~~Table~~ UNITED ~~of Contents~~STATES

~~UNITED~~SECURITIES ~~STATES~~AND EXCHANGE COMMISSION

~~SECURITIES~~Washington, ~~AND~~D.C. ~~EXCHANGE COMMISSION~~ 20549

~~Washington,~~Form ~~D.C. 20549~~ 10-K

~~Form~~Annual ~~10-K~~Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

~~Annual~~For ~~Report under Section 13 or 15(d) of~~ the ~~Securities~~fiscal ~~Exchange~~year ~~Act~~ended ofDecember ~~1934~~31, 2010

~~For~~Commission ~~the~~File ~~fiscal~~No. ~~year ended December 31, 2009~~ 000-49789

~~Commission~~HENRY ~~File~~COUNTY ~~No.~~BANCSHARES, ~~000-49789~~ INC.

~~HENRY~~(Exact ~~COUNTY BANCSHARES,~~name ~~INC.~~of Registrant as Specified in Its Charter)

(Exact name of Registrant as Specified in Its Charter)

Georgia (State or Other Jurisdiction of Incorporation or Organization)		58-1485511 (I.R.S. Employer Identification No.)
4806 N. Henry Boulevard, Stockbridge, Georgia (Address of Principal Executive Offices)		30281 (Zip Code)

Georgia		58-1485511
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
4806 N. Henry Boulevard, Stockbridge, Georgia		30281
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (770) 474-7293

~~Registrant’s~~Securities ~~telephone~~registered ~~number,~~pursuant ~~including~~to ~~area~~Section ~~code:~~ 12(~~770~~b) ~~474-7293~~ of the Act: None.

Securities registered pursuant to Section 12(bg) of the Act: ~~None.~~

~~Securities~~Common ~~registered~~Stock, ~~pursuant~~$.10 topar ~~Section 12(g) of the Act:~~ value

~~Common~~Indicate ~~Stock,~~by ~~$2.50~~check ~~par~~mark ~~value~~whether the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark ~~whether~~if the registrant is anot ~~well-known~~required ~~seasoned~~to ~~issuer~~file asreports ~~defined~~pursuant into ~~Rule~~Section ~~405~~13 or Section 15(d) of the ~~Securities~~ Act. ~~Yes~~ ¨ Yes o No x þ

Indicate by check mark ifwhether the registrant: (1) ishas ~~not~~filed all reports required to ~~file~~be ~~reports~~filed ~~pursuant~~by to Section 13 or ~~Section~~ 15(d) of the 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~~ ¨ Yes þ No x o

Indicate by check mark whether the registrant: ~~(1)~~ has ~~filed~~submitted ~~all~~electronically ~~reports~~and posted on its corporate Website, if any, every interactive Data File required to be ~~filed~~submitted byand ~~Section 13~~posted ~~or 15(d)~~pursuant to Rule 405 of ~~the~~Regulation ~~Exchange~~S-T ~~Act~~(§232.405 of ~~1934~~this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to ~~file~~submit ~~such reports),~~ and ~~(2) has~~post ~~been subject to~~ such ~~filing requirements for the past 90 days~~files). ~~Yes~~ x Yes o No ¨ o

Indicate by check mark ~~whether~~if ~~the~~disclosure ~~registrant~~of ~~has~~delinquent ~~submitted~~filers ~~electronically~~pursuant ~~and~~to ~~posted~~Item on405 ~~its~~of ~~corporate~~Regulation ~~Website,~~S-K ifis ~~any, every~~not ~~interactive~~contained ~~Data~~herein ~~File~~and ~~required~~will tonot be ~~submitted~~contained, ~~and posted pursuant~~ to ~~Rule~~the ~~405~~best of ~~Regulation~~registrant’s ~~S-T~~knowledge, ~~(§232.405~~in ofdefinitive ~~this~~proxy ~~chapter)~~or ~~during~~information ~~the~~statements ~~preceding~~incorporated 12by ~~months~~reference ~~(or~~in ~~for~~Part ~~such~~III ~~shorter~~of ~~period~~this ~~that~~Form ~~the~~10-K ~~registrant~~or ~~was~~any ~~required~~amendment to ~~submit~~this ~~and~~Form ~~post such files)~~10-K. ~~Yes~~ ~~¨ No ¨~~ o

Indicate by check mark ifwhether ~~disclosure~~the ofregistrant ~~delinquent~~is ~~filers~~a ~~pursuant~~large toaccelerated ~~Item 405~~filer, ofan ~~Regulation~~accelerated ~~S-K~~filer, isa ~~not~~non-accelerated ~~contained herein~~filer ~~and~~or ~~will~~a ~~not~~smaller bereporting ~~contained,~~company. See todefinitions ~~the best~~ of ~~registrant’s~~“large ~~knowledge~~accelerated filer,” in“accelerated ~~definitive~~filer,” ~~proxy~~and or“smaller ~~information~~reporting ~~statements~~company,” ~~incorporated by reference~~ in ~~Part~~Rule ~~III~~12b-2 of ~~this~~the ~~Form~~Exchange ~~10-K or any amendment to this Form 10-K~~Act. x(Check one):

~~Indicate~~Large byAccelerated ~~check mark whether the registrant is a large accelerated~~ filer, ano ~~accelerated~~Accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” in Rule 12b-2 of the Exchange Act. (Check one): o

~~Large Accelerated filer ¨ Accelerated filer ¨~~ Smaller reporting company xþ Non-accelerated filer ¨o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act of 1934). Yes ¨ o No x þ

State the aggregate market value of the voting and nonvoting common equity held by nonaffiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such stock, as of June 30, ~~2009~~2010: $3521,~~638~~263,~~033~~000 (The Company’s common stock is not publicly traded. Because there were no trades ~~and~~or active bid and ask prices for the stock, aggregate market value is based on the book value of $21.8448 per share as of that date).

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 14,245,690 shares of $2.5010 par value common stock as of March 15, ~~2010~~2011.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for the ~~2010~~2011 Annual Meeting of Shareholders are incorporated herein into Part III by reference.

~~Table of Contents~~1

Table of Contents

			Page		~~Page~~
PART I
	Cautionary Notice Regarding Forward-Looking Statements	~~Cautionary Notice Regarding Forward-Looking Statements~~	3		3
	Item 1.	~~Item 1.~~Business	4	~~Business~~	4
	Item 1A.	~~Item~~Risk ~~1A.~~Factors	19	~~Risk Factors~~	19
	Item 1B.	~~Item~~Unresolved ~~1B.~~Staff Comments	29	~~Unresolved Staff Comments~~	27
	Item 2.	~~Item 2.~~Properties	29	~~Properties~~	27
	Item 3.	~~Item~~Legal 3.Proceedings	30	~~Legal Proceedings~~	28
	Item 4.	~~Item~~Removed 4.and Reserved	30	~~Removed and Reserved~~	28
PART II
	Item 5.	~~Item~~Market 5.for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30	~~Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~	28
	Item 6.	~~Item~~Selected 6.Financial Data	32	~~Selected Financial Data~~	31
	Item 7.	~~Item~~Management’s 7.Discussion and Analysis of Financial Condition and Results of Operation	34	~~Management’s Discussion and Analysis of Financial Condition and Results of Operation~~	33
	Item 7A.	~~Item~~Quantitative ~~7A.~~and Qualitative Disclosures About Market Risk	56	~~Quantitative and Qualitative Disclosures About Market Risk~~	54
	Item 8.	~~Item~~Financial 8.Statements and Supplementary Data	57	~~Financial Statements and Supplementary Data~~	55
	Item 9.	~~Item~~Changes 9.in and Disagreements with Accountants on Accounting and Financial Disclosure	58	~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~	96
	Item 9A.	~~Item~~Controls ~~9A.~~and Procedures	58	~~Controls and Procedures~~	96
	Item 9B.	~~Item~~Other ~~9B.~~Information	59	~~Other Information~~	99
PART III
	Item 10.	~~Item~~Directors, ~~10.~~Executive Officers and Corporate Governance	59	~~Directors, Executive Officers and Corporate Governance~~	99
	Item 11.	~~Item~~Executive ~~11.~~Compensation	59	~~Executive Compensation~~	99
	Item 12.	~~Item~~Security ~~12.~~Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	60	~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~	~~100~~
	Item 13.	~~Item~~Certain ~~13.~~Relationships and Related Transactions and Director Independence	60	~~Certain Relationships and Related Transactions and Director Independence~~	~~100~~
	Item 14.	~~Item~~Principal ~~14.~~Accounting Fees and Services	60	~~Principal Accounting Fees and Services~~	~~100~~
PART IV
	Item 15.	~~Item~~Exhibits ~~15.~~and Financial Statement Schedules	60	~~Exhibits and Financial Statement Schedules~~	~~100~~
		Signatures	61		~~101~~
		Index to Exhibits	63		~~103~~

~~Table~~Cautionary ofNotice ~~Contents~~Regarding Forward-Looking Statements

~~Cautionary~~This ~~Notice~~Form ~~Regarding~~10-K 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, about the Company and its subsidiaries. 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. Actual results of the Company could be quite different from those expressed or implied by the forward-looking statements. Forward-~~Looking~~looking ~~Statements~~statements are not statements of historical fact, and can be identified by the use of forward-looking terminology such as “could”, “may”, “will”, “should”, “plan”, “believes”, “anticipates”, “estimates”, “pro forma”, “seeks”, “intends”, “predicts”, “expects”, “projections”, “potential”, “continue”, or the negative thereof or comparable terminology. Forward-looking statements include discussions of strategy, financial projections, guidance and estimates (including their underlying assumptions), statements regarding plans, objectives, expectations or consequences of various transactions, and statements about the future performance, operations, products and services of the Company and its subsidiaries. We caution our shareholders and other readers not to place undue reliance on such statements.

~~This~~Our ~~Form~~businesses ~~10-K~~and ~~contains~~operations ~~forward-looking~~are ~~statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act,~~ and ~~Section 21E~~will ofbe ~~the~~subject ~~Securities~~to ~~Exchange~~a ~~Act~~variety of ~~1934~~risks, asuncertainties ~~amended, or the Exchange Act, about the Company~~ and ~~its~~other ~~subsidiaries~~factors. Consequently, ~~These~~actual ~~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. Actual~~ results ofand ~~the~~experience ~~Company~~may ~~could~~materially bediffer ~~quite different~~ from those ~~expressed~~contained orin ~~implied~~any ~~by the~~ forward-looking statements. Such ~~Forward-looking statements are not statements of historical fact~~risks, uncertainties and ~~can~~other befactors ~~identified~~that ~~by the use of forward-looking terminology such as “~~could”, ~~“may”,~~cause ~~“will”,~~actual ~~“should”,~~results ~~“plan”,~~and ~~“believes”,~~experience ~~“anticipates”, “estimates”,~~to ~~“pro~~differ ~~forma”,~~from ~~“seeks”,~~those ~~“intends”,~~projected ~~“predicts”, “expects”, “projections”, “potential”, “continue”, or the negative thereof or comparable terminology. Forward-looking statements~~ include ~~discussions of strategy~~, ~~financial~~but ~~projections,~~are ~~guidance~~not ~~and~~limited ~~estimates (including their underlying assumptions)~~to, ~~statements regarding plans, objectives, expectations or consequences of various transactions, and statements about~~ the ~~future~~following ~~performance, operations, products and services of the Company and its subsidiaries. We caution our shareholders and other readers not to place undue reliance on such statements.~~ factors:

~~Our~~● ~~businesses~~our ~~and~~ability ~~operations are and will be subject~~ to ameet ~~variety~~the ofconditions ~~risks,~~outlined ~~uncertainties and other factors. Consequently, actual results and experience may materially differ from those contained~~ in ~~any~~the ~~forward-looking~~Consent ~~statements.~~Order ~~Such~~including ~~risks,~~our ~~uncertainties~~ability ~~and other factors that could cause actual results and experience~~ to ~~differ~~raise ~~from~~capital ~~those~~consistent ~~projected~~with ~~include,~~our ~~but~~capital ~~are not limited to, the following factors:~~ plan;

•● ~~our~~difficult ~~ability~~market ~~to meet the~~ conditions ~~outlined in the MOU~~ and ~~probable~~economic ~~Consent Order including our ability to raise capital consistent with our capital plan~~trends;

•● ~~difficult~~our ~~market~~concentrations ~~conditions~~of residential and ~~economic~~commercial ~~trends~~construction and development loans;

•● ~~our~~continued ~~concentrations~~deterioration ofin ~~residential~~the ~~and~~metro ~~commercial~~Atlanta ~~construction~~real ~~and~~estate ~~development loans~~markets;

•● ~~continued~~our ~~deterioration~~allowance infor ~~the~~loan ~~metro~~losses ~~Atlanta~~may ~~real~~not ~~estate~~be ~~markets~~sufficient to cover actual loan losses that could be incurred;

•● our ~~allowance~~ability ~~for loan losses may not be sufficient~~ to ~~cover~~maintain ~~actual~~liquidity ~~loan~~or ~~losses~~access ~~that~~other ~~could~~sources beof ~~incurred~~funding;

•● ~~our~~changes ~~ability~~in tothe ~~maintain~~cost ~~liquidity~~and oravailability ~~access other sources~~ of funding;

•● changes in ~~the~~prevailing ~~cost~~interest rates that may negatively affect our net income and ~~availability~~the value of ~~funding~~our assets;

•● changes in ~~prevailing~~financial ~~interest~~services ~~rates~~laws ~~that may negatively affect our net income~~ and ~~the value of our assets~~regulations;

•● ~~changes~~competition infrom financial ~~services~~institutions ~~laws~~ and ~~regulations~~other financial service providers;

•● ~~competition~~ability ~~from~~to ~~financial~~retain ~~institutions~~key ~~and other financial service providers~~personnel;

•● ~~ability~~a special assessment that may be imposed by the FDIC on all FDIC-insured institutions in the future, similar to ~~retain~~the ~~key~~assessment ~~personnel~~in 2009 that decreased our earnings;

•This alist ~~special~~is ~~assessment~~intended to identify some of the principal factors that ~~may~~could because ~~imposed~~actual byresults ~~the~~to ~~FDIC~~differ onmaterially ~~all~~from ~~FDIC-insured~~those ~~institutions~~described in the ~~future,~~forward-looking ~~similar~~statements included herein and are not intended to ~~the~~represent ~~assessment~~a incomplete ~~2009~~list ~~that~~of ~~decreased~~all risks and uncertainties in our ~~earnings;~~business. Investors are encouraged to read the risks discussed under “Item 1A.—Risk Factors”.

~~This list is intended to identify some of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included herein and are not~~ 3

~~intended~~Part ~~to represent a complete list of all risks and uncertainties in our business. Investors are encouraged to read the risks discussed under “Item 1A.—Risk Factors”.~~ I

3Item 1. BUSINESS

~~Table of Contents~~General

~~Part~~Henry ICounty Bancshares, Inc. (“we” or “us” or the “Company”), headquartered in Stockbridge, Georgia, is a Georgia business corporation which operates as a bank holding company. The Company was incorporated on June 22, 1982 for the purpose of reorganizing The First State Bank (the “Bank”) to operate within a holding company structure. The Bank is a wholly owned subsidiary of the Company.

~~Item~~The 1Company’s principal activities consist of owning and supervising the Bank, which engages in a full service commercial and consumer banking business, as well as a variety of deposit services provided to its customers. Until ~~BUSINESS~~December 15, 2009, when it suspended operations, the Company also conducted mortgage-lending operations through the Bank’s wholly owned subsidiary, First Metro Mortgage Company (“First Metro”). First Metro provided the Bank’s customers with a wide range of mortgage banking services and products in the same primary market area as the Bank.

~~General~~ At December 31, 2010, we had total assets of $564 million, total loans of $380 million, total deposits of $545 million, and stockholders’ equity of $15 million.

~~Henry~~Market ~~County Bancshares~~Area, ~~Inc.~~Products ~~(“we”~~and or “us” or the “Company”), headquartered in Stockbridge, Georgia, is a Georgia business corporation which operates as a bank holding company. The Company was incorporated on June 22, 1982 for the purpose of reorganizing The First State Bank (the “Bank”) to operate within a holding company structure. The Bank is a wholly owned subsidiary of the Company. Services

~~The Company’s~~First ~~principal~~State ~~activities consist of owning and supervising the~~ Bank, ~~which~~is ~~engages in~~ a full service commercial ~~and~~bank ~~consumer~~headquartered ~~banking~~at ~~business,~~4806 asNorth ~~well~~Henry asBoulevard, aStockbridge, ~~variety~~Georgia. The ofBank ~~deposit~~serves ~~services provided to~~ its ~~customers.~~primary ~~The~~market ~~Company~~area ~~has~~of ~~also conducted~~Henry ~~mortgage~~and ~~lending~~adjacent ~~operations~~counties through ~~the~~its ~~Bank’s~~main ~~wholly~~office ~~owned~~and ~~subsidiary,~~six ~~First~~(6) ~~Metro~~full ~~Mortgage~~service ~~Company~~branches ~~(“First~~located ~~Metro”),~~throughout ~~which~~Henry ~~provided~~County. The ~~the~~ Bank’s customers ~~with~~are aprimarily ~~wide~~individuals ~~range of mortgage banking services~~ and ~~products. Until~~small ~~December 15,~~businesses ~~2009 when it suspended operations, First Metro, also~~ located in ~~Stockbridge, provided mortgage loan origination services in~~ the ~~same~~ primary market area ~~as the Bank~~. ~~The Bank intends on keeping the licensing in place for First Metro and possibly resuming mortgage operations in the future.~~

AtThe ~~December 31,~~Bank ~~2009,~~is weprimarily ~~had~~engaged ~~total assets~~in ofattracting ~~$615~~deposits ~~million~~from individuals and businesses and using these deposits and borrowed funds to originate commercial loans, ~~total~~commercial loans ofsecured ~~$435~~by ~~million~~real estate, ~~total~~construction ~~deposits~~and ofresidential ~~$586~~real ~~million~~estate loans, residential mortgage and ~~stockholders’~~home equity ofloans, ~~$23~~and ~~million~~secured and unsecured consumer loans. Internet banking, including on-line bill pay, and Internet cash management services are available to individuals and businesses, respectively.

