278,000 compared to $207,000 for the nine months ended September 30, 2009, an increase of $71,000, or 34%. The increase in professional fees is attributable to management consulting fees for the mortgage division, increased compliance and quality control reviews, and audit fees.

Marketing expenses for the quarter ended September 30, 2010, were $60,000 compared to $77,000 for the quarter ended September 30, 2009, a decrease of $17,000, or 22%. Marketing expenses for the nine months ended September 30, 2010, were $174,000 compared to $185,000 for the nine months ended September 30, 2009, a decrease of $11,000, or 6%. For the first nine months of 2010 Bank marketing expenses decreased approximately $26,000 over the same period in 2009, which was attributable to the discontinuance of a multimedia marketing campaign that included billboards and various other media advertisements targeted at the Gainesville, Oakwood and Athens, Georgia markets. The Century Point Mortgage division has heavily invested in internet advertising but decreased marketing expense for the first nine months of 2010 by $22,000 over the same period in 2009 due to a large increase in volume of refinance activity. As the division is maturing, the marketing budget is being analyzed and directed to the most successful techniques. For the first nine months of 2010 the retail mortgage division increased marketing expense by $37,000 over the same period in 2009.

Data processing expense for the quarter ended September 30, 2010, was $173,000, compared to $140,000 for the quarter ended September 30, 2009, an increase of $33,000, or 24%. Data processing expense for the nine months ended September 30, 2010, was $514,000, compared to $387,000 for the nine months ended September 30, 2009, an increase of $127,000, or 33%. Fees for core data processing were $186,000 and $129,000 for the nine month periods ended September 30, 2010 and 2009, respectively. Fees paid for management and advisory services under a master services agreement with First Covenant Bank were $242,000 and $148,000 for the nine month periods ended September 30, 2010 and 2009, respectively, The fees for core processing have a base component which is adjusted quarterly based on asset size and a variable component based on transactional activity. Management and advisory services are adjusted quarterly based on asset size. Additional services were retained for the mortgage division in the second half of 2009.

Telecommunication expense, postage and delivery services, and office supply expenses for the quarter ended September 30, 2010 totaled $46,000 compared to $28,000 for the quarter ended September 30, 2009, an increase of $18,000, or 64%. Telecommunication expense, postage and delivery services, and office supply expenses for the nine months ended September 30, 2010 totaled $147,000 compared to $74,000 for the nine months ended September 30, 2009, an increase of $73,000, or 99%. The increase is primarily attributable to the growth in the mortgage division.

Insurance, taxes, and regulatory assessment expenses totaled $83,000 for the quarter ended September 30, 2010 compared to $96,000 for the quarter ended September 30, 2009, a decrease of $13,000, or 14%. Insurance, taxes, and regulatory assessment expenses totaled $254,000 for the nine months ended September 30, 2010 compared to $189,000 for the nine months ended September 30, 2009, an increase of $65,000, or 34%. The Bank’s insurance expense increased $35,000 due to an increase in directors’ and officers’ liability insurance premiums upon renewal in September 2009. FDIC insurance assessments increased $5,000 for 2010 over 2009. OCC supervision assessment increased $19,000 for 2010 over 2009.

Lending related expenses were $160,000 for the quarter ended September 30, 2010 compared to $62,000 for the quarter ended September 30, 2009, an increase of $98,000, or 158%. Lending related expenses were $424,000 for the nine months ended September 30, 2010 compared to $248,000 for the nine months ended September 30, 2009, an increase of $176,000, or 71%. The increase is primarily related to appraisal and other loan origination expenses generated by the mortgage division. As production fluctuates, so do these types of variable expenses.

Other non-interest expenses were $40,000 for the quarter ended September 30, 2010 compared to $103,000 for the quarter ended September 30, 2009, a decrease of $63,000, or 61%. Other non-interest expenses were $103,000 for the nine months ended September 30, 2010 compared to $183,000 for the nine months ended September 30, 2009, a decrease of $80,000, or 44%. The decrease was primarily due to changes being made to software licenses in the mortgage division.