~~Market~~We ~~Area~~have grown our assets, ~~Products~~deposits, and ~~Services~~business internally by building on our lending products, expanding our deposit products and delivery capabilities, and opening new branches. As of June 30, 2010, the latest information available from the Federal Deposit Insurance Corporation, the Bank held approximately 30.6% of the deposit accounts in Henry County.

First State Bank is a full service commercial bank headquartered at 4806 North Henry Boulevard, Stockbridge, Georgia. The Bank serves its primary market area of Henry and adjacent counties through its main office and six (6) full service branches located throughout Henry County. The Bank’s customers are primarily individuals and small businesses located in the primary market area. 4

The Bank is primarily engaged in attracting deposits from individuals and businesses and using these deposits and borrowed funds to originate commercial loans, commercial loans secured by real estate, construction and residential real estate loans, residential mortgage and home equity loans, and secured and unsecured consumer loans. Internet banking, including on-line bill pay, and Internet cash management services are available to individuals and businesses, respectively. Deposits

WeThe ~~have~~Bank ~~grown~~offers ~~our~~a ~~assets,~~full ~~deposits,~~range ~~and~~of ~~business~~depository ~~internally~~accounts byand ~~building~~services onto ~~our~~both ~~lending~~individuals ~~products, expanding our deposit products~~ and ~~delivery capabilities, and opening new branches~~businesses. As of ~~June 30~~December 31, ~~2009~~2010, ~~the~~deposits ~~latest~~totaled ~~information available from the Federal Deposit Insurance Corporation~~$544,663,000, ~~the~~consisting ~~Bank held approximately 31.80%~~ of ~~the deposit accounts in Henry County.~~ :

	December 31, 2010
(in thousands)	Amount		Percent*
Noninterest-bearing deposits:
Demand deposits	$	60,047		11.02
Interest bearing deposits:
Demand deposits		58,834		10.80
Money market and savings deposits		67,015		12.30
Time deposits greater than $100,000		120,402		22.11
Other time deposits		198,034		36.36
Brokered time deposits		40,331		7.41
Total interest bearing deposits		484,616		88.98
Total deposits	$	544,663		100.00

* Percentage of total deposits

~~Table of Contents~~Lending

~~Deposits~~The Bank makes both secured and unsecured loans to individuals, firms, and corporations. Secured loans include first and second real estate mortgage loans and commercial loans secured by non-real estate assets. The Bank also makes direct installment loans to consumers on both a secured and unsecured basis.

The Bank ~~offers~~focuses aprimarily ~~full~~on ~~range~~residential ofand ~~depository~~commercial ~~accounts~~construction ~~and~~loans, ~~services~~commercial toloans, ~~both~~home ~~individuals~~equity ~~and~~loans, ~~businesses.~~residential Asreal ofestate ~~December 31~~loans, ~~2009~~and loans secured by savings accounts, ~~deposits~~other ~~totaled~~time ~~$586~~accounts,~~101,000,~~ ~~consisting~~cash value of: life insurance, or readily marketable stocks and bonds.

	December 31, 2009
(in thousands)	Amount		Percent*
Noninterest-bearing deposits:
Demand deposits	$	59,831	10.21
Interest bearing deposits:
Demand deposits		56,574	9.65
Money market and savings deposits		67,340	11.49
Time deposits greater than $100,000		127,258	21.71
Other time deposits		211,118	36.02
Brokered time deposits		63,980	10.92
Total interest bearing deposits		526,270	89.79
Total deposits	$	586,101	100.00
* Percentage of total deposits

~~Lending~~As of December 31, 2010, the Bank had total loans outstanding consisting of:

The Bank makes both secured and unsecured loans to individuals, firms, and corporations. Secured loans include first and second real estate mortgage loans and commercial loans secured by non-real estate assets. The Bank also makes direct installment loans to consumers on both a secured and unsecured basis.

	December 31, 2010
(in thousands)	Amount		Percent*
Commercial real estate
Land, development and construction	$	130,526		34.33
Other		106,152		27.92
Churches		79,706		20.96
Total commercial real estate		316,384		83.21
Residential real estate		48,741		12.82
Total real estate		365,125		96.03
Commercial		4,162		1.09
Consumer		10,955		2.88
	$	380,242		100.00

~~The~~Commercial ~~Bank~~real ~~focuses~~estate. The ~~primarily~~Company onengages ~~residential~~in ~~and~~ commercial ~~construction~~real ~~loans,~~estate ~~commercial~~lending ~~loans,~~through ~~home~~direct ~~equity~~originations. We ~~loans, residential~~grant commercial real estate loans, ~~and~~to ~~loans~~customers ~~secured~~for bythe ~~savings~~purpose ~~accounts~~of purchasing and developing real estate, ~~other~~providing ~~time~~funds ~~accounts~~for construction, ~~cash~~financing ~~value~~the needs of ~~life insurance~~churches, or ~~readily~~financing ~~marketable~~owner ~~stocks~~or ~~and~~non-owner ~~bonds~~occupied commercial real estate. Commercial real estate loans are generally prime-based floating-rate loans or shorter-term (one to five year) fixed-rate loans.

5Land, development and construction. The Company makes loans to purchase and develop real estate, including construction loans, to customers in our market area. These type loans, secured by real estate, finance both speculative projects and projects with end buyers already committed. Loan policy provides for limits on speculative lending by borrower and by real estate project. This type of loan is subject primarily to market and general economic risk caused by inventory build-up in periods of economic prosperity. During times of economic stress, this type of loan has typically had a greater degree of risk than other loan types.

~~Table~~Churches. The Company makes loans to churches, secured by real estate, to fund new construction and renovation to existing facilities. These loans are subject to the risk of ~~Contents~~local economic conditions that affect the financial condition and the giving level of church members.

AsOther ofCommercial ~~December 31~~Real Estate. There are two categories within other commercial real estate, ~~2009~~owner and non-owner occupied. With owner occupied commercial real estate, the Bank’s ~~had~~primary ~~total~~focus is to finance business owner/operators real estate out of which they operate their business. Loans to finance income producing real estate, leased by a third – party are classified as non-owner occupied real estate loans. These ~~outstanding~~loans are subject to the risks of the local and national economy that affect the viability, ~~based~~and ~~on FDIC~~ultimately ~~call~~the ~~report~~cash ~~classifications~~flow of the business occupying the real estate, ~~consisting~~which is the primary source of: repayment. Loans with balances totaling $56.7 million or approximately 53% of our other commercial real estate portfolio, were classified as owner occupied at December 31, 2010.

	December 31, 2009
(in thousands)	Amount		Percent*
Real estate-commercial
Owner occupied	$	170,410	39.19
Non-owner occupied		14,793	3.40
Total real estate-commercial		185,203	42.59
Real estate-construction		175,492	40.35
Real estate-1-4 family		54,332	12.49
Total real estate		415,027	95.43
Commercial		14,396	3.31
Consumer		5,468	1.26
	$	434,891	100.00
* Percentage of total loans

Residential Real ~~estate-commercial~~Estate. The Bank ~~engages~~ ingrants ~~commercial~~loans ~~real~~to ~~estate~~individuals ~~lending~~secured ~~through~~by ~~direct~~first ~~originations. Loans classified as commercial real estate are either for the purpose of financing owner occupied real estate~~ or ~~non-owner~~second ~~occupied~~mortgages ~~real estate. With owner occupied commercial real estate, the Bank’s primary focus is~~ on ~~originating~~residential ~~loans to churches to build and expand their church properties and to business owner/operators to finance~~ real estate ~~out~~located ofin ~~which~~our ~~they~~market ~~operate their business~~area. The ~~Non-owner~~majority ~~occupied~~of ~~real estate~~these loans ~~for investment purposes~~ are ~~made~~for onowner aoccupied ~~selective~~properties ~~basis~~ and ~~only~~are ~~where~~subject ~~the borrowers or guarantors add substantial support~~ to ~~their~~risks ~~credit.~~associated ~~Loans~~with ~~where~~ the ~~sole~~local ~~source~~economy. We ofwill ~~repayment~~generally islend ~~derived~~up ~~from~~to ~~the~~90% ~~project, or where the absence~~ of the ~~project’s~~ ~~success~~current ~~would~~market ~~call~~value ~~into question the ability~~ of the ~~borrower~~underlying ~~to service the debt, are avoided. The Bank’s commercial~~ real estate ~~loans~~on ~~are~~first ~~made~~mortgage toresidential individuals and to small and medium sized businesses to provide diversification, to generate assets that are sensitive to fluctuations in interest rates, and to develop and support deposit and other relationships. Commercial real estate loans ~~are~~with ~~generally~~adjustable ~~prime-based~~rates ~~floating-rate loans~~ or ~~shorter-term~~balloon ~~(one~~payments todue within five ~~year~~(5) ~~fixed-rate~~ ~~loans.~~years ~~Loans with balances totaling $170.4 million~~ or ~~approximately 92~~80% of ~~our total commercial real estate portfolio, were classified as owner occupied at December 31, 2009. Included within~~ the ~~total~~value ~~owner~~on ~~occupied~~second ~~total~~mortgage ~~were~~home ~~$81 million~~equity of loans ~~to churches in the Bank’s market area~~.

~~Real estate-construction~~Commercial. These ~~The~~are ~~Bank~~loans the Company makes ~~residential~~ ~~construction~~to small and ~~development~~medium-sized ~~loans,~~businesses ~~secured~~in byits ~~real~~primary ~~estate~~trade area for specific business purposes such as, new or upgrades to ~~customers~~plant inand ~~our~~equipment, ~~market~~inventory ~~area~~acquisition and other working capital purposes. Commercial ~~Loans~~loans are granted ~~for~~based ~~both~~upon ~~speculative~~a ~~projects~~borrower’s ~~and~~cash ~~those~~flow, ~~being~~ability ~~built~~to ~~with~~repay ~~end~~and ~~buyers~~degree ~~already~~of ~~committed.~~management expertise. This type of loan ismay be subject ~~primarily~~ to ~~market~~many ~~and~~different ~~general~~types ~~economic~~of risk, ~~caused~~which bydiffer ~~inventory~~depending ~~build-up~~on inthe ~~periods~~borrower’s ofindustry. On ~~economic~~an ~~prosperity.~~ongoing ~~During~~basis, ~~times~~senior ofmanagement ~~economic~~monitors ~~stress~~general risks to an industry, ~~such~~or assegment ~~the~~of ~~current~~an ~~environment~~industry. When warranted, ~~this~~the ~~type~~Loan Committee and/or the Board of ~~loan~~Directors ~~has~~review ~~typically~~individual ~~had~~borrowers awho ~~greater~~may ~~degree~~be ofat risk ~~than~~due ~~other~~to ~~loan~~an ~~types~~industry condition. To Generally, ~~mitigate~~assets ~~that~~of ~~risk~~the business such as general intangibles, ~~the~~inventory, ~~Board~~equipment ofor ~~Directors~~real ~~and~~estate ~~management~~collateralize ~~review~~commercial ~~the~~loans. Collateral ~~portfolio~~is onsubject to risk in its ability to be converted to a ~~monthly~~liquid ~~basis~~asset, ~~and~~if ~~any~~necessary, ~~pertinent~~as ~~changes~~well oras ~~issues~~risks ~~are~~associated ~~brought~~with todegree ~~the~~of ~~Board’s~~specialization, ~~attention~~mobility atand ~~the~~general ~~monthly~~collectability ~~Board~~in ~~meeting~~a default situation. To ~~Loan~~mitigate ~~policy~~this ~~provides~~risk, ~~for~~we ~~limits~~adhere to strict underwriting standards on ~~speculative~~ ~~lending~~these bytypes ~~borrower~~of loans including valuations and bygeneral ~~real~~acceptability ~~estate~~based ~~project.~~on the Company’s ability to monitor the ongoing business viability and collateral value.

6Consumer. This portfolio consists principally of installment loans to individuals for personal, family, and household purposes. These loans entail a high degree of risk due to the typically highly depreciable nature of any underlying collateral and collectability risks resulting from the borrower’s potential for insolvency or bankruptcy. To mitigate this risk, we perform a thorough credit and financial analysis of the borrower and require appropriate collateral for each loan.

~~Table of Contents~~Employees

~~Real~~As ~~estate-1-4~~of ~~family.~~December ~~The~~31, ~~Bank~~2010, ~~grants~~the ~~loans~~Bank tohad ~~individuals~~104 ~~secured by~~full-time ~~first~~employees orand ~~second~~11 ~~mortgages~~part-time ~~on residential real estate located in our market area~~employees. None ~~The majority~~ of ~~these loans are for owner occupied properties. We will generally lend up to 90% of~~ the ~~current~~Bank’s ~~market~~employees ~~value~~are ofrepresented ~~the~~by ~~underlying~~a ~~real~~collective ~~estate~~bargaining ongroup. The ~~first mortgage~~Bank ~~residential~~considers ~~real~~its ~~estate~~relationships ~~loans~~ with ~~adjustable~~its ~~rates~~employees orto ~~balloon~~be ~~payments due within five (5) years or 80% of the value on second mortgage home equity loans~~good. ~~At December 31, 2009, $45 million of loans, or 82% of loans in this category were secured by first mortgages.~~

Commercial. To a lesser degree, the Bank makes loans to small and medium-sized businesses in our primary trade area for purposes such as new or upgrades to plant and equipment, inventory acquisition and various working capital purposes. Commercial loans are granted to borrowers based on cash flow, ability to repay and degree of management expertise. This type of loan may be subject to many different types of risk, which will differ depending on the particular industry in which the borrower operates. General risks to an industry, or segment of an industry, are monitored by senior management on an ongoing basis. When warranted, individual borrowers who may be at risk due to an industry condition may be more closely analyzed and reviewed at a Loan Committee or at the Board of Director level. 7

~~This~~Significant ~~type~~Operating of loan will usually be collateralized. Generally, business assets are used and may consist of general intangibles, inventory, equipment or real estate. Collateral is subject to risk in its ability to be converted to a liquid asset, if necessary, as well as risks associated with degree of specialization, mobility and general collectability in a default situation. To mitigate this risk, these types of loans are underwritten to strict standards including valuations and general acceptability based on the Bank’s ability to monitor the ongoing business viability and collateral value. Policies

~~Consumer~~Lending loans. This portfolio consists principally of installment loans to individuals for personal, family, and household purposes. These loans entail a high degree of risk due to the typically highly depreciable nature of any underlying collateral and collectability risks resulting from the borrower’s potential for insolvency or bankruptcy. To mitigate this risk, we perform a thorough credit and financial analysis of the borrower and require appropriate collateral for each loan. Policy

~~Employees~~The Bank makes loans primarily to persons or businesses that reside, work, own property, or operate in its primary market areas. Unsecured loans are generally made only to persons who qualify for such credit based on net worth and liquidity. Secured loans are made to persons who are well established and have net worth, collateral, and cash flow to support the loan. Exceptions to the Bank’s policies are permitted on a case-by-case basis.

AsThe Board of ~~December 31,~~Directors ~~2009,~~of the Bank ~~had~~has ~~107~~delegated ~~full-time~~lending ~~employees~~authority to a committee of the Board, which in turn delegates lending authority to our loan officers, each of whom is limited as to the amount of secured and ~~10 part-time~~unsecured ~~employees~~loans he or she can make to a single borrower or related group of borrowers. As ~~None~~our lending relationships are important to our success, the Board of Directors of the Bank has established review committees and written guidelines for lending activities. In particular, the Officers’ Credit Committee reviews lending relationships with aggregate relationship exposure exceeding $75,000. The Board of Director’s ~~employees~~Executive ~~are~~Committee ~~represented~~reviews byand approves lending relationships greater than $150,000. The Bank, as a ~~collective~~matter ~~bargaining~~of state law, does not generally extend additional credit to any single borrower or group. of related borrowers in excess of 25% of statutory capital, or approximately $3,750,000 at December 31, 2010. The Board of Directors of the Bank ~~considers~~periodically ~~its~~reviews ~~relationships~~and ~~with~~modifies ~~its~~lending ~~employees~~policies and procedures to beensure ~~good.~~risks are acceptable and to protect the Bank’s financial position in the market.

7Loan Review and Non-performing Assets

~~Table~~Credit Administration of ~~Contents~~the Bank reviews the Bank’s loan portfolio on an ongoing basis to identify any weaknesses in the portfolio and to assess the general quality of credit underwriting. The Audit Committee of the Board retains an outside loan review firm to complete quarterly reviews of the Bank’s portfolio with special emphasis on large and problem lending relationships. The results of such reviews are presented to the Audit Committee and Executive Management. If an individual loan or credit relationship has a material weakness identified during the review process, the risk rating of the loan, or generally all loans comprising that credit relationship, are downgraded to the classification that most closely matches the current risk level. The review process also provides for the upgrade of loans that show improvement since the last review. Since each loan in a credit relationship may have a different credit structure, collateral, and other secondary source of repayment, different loans in a relationship can be assigned different risk ratings. Under the Bank’s 8-tier loan grading system, grades 1 through 4 are considered “pass” (acceptable) credit risk, grade 5 is a “watch” rating, and grades 6 through 8 are “adversely classified” credits that require management’s attention. The entire 8-grade rating scale provides for a higher numeric rating for increased risk. For example, a risk rating of 1 is the least risky of all credits and would be typical of a loan that is 100% secured by a deposit at the Bank. Risk ratings of 2 through 4 in the pass category each have incrementally more risk.

~~Significant Operating Policies~~ 8

~~Lending~~The ~~Policy~~Bank’s Chief Financial Officer in conjunction with Credit Administration, prepares a quarterly analysis to determine the adequacy of the Allowance for Loan Losses (“ALL”) for the Bank. The ALL analysis starts with an individual review of all loans considered impaired and an assignment of a specific reserve if warranted. Effective with the second quarter of 2009, as mandated by the FDIC, impaired loans with specific reserves were required to be charged down to net realizable value by the amount of the specific reserve. Non-impaired loans are stratified by major loan type and loss reserves are determined based on each loan type’s respective loss factor, derived from the average historical loss rate for the preceding eighteen-month period and adjusted to reflect current economic conditions and individual loan risk ratings.

~~The~~Asset/Liability Bank makes loans primarily to persons or businesses that reside, work, own property, or operate in its primary market areas. Unsecured loans are generally made only to persons who qualify for such credit based on net worth and liquidity. Secured loans are made to persons who are well established and have net worth, collateral, and cash flow to support the loan. Exceptions to the Bank’s policies are permitted on a case-by-case basis.Management

The ~~Board of Directors of the~~ Bank’s ~~has~~asset/liability ~~delegated~~committee ~~lending~~(“ALCO”) ~~authority~~is tocomposed aof ~~committee~~members of the Board, ~~which~~of inDirectors ~~turn~~and ~~delegates lending~~the ~~authority~~Bank’s toChief ~~our~~Financial ~~loan~~Officer. ALCO’s ~~officers,~~primary ~~each~~role ~~of whom~~ is ~~limited as~~ to ~~the~~balance ~~amount~~asset ofgrowth ~~secured~~ and ~~unsecured~~income ~~loans~~generation hewith orthe ~~she~~prudent ~~can~~management ~~make~~of tointerest arate ~~single~~risk, ~~borrower~~market orrisk ~~related~~and ~~group~~liquidity ofrisk ~~borrowers.~~and Aswith ~~our~~the ~~lending~~need ~~relationships are important~~ to ~~our~~maintain ~~success,~~appropriate ~~the Board~~levels of ~~Directors~~capital. ALCO ofdirects the Bank’s ~~has~~overall ~~established~~balance ~~review~~sheet ~~committees~~strategy, ~~and~~including ~~written~~the ~~guidelines~~acquisition ~~for~~and ~~lending~~investment ~~activities~~of funds. At Inregular ~~particular~~meetings, the ~~Officers’~~committee ~~Credit Committee~~ reviews ~~lending~~the ~~relationships~~interest ~~with~~rate ~~aggregate~~sensitivity ~~relationship exposure exceeding $75,000. The Board of Director’s Executive Committee reviews~~ and ~~approves~~liquidity ~~lending relationships greater than $150~~positions,~~000.~~ ~~The~~including ~~Bank,~~stress ~~as a matter of state law~~scenarios, ~~does~~the ~~not~~net ~~generally~~interest ~~extend additional credit to any single borrower or group of related borrowers in excess of 25% of statutory capital~~margin, orthe ~~approximately~~investment $5portfolio,~~400,000~~ atthe ~~December 31,~~funding ~~2009.~~mix ~~Subsequent~~and toother ~~year end~~variables, ~~the~~such ~~State~~as ofregulatory ~~Georgia~~changes, ~~enacted~~monetary ~~new~~policy ~~legislation~~adjustments ~~that~~and ~~has been signed into law by~~ the ~~governor~~overall ~~which~~state ~~allows~~of ~~banks to renew existing debt that would exceed~~ the ~~statutory capital limit subject to certain limitations~~economy. A ~~The~~more ~~lending~~comprehensive ~~policies~~discussion ~~and procedures~~ of the Bank’s ~~are~~Asset/Liability ~~periodically~~Management ~~reviewed~~ and ~~modified~~interest byrate ~~the~~risk ~~Board~~is ofcontained ~~Directors~~in ofManagement’s ~~the~~Discussion ~~Bank~~and inAnalysis ~~order~~(Part toII, ~~ensure~~Item ~~risks~~7) ~~are~~and ~~acceptable~~ Quantitative and toQualitative ~~protect~~Disclosures ~~the~~About ~~Bank’s~~Market ~~financial~~Risk ~~position~~(Part inII, ~~the~~Item ~~market.~~7A) sections of this report.

~~Loan~~Investment ~~Review and Non-performing Assets~~ Policy

~~Credit~~The ~~Administration of the~~ Bank ~~reviews and also engages an independent third party to review the Bank~~’s ~~loan~~ investment portfolio onpolicy anis ~~ongoing basis~~ to ~~identify~~balance ~~any~~income ~~weaknesses~~generation inwith ~~the~~liquidity, ~~portfolio~~interest ~~and~~rate tosensitivity, ~~assess~~pledging ~~the~~and ~~general~~regulatory ~~quality of credit underwriting~~needs. The ~~results~~Chief ~~of such reviews are presented to~~ Executive ~~Management,~~Officer and the ~~Audit~~Chief ~~Committee~~Financial ofOfficer ~~the Board~~ of ~~Directors. If~~ ~~an individual loan or credit relationship has a material weakness identified during~~ the ~~review~~Bank ~~process,~~administer the ~~risk rating of the loan~~policy, orand ~~generally~~it ~~all~~is ~~loans~~reviewed ~~comprising~~from ~~that~~time ~~credit relationship, will be downgraded~~ to ~~the classification~~time ~~that~~by ~~most closely matches the current risk level~~ALCO. ~~The review process also provides for the upgrade of loans that show improvement since the last review. Since each loan in a credit relationship may have a different credit structure~~ Monthly, ~~collateral, and other secondary source of repayment, different loans in a relationship can be assigned different risk ratings. Under~~ the Bank’s ~~8-tier~~Board ~~loan~~of ~~grading~~Directors ~~system,~~reviews ~~grades~~portfolio ~~1 through 4 are considered “pass” (acceptable) credit risk~~activity, ~~grade 5 is a “watch” rating~~composition, and ~~grades 6 through 8 are “adversely classified” credits that require management’s attention~~performance. The entire 8-grade rating scale provides for a higher numeric rating for increased risk. For example, a risk rating of 1 is the least risky of all credits and would be typical of a loan that is 100% secured by a deposit at the Bank. Risk ratings of 2 through 4 in the pass category each have incrementally more risk.

8Supervision and Regulation

~~Table~~Written Agreement with the Regulators. As a result of ~~Contents~~examination findings in mid 2009 by the Georgia Department of Banking and Finance, (the “DBF”) and the Federal Deposit Insurance Corporation (the “FDIC”), (collectively, the “Supervisory Authorities”), the Bank’s Directors, on May 14, 2010, entered into a Stipulation and Consent Agreement with the Supervisory Authorities agreeing to the issuance of a Consent Order (the “Order”). Specifically, the Order requires: increased involvement by the Bank’s Board of Directors; an assessment of current and future management and staffing needs; reductions in adversely classified assets; improvement in the overall quality and management of the loan portfolio; maintaining an adequate allowance for loan losses; a Tier I leverage capital ratio of not less than 8% and a Total Risk Based capital ratio of not less than 10%; establishment of a plan to maintain adequate liquidity including a prohibition on accepting brokered deposits and a limitation on interest rates paid on all deposits; prior Supervisory Authority approval to pay cash dividends or Board of Director compensation; and adoption of an annual

The Bank’s Chief Financial Officer in conjunction with Credit Administration, prepares a quarterly analysis to determine the adequacy of the Allowance for Loan Losses (“ALL”) for the Bank. The ALL analysis starts with an individual review of all loans considered impaired and an assignment of a specific reserve if one is warranted. Effective with the second quarter of 2009, as mandated by the FDIC, all impaired loans with specific reserves, determined based on collateral value, were required to be charged down to net realizable value by the amount of the specific reserve. The remaining loans are stratified by major loan type and loss reserves are determined based on each loan type’s respective loss factor, derived from the average historical loss rate for the preceding eighteen month period, weighted toward the most recent quarters, and adjusted to reflect current economic conditions and individual loan risk ratings.9

~~Asset/Liability~~strategic ~~Management~~plan and budget. The Order also establishes a framework and timeframes for the Bank reporting on its compliance with the provisions of the Order. Because management had been addressing most of the provisions of the proposed Order, it is not contemplated that the Order will significantly change how the Bank is currently being operated. However, there can be no assurance that the Bank will be successful in meeting all of the requirements of the Order.

~~The~~If ~~Bank’s asset/liability committee (“ALCO”) is composed of members of~~ the ~~Board of Directors and the~~ Bank’s ~~Chief~~fails ~~Financial~~to ~~Officer.~~adequately ~~ALCO~~address, isor ~~charged~~make ~~with~~substantial ~~managing~~progress ~~the~~towards ~~assets~~resolution ~~and liabilities~~ of the ~~Bank. ALCO’s~~regulatory ~~primary~~concerns ~~role~~in ~~is to balance asset growth and income generation with~~ the ~~prudent management of interest rate risk~~Order, ~~market risk and liquidity risk and with~~ the ~~need~~Supervisory toAuthorities ~~maintain~~may ~~appropriate~~take ~~levels~~further ofaction ~~capital. ALCO~~including, ~~directs~~but ~~the~~not ~~Bank’s~~limited ~~overall balance sheet strategy~~to, ~~including~~additional ~~the~~requirements ~~acquisition~~for ~~and~~maintaining ~~investment~~sufficient ~~of funds. At~~capital ~~regular~~under ~~meetings,~~ the ~~committee~~Order. An ~~reviews~~ongoing ~~the~~failure ~~interest~~to ~~rate~~adequately ~~sensitivity~~address ~~and~~or ~~liquidity~~make ~~positions,~~substantial ~~including~~progress ~~stress~~towards ~~scenarios,~~addressing the ~~net~~concerns ~~interest~~of ~~margin,~~ the ~~investment~~Supervisory ~~portfolio,~~Authorities ~~the~~could ~~funding~~ultimately ~~mix~~result ~~and~~in ~~other variables, such as regulatory changes, monetary policy adjustments and~~ the ~~overall~~eventual ~~state~~appointment of ~~the~~a ~~economy. A~~receiver ~~more~~or ~~comprehensive~~conservator ~~discussion~~ of the Bank’s Asset/Liability Management and interest rate risk is contained in Management’s Discussion and Analysis (Part II, Item 7) and Quantitative and Qualitative Disclosures About Market Risk (Part II, Item 7A) sections of this reportassets.

~~Investment Policy~~The Supervisory Authorities examined the Bank during June and July 2010 and conducted an onsite visitation during February 2011. The findings of the Supervisory Authorities are fully reflected in the accompanying financial statements.

The ~~Bank’s~~Company ~~investment~~is ~~portfolio~~also ~~policy~~subject is to ~~balance~~the ~~income~~terms ~~generation~~of ~~with~~a ~~liquidity, interest~~Board ~~rate~~Resolution ~~sensitivity,~~(“Resolution”) ~~pledging~~between ~~and~~the ~~regulatory~~Company ~~needs. The Chief Executive Officer~~ and the ~~Chief~~Federal ~~Financial~~Reserve ~~Officer~~Bank of ~~the~~Atlanta ~~Bank~~(“FRB”) ~~administer~~that ~~the~~generally ~~policy,~~prohibits ~~and~~our itability isto ~~reviewed~~receive dividends from ~~time~~the Bank, or to ~~time~~make bydividends ~~ALCO.~~or ~~Portfolio~~other ~~activity,~~distributions ~~composition,~~to ~~and~~our ~~performance are~~shareholders, ~~reviewed~~or ~~and~~repurchase ~~approved~~shares ~~monthly~~of byour ~~the~~common ~~Bank’s~~stock ~~Board~~without ofprior ~~Directors.~~regulatory approval.

~~Supervision~~General. The Company is a registered bank holding company subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). As a bank holding company, the Company is required to file quarterly and ~~Regulation~~annual reports with the Federal Reserve and periodic reports with the DBF and to provide such additional information as the applicable regulator may require. The Federal Reserve and the DBF may also conduct examinations of the Company to determine whether the Company is in compliance with Bank Holding Company Acts and regulations promulgated thereunder.

~~Written~~Acquisitions. The ~~Agreement~~Federal ~~with~~Bank ~~the~~Holding ~~Regulators.~~Company ~~Since~~Act ~~January 6,~~requires ~~2009,~~every ~~the~~bank ~~Bank~~holding ~~has~~company ~~operated~~to ~~under~~obtain athe ~~Memorandum~~prior approval of ~~Understanding~~ the Federal Reserve before: (~~“MOU”~~1) ~~with~~acquiring ~~the~~direct ~~Georgia~~or ~~Department~~indirect ownership or control of ~~Banking~~more ~~and~~than ~~Finance,~~5% (of the ~~“DBF”~~voting shares of any bank; (2) ~~and~~acquiring ~~the~~all ~~Federal~~or ~~Deposit~~substantially ~~Insurance~~all ~~Corporation~~of (the ~~“FDIC”~~assets of a bank; and (3) merging or consolidating with another bank holding company. A ~~The~~bank ~~MOU~~holding company is also generally prohibited from engaging in, ~~which~~or ~~relates~~acquiring, ~~primarily~~direct toor indirect control of more than five percent (5%) of the ~~Bank’s~~voting ~~asset~~shares ~~quality~~of ~~and loan~~any ~~loss~~company ~~reserves,~~engaged ~~requires~~in ~~that~~non-banking activities, unless the ~~Bank~~Federal ~~submit~~Reserve ~~plans~~has ~~and~~found ~~reports~~those activities to ~~the~~be ~~DBF~~so ~~and~~closely ~~FDIC~~related ~~(the~~to ~~“Supervisory~~banking ~~Authorities)~~or ~~regarding~~managing ~~its~~or ~~loan~~controlling ~~portfolio~~banks ~~and~~as ~~profit~~to ~~plans,~~be ~~among~~a ~~other~~proper ~~matters~~incident thereto. Some ~~The~~of ~~MOU~~the ~~also~~activities ~~requires~~ that the ~~Bank~~Federal ~~maintain~~Reserve ~~its~~has ~~Tier~~determined ~~1 Leverage~~by ~~Capital~~regulation ~~ratio~~to atbe ~~not~~proper ~~less~~incidents ~~than~~to 8%the ~~and~~business anof ~~overall~~a ~~well-capitalized~~bank ~~position~~holding ascompany ~~defined~~include inmaking ~~applicable~~or ~~FDIC~~servicing ~~rules~~loans and ~~regulations~~certain ~~during~~types ~~the~~of ~~life~~leases, ofengaging ~~the~~in ~~MOU.~~certain ~~Additionally~~insurance and discount brokerage activities, ~~the~~performing ~~MOU~~certain ~~requires~~data ~~that~~processing services, ~~prior~~acting toin ~~declaring~~certain circumstances as a fiduciary or ~~paying~~investment ~~any~~or ~~cash~~financial ~~dividends~~advisor, ~~the~~ ~~Bank~~owning ~~must~~savings ~~obtain~~associations, ~~the~~and ~~prior~~making ~~written~~investments ~~consent~~in ofcertain ~~the~~ corporations for projects designed primarily to promote community welfare.

9 10

~~Table~~Activities. The BHC Act has generally prohibited a bank holding company from engaging in activities other than banking or managing or controlling banks or other permissible subsidiaries and from acquiring or retaining direct or indirect control of ~~Contents~~any company engaged in any activities other than those determined by the Federal Reserve to be closely related to banking or managing or controlling banks as to be a proper incident thereto. Provisions of the Gramm-Leach-Bliley Act (the “GLB Act”), discussed below, have expanded the permissible activities of a bank holding company that qualifies as a financial holding company. In determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity can be reasonably expected to produce benefits to the public, such as a greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices.

~~Supervisory~~Gramm-Leach-Bliley ~~Authorities~~Act. The ~~Bank~~GLB ~~believes~~Act itimplemented ismajor inchanges ~~compliance~~to ~~with~~the ~~all~~statutory ~~items~~framework ~~outlined~~for providing banking and other financial services in the ~~MOU~~United ~~except~~States. The ~~the~~GLB ~~minimum~~Act, ~~capital~~among ~~requirements.~~other Inthings, ~~addition~~eliminated tomany of the ~~MOU,~~restrictions on ~~March 12~~affiliations among banks and securities firms, ~~2009~~insurance firms, ~~the Board~~and ofother ~~Directors~~financial ofservice ~~the~~providers. A ~~Company~~bank ~~adopted~~holding company that qualifies as a ~~board~~financial ~~resolution~~holding ~~(the~~company ~~“Resolution”)~~is ~~proposed~~permitted byto ~~the~~engage ~~Federal~~in ~~Reserve~~activities ~~Bank~~that ofare ~~Atlanta~~financial ~~(the~~in ~~“FRB-Atlanta”)~~nature or incidental or complimentary to ~~not~~a ~~incur~~financial ~~additional~~activity. The ~~indebtedness~~GLB Act specifies certain activities that are deemed to be financial in nature, ~~pay~~including ~~cash~~underwriting ~~dividends~~and selling insurance, providing financial and investment advisory services, underwriting, dealing in, or ~~repurchase outstanding~~making ~~stock~~a ~~without~~market ~~prior~~in ~~regulatory~~securities, ~~approval.~~limited merchant banking activities, and any activity currently permitted for bank holding companies under Section 4(c)(8) of the BHC Act.