The following table shows the components of non-interest expense incurred for nine months ended September 30, 2010 and 2009 and changes attributable to the growth of the Company:

	2010		2009		Increase / (Decrease)			Main Office Bank & Parent			Century Point Mortgage Division			Gainesville Retail Mortgage Division		Roswell Retail Mortgage Division			Norcross Retail Call Center Mortgage Division
Salaries and employee benefits	$	2,876,554	$	1,618,167	$	1,258,387		$	(461,410	)	$	(221,279	)	$	412,703	$	1,457,438		$	70,935
Occupancy expenses		346,160		309,624		36,536			(80,739	)		17,127			309		96,174			3,665
Professional fees		277,749		207,323		70,426			40,072			9,717			6,605		10,522			3,510
Marketing		173,714		185,072		(11,358	)		(26,459	)		(22,251	)		847		10,453			26,052
Data Processing		514,316		387,464		126,852			65,533			150,728			23,590		(134,360	)		21,361
Telecommunication		66,355		37,684		28,671			7,700			3,759			544		16,581			87
Postage and Delivery Services		56,297		18,662		37,635			3,504			4,337			792		28,935			67
Insurance, Tax, and Assessment		253,517		188,608		64,909			65,046			(137	)		-		-			-
Office Supplies		24,586		17,347		7,239			(3,214	)		(874	)		603		10,479			245
Lending Related Expense		424,263		247,894		176,369			14,985			(66,248	)		11,098		199,142			17,392
Other Non-Interest Expense		103,228		182,822		(79,594	)		(42,230	)		(55,270	)		2,463		14,087			1,356
Total Non-Interest Expense	$	5,116,739	$	3,400,667	$	1,716,072		$	(417,212	)	$	(180,391	)	$	459,554	$	1,709,451		$	144,670

Interest Rate Sensitivity and Asset Liability Management

Interest rate sensitivity measures the timing and magnitude of the repricing of assets compared with the repricing of liabilities and is an important part of asset/liability management of a financial institution. The objective of interest rate sensitivity management is to generate stable growth in net interest income, and to control the risks associated with interest rate movements. Management constantly reviews interest rate risk exposure and the expected interest rate environment so that adjustments in interest rate sensitivity can be timely made. Since the assets and liabilities of a bank are primarily monetary in nature (payable in fixed, determinable amounts), the performance of a bank is affected more by changes in interest rates than by inflation. Interest rates generally increase as the rate of inflation increases, but the magnitude of the change in rates may not be the same.

Net interest income is the primary component of net income for financial institutions. Net interest income is affected by the timing and magnitude of repricing of as well as the mix of interest sensitive and non-interest sensitive assets and liabilities. One method to measure interest rate sensitivity is through a repricing gap. The gap is calculated by taking all assets that reprice or mature within a given time frame and subtracting all liabilities that reprice or mature during that time frame. A negative gap (more liabilities repricing than assets) generally indicates that the Bank’s net interest income will decrease if interest rates rise and will increase if interest rates fall. A positive gap generally indicates that the Bank’s net interest income will decrease if rates fall and will increase if rates rise. Although it can be used as a general predictor, gap analysis as a predictor of movements in net interest income has limitations due to the static nature of its definition and due to its inherent assumption that all assets will reprice immediately and fully at the contractually designated time. At September 30, 2010, the Bank, as measured by such gap analysis, is in a liability sensitive position within one year.

We also measure the actual effects that repricing opportunities have on earnings through simulation modeling, referred to as earnings at risk. For short-term interest rate risk, the Bank’s model simulates the impact of balance sheet strategies on net interest income, pre-tax income, and net income. The model includes interest rate simulations to test the impact of rising and falling interest rates on projected earnings. This information is used to monitor interest rate exposure risk relative to anticipated interest rate trends. Our most recent data shows that the Bank’s net interest income would decrease $33,000 on an annual basis if rates increased 100 basis points, and would increase $47,000 on an annual basis if rates decreased 100 basis points.

Certain shortcomings are inherent in the method of analysis presented in the foregoing paragraphs. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees or at different points in time to changes in market interest rates. Additionally, certain assets, such as adjustable-rate mortgages, have features that restrict changes in interest rates, both on a short-term basis and over the life of the asset. Changes in interest rates, prepayment rates, early withdrawal levels and the ability of borrowers to service their debt, among other factors, may change significantly from the assumptions made above. In addition, significant rate decreases would not likely be reflected in liability repricing and therefore would make the Bank more sensitive in a falling rate environment. Management has several tools available to it to evaluate and affect interest rate risk, including deposit pricing policies and changes in the mix of various types of assets and liabilities.