AsTo abecome ~~result~~eligible offor ~~examination~~these ~~findings~~expanded ~~in mid 2009 by the Supervisory Authorities~~activities, ita isbank ~~anticipated~~holding ~~that~~company ~~the~~must ~~Bank’s~~qualify ~~Directors~~as ~~will enter into~~ a ~~Consent~~financial ~~Order~~holding ~~(the~~company. To ~~“Order”)~~qualify ~~with~~as ~~the~~a ~~Supervisory~~financial ~~Authorities~~holding ~~to improve the condition of the Bank. Specifically~~company, ~~the~~each ~~Order~~insured asdepository ~~currently contemplated~~institution ~~requires:~~controlled ~~increased involvement~~ by the ~~Bank’s~~bank ~~Board~~holding ofcompany ~~Directors;~~must anbe ~~assessment~~well-capitalized, ofwell-managed, ~~current~~ and ~~future~~have ~~management~~at ~~and~~least ~~staffing~~a ~~needs;~~satisfactory ~~reductions~~rating inunder ~~adversely classified assets; improvement in~~ the ~~overall~~Community ~~quality~~Reinvestment ~~and~~Act. In ~~management~~addition, of the ~~loan~~bank ~~portfolio;~~holding ~~adequate~~company ~~allowance~~must ~~for~~file ~~loan losses;~~ a ~~Tier~~declaration Iwith ~~leverage~~the ~~capital~~Federal ~~ratio~~Reserve of ~~not~~its ~~less~~intention ~~than 8% and a Total Risk Based capital ratio of not less than 10%; establishment of a plan~~ to ~~maintain~~become ~~adequate liquidity including~~ a ~~prohibition~~financial ~~on accepting~~holding brokered deposits and a limitation on interest rates paid on all deposits; prior Supervisory Authority approval to pay cash dividends or Board of Director compensation; and adoption of an annual strategic plan and budgetcompany. The Order also will establish both a framework and timeframes for the Bank reporting on its compliance with the provisions of the Order. Most of the provisions of the proposed Order are already being addressed by management, thus it is not contemplated that the Order will significantly change how the Bank is currently being operated. However, there can be no assurance that the bank will be successful in meeting all of the requirements of the Order.

IfThe weGLB ~~fail~~Act todesignates ~~adequately~~the ~~address,~~Federal orReserve ~~make~~as ~~substantial~~the ~~progress~~overall ~~towards~~umbrella ~~resolution~~supervisor of ~~the~~financial ~~regulatory~~holding ~~concerns~~companies. The inGLB Act adopts a system of functional regulation where the ~~Order,~~ primary regulator is determined by the ~~Supervisory~~nature ~~Authorities~~of ~~may~~activity ~~take~~rather ~~further~~than ~~action~~the ~~including~~type of institution. Under this principle, ~~but~~securities ~~not~~activities ~~limited~~are toregulated by the SEC and other securities regulators, ~~additional~~insurance ~~requirements~~activities ~~for~~by ~~maintaining~~the ~~sufficient~~state ~~capital~~insurance ~~under~~authorities, and banking activities by the ~~Order.~~appropriate Anbanking ~~ongoing~~regulator. As ~~failure~~a result, to ~~adequately~~the ~~address~~extent orthat ~~make~~we ~~substantial~~engage ~~progress~~in ~~towards~~non-banking ~~addressing the~~activities ~~concerns~~permitted ofunder ~~our~~the ~~regulators~~GLB ~~could~~Act, ~~ultimately~~we ~~result~~will inbe subject to the ~~eventual~~regulatory ~~appointment~~authority of athe ~~receiver~~SEC or ~~conservator~~state ofinsurance ~~the~~authority, ~~Bank’s~~as ~~assets~~applicable.

~~General.~~ The ~~Company~~Dodd-Frank isWall aStreet ~~registered~~Reform ~~bank~~and ~~holding~~Consumer ~~company~~Protection ~~subject~~Act ~~to regulation by the Board~~ of ~~Governors~~2010 ofwas ~~the~~enacted ~~Federal~~on ~~Reserve~~July ~~System (the “Federal Reserve”) under the Bank Holding Company Act of 1956~~21, as2010. ~~amended~~The ~~(the~~Dodd-Frank ~~“BHC~~ Act~~”). As~~ creates a ~~bank~~new ~~holding~~Consumer ~~company,~~Financial ~~the~~Protection ~~Company~~Bureau iswith ~~required~~power to ~~file~~promulgate ~~quarterly~~ and ~~annual~~enforce ~~reports~~consumer ~~with~~protection ~~the~~laws. ~~Federal~~Smaller ~~Reserve~~depository ~~and~~institutions, ~~periodic~~those ~~reports~~ with ~~the~~$10 ~~DBF~~billion ~~and~~or toless ~~provide~~in ~~such~~assets, ~~additional information~~will asbe ~~the~~subject ~~applicable~~to ~~regulator~~the ~~may~~Consumer ~~require.~~Financial ~~The~~Protection ~~Federal~~Bureau’s ~~Reserve~~rulewriting authority, and ~~the~~existing ~~DBF~~depository ~~may~~institution ~~also~~regulatory ~~conduct~~agencies ~~examinations~~will ofretain ~~the~~examination ~~Company~~and toenforcement ~~determine~~authority ~~whether~~for ~~the~~such ~~Company~~institutions. The isDodd-Frank inAct ~~compliance~~also ~~with~~establishes ~~Bank~~a ~~Holding~~Financial ~~Company Acts and regulations promulgated thereunder.~~

Acquisitions. The Federal Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before: (1) acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank; (2) acquiring all or substantially all of the assets of a bank; and (3) merging or consolidating with another bank holding company. A bank holding company is also generally prohibited from engaging in, or acquiring, direct or indirect control of more than five percent (5%) of the voting shares of any company engaged in non-banking activities, unless the Federal Reserve has found those activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the activities that the Federal Reserve has determined by regulation to be proper incidents to the business of a bank 11

10Stability Oversight Council chaired by the Secretary of the Treasury with authority to identify institutions and practices that might pose a systemic risk and, among other things, includes provisions affecting (1) corporate governance and executive compensation of all companies whose securities are registered with the SEC, (2) FDIC insurance assessments, (3) interchange fees for debit cards, which would be set by the Federal Reserve under a restrictive “reasonable and proportional cost” per transaction standard, (4) minimum capital levels for bank holding companies, subject to a grandfather clause for financial institutions with less than $15 billion in assets, (5) derivative and proprietary trading by financial institutions, and (6) the resolution of large financial institutions.

~~Table~~FDIC Insurance Assessments. The FDIC establishes rates for the payment of ~~Contents~~premiums by federally insured banks and thrifts for deposit insurance. Member institutions pay deposit insurance assessments to the Deposit Insurance Fund (the “DIF”). The FDIC recently amended its risk-based assessment system to implement authority that the FDIC was granted under the Federal Deposit Insurance Reform Act of 2005 (the “Reform Act”). Under the revised system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and other factors. The new regulation allows the FDIC to more closely tie each financial institution’s deposit insurance premiums to the risk it poses to the DIF. The assessment rate of an institution depends upon the category to which it is assigned. Risk Category I contains the least risky depository institutions and Risk Category IV contains the most risky depository institutions. The Risk Category is based on whether the institution is Well Capitalized, Adequately Capitalized, or Undercapitalized in regard to the institution’s capital ratios. The CAMELS rating of the institution is also used in the determination of the Risk Category. Risk Category I, unlike the other risk categories, contains further risk differentiation based on the FDIC’s analysis of financial ratios, examination components and other information. In the first quarter of 2009, the FDIC increased the amount to be assessed from financial institutions by increasing its risk-based deposit insurance assessment scale uniformly due to the increased and anticipated number of bank failures. Thus, the assessment scale ranges from twelve basis points of assessable deposits for the strongest institutions (Risk Category I) to forty-five basis points for the weakest (Risk Category IV). In 2008 the FDIC increased the amount of deposits it insures from $100,000 to $250,000.

~~holding~~In ~~company~~addition ~~include~~to ~~making~~the orassessments ~~servicing~~for ~~loans~~deposit ~~and~~insurance, ~~certain~~institutions ~~types~~are ofrequired ~~leases,~~to ~~engaging~~make inpayments ~~certain~~on ~~insurance~~bonds ~~and~~which ~~discount~~were ~~brokerage~~issued ~~activities,~~in ~~performing~~the ~~certain~~late ~~data~~1980s ~~processing~~by ~~services,~~the ~~acting~~ Financing Corporation in ~~certain~~order ~~circumstances~~to asrecapitalize athe ~~fiduciary~~predecessor orto ~~investment~~the orSavings ~~financial~~Association ~~advisor~~Insurance Fund. During 2008, ~~owning~~Financing ~~savings~~Corporation ~~associations~~payments for Savings Association Insurance Fund members approximated 1.12 basis points of assessable deposits. These assessments, ~~and~~which ~~making~~are ~~investments~~adjusted inquarterly, ~~certain~~will ~~corporations~~continue ~~for~~until ~~projects~~the ~~designed~~Financing ~~primarily~~Corporation tobonds ~~promote~~mature ~~community~~in ~~welfare~~2017.

~~Activities.~~ The ~~BHC~~FDIC ~~Act~~may ~~has~~terminate ~~generally~~its ~~prohibited~~insurance aof ~~bank~~deposits ~~holding~~if ~~company~~it ~~from~~finds ~~engaging~~that inthe ~~activities~~institution ~~other~~has ~~than banking or managing or controlling banks or other permissible subsidiaries and from acquiring or retaining direct or indirect control of any company~~ engaged in ~~any~~unsafe ~~activities~~and ~~other~~unsound than those determined by the Federal Reserve to be closely related to banking or managing or controlling banks as to be a proper incident thereto. Provisions of the Gramm-Leach-Bliley Act (the “GLB Act”)practices, ~~discussed below, have expanded the permissible activities of a bank holding company that qualifies as a financial holding company. In determining whether a particular activity~~ is ~~permissible,~~in ~~the Federal Reserve must consider whether the performance of such~~ an ~~activity~~unsafe ~~can~~or beunsound ~~reasonably~~condition ~~expected~~ to ~~produce~~continue ~~benefits~~operations toor ~~the~~has ~~public, such~~violated asany aapplicable ~~greater convenience~~law, ~~increased competition~~regulation, ~~or gains in efficiency~~rule, ~~that~~order ~~outweigh possible adverse effects such as undue concentration of resources, decreased~~ or ~~unfair~~condition ~~competition,~~imposed ~~conflicts~~by ofthe ~~interest, or unsound banking practices~~FDIC.

~~Gramm-Leach-Bliley~~On ~~Act.~~November ~~The~~9, ~~GLB~~2010, ~~Act implemented major changes to~~ the ~~statutory~~FDIC ~~framework~~issued ~~for~~a ~~providing banking~~Final ~~and~~Rule ~~other~~implementing ~~financial~~section ~~services~~343 ~~in the United States. The GLB Act, among other things, eliminated many~~ of the ~~restrictions~~Dodd-Frank onWall ~~affiliations~~Street ~~among~~Reform ~~banks~~ and ~~securities~~Consumer ~~firms,~~Protection ~~insurance~~Act ~~firms, and other financial service providers. A bank holding company~~ that ~~qualifies~~made aspermanent athe ~~financial~~increase ~~holding company is permitted to engage~~ in ~~activities~~FDIC ~~that~~insurance ~~are~~for ~~financial~~deposit inaccounts ~~nature or incidental or complimentary~~ to ~~a financial activity. The GLB Act specifies certain activities that are deemed to be financial in nature~~$250,000, ~~including~~and ~~underwriting~~provides ~~and~~for ~~selling~~unlimited insurance, ~~providing~~coverage ~~financial~~of ~~and~~noninterest-bearing ~~investment~~transaction ~~advisory~~accounts. Beginning ~~services,~~December ~~underwriting~~31, ~~dealing in~~2010, orthrough ~~making~~December ~~a market in securities~~31, ~~limited merchant banking activities, and any activity currently permitted for bank holding companies under Section 4(c)(8) of the BHC Act.~~

To become eligible for these expanded activities, a bank holding company must qualify as a financial holding company. To qualify as a financial holding company, each insured depository institution controlled by the bank holding company must be well-capitalized, well-managed, and have at least a satisfactory rating under the Community Reinvestment Act. In addition, the bank holding company must file a declaration with the Federal Reserve of its intention to become a financial holding company. 12

~~The~~2012, ~~GLB~~all ~~Act~~noninterest-bearing ~~designates~~transaction ~~the~~accounts ~~Federal~~and ~~Reserve~~Interest ason ~~the~~Lawyer ~~overall~~Trust ~~umbrella~~Accounts ~~supervisor~~(“IOLTA”) ofare ~~financial~~fully ~~holding companies. The~~insured, ~~GLB~~regardless ~~Act~~of ~~adopts~~the abalance ~~system~~ of ~~functional~~the ~~regulation~~account, ~~where~~at ~~the~~all ~~primary~~FDIC-insured ~~regulator~~institutions. The isunlimited ~~determined~~insurance bycoverage ~~the~~is ~~nature~~available ofto ~~activity~~all ~~rather~~depositors, ~~than~~including ~~the~~consumers, ~~type~~businesses, ofand ~~institution~~government entities. ~~Under~~ This ~~this~~unlimited ~~principle,~~insurance ~~securities~~coverage ~~activities~~is ~~are~~separate ~~regulated~~from, ~~by the SEC~~ and ~~other~~in ~~securities~~addition ~~regulators~~to, the insurance ~~activities~~coverage byprovided ~~the~~to ~~state~~a ~~insurance~~depositor’s ~~authorities,~~other ~~and~~deposit ~~banking~~accounts ~~activities~~held byat ~~the~~an ~~appropriate~~FDIC-insured ~~banking regulator~~institution. As Money aMarket ~~result,~~Deposit toAccounts ~~the~~(MMDAs) ~~extent~~and ~~that~~Negotiable weOrder ~~engage~~of inWithdrawal ~~non-banking~~(NOW) ~~activities~~accounts ~~permitted~~are ~~under~~not ~~the~~eligible ~~GLB Act,~~for wethis ~~will~~unlimited beinsurance ~~subject~~coverage, toregardless of the ~~regulatory~~interest ~~authority~~rate, ofeven ~~the~~if ~~SEC~~no orinterest ~~state~~is ~~insurance~~paid ~~authority,~~on asthe ~~applicable~~account.

11Payment of Dividends. The Company is a legal entity separate and distinct from the Bank. Most of the revenue of the Company results from dividends paid to it by the Bank. There are statutory and regulatory requirements applicable to the payment of dividends by the Bank, as well as by the Company to its shareholders.

~~Table~~Under the regulations of ~~Contents~~the DBF, dividends may not be declared out of the retained earnings of a state bank without first obtaining the written permission of the DBF, unless such bank meets all the following requirements:

FDIC Insurance Assessments. The FDIC establishes rates for the payment of premiums by federally insured banks and thrifts for deposit insurance. Member institutions pay deposit insurance assessments to the Deposit Insurance Fund (~~the “DIF”~~a). ~~The~~total ~~FDIC~~classified ~~recently~~assets ~~amended~~as ~~its~~of ~~risk-based assessment system to implement authority that~~ the ~~FDIC~~most ~~was~~recent ~~granted~~examination ~~under the Federal Deposit Insurance Reform Act~~ of ~~2005 (~~the ~~“Reform~~bank ~~Act”). Under~~do ~~the~~not ~~revised~~exceed ~~system,~~80% ~~insured institutions are assigned to one~~ of ~~four~~equity ~~risk categories based on supervisory evaluations, regulatory~~ capital ~~levels~~(as ~~and~~defined ~~other~~by ~~factors. The new~~ regulation); ~~allows~~(b) the ~~FDIC~~aggregate toamount ~~more closely tie each financial institution’s deposit insurance premiums to the risk it poses to the DIF. The assessment rate~~ of ~~an institution~~dividends ~~depends~~declared upon the category to which it is assigned. Risk Category I contains the least risky depository institutions and Risk Category IV contains the most risky depository institutions. The Risk Category is based on whether the institution is Well Capitalized, Adequately Capitalized, or ~~Undercapitalized~~anticipated ~~in regard~~ to ~~the~~be ~~institution’s~~declared ~~capital ratios. The CAMELS rating of the institution is also used~~ in the ~~determination~~calendar ofyear ~~the~~does ~~Risk~~not ~~Category. Risk~~exceed ~~Category~~50% ~~I, unlike the other risk categories, contains further risk differentiation based on the FDIC’s analysis~~ of ~~financial ratios, examination components and other information. In~~ the ~~first~~net ~~quarter~~profits ofafter ~~2009,~~taxes ~~the~~but ~~FDIC~~before ~~increased~~dividends the amount to be assessed from financial institutions by increasing its risk-based deposit insurance assessment scale uniformly due to the increased and anticipated number of bank failures. Thus, the assessment scale ranges from twelve basis points of assessable deposits for the ~~strongest~~previous ~~institutions~~calendar ~~(Risk~~year; ~~Category~~and ~~I) to forty-five basis points for the weakest~~ (~~Risk Category IV~~c)~~. In~~ ~~2008~~ the ~~FDIC~~ratio ~~increased the amount~~ of ~~deposits~~equity itcapital ~~insures from $100,000~~ to ~~$250,000. This~~adjusted ~~increase~~assets ~~in insured deposits~~ is ~~temporary~~not ~~and~~less ~~will~~than ~~continue through December 31, 2013~~6%.

InThe ~~addition~~payment toof dividends by the ~~assessments~~ ~~for~~Company ~~deposit~~and ~~insurance~~the Bank may also be affected or limited by other factors, ~~institutions~~such ~~are~~as ~~required~~the requirement to ~~make~~maintain ~~payments~~adequate oncapital ~~bonds~~above ~~which~~regulatory ~~were~~guidelines. In ~~issued~~addition, if, in the ~~late~~opinion ~~1980s~~of by the ~~Financing~~applicable ~~Corporation~~regulatory authority, a bank under its jurisdiction is engaged in ~~order~~or is about to ~~recapitalize~~engage in an unsafe or unsound practice (which, depending upon the ~~predecessor~~financial tocondition of the ~~Savings~~bank, ~~Association~~could ~~Insurance~~include ~~Fund. During 2008~~the payment of dividends), ~~Financing~~such ~~Corporation~~authority ~~payments~~may ~~for~~require, ~~Savings~~after ~~Association~~notice ~~Insurance~~and ~~Fund~~hearing, ~~members~~that ~~approximated~~such 1bank cease and desist from such practice.12 The ~~basis~~FDIC ~~points~~has issued a policy statement providing that insured banks should generally only pay dividends out of ~~assessable~~current ~~deposits~~operating earnings. In ~~These~~addition ~~assessments,~~to ~~which~~the ~~are~~formal ~~adjusted~~statutes ~~quarterly~~and regulations, ~~will~~regulatory ~~continue~~authorities ~~until~~consider the ~~Financing~~adequacy ~~Corporation~~of ~~bonds~~the ~~mature~~Bank’s total capital in ~~2017~~ relation to its assets, deposits and other such items. We did not pay a dividend during 2009 or 2010 and we do not intend to pay a dividend in 2011 due to continued pressure on earnings and capital and as a result of the Order and Resolution.

~~The~~Capital ~~FDIC~~Adequacy. We ~~may~~are ~~terminate~~required ~~its~~to ~~insurance~~comply ofwith ~~deposits~~the ifcapital itadequacy ~~finds~~standards ~~that~~established by the ~~institution~~federal ~~has~~banking ~~engaged~~agencies. There inare ~~unsafe and~~two ~~unsound~~basic ~~practices,~~measures isof incapital anadequacy ~~unsafe~~for orbank ~~unsound~~holding ~~condition~~companies tothat ~~continue~~have ~~operations~~been orpromulgated ~~has~~by ~~violated~~the ~~any~~Federal Reserve: a risk-based measure and a leverage measure. All applicable ~~law,~~capital ~~regulation,~~standards ~~rule,~~must ~~order~~be orsatisfied ~~condition~~for ~~imposed~~a bybank ~~the~~holding ~~FDIC.~~company to be considered in compliance.

On November 21, 2008, the Board of Directors of the FDIC adopted a final rule relating to the Temporary Liquidity Guarantee Program (“TLG Program”). The TLG Program was announced by the FDIC on October 14, 2008, preceded by the determination of systemic risk by the Treasury, as an initiative to counter the system-wide crisis in the nation’s financial sector. Under the TLG Program the FDIC will provide full FDIC deposit insurance coverage for noninterest-bearing transaction deposit accounts, Negotiable Order of Withdrawal accounts paying less than 0.5% interest per annum and Interest on Lawyers Trust Accounts held at participating FDIC-insured institutions through June 30, 2010. Coverage under the TLG Program was available for the first 30 days without charge. The fee assessment for deposit insurance coverage is 10 basis points per quarter on amounts in covered accounts exceeding $250,000. The Bank is a participant in the TLG Program. 13

12The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance-sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance-sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items.

~~Table~~The minimum guideline for the ratio of ~~Contents~~Total Capital to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 8.0%. Total Capital consists of Tier 1 Capital, which is comprised of common stock, undivided profits, minority interests in the equity accounts of consolidated subsidiaries and non-cumulative perpetual preferred stock, less goodwill and certain other intangible assets, and Tier 2 Capital, which consists of subordinated debt, other preferred stock, and a limited amount of loan loss reserves. At December 31, 2010, our consolidated Total Capital Ratio and our Tier 1 Capital Ratio were 4.39% and 3.14%, respectively, both of which are below the minimum required.

~~Payment~~ In ofaddition, ~~Dividends~~the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These ~~The~~guidelines ~~Company~~provide isfor a ~~legal~~minimum ~~entity~~ratio ~~separate~~(the “Leverage Ratio”) of Tier 1 Capital to average assets, less goodwill and ~~distinct~~ ~~from~~certain ~~the~~other ~~Bank. Most~~intangible assets, of ~~the~~3.0% ~~revenue~~for ofbank ~~the~~holding ~~Company~~companies ~~results~~that ~~from~~meet ~~dividends~~certain ~~paid~~specified tocriteria, itincluding bythose having the ~~Bank~~highest regulatory rating. ~~There~~ All ~~are~~other ~~statutory~~bank ~~and~~holding ~~regulatory~~companies ~~requirements~~generally ~~applicable~~are required to ~~the~~maintain ~~payment~~a Leverage Ratio of ~~dividends~~at byleast ~~the~~3.0%, ~~Bank~~plus an additional cushion of 100 to 200 basis points. Our Leverage Ratio at December 31, as2010 ~~well~~was as2.68%, bybelow the ~~Company~~minimum required. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to ~~its shareholders~~maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a “tangible Tier 1 Capital Leverage Ratio” (deducting all intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activities.

~~Under~~The ~~the~~Bank ~~regulations~~is ofsubject ~~the~~to ~~DBF,~~risk-based ~~dividends~~and ~~may~~leverage ~~not~~capital berequirements ~~declared~~adopted ~~out~~by ofits ~~the~~federal ~~retained~~banking ~~earnings~~regulators, ~~of a~~which ~~state~~are ~~bank~~substantially ~~without~~similar ~~first~~to ~~obtaining~~those adopted by the ~~written~~Federal ~~permission~~Reserve offor ~~the~~bank ~~DBF~~holding companies. At December 31, ~~unless~~2010, ~~such~~the ~~bank~~Bank ~~meets~~was ~~all~~deemed “significantly undercapitalized” under the ~~following~~regulatory ~~requirements:~~framework for prompt corrective action.

(Failure to meet capital guidelines could subject a) ~~total~~bank ~~classified~~or ~~assets~~bank asholding company to a variety of ~~the~~enforcement ~~most~~remedies, ~~recent~~including ~~examination~~issuance of a capital directive, the ~~bank~~termination doof ~~not~~deposit ~~exceed~~insurance ~~80%~~by the FDIC, a prohibition on the taking of ~~equity~~brokered deposits, and certain other restrictions on its business. As described below, substantial additional restrictions can be imposed upon FDIC-insured depository institutions that fail to meet applicable capital ~~(as~~requirements. See ~~defined~~“Prompt byCorrective ~~regulation);~~Action.”

(b) the aggregate amount of dividends declared or anticipated to be declared in the calendar year does not exceed 50% of the net profits after taxes but before dividends for the previous calendar year; and14

The federal bank agencies continue to indicate their desire to raise capital requirements applicable to banking organizations beyond their current levels. In this regard, the Federal Reserve and the FDIC require regulators to consider interest rate risk (cwhen the interest rate sensitivity of an institution’s assets does not match the sensitivity of its liabilities or its off-balance-sheet position) in the ~~ratio~~evaluation of ~~equity~~a bank’s capital adequacy. The regulatory agencies have proposed a methodology for evaluating interest rate risk that would require banks with excessive interest rate risk exposure to ~~adjusted~~hold ~~assets~~additional isamounts ~~not~~of ~~less~~capital ~~than~~against 6%such exposures.

~~The~~Prompt ~~payment~~Corrective ofAction. The ~~dividends~~Federal byDeposit ~~the~~Insurance ~~Company~~Corporation ~~and~~Improvement ~~the~~Act ~~Bank~~of ~~may~~1991 ~~also~~(“FDICIA”) beestablished ~~affected~~a orsystem ~~limited~~of byprompt ~~other~~corrective ~~factors,~~action ~~such~~to asresolve the ~~requirement~~ toproblems ~~maintain~~of ~~adequate~~undercapitalized ~~capital above regulatory guidelines~~institutions. In Under ~~addition,~~this ifsystem, in the ~~opinion~~federal ofbanking ~~the~~regulators ~~applicable~~have ~~regulatory~~established ~~authority,~~five acapital ~~bank~~categories ~~under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice~~ (~~which,~~well ~~depending upon the financial condition of the bank~~capitalized, ~~could~~adequately ~~include the payment of dividends)~~capitalized, ~~such authority may require~~undercapitalized, ~~after~~significantly ~~notice~~undercapitalized and ~~hearing~~critically undercapitalized), ~~that such bank cease~~ and ~~desist~~are ~~from~~required ~~such practice. The FDIC has issued a policy statement providing that insured banks should generally only pay dividends out of current operating earnings. In addition~~ to ~~the~~take ~~formal~~certain ~~statutes~~mandatory ~~and~~supervisory ~~regulations~~actions, ~~regulatory~~and ~~authorities~~are ~~consider~~authorized ~~the adequacy of the Bank’s total capital in relation~~ to ~~its~~take ~~assets, deposits and~~ other ~~such~~discretionary ~~items. In 2008~~actions, ~~the~~with ~~Company~~respect ~~declared~~to ~~cash~~institutions ~~dividends~~in tothe ~~common~~three ~~stockholders~~undercapitalized ~~totaling $2~~categories.~~137~~ The ~~million,~~severity orof ~~$.15~~the ~~per~~action ~~common~~will ~~share.~~depend Inupon the ~~fourth~~capital ~~quarter~~category of ~~2008~~the institution. Generally, wesubject ~~suspended our quarterly dividends~~ to ~~stockholders~~ ~~due to~~ a ~~decline~~narrow inexception, ~~earnings.~~the Webanking ~~did~~regulator ~~not~~must ~~pay~~appoint a ~~dividend~~receiver ~~during~~or ~~2009~~conservator ~~and~~for wean doinstitution ~~not~~that ~~intend~~is tocritically ~~pay~~undercapitalized. The afederal ~~dividend~~banking inagencies ~~2010~~have ~~due~~specified toby ~~continued~~regulation ~~pressure~~the onrelevant ~~earnings and~~ capital ~~and~~level asfor aeach ~~result of the MOU, Resolution and contemplated Order~~category.

~~Capital~~An ~~Adequacy.~~institution Wecategorized ~~are~~as undercapitalized, significantly undercapitalized, or critically undercapitalized is required to ~~comply~~submit ~~with~~an ~~the~~acceptable capital ~~adequacy~~restoration ~~standards~~plan ~~established~~to byits ~~the~~ appropriate federal banking ~~agencies~~agency. ~~There~~ A ~~are~~bank ~~two~~holding ~~basic~~company ~~measures~~must ofguarantee that a subsidiary depository institution meets its capital ~~adequacy~~restoration ~~for~~plan, ~~bank~~subject to certain limitations. The controlling holding ~~companies~~company’s ~~that~~obligation ~~have~~to ~~been~~fund ~~promulgated~~a bycapital restoration plan is limited to the ~~Federal~~lesser ~~Reserve:~~of a5.0% ~~risk-based~~of ~~measure~~an ~~and~~undercapitalized asubsidiary’s ~~leverage~~assets ~~measure. All~~or ~~applicable~~the amount required to meet regulatory capital ~~standards~~requirements. An ~~must~~undercapitalized ~~be satisfied~~institution ~~for~~is aalso ~~bank~~generally ~~holding~~prohibited ~~company~~from toincreasing beits ~~considered~~average total assets, making acquisitions, establishing any branches or engaging in ~~compliance~~any new line of business, except under an accepted capital restoration plan or with FDIC approval. In addition, the appropriate federal banking agency may treat an undercapitalized institution in the same manner as it treats a significantly undercapitalized institution if it determines that those actions are necessary.

~~The~~At ~~risk-based~~December ~~capital~~31, ~~standards~~2010, ~~are designed~~the toBank ~~make~~was ~~regulatory~~classified ~~capital~~as ~~requirements~~“significantly ~~more~~undercapitalized” ~~sensitive~~under tothe ~~differences~~regulatory inframework ~~risk~~for ~~profiles~~prompt ~~among~~corrective ~~banks~~action. Under ~~and~~the ~~bank~~Prompt ~~holding~~Corrective ~~companies~~Action provisions, on February 10, 2010, the Bank received notification from the FDIC that because of its failure to ~~account~~meet ~~for~~the ~~off-balance-sheet~~minimum ~~exposure~~capital guidelines of “adequately capitalized”, ~~and~~the Bank had forty-five (45) days from receipt of the letter to ~~minimize~~provide ~~disincentives~~the ~~for~~FDIC ~~holding~~with ~~liquid~~a ~~assets~~written capital plan addressing the restoration of its capital levels. ~~Assets~~ In addition, limitations were imposed on the Bank concerning the acceptance of brokered deposits and ~~off-balance-sheet~~the ~~items~~interest ~~are~~rates ~~assigned~~that tocould ~~broad~~be ~~risk~~paid ~~categories,~~on ~~each~~all ~~with~~new ~~appropriate~~time ~~weights~~deposits. The ~~resulting~~Bank submitted a written capital ~~ratios~~plan ~~represent~~to ~~capital~~the FDIC as arequired ~~percentage~~under ofthe ~~total~~notice. The ~~risk-weighted~~FDIC, ~~assets~~after ~~and~~reviewing ~~off-balance-sheet~~the ~~items~~submission, asked the Bank to resubmit the plan. As of December 31, 2010, the FDIC had not approved the Bank’s capital plan.

13 15

~~Table~~Support of ~~Contents~~Subsidiary Institutions. The Federal Reserve (pursuant to regulation and published statements) has maintained that a bank holding company must serve as a source of financial strength to its subsidiary banks. In adhering to the Federal Reserve policy, the Company may be required to provide financial support to its subsidiary banks at a time when, absent such Federal Reserve policy, the Company may not deem it advisable to provide such assistance. Similarly, the Federal Reserve also monitors the financial performance and prospects of non-bank subsidiaries with an inspection process to ascertain whether such non-banking subsidiaries enhance or detract from the Company’s ability to serve as a source of strength for its subsidiary banks.

~~The~~Commercial ~~minimum~~Real ~~guideline~~Estate. The ~~for~~federal ~~the~~banking ~~ratio~~agencies, ~~of Total Capital to risk-weighted assets (~~including ~~certain~~the ~~off-balance-sheet items~~FDIC, ~~such~~restrict asconcentrations ~~standby~~in ~~letters~~commercial ofreal ~~credit)~~estate islending ~~8.0%. Total~~and ~~Capital~~have ~~consists~~noted ofthat ~~Tier~~recent 1increases ~~Capital,~~in ~~which~~banks’ iscommercial ~~comprised~~real ofestate ~~common~~concentrations ~~stock,~~have ~~undivided~~created ~~profits,~~safety ~~minority~~and ~~interests~~soundness concerns in the ~~equity~~current ~~accounts~~economic ofdownturn. The ~~consolidated subsidiaries~~regulatory ~~and~~guidance ~~non-cumulative~~mandates ~~perpetual~~certain ~~preferred~~minimal ~~stock,~~risk ~~less~~management ~~goodwill~~practices and ~~certain~~categorizes ~~other~~banks ~~intangible~~with ~~assets,~~defined ~~and~~levels ~~Tier~~of 2such ~~Capital,~~concentrations ~~which~~as ~~consists~~banks ofrequiring ~~subordinated~~elevated ~~debt,~~examiner ~~other~~scrutiny. The ~~preferred~~Bank ~~stock,~~has ~~and~~concentrations ain ~~limited~~commercial ~~amount~~real estate loans in excess of ~~loan~~those ~~loss~~defined ~~reserves~~levels. ~~At December 31,~~ Although ~~2009,~~management ~~our~~believes ~~consolidated~~that ~~Total~~the ~~Capital~~Bank’s ~~Ratio~~credit processes and ~~our~~procedures ~~Tier~~meet 1the ~~Capital~~risk ~~Ratio~~management ~~were~~standards ~~5.55%~~dictated ~~and~~by ~~4.30%,~~this ~~respectively~~guidance, ~~resulting~~regulatory inoutcomes ~~our~~could ~~being~~effectively ~~classified~~limit asincreases ~~“significantly~~in ~~undercapitalized”~~the ~~under~~real estate concentrations in the ~~regulatory~~Bank’s ~~framework~~loan ~~for~~portfolio ~~prompt corrective~~and ~~action.~~require additional credit administration and management costs associated with those portfolios.