Provision and Allowance for Loan Losses

There are risks inherent in making all loans, including risks with respect to the period of time over which loans may be repaid, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers, and, in the case of collateralized loans, risks resulting from uncertainties about the future value of the collateral. We anticipate maintaining an allowance for loan lossesbased on, among other things, historical experience, an evaluation of economic conditions, and regular reviews of delinquencies and loan portfolio quality. Our judgment about the adequacy of the allowance is based upon a number of assumptions about future events, which we believe to be reasonable, but which may not prove to be accurate. The downturn in the real estate market has resulted in an increase in loan delinquencies, defaults and foreclosures, and we believe these trends are likely to continue. In some cases, this downturn has resulted in a significant impairment to the value of our collateral and our ability to sell the collateral upon foreclosure, and there is a risk that this trend will continue. The real estate collateral in each case provides alternate sources of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. If real estate values continue to decline, it is also more likely that we would be required to increase our allowance for loan losses. Thus, there is a risk that charge-offs in future periods could exceed the allowance for loan losses or that substantial additional increases in the allowance for loan losses could be required. Additions to the allowance for loan losses would result in a decrease to our net income and capital.

The allowance for loan loss was $645,000 (1.88% of total gross loans) at September 30, 2010, compared to $415,000 (1.13% of total gross loans) at December 31, 2009. The increase in the allowance for loan losses and the related provisions for loan losses are directly related to the increased volume of net loan charge-offs and increased levels of nonaccrual loans. Management considers the current allowance for loan losses to be adequate to sustain any estimated or potential losses. Our loan loss methodology incorporates any anticipated write-downs and charge-offs in all problem loans identified by management, and credit review examinations conducted by regulatory authorities and by third-party review services. We believe our efforts to identify and reduce criticized and classified loans have resulted in an improvement in the overall credit quality of the Bank’s loan portfolio.

The allocation of the allowance for loan losses by loan category at the date indicated is presented below (dollar amounts are presented in thousands):

	September 30, 2010					December 31, 2009
	Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans

Commercial, financial and agricultural	$	59		9	%	$	84		20	%
Real estate - mortgage		406		63	%		199		48	%
Real estate - construction		152		24	%		85		21	%
Consumer		28		4	%		47		11	%
	$	645		100	%	$	415		100	%

The following table presents a summary of changes in the allowance for loan losses for the three and nine month periods ended September 30, 2010 and 2009:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Balance beginning of period	$	545,094		$	417,277		$	414,670		$	838,234
Provision for loan losses		127,880			136,080			438,619			206,080
Loan Charge-Offs:
Commercial, Financial and Agricultural		-			(26,866	)		-			(175,162	)
Real Estate-Mortgage		-			-			-			(57,137	)
Real Estate-Construction		(1,500	)		-			(181,359	)		(275,000	)
Consumer		(27,382	)		(21,701	)		(30,534	)		(48,647	)
Total Charge-offs		(28,882	)		(48,567	)		(211,893	)		(555,946	)

Loan Recoveries:
Consumer		630			4,656			3,326			21,078
Total Recoveries		630			4,656			3,326			21,078
Net (Charge-offs) Recoveries		(28,252	)		(43,911	)		(208,567	)		(534,868	)

Balance end of period	$	644,722		$	509,446		$	644,722		$	509,446

Total loans at end of period (in thousands)	$	34,340		$	38,424		$	34,340		$	38,424

Average loans outstanding, excluding LHFS (in thousands)		34,042			38,082		$	35,317		$	37,460
As a percentage of average loans:
Net loans charged-off		0.08	%		0.12	%		0.59	%		1.43	%
Provision for loan losses		0.38	%		0.36	%		1.24	%		0.55	%
Allowance for loan losses as a percentage of:
Gross loans		1.88	%		1.33	%		1.88	%		1.33	%

The following is a summary of risk elements in the loan portfolio at September 30, 2010 and at December 31, 2009:

	September 30, 2010			December 31, 2009

Loans on Nonaccrual	$	1,863,100		$	122,000
Loans Past Due 90 Days and Still Accruing		100,100			3,200
Other Real Estate Owned and Repossessions		556,500			654,000

Total Nonperforming Assets	$	2,519,700		$	799,200

Total Nonperforming Assets as a Percentage of Gross Loans and ORE		7.22	%		2.09	%

A loan is placed on non-accrual status when, in management’s judgment, the collection of interest appears doubtful. As a result of management’s ongoing review of the loan portfolio, loans are classified as non-accrual when management believes, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of interest is doubtful. Generally, loans are placed on non-accrual status when principal or interest payments are past due for more than 90 days. Exceptions are allowed for loans past due greater than 90 days when such loans are well secured and in process of collection. One loan was past due greater than 90 days at September 30, 2010. Management is in the process of working on a plan for this loan and expects to collect all contractual payments. Several loans, totaling $456,000, on non accrual status at September 30, 2010, were not currently past due, but collection of all contractual payments remains uncertain. These loans have specific reserves of $14,000 allocated to them. These loans are collateralized by leased property with rent being collected monthly. The remaining loans totaling $1,407,100, held on nonaccrual status in 2010, have specific reserves of $240,000 allocated to them.

Financial Condition

Total assets decreased $2,344,000, or 3%, from $76,566,000 at December 31, 2009 to $74,222,000 at September 30, 2010. There was a reduction of investment securities through a combination of scheduled and unscheduled prepayments of principal and the sale of certain securities totaling $9,105,000, or 37%. Total deposits decreased by $8,000,000, or 12%, from December 31, 2009 to September 30, 2010, including a $7,240,000, or 56%, decrease in non core time deposits. Total shareholders’ equity increased $2,074,000 from $4,399,000 at December 31, 2009 to $6,473,000 at September 30, 2010. During 2010, we received proceeds of $1,243,038 from the sale of 1,883,145 shares in a private offering. The remaining increase in shareholders’ equity consisted of net income of $492,000 and net increases in other comprehensive income of $339,000. The increase in comprehensive income is reflective of the improvement in the value of our available for sale securities portfolio.

Loans

Gross loans totaled approximately $34,340,000 at September 30, 2010, a decrease of $2,291,000, or 6.25%, from $36,631,000 at December 31, 2009. Balances within the major loans receivable categories as of September 30, 2010 and December 31, 2009 are as follows (amounts presented in thousands). The reduction in the loan portfolio is consistent with the Bank’s current strategy of shrinking the balance sheet to preserve and improve its capital position.

	September 30, 2010				December 31, 2009
Commercial, financial and agricultural	$	2,788	8	%	$	3,716	10	%
Real estate – mortgage		24,678	72	%		26,643	73	%
Real estate – construction		5,846	17	%		4,746	13	%
Consumer		1,028	3	%		1,526	4	%
Total	$	34,340	100	%	$	36,631	100	%

Deposits

Total deposits as of September 30, 2010 and December 31, 2009 were $61,566,000 and $69,567,000, respectively. Balances and average rates paid for interest within the major deposit categories as of September 30, 2010 and December 31, 2009 are as follows (amounts presented in thousands):

	September 30, 2010					December 31, 2009
	Amount		Rate			Amount		Rate

Non-interest-bearing demand deposits	$	2,950		N/A		$	3,076		N/A
Interest-bearing demand deposits		5,857		0.62	%		8,443		0.85	%
MMDA and Savings deposits		15,786		1.76	%		11,950		2.06	%
Time deposits less than $100,000		20,465		2.87	%		28,072		2.81	%
Time deposits $100,000 and over		16,508		1.17	%		18,026		3.27	%

	$	61,566				$	69,567

At September, 2010 the Bank had time deposits of $100,000 or more equal to $16,508,000. Approximately $394,000, or 2.4%, of these deposits, would not be covered under the new FDIC insurance coverage.

Capital Resources

The following table summarizes the Bank’s risk-based capital ratios at September 30, 2010 and December 31, 2009:

	September 30, 2010			December 31, 2009
Risk-Based Capital Ratios:
Tier 1 Capital (to risk-weighted assets)		13.15	%		9.94	%
Total Capital (to risk-weighted assets)		14.40	%		10.82	%

Leverage Ratio:
Tier 1 Capital (to total average assets)		8.69	%		6.22	%

The Bank was considered “well capitalized” at September 30, 2010.