InFair ~~addition~~Value. The Company’s impaired loans and foreclosed assets may be measured and carried at “fair value”, the ~~Federal~~determination ~~Reserve~~of ~~has~~which ~~established~~requires ~~minimum~~management ~~leverage~~to ~~ratio~~make ~~guidelines~~assumptions, ~~for bank~~estimates ~~holding~~and ~~companies~~judgments. ~~These~~ When ~~guidelines~~a ~~provide~~loan ~~for~~is considered impaired, a ~~minimum~~specific ~~ratio~~valuation ~~(the~~allowance ~~“Leverage~~is ~~Ratio”)~~allocated ofor ~~Tier~~a 1partial ~~Capital~~charge-off tois ~~average~~taken, ~~assets~~if necessary, ~~less~~so ~~goodwill~~that ~~and~~the ~~certain~~loan ~~other~~is ~~intangible~~reported ~~assets~~net, at the present value of ~~3.0%~~estimated ~~for~~future ~~bank~~cash ~~holding~~flows ~~companies~~using ~~that~~the ~~meet~~loan’s ~~certain specified~~existing ~~criteria~~rate or at the fair value of collateral if repayment is primarily dependent on the liquidation of the collateral. In addition, ~~including~~foreclosed ~~those~~assets ~~having~~are carried at the ~~highest~~lower ~~regulatory~~of ~~rating~~cost or “fair value”, less cost to sell, following foreclosure. ~~All~~ “Fair ~~other~~value” ~~bank~~is ~~holding~~defined ~~companies~~by ~~generally~~Generally ~~are~~Accepted ~~required~~Accounting Principles (“GAAP”) “as the price that would be received to ~~maintain~~sell aan ~~Leverage~~asset ~~Ratio~~in ofan orderly transaction between market participants at ~~least~~the 3measurement date.~~0%,~~” GAAP ~~plus~~further defines an ~~additional~~“orderly ~~cushion~~transaction” ofas ~~100~~“a totransaction ~~200~~that ~~basis~~assumes ~~points. Our Leverage~~exposure ~~Ratio~~to atthe ~~December 31,~~market ~~2009~~for ~~was~~a ~~3.38%,~~period ~~below~~prior to the ~~minimum~~measurement ~~required. The~~date ~~guidelines~~to ~~also~~allow ~~provide~~for marketing activities that ~~bank~~are ~~holding~~usual ~~companies~~and ~~experiencing~~customary ~~internal~~for ~~growth~~transactions involving such assets; it is not a forced transaction (for example, a forced liquidation or ~~making~~distress ~~acquisitions~~sale).” Recently ~~will~~in bethe ~~expected~~Bank’s tomarkets ~~maintain~~there ~~strong~~have ~~capital~~been ~~positions substantially~~very ~~above~~few transactions in the ~~minimum~~type ~~supervisory~~of ~~levels~~assets ~~without~~which ~~significant~~collateralize ~~reliance~~the onvast ~~intangible~~majority of the Bank’s impaired loans and foreclosed properties which reflect “orderly transactions” as so defined. Instead, most transactions in comparable assets have been distressed sales not indicative of “fair value. ~~Furthermore~~” Accordingly, the ~~Federal~~determination ~~Reserve~~of ~~has~~fair ~~indicated~~value ~~that~~in the current environment is difficult and more subjective than it ~~will~~would ~~consider~~be in a ~~“tangible~~stable ~~Tier~~real 1estate ~~Capital~~environment. Although ~~Leverage~~management ~~Ratio”~~believes ~~(deducting~~its ~~all intangibles)~~processes for determining the value of these assets are appropriate and ~~other~~allow ~~indicators~~the Company to arrive at reasonable estimates of ~~capital~~fair ~~strength~~value, inthe ~~evaluating~~processes ~~proposals~~require ~~for~~management ~~expansion~~judgment and assumptions and the value of such assets at the time they are revalued or ~~new~~divested ~~activities.~~may be significantly different from management’s determination of fair value.

The Bank is subject to risk-based and leverage capital requirements adopted by its federal banking regulators, which are substantially similar to those adopted by the Federal Reserve for bank holding companies. 16

~~Failure~~Transactions towith ~~meet~~Affiliates. Under ~~capital~~federal ~~guidelines~~law, ~~could~~all ~~subject~~transactions between and among a ~~bank~~state ornonmember bank and its affiliates, which include holding ~~company~~companies, are subject to aSections ~~variety~~23A and 23B of ~~enforcement~~the ~~remedies~~Federal Reserve Act and Regulation W promulgated thereunder. Generally, ~~including~~ ~~issuance~~these ofrequirements limit these transactions to a ~~capital~~percentage ~~directive,~~of the ~~termination~~bank’s capital and require all of ~~deposit~~them ~~insurance~~to bybe on terms at least as favorable to the ~~FDIC~~bank as transactions with non-affiliates. In addition, a ~~prohibition~~bank onmay ~~the~~not ~~taking~~lend ofto ~~brokered~~any ~~deposits,~~affiliate ~~and~~engaged ~~certain~~in ~~other~~non-banking ~~restrictions~~activities onnot ~~its~~permissible ~~business~~for a bank holding company or acquire shares of any affiliate that is not a subsidiary. As The ~~described~~FDIC ~~below,~~is ~~substantial~~authorized to impose additional restrictions ~~can~~on betransactions ~~imposed~~with ~~upon~~affiliates ~~FDIC-insured~~if ~~depository~~necessary ~~institutions~~to ~~that~~protect ~~fail~~the tosafety ~~meet~~and ~~applicable~~soundness ~~capital~~of ~~requirements~~a bank. ~~See~~ The ~~“Prompt~~regulations ~~Corrective~~also ~~Action.”~~set forth various reporting requirements relating to transactions with affiliates.

~~The~~Financial ~~federal~~Privacy. In ~~bank~~accordance ~~agencies~~with ~~continue~~the toGLB ~~indicate~~Act, ~~their~~federal ~~desire~~banking toregulators ~~raise~~adopted ~~capital~~rules ~~requirements~~that ~~applicable~~limit tothe ~~banking~~ability ~~organizations~~of ~~beyond~~banks ~~their~~and ~~current~~other ~~levels. In~~financial ~~this~~institutions ~~regard,~~to ~~the Federal~~disclose ~~Reserve~~non-public ~~and~~information ~~the~~about ~~FDIC~~consumers ~~require regulators~~ to ~~consider~~nonaffiliated ~~interest~~third ~~rate~~parties. These ~~risk~~limitations ~~(when~~require ~~the~~disclosure ~~interest rate sensitivity~~ of anprivacy ~~institution’s~~policies ~~assets~~to ~~does~~consumers ~~not~~and, ~~match~~in ~~the~~some ~~sensitivity~~circumstances, ofallow ~~its~~consumers ~~liabilities~~to orprevent ~~its~~disclosure ~~off-balance-sheet~~of ~~position)~~certain inpersonal ~~the~~information ~~evaluation of~~to a ~~bank’s~~nonaffiliated ~~capital~~third ~~adequacy~~party. The ~~regulatory~~privacy ~~agencies~~provisions ~~have~~of ~~proposed~~the aGLB ~~methodology~~Act ~~for~~affect ~~evaluating~~how ~~interest~~consumer ~~rate~~information ~~risk~~is ~~that~~transmitted ~~would~~through ~~require~~diversified ~~banks~~financial ~~with~~companies ~~excessive~~and ~~interest~~conveyed ~~rate risk exposure~~ to ~~hold~~outside ~~additional amounts of capital against such exposures~~vendors.

14Anti-Money Laundering Initiatives and the USA Patriot Act. A major focus of governmental policy on financial institutions in recent years has been aimed at combating terrorist financing. This has generally been accomplished by amending existing anti-money laundering laws and regulations. The USA Patriot Act of 2001 (the “USA Patriot Act”) has imposed significant new compliance and due diligence obligations, creating new crimes and penalties. The United States Treasury Department has issued a number of implementing regulations that apply to various requirements of the USA Patriot Act to the Company and the Bank. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. Failure of a financial institution to maintain and implement adequate programs to combat terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution.

~~Table~~Future Legislation. From time to time, Congress introduces various legislation affecting financial institutions and the financial industry. Such legislation may change banking statutes and the operating environment of ~~Contents~~the Company and the Bank in substantial and unpredictable ways, and could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance depending upon whether any of this potential legislation will be enacted, and if enacted, the effect that it or any implementing regulations, would have on the financial condition or results of operations of the Company or any of its subsidiaries. With the current economic environment, the nature and extent of future legislative and regulatory changes affecting financial institutions is very unpredictable at this time.

Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) established a system of prompt corrective action to resolve the problems of undercapitalized institutions. Under this system, the federal banking regulators have established five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized), and are required to take certain mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to institutions in the three undercapitalized categories. The severity of the action will depend upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized. The federal banking agencies have specified by regulation the relevant capital level for each category. 17

AnMonetary ~~institution~~Policy ~~that~~and isEconomic categorized as undercapitalized, significantly undercapitalized, or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. A bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to certain limitations. The controlling holding company’s obligation to fund a capital restoration plan is limited to the lesser of 5.0% of an undercapitalized subsidiary’s assets or the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC approval. In addition, the appropriate federal banking agency may treat an undercapitalized institution in the same manner as it treats a significantly undercapitalized institution if it determines that those actions are necessary. Conditions

AtThe ~~December 31,~~Company’s ~~2009,~~profitability ~~the~~depends ~~Bank~~to ~~was~~a ~~classified~~substantial asextent ~~“significantly undercapitalized”~~on ~~under~~ the ~~regulatory~~difference ~~framework~~between ~~for~~interest ~~prompt~~revenue ~~corrective~~received ~~action. Accordingly~~from loans, ~~under~~investments, ~~the~~and ~~Prompt~~other ~~Corrective~~earning ~~Action provisions~~assets, onand ~~February 10, 2010,~~ the ~~Bank~~interest ~~received~~paid ~~notification~~on ~~from~~deposits ~~the~~and ~~FDIC~~other ~~that~~liabilities. These ~~because~~rates ofare ~~its~~highly ~~failure~~ sensitive to ~~meet~~many ~~the~~factors ~~minimum~~that ~~capital~~are ~~guidelines~~beyond ofthe ~~“adequately~~control ~~capitalized”,~~of the ~~Bank~~Company, ~~had~~including ~~forty-five~~national ~~(45) days~~and ~~from~~international ~~receipt~~economic ofconditions and the ~~letter~~monetary topolicies ~~provide~~of ~~the~~various ~~FDIC~~governmental ~~with~~and aregulatory ~~written~~authorities, ~~capital~~particularly ~~plan~~the ~~addressing~~Federal ~~the~~Reserve. The ~~restoration~~instruments of ~~its~~monetary ~~capital~~policy ~~levels.~~employed ~~In addition,~~by ~~limitations~~the ~~were~~Federal ~~imposed~~Reserve oninclude ~~the~~open ~~Bank~~market ~~concerning~~operations ~~the~~in ~~acceptance~~U.S. ofgovernment ~~brokered~~securities, ~~deposits~~changes ~~and~~in the ~~interest~~discount ~~rates~~rate ~~that~~on ~~could~~bank beborrowings ~~paid~~and onchanges ~~all~~in ~~new~~reserve ~~time~~requirements against bank deposits.

~~Support~~Executive ofOfficers ~~Subsidiary Institutions. The Federal Reserve (pursuant to regulation and published statements) has maintained that a bank holding company must serve as a source~~ of ~~financial~~ ~~strength to its subsidiary banks. In adhering to~~ the ~~Federal Reserve policy, the~~ Company may be required to provide financial support to its subsidiary banks at a time when, absent such Federal Reserve policy, the Company may not deem it advisable to provide such assistance. Similarly, the Federal Reserve also monitors the financial performance and prospects of non-bank subsidiaries with an inspection process to ascertain whether such non-banking subsidiaries enhance or detract from the Company’s ability to serve as a source of strength for its subsidiary banks.

~~Commercial~~Senior ~~Real Estate.~~executives ~~The~~of ~~federal banking agencies, including~~ the ~~FDIC,~~Company ~~restrict~~are ~~concentrations~~elected inby ~~commercial~~the ~~real~~Board ~~estate~~of ~~lending~~Directors ~~and~~annually ~~have noted that recent increases in banks’ commercial real estate concentrations have created safety~~ and ~~soundness concerns~~serve inat the ~~current~~pleasure ~~economic~~of ~~downturn. The~~the ~~regulatory~~Board ~~guidance~~of ~~mandates certain minimal risk management practices~~ Directors.

15The senior executive officers of the Company, and their ages, positions with the Company, and past five year employment history are as follows:

	Name (age)		Position with Company	Officer of Company Since

David H. Gill (56)		President, Chief Executive Officer and Director		1993

Charles W. Blair, Jr. (55)		Executive Vice President, Chief Financial Officer and Corporate Secretary; prior to joining Company, he served as Chairman and CEO of nBank, N.A.		2009

M. Debra Walker (57)		Senior Vice President and Chief Operations Officer of the Bank; Assistant Secretary of the Company		2001

~~and~~Available categorizes banks with defined levels of such concentrations as banks requiring elevated examiner scrutiny. The Bank has concentrations in commercial real estate loans in excess of those defined levels. Although management believes that the Bank’s credit processes and procedures meet the risk management standards dictated by this guidance, regulatory outcomes could effectively limit increases in the real estate concentrations in the Bank’s loan portfolio and require additional credit administration and management costs associated with those portfolios. Information

~~Fair Value.~~ The Company’s ~~impaired~~filings ~~loans~~with ~~and foreclosed assets may be measured and carried at “fair value”,~~ the ~~determination of which requires management to make assumptions~~SEC, ~~estimates~~ ~~and~~including ~~judgments. When~~its aannual ~~loan~~report ison ~~considered~~Form ~~impaired~~10-K, aquarterly ~~specific~~reports ~~valuation~~on ~~allowance~~Form ~~is allocated or a partial charge~~10-~~off is taken~~Q, ifperiodic ~~necessary,~~reports soon ~~that~~Form ~~the~~8-K ~~loan~~and isamendments ~~reported~~to ~~net,~~these ~~at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. In addition~~reports, ~~foreclosed assets~~ are ~~carried~~accessible atfree ~~the lower~~ of ~~cost~~charge orat ~~“fair~~our ~~value”,~~website less cost to sell, following foreclosure. “Fair value” is defined by Generally Accepted Accounting Principles (“GAAP”) “as the price that would be received to sell an asset in an orderly transaction between market participants at ~~the measurement date~~http://www.~~” GAAP~~firststateonline.com ~~further defines an “orderly transaction”~~ as “asoon transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets; it is not a forced transaction (for example, a forced liquidation or distress sale).” Recently in the Bank’s markets there have been very few transactions in the type of assets which collateralized the vast majority of the Bank’s impaired loans and foreclosed properties which reflect “orderly transactions” as soreasonably ~~defined. Instead,~~practicable ~~most~~after ~~transactions~~filing inwith ~~comparable assets have been distressed sales not indicative of “fair value.” Accordingly,~~ the ~~determination of fair value in the current environment is difficult and more subjective than it would be in a stable real estate environment~~SEC. Although management believes its processes for determining the value of these assets are appropriate and allow the Company to arrive at reasonable estimates of fair value, the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be significantly different from management’s determination of fair value.

Transactions with Affiliates. Under federal law, all transactions between and among a state nonmember bank and its affiliates, which include holding companies, are subject to Sections 23A and 23B of the Federal Reserve Act and Regulation W promulgated thereunder. Generally, these requirements limit these transactions to a percentage of the bank’s capital and require all of them to be on terms at least as favorable to the bank as transactions with non-affiliates. In addition, a bank may not lend to any affiliate engaged in non-banking activities not permissible for a bank holding company or acquire shares of any affiliate that is not a subsidiary. The FDIC is authorized to impose additional restrictions on transactions with affiliates if necessary to protect the safety and soundness of a bank. The regulations also set forth various reporting requirements relating to transactions with affiliates. 18

16Item 1A. RISK FACTORS

~~Table~~Our business is subject to certain risks, including those described below. The risks below do not describe all risks applicable to our business and are intended only as a summary of ~~Contents~~certain material factors that affect our operations in our industry and markets. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our financial performance. More detailed information concerning these and other risks is contained in other sections of this Report, including “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

~~Financial~~The ~~Privacy.~~notes Into ~~accordance~~our ~~with the GLB Act, federal banking regulators adopted rules that limit the ability of banks and other~~ financial ~~institutions~~statements to disclose non-public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a ~~nonaffiliated~~going ~~third~~concern ~~party. The~~issue ~~privacy~~for ~~provisions of~~ the ~~GLB Act affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors~~Company.

~~Anti-Money~~Our ~~Laundering Initiatives and the USA Patriot Act. A major focus of governmental policy on~~ financial ~~institutions~~statements inhave ~~recent years has~~ been ~~aimed~~prepared aton ~~combating~~a ~~terrorist~~going ~~financing. This~~concern ~~has~~basis, ~~generally~~which ~~been~~contemplates ~~accomplished~~the byrealization ~~amending~~of ~~existing~~assets ~~anti-money laundering laws~~ and ~~regulations. The USA~~the ~~Patriot~~discharge ~~Act~~ of ~~2001~~liabilities (in the ~~“USA~~normal ~~Patriot~~course ~~Act”)~~of ~~has~~business ~~imposed~~for ~~significant~~the ~~new~~foreseeable ~~compliance~~future. However, ~~and~~ due ~~diligence~~to ~~obligations,~~our ~~creating~~financial ~~new~~results, ~~crimes~~the ~~and~~substantial ~~penalties. The~~uncertainty ~~United~~through ~~States~~the ~~Treasury~~U.S. ~~Department~~banking ~~has~~industry ~~issued~~and aother ~~number~~matters ofdiscussed ~~implementing regulations~~in ~~which~~this ~~apply~~annual toreport ~~various~~on ~~requirements~~Form of10-K ~~the USA Patriot Act to the Company~~ and ~~the~~in ~~Bank. These~~our ~~regulations~~audited ~~impose obligations on~~ financial ~~institutions~~statements, toa ~~maintain~~substantial ~~appropriate~~doubt ~~policies,~~exists ~~procedures~~regarding ~~and~~our ~~controls~~ability to ~~detect,~~continue ~~prevent~~as ~~and report~~a ~~money~~going ~~laundering~~concern. Management’s ~~and~~plans ~~terrorist~~in ~~financing~~addressing ~~and to verify~~ the ~~identity~~issues ofthat ~~their~~raise ~~customers. Failure~~substantial ofdoubt aregarding ~~financial~~the ~~institution~~Company’s ability to ~~maintain~~continue ~~and~~as ~~implement~~a ~~adequate~~going ~~programs~~concern toare ~~combat~~addressed ~~terrorist~~in ~~financing,~~Note or2 ~~to comply with all~~ of the ~~relevant laws~~Notes orto ~~regulations,~~the ~~could~~2010 ~~have~~Consolidated ~~serious~~Financial ~~legal and reputational consequences for the institution~~Statements.

~~Future Legislation.~~We Various legislation affecting financial institutions and the financial industry is from time to time introduced in Congress. Such legislation may change banking statutes and the operating environment of the Company and the Bank in substantial and unpredictable ways, and could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance depending upon whether any of this potential legislation will be enacted, and if enacted, the effect that it or any implementing regulations, would have onreceived ~~the~~a ~~financial~~Prompt ~~condition~~Corrective orAction ~~results of operations of the Company or any of its subsidiaries~~Notification. ~~With the current economic environment, the nature and extent of future legislative and regulatory changes affecting financial institutions is very unpredictable at this time.~~

~~Monetary~~We ~~Policy~~have been notified that the Bank is “significantly undercapitalized” for purposes of Prompt Corrective Action pursuant to 12 U.S.C. § 1831o and ~~Economic Conditions~~12 C.F.R. Part 6. At December 31, the Bank’s capital ratios were as follows:

The Company’s profitability depends to a substantial extent on the difference between interest revenue received from loans, investments, and other earning assets, and the interest paid on deposits and other liabilities. These rates are highly sensitive to many factors that are beyond the control of the Company, including national and international economic conditions and the monetary policies of various governmental and regulatory authorities, particularly the Federal Reserve. The instruments of monetary policy employed by the Federal Reserve include open market operations in U.S. government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits.

Tier 1 Capital to Adjusted Total Assets	2.65	%
Tier 1 Capital to Risk-Weighted Assets	3.10	%
Total Capital to Risk-Weighted Assets	4.35	%

17Federal law requires the Bank to immediately submit an acceptable Capital Restoration Plan (see “Prompt Corrective Action” beginning on page 15) to its primary regulator that includes the specific steps the Bank will take to become adequately capitalized and a timeframe for achieving the higher capital ratios required by the Order (discussed below). If the Bank does not submit an acceptable Capital Restoration Plan to the Supervisory Authorities, the Bank is subject to further supervisory enforcement actions.

~~Table of Contents~~19

~~Executive~~We ~~Officers~~have ofentered into a Resolution and Order with the ~~Company~~FRB and Supervisory Authorities that require us to take specified actions.

~~Senior~~Our ~~executives~~future ofviability is subject to the ~~Company~~Bank’s ~~are~~ability ~~elected~~to bysuccessfully operate under the ~~Board~~terms of ~~Directors~~the ~~annually~~Order, ~~and~~which ~~serve~~requires at the ~~pleasure~~Bank to achieve among other things: (i) a Tier 1 capital to total assets ratio of 8.0%; (ii) a capital plan to meet and maintain the ~~Board~~minimum risk-based capital requirements for a “well capitalized” bank; (iii) elimination of ~~Directors.~~ or significant reduction in certain problem assets within established timeframes; and (iv) formulation of a plan to improve the Bank’s earnings.

The ~~senior~~Company ~~executive~~is ~~officers~~also subject to the terms of a Resolution with the ~~Company,~~FRB ~~and~~that ~~their~~generally ~~ages,~~prohibits ~~positions~~our ~~with~~ability to receive dividends from the ~~Company~~Bank, ~~and~~or ~~past five~~to ~~year~~make ~~employment~~dividends ~~history~~or ~~are~~other asdistributions ~~follows:~~to our shareholders, without prior regulatory approval.

Name(age)	Position with Company	Officer of Company Since
David H. Gill (55)	President, Chief Executive Officer and Director	1993
William C. Strom, Jr. (60)	Executive Vice President, Chief Credit Officer, Secretary and Director	1997
Charles W. Blair, Jr. (54)	Executive Vice President and Chief Financial Officer; prior to joining Company, he served as President and CEO of nBank, N.A.	2009
M. Debra Walker (56)	Senior Vice President and Chief Operations Officer of the Bank; Assistant Secretary of the Company	2001

In order to comply with our regulatory requirements, we need to raise substantial additional capital or significantly reduce our asset size. The primary purpose of an offering of our stock would be to raise capital for the Bank to satisfy certain requirements set forth in the Order. There is no guarantee, however, that we will be successful in raising capital in an offering or otherwise or that we would be able to sell assets at terms favorable enough to meet our regulatory capital needs.

~~Available~~A ~~Information~~reduction in the levels of problem assets within certain timeframes may force the Bank to liquidate foreclosed properties at prices not reflective of an orderly transaction resulting in sales prices that fall below the properties’ fair value as reflected on our balance sheet.

The ~~Company’s~~failure ~~filings~~to ~~with~~achieve ~~the~~or ~~SEC,~~make ~~including~~substantial ~~its~~progress ~~annual~~towards ~~report~~achieving onthe ~~Form~~terms ~~10-K,~~of ~~quarterly~~the ~~reports~~Order onmay ~~Form 10-Q,~~subject ~~periodic~~us ~~reports on Form 8-K and amendments~~ to ~~these~~increased ~~reports,~~regulatory ~~are~~enforcement ~~accessible~~actions ~~free~~and ofoperating ~~charge at our website at http://www~~restrictions.~~firststateonline.com as soon as reasonably practicable after filing with the SEC.~~

18As disclosed in Note 2 of the 2010 Consolidated Financial Statements, the Company is currently attempting to raise additional capital through a Private Placement Memorandum. The proceeds from this offering may not be sufficient to meet the capital requirements of our regulators or otherwise support our operations.

~~Table~~On January 20, 2011 the Company began a common stock offering through a private placement memorandum to raise a minimum of ~~Contents~~$50 million and a maximum of $75 million in additional capital with the majority of any capital raised to be contributed to the Bank. Although we have set a minimum level of proceeds necessary for us to break escrow, we determined this amount based on our best estimates at the time it was established and it may bear no relation to our ultimate level of capital needed. While the board of directors has the discretion to increase or decrease the minimum number of shares of common stock that must be sold to break escrow, there is no guarantee that the amount of capital determined to be necessary to break escrow will be adequate to support the ongoing operations of the Company, and the proceeds may not be sufficient to allow us continue to meet the capital requirements of the FRB and Supervisory Authorities. Failure to raise sufficient capital or additional capital, if needed in the future, may result in further regulatory restrictions on our operations and adversely affect successful implementation of our business strategy.

~~Item 1A. RISK FACTORS~~20

~~Our~~Ongoing ~~business~~deterioration isin ~~subject~~the tohousing ~~certain~~market ~~risks,~~and ~~including~~the ~~those~~homebuilding ~~described~~industry ~~below. The~~may ~~risks~~lead ~~below do not describe all risks applicable~~ to ~~our~~increased ~~business~~losses and ~~are~~further ~~intended~~worsening ~~only as a summary~~ of ~~certain~~delinquencies ~~material~~and ~~factors~~non-performing ~~that~~assets ~~affect our operations~~ in our ~~industry~~loan ~~and markets~~portfolios. ~~New risks may emerge at any time~~ Consequently, ~~and we cannot predict such risks or estimate the extent to which they may affect~~ our financial ~~performance.~~condition ~~More detailed information concerning these~~ and ~~other~~results ~~risks is contained in other sections~~ of ~~this~~operations ~~Report,~~may ~~including~~be ~~“Business”~~adversely ~~and “Management’s Discussion and Analysis of Financial Condition and Results of Operations~~impacted.”

WeThere ~~will~~has bebeen ~~entering~~substantial ~~into~~industry aconcern ~~written~~and ~~agreement~~publicity ~~with~~over asset quality among financial institutions due in large part to issues related to declining real estate values and general economic concerns. As of December 31, 2010, our ~~regulators~~non-performing ~~that~~assets ~~require~~had usincreased to ~~take~~$167.9 ~~specified~~million, ~~actions~~or 35% of our loan portfolio and other real estate owned. Furthermore, the housing and the residential mortgage markets recently have experienced a variety of difficulties and changed economic conditions. If market conditions continue to deteriorate, they may lead to additional valuation adjustments on our loan portfolios and foreclosed properties as we continue to reassess the market value of our loan portfolio, the losses associated with the loans in default, and the net realizable value of foreclosed properties.

The ~~Bank~~homebuilding isindustry inhas ~~receipt~~experienced ofa significant and ~~our~~sustained ~~Board~~decline ofin ~~Directors~~demand ~~will~~for benew ~~executing~~homes aand ~~Consent~~an ~~Order~~oversupply ~~(the~~of ~~“Order”)~~new ~~with~~and ~~the Supervisory~~existing ~~Authorities.~~homes ~~Our~~available ~~future~~for ~~viability~~sale isin ~~subject~~various tomarkets, ~~our~~including ~~ability~~some toof ~~successfully~~the ~~operate~~markets ~~under~~in ~~the~~which ~~terms~~we oflend. Our ~~the~~customers ~~Order,~~who ~~which~~are ~~requires~~builders ~~the~~and ~~Bank~~developers toface ~~achieve~~greater ordifficulty ~~make~~in ~~substantial~~selling ~~progress~~their ~~towards~~homes ~~achieving,~~in ~~among~~markets ~~other~~where ~~things:~~these ~~(i) a~~trends ~~Tier~~are ~~1 capital~~more topronounced. Consequently, ~~total~~we ~~assets~~are ~~ratio~~facing ofincreased ~~8.0%;~~delinquencies ~~(ii) a~~and ~~capital~~non-performing ~~plan~~assets toas ~~meet~~these builders and ~~maintain~~developers ~~the~~default ~~minimum~~on ~~risk-based~~their ~~capital~~loans ~~requirements~~with ~~for~~us. We ado ~~“well~~not ~~capitalized”~~know ~~bank;~~when ~~(iii) elimination~~the ofhousing ormarket ~~significant~~will ~~reduction~~improve, inand ~~certain~~accordingly, ~~problem~~additional ~~assets within~~downgrades, ~~established~~provisions ~~timeframes;~~for ~~and~~loan ~~(iv) formulation~~losses, ofand acharge-offs ~~plan~~related to ~~improve~~our ~~the~~loan ~~Bank’s~~portfolio ~~earnings.~~may occur.

~~The Company~~We ishave ~~also~~been ~~subject~~adversely toaffected ~~the~~because ~~terms~~ of aour ~~Board~~high ~~Resolution~~concentration ~~with~~of ~~the~~loans ~~Federal~~secured ~~Reserve~~by ~~Bank~~real ofestate ~~Atlanta~~and ~~that~~deteriorating ~~generally~~real ~~prohibits~~estate ~~our~~market ~~ability~~conditions toin ~~receive~~Henry ~~dividends~~and ~~from~~surrounding ~~the Bank~~counties, orleading to ~~make~~higher ~~dividends~~nonperforming orassets, ~~other~~loan ~~distributions~~charge-offs toand an increase in our ~~shareholders,~~provision ~~without prior~~for ~~regulatory~~loan ~~approval~~losses.

InAs ~~order~~of toDecember ~~comply~~31, ~~with~~2010, approximately 95% of our ~~regulatory~~total ~~requirements,~~loans wewere ~~need~~secured toby ~~raise~~real ~~substantial additional~~estate. In ~~capital~~2007, orthe ~~significantly~~housing ~~reduce~~and real estate sectors in our ~~asset~~markets ~~size~~experienced an economic downturn that accelerated in 2008 and 2009 and continued throughout 2010. We ~~The~~had ~~primary~~a ~~purpose~~significant ofpresence anin ~~offering~~residential construction and development lending in our market. The majority of our ~~stock~~customers ~~would~~who bewere toresidential ~~raise~~builders ~~capital~~carried ~~that~~inventories ~~can~~of belots ~~injected~~for ~~into~~new ~~the~~construction. The ~~Bank~~supply toof ~~satisfy~~vacant, ~~certain~~developed ~~requirements~~lots ~~set~~and ~~forth~~partially indeveloped properties has increased dramatically as the ~~Order~~number of new building permits and housing starts decreased. In ~~There~~addition, isbetween noSeptember ~~guarantee~~2007 and December 2010, ~~however~~ the FDIC placed over 50 Georgia-based financial institutions into receivership, ~~that~~and we believe that others will be ~~successful~~placed in ~~raising~~receivership ~~capital~~ in anthe ~~offering~~future. The orsubsequent ~~otherwise~~sale orof the assets of these financial institutions at depressed prices could continue to negatively affect the value of our real estate collateral and foreclosed properties. We believe that weit ~~would~~may betake ~~able~~more than five years for the market to ~~sell~~fully ~~assets~~absorb atthe ~~terms~~existing ~~favorable~~lot ~~enough~~inventories in some areas of our market. If economic conditions continue to ~~meet~~worsen or deteriorate, it could lead to additional charge-offs and further increases in our ~~regulatory~~allowance ~~capital~~for ~~needs.~~loan losses.

A reduction in the levels of problem assets within certain timeframes may force the Bank to liquidate foreclosed properties at prices not reflective of an orderly transaction resulting in sales prices that fall below the properties’ fair value as reflected on our balance sheet. (See discussion of Fair Value on page 16). 21

~~The~~We ~~failure~~hold toin ~~achieve~~our orportfolio ~~make~~a ~~substantial~~significant ~~progress~~number ~~towards~~of ~~achieving~~real ~~the~~estate ~~terms~~construction ofand development loans, which in the ~~Order~~current ~~may~~market ~~subject~~environment uspose tomore ~~increased regulatory~~credit ~~enforcement~~risk ~~actions~~than ~~and~~other ~~operating~~types ~~restrictions.~~of loans typically made by financial institutions.

19We hold a significant number of real estate construction and development loans that are loans made to builders and developers to acquire and develop land and construct houses. At December 31, 2010, real estate construction and development loans totaled $130.5 million or 34% of the Bank’s loan portfolio. Nonperforming loans within this category amounted to $60.5 million or approximately 46% of total outstanding loans within this category. In addition to loans held in our portfolio at December 31, 2010, we also had $59.5 million in foreclosed properties, or 75% of our total foreclosed properties, which initially secured loans to finance real estate construction and development. These real estate construction and development loans are considered more risky than other types of residential mortgage loans. The primary credit risks associated with real estate construction and development lending are underwriting, project risks and market risks. Project risks include cost overruns, borrower credit risk, project completion risk, general contractor credit risk and environmental and other hazard risks. Market risks are risks associated with the sale of the completed residential units. They include affordability risk, which means the risk of affordability of financing by borrowers, product design risks, and risks posed by completing projects. While we believe we have established adequate reserves on our financial statements to cover the credit risk of our real estate construction and development loan portfolio, there can be no assurance that losses will not exceed our reserves, which could adversely impact our earnings.

~~Table~~If ofour ~~Contents~~allowance for loan losses is not sufficient to cover actual loan losses, earnings would decrease.

Our loan customers may not repay their loans according to their terms and the collateral securing the payment of these loans may be insufficient to assure repayment. We ~~will~~may ~~need~~experience significant loan losses that would have a material adverse effect on our operating results. Our management makes various assumptions and judgments about the collectability of the loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. We maintain an allowance for loan losses in an attempt to ~~raise~~cover ~~additional~~any ~~capital~~loan losses inherent in the ~~future~~loan ~~that~~portfolio. In isdetermining ~~likely~~the size of the allowance, our management relies on an analysis of the loan portfolio based on historical loss experience, volume and types of loans, trends in classification, real estate volume and values, trends in delinquencies and non-accruals, national and local economic conditions and other pertinent information. Because of these considerations, we have from time to betime ~~dilutive~~increased our allowance for loan losses. For the year ended December 31, 2010, we recorded a provision for loan losses of $1.2 million, compared to ~~existing~~ ~~stockholders~~$39.2 million for the year ended December 31, ~~but~~2009. If ~~that~~those ~~capital~~assumptions used in determining our allowance for loan losses are inaccurate, the allowance may not be ~~available~~sufficient ~~when~~to wecover ~~need~~future ~~it.~~loan losses and adjustments may be necessary to allow for different economic conditions or adverse developments in the loan portfolio.