Liquidity

The Bank must maintain, on a daily basis, sufficient funds to cover the withdrawals from depositors’ accounts and to supply new borrowers with funds. To meet these obligations, the Bank keeps cash on hand, maintains account balances with its correspondent banks, and purchases and sells federal funds and other short-term investments. Asset and liability maturities are monitored in an attempt to match the maturities to meet liquidity needs. It is the policy of the Bank to monitor its liquidity to meet regulatory requirements and our local funding requirements.

As of September 30, 2010 the Bank has $3,684,000 in cash and cash equivalents as well as $3,306,000 in investment securities available-for-sale to fund its operations and loan growth. The Bank also maintains relationships with correspondent banks that can provide funds to it on short notice, if needed. Presently, the Bank has arrangements with a correspondent bank for short-term unsecured advances of up to $1,000,000. At September 30, 2010 there were no advances on this line. The Bank has borrowing capacity through its membership in the Federal Home Loan Bank of Atlanta (“FHLB”) subject to the availability of investment securities to pledge as collateral. As of September 30, 2010, the Bank had advances outstanding of $5,500,000. The Bank has primary borrowing capacity through the Federal Reserve Bank discount window program subject to the availability of loans and investment securities to pledge as collateral. As of September 30, 2010, the Bank had no advances outstanding.

Off-Balance Sheet Arrangements

We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments consist of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are written conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. Most letters of credit extend for less than one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. A commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. Our exposure to credit loss in the event of nonperformance by the other party to the instrument is represented by the contractual notional amount of the instrument.

Since certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We use the same credit policies in making commitments to extend credit as we do for on-balance-sheet instruments. Collateral held for commitments to extend credit varies but may include unimproved and improved real estate, certificates of deposit or personal property.

The following table summarizes our off-balance-sheet financial instruments whose contract amounts represent credit risk as of September 30, 2010:

Commitments to extend credit		$	1,582,000
Stand-by letters of credit		$	690,000

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not applicable.

Item 4. Controls and Procedures

As of the end of the period covered by this report we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e).

Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our current disclosure controls and procedures are effective as of September 30, 2010 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. There have been no significant changes in our internal controls over financial reporting during the fiscal quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are, from time to time, a party to litigation arising in the normal course of our business. In the opinion of management, we are not a party to any material legal proceedings, nor are there any material proceedings known to us to be contemplated by any governmental authority. Additionally, we are not aware of any material proceedings, pending or contemplated, in which any of our directors, officers or affiliates, or any principal security holder or any associate of any of the foregoing, is a party or has an interest adverse to us.

Item 1A. Risk Factors

Not Applicable

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In June 2010, the Company commenced a private offering of up to 2,000,000 shares of its common stock at of price of $0.67 per share to a limited number of accredited investors. The private offering closed August 13, 2010. During the third quarter of 2010 the Company has received net proceeds of $265,289 from the sale of 423,818 shares in the offering. Total net proceeds raised in the offering were $1,243,038 from the sale of 1,883,145 shares. For each share issued, a warrant to purchase one share of common stock at a price of $0.67 was also granted, resulting in the issuance of 1,883,145 warrants. The Company is using the net proceeds from the private offering for working capital purposes. The common stock that was sold in the offering has not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

None.

Item 5. Other Information

None.

Item 6. Exhibits

31.1	Rule 13a-14(a) Certification of the Principal Executive Officer.

31.2	Rule 13a-14(a) Certification of the Principal Financial Officer.

32	Section 1350 Certifications.

SIGNATURES

Pursuant to the requirements 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.

Date: November 15, 2010	By:	/s/ William R. Blanton
	Name:	William R. Blanton
	Title:	Principal Executive Officer

Date: November 15, 2010	By:	/s/ Denise Smyth
	Name:	Denise Smyth
	Title:	Principal Financial and Accounting Officer

FIRST CENTURY BANCORP.

EXHIBIT INDEX

Exhibit Number		Description

31.1		Rule 13a-14(a) Certification of the Principal Executive Officer.

31.2		Rule 13a-14(a) Certification of the Principal Financial Officer.

32		Section 1350 Certifications.

FIRST CENTURY BANCORP. 10-Q