~~To meet the capital requirements of the Order, we will be required to raise additional capital.~~ 22

~~Our~~In ~~ability~~addition, ~~to raise additional capital will depend on conditions in~~ the ~~capital~~Supervisory ~~markets~~Authorities atperiodically ~~that~~review ~~time and on~~ our ~~financial~~allowance ~~performance. Recently,~~for ~~the~~loan ~~volatility~~losses and ~~disruption~~may inrequire ~~the~~us ~~capital~~to ~~and~~increase ~~credit~~our ~~markets~~provision ~~have~~for ~~reached~~loan ~~unprecedented~~losses ~~levels. In~~or ~~some~~recognize ~~cases,~~further ~~the~~loan ~~markets have~~charge-offs, ~~produced~~based ~~downward pressure~~ on ~~stock~~judgments ~~prices~~different ~~and~~from ~~credit availability for certain issuers without regard to~~ those ~~issuers’ underlying financial strength. If current levels~~ of ~~market disruption and volatility continue or worsen,~~ our ~~ability~~ ~~to raise additional capital may be severely limited~~management. If Any weincrease ~~cannot~~in ~~raise additional capital when needed,~~ our ~~results~~allowance offor ~~operations~~loan ~~and~~losses ~~financial~~or ~~condition~~loan ~~may~~charge-offs beas ~~adversely~~required ~~affected,~~by ~~and~~these ~~our banking regulators may subject the Bank to~~ regulatory ~~enforcement~~agencies ~~action,~~could ~~including~~have ~~receivership. In~~a ~~addition,~~negative ~~the~~effect ~~issuance~~on ~~of additional shares of~~ our ~~common~~operating ~~stock will dilute the ownership interest of our existing common shareholders~~results.

~~Difficult~~Any ~~market~~increases ~~conditions~~in the allowance for loan losses will result in a decrease in net income and ~~economic~~capital, ~~trends~~and may have ~~adversely~~a ~~affected~~material ~~our~~adverse ~~industry~~effect ~~and~~on our ~~business~~financial ~~and~~condition, ~~may~~results ~~continue~~of tooperations doand ~~so.~~cash flows.

Our ~~business~~use ~~has been directly affected by market conditions, trends in industry and finance, legislative and regulatory changes, and changes in governmental monetary and fiscal policies and inflation, all~~ of ~~which~~appraisals ~~are beyond our control. Beginning~~ in ~~the~~deciding ~~second~~whether ~~half~~to ofmake ~~2007~~a ~~and~~loan ~~continuing~~on ~~through~~or ~~2010,~~secured ~~the financial markets were highlighted~~ by ~~significant~~ ~~volatility~~real ~~associated~~property ~~with~~or ~~subprime~~how ~~mortgages,~~to ~~including~~value ~~adverse~~such ~~impacts~~loan ~~on credit quality and liquidity within the financial markets. As a result of this significant downturn, we have experienced dramatic declines~~ in the ~~housing market~~future ~~with~~may ~~decreasing~~not ~~home~~accurately ~~prices~~describe ~~and increasing delinquencies and foreclosures, which have negatively impacted~~ the ~~credit~~net ~~performance~~value of ~~our loans and resulted in increases in~~ the ~~level~~real ofproperty ~~our~~collateral ~~nonperforming~~that ~~assets~~we ~~and~~can ~~charge-offs of problem loans~~realize. At the same time, competition among depository institutions for deposits has increased significantly. Bank and bank holding company stock prices have been negatively affected, as has the ability of banks and bank holding companies to raise capital or borrow in the debt markets compared to recent years. These market conditions and the tightening of credit have led to increased deficiencies in our loan portfolio, increased market volatility and widespread reduction in general business activity.

AsIn aconsidering ~~result~~whether ofto ~~the~~make ~~negative~~a ~~developments~~loan insecured ~~the~~by ~~financial~~real ~~industry~~property, ~~new~~we ~~federal and~~generally ~~state~~require ~~laws~~an ~~and~~appraisal ~~regulations~~of ~~regarding~~the ~~lending~~property. However, ~~and~~an ~~funding~~appraisal ~~practices~~is ~~and~~only ~~liquidity~~an ~~standards~~estimate ~~have~~of ~~been~~the ~~enacted,~~value ~~and~~of ~~bank~~the ~~regulatory~~property ~~agencies~~at ~~have~~the ~~been,~~time ~~and~~the ~~are~~appraisal ~~expected~~is tomade, ~~continue to be~~and, ~~aggressive~~as inreal ~~responding~~estate tovalues ~~concerns and trends identified~~ in ~~examinations. Difficult~~our market ~~conditions~~area ~~and~~have ~~the~~experienced ~~impact~~changes ofin ~~the~~value ~~new legislation~~ in ~~response~~relatively toshort ~~those developments could restrict our business operations~~periods, ~~including~~this ~~our~~estimate ~~ability~~might tonot ~~originate~~accurately ~~loans. If~~describe the ~~communities~~net invalue ~~which~~of wethe ~~operate do~~real ~~not~~property ~~recover~~collateral ~~and~~after ~~grow~~the asloan ~~anticipated~~has orbeen ifclosed. If ~~prevailing~~the ~~economic~~appraisal ~~conditions~~does ~~locally or nationally do~~ not ~~improve,~~reflect ~~our~~the ~~business~~amount that may ~~continue to~~ be ~~negatively~~obtained ~~impacted. The~~upon ~~current~~any ~~economic~~sale ~~downturn, increase in unemployment, and other events that have negatively affected household and/~~or ~~corporate~~foreclosure ~~incomes~~of ~~both nationally and locally have decreased~~ the ~~demand~~property, ~~for~~we ~~loans~~may ~~and~~not ~~our~~realize ~~other~~an ~~products~~amount ~~and~~equal ~~services~~to ~~and have increased~~ the ~~number~~indebtedness ofsecured ~~customers~~by ~~who~~the ~~fail to pay interest or principal on their loans~~property. ~~Furthermore,~~ The ifvaluation ~~the~~of ~~economy improves in~~ the ~~future,~~property we may ~~not~~negatively ~~benefit~~affect ~~from~~the ~~any~~continuing ~~market~~value ~~growth~~of orsuch ~~favorable~~loan ~~economic~~and ~~conditions~~could inadversely affect our ~~market~~operating ~~areas~~results ifand ~~they~~financial ~~do occur~~condition.

20The amount of our foreclosed properties, increased significantly in 2008, 2009 and 2010 and may continue to increase, resulting in additional losses and expenses that will negatively affect our operations.

~~Table~~Foreclosed properties are the real estate that the Bank owns as the result of ~~Contents~~foreclosures and other secured realization transactions (such as deed in lieu of foreclosure) that the Bank does not intend to use for its own operations and intends to sell when market conditions permit. At December 31, 2010, we had a total of $79.5 million of foreclosed properties, and at December 31, 2009, we had a total of $49.7 million of foreclosed properties, reflecting a $29.8 million increase, or 160%, from 2009 to 2010. The increase in foreclosed properties since December 31, 2009 is due, among other things, to the continued deterioration of the residential real estate market and the tightening of the credit market. As the amount of foreclosed properties increases, our losses, and the costs and expenses to maintain the real estate likewise increase. Due to the on-going economic crisis, and the significant amount of nonperforming loans, the amount of foreclosed properties will continue to increase throughout 2011. Any additional increase in losses, and maintenance costs and expenses due to foreclosed properties may have material adverse effects on our business, financial condition, results of operations and prospects. Such effects may be particularly pronounced in a market of reduced real estate values and excess inventory, which may make the disposition of foreclosed properties more difficult, increase maintenance costs and expenses, and reduce our ultimate realization from any foreclosed properties sales.

Due to our high concentration of loans secured by real estate, deteriorating conditions in the Metro Atlanta markets have adversely affected us and may continue to do so, leading to higher loan charge-offs or an increase in our provision for loan losses. 23

As of December 31, ~~2009~~2010, ~~approximately~~we ~~95%~~are ofnot ~~our~~considered ~~total~~“well ~~loans~~capitalized” ~~were secured~~ by ~~real estate. In 2007, the housing and real estate sectors in~~ our ~~markets~~banking ~~experienced an economic downturn that accelerated through 2009 and has continued in 2010~~regulators. We As ~~had~~ a significant presence in residential construction and development lending in our market. The majority of our customers who were residential builders carried inventories of lots for new construction. The supply of vacantresult, ~~developed~~we ~~lots~~are ~~and~~unable ~~partially~~to ~~developed~~access ~~properties~~brokered ~~has increased dramatically as the number of new building permits and housing starts decreased. In addition~~deposits, ~~between~~which ~~September 2007~~may ~~and~~adversely March 2010, the FDIC placed over 35 Georgia-based financial institutions into receivership, and we believe that others will be placed in receivership in the future. The subsequent sale of the assets of these financial institutions at depressed prices could continue to negatively affect ~~the value of~~ our ~~real~~liquidity ~~estate collateral~~ and ~~other~~our ~~real~~ability ~~estate owned. We believe that it may take more than five years for the market~~ to ~~fully~~meet ~~absorb the existing lot inventories in some areas of~~ our ~~market. If economic conditions continue to worsen or deteriorate~~obligations, itincluding ~~could~~the ~~lead~~payout toof ~~additional~~deposit ~~charge-offs and further increases in our allowance for loan losses~~accounts.

IfAs ~~our~~of ~~allowance~~December ~~for~~31, ~~loan~~2010, ~~losses~~the isBank did not have the regulatory capital ratios required to meet “well-capitalized” standards. Because we do not have sufficient capital to ~~cover~~maintain ~~actual~~our ~~loan~~“well ~~losses~~capitalized” status, ~~earnings~~we ~~would~~are ~~decrease~~limited as to the interest rates we are able to offer our depositors to meet competition, and we are unable to renew any brokered certificates of deposit or attract new brokered certificates of deposit without prior regulatory approval. As of December 31, 2010, we had approximately $40.3 million in brokered deposits, which represented approximately 7.41% of our total deposits. If our liquidity becomes severely impaired and we are unable to meet our financial obligations, including the payout of deposit accounts, our banking regulators may subject the Bank to additional regulatory enforcement action, including receivership. If we are unable to continue to attract deposits and maintain sufficient liquidity, our ability to meet our obligations, including the payout of deposit accounts, may be adversely affected.

Our ~~loan~~net ~~customers~~interest ~~may~~income ~~not~~could ~~repay~~be ~~their~~negatively ~~loans~~affected ~~according~~by ~~to their terms and~~ the ~~collateral~~lower ~~securing~~level ~~the payment~~ of ~~these~~short-term ~~loans~~interest may be insufficient to assure repayment. We may experience significant loan losses which would have a material adverse effect on our operating results. Our management makes various assumptions and judgments about the collectability of the loan portfoliorates, ~~including~~recent ~~the~~developments ~~creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. We maintain an allowance for loan losses~~ in ~~an attempt to cover any loan losses inherent in~~ the ~~loan~~credit ~~portfolio. In determining the size of the allowance, our management relies on an analysis of the loan portfolio based on historical loss experience, volume~~ and ~~types of loans, trends in classification,~~ real estate ~~volume~~markets and ~~values,~~competition ~~trends~~ in ~~delinquencies and non-accruals, national and local economic conditions and other pertinent information. As a result of these considerations, we have from time to time increased~~ our ~~allowance~~primary ~~for~~market ~~loan losses~~area. For the year ended December 31, 2009, we recorded a provision for loan losses of $39.2 million, compared to $24.3 million for the year ended December 31, 2008. If those assumptions used in determining our allowance for loan losses are inaccurate, the allowance may not be sufficient to cover future loan losses and adjustments may be necessary to allow for different economic conditions or adverse developments in the loan portfolio.

21As a financial institution, our earnings significantly depend on our net interest income, which is the difference between the income that we earn on interest-earning assets, such as loans and investment securities, and the expense that we pay on interest-bearing liabilities, such as deposits and borrowings. Therefore, any change in general market interest rates, including changes resulting from changes in the Federal Reserve’s fiscal and monetary policies, affects us more than non-financial institutions and can have a significant effect on our net interest income and net income.

~~Table~~The Federal Reserve reduced interest rates on three occasions in 2007 by 100 basis points, to 4.25%, and by another 400 basis points, to a range of ~~Contents~~0% to 0.25%, during 2008. Rates have remained low by historic standards throughout 2009 and 2010. A significant portion of our loans, including residential construction and development loans and other commercial loans, bears interest at variable rates. The interest rates on a significant part of these loans decrease when the Federal Reserve reduces interest rates, while the interest that we pay on our liabilities may not change in the same amount or at the same rates. Accordingly, decreases in interest rates may reduce our net interest income. In addition, an increase in interest rates may decrease the demand for consumer and commercial credit, including real estate loans, which are a major component of our loan portfolio. Furthermore, increases in interest rates will add to the expenses of our borrowers, which may adversely affect their ability to repay their loans with us.

As of December 31, 2009, we are not considered “well capitalized” by our banking regulators. As a result, we are unable to access brokered deposits, which may adversely affect our liquidity and our ability to meet our obligations, including the payout of deposit accounts. 24

AsChanges ofin ~~December 31, 2009,~~ the ~~Bank~~level ~~did~~of ~~not~~interest ~~have~~rates ~~the~~also ~~regulatory~~may ~~capital~~negatively ~~ratios~~affect ~~required~~the tovalue ~~meet “well-capitalized”~~of ~~standards. Because~~our weassets doand ~~not~~our ~~have~~ability ~~sufficient~~to ~~capital~~realize togains ~~maintain~~from ~~our~~the ~~“well~~sale ~~capitalized”~~of ~~status~~our assets, weall ~~are~~of ~~limited~~which asultimately toaffect ~~the~~our ~~interest~~earnings. A ~~rates~~decline wein ~~are~~the ~~able~~market tovalue ~~offer~~of our ~~depositors~~assets tomay ~~meet~~limit ~~competition,~~our ~~and~~ability ~~we are unable~~ to ~~renew~~borrow ~~any~~additional ~~brokered~~funds ~~certificates~~or ofresult ~~deposit~~in orour ~~attract~~lenders ~~new~~requiring ~~brokered~~additional ~~certificates~~collateral offrom ~~deposit~~us ~~without~~under ~~prior~~our ~~regulatory~~loan ~~approval~~agreements. As ofa ~~December 31~~result, ~~2009,~~ we ~~had~~could ~~approximately~~be ~~$64~~required ~~million~~to insell ~~brokered~~some ~~deposits, which represented approximately 11.00%~~ of our ~~total~~loans ~~deposits. If we are unable to continue to attract deposits~~ and ~~maintain~~investments ~~sufficient~~under ~~liquidity,~~adverse ~~our~~market ~~ability to meet our obligations~~conditions, ~~including~~upon ~~the~~terms ~~payout~~that ofare ~~deposit~~not ~~accounts,~~favorable ~~may~~to ~~be adversely affected. In addition~~us, ~~the Temporary Liquidity Guarantee Program (the “TLGP”), effective November 2008, is set~~ to ~~expire~~maintain onour ~~June 30, 2010~~liquidity. If ~~the~~those ~~TLGP~~sales isare ~~not~~made ~~extended,~~at itprices ~~could~~lower ~~have~~than anthe ~~adverse~~recorded ~~impact~~amounts onof ~~our~~the ~~ability~~investments ~~to attract~~ and ~~retain~~loans, ~~deposits in~~we ~~excess~~will ofincur ~~the FDIC insured limit~~losses. Changes Ifin ~~our~~Federal ~~liquidity~~Reserve ~~becomes~~Board ~~severely~~policies ~~impaired~~ and welaws are ~~unable~~beyond ~~to meet~~ our ~~financial obligations, including the payout of deposit accounts, our banking regulators may subject the Bank to additional regulatory enforcement action, including receivership~~control.

~~Our~~Diminished ~~net~~access ~~interest~~to ~~income~~alternative ~~could~~sources beof ~~negatively~~liquidity ~~affected~~could byadversely ~~the~~affect ~~lower~~our ~~level~~net ~~of short-term interest rates~~income, ~~recent~~net ~~developments~~interest inmargin ~~the credit~~ and ~~real~~overall ~~estate markets and competition in our primary market area~~liquidity.

AsWe ahave ~~financial~~historically ~~institution,~~had ~~our~~access ~~earnings~~to ~~significantly~~a ~~depend~~number onof ~~our~~alternative ~~net~~sources ~~interest~~of ~~income~~liquidity, ~~which~~but isgiven the ~~difference~~recent ~~between~~and dramatic downturn in the ~~income~~credit ~~that~~and liquidity markets, we ~~earn~~may not be able to obtain liquidity on ~~interest-earning~~terms ~~assets~~that are favorable to us, ~~such~~or asat ~~loans~~all. As ~~and~~noted ~~investment securities~~above, ~~and~~we ~~the~~are ~~expense~~presently ~~that~~unable weto ~~pay~~renew onany ~~interest-bearing~~brokered ~~liabilities,~~certificates ~~such~~of asdeposit ~~deposits~~or ~~and~~attract ~~borrowings~~new brokered certificates of deposit without prior regulatory approval. ~~Therefore~~ In addition, ~~any~~financial ~~change~~institutions inmay ~~general~~be ~~market~~unwilling ~~interest~~to ~~rates,~~extend ~~including~~credit ~~changes~~to ~~resulting~~banks ~~from~~because ~~changes~~of inconcerns about the ~~Federal~~banking ~~Reserve’s~~industry ~~fiscal~~and the economy and ~~monetary~~ ~~policies,~~there ~~affects~~may usnot ~~more~~be ~~than~~a ~~non-financial~~viable ~~institutions~~market ~~and~~for ~~can~~raising ~~have~~equity acapital. If ~~significant~~our ~~effect~~access to these sources of liquidity is diminished, or if it is only available on unfavorable terms, then our net income, net interest ~~income~~margin and ~~net~~overall ~~income.~~liquidity could be adversely affected.

~~The~~We ~~Federal~~face ~~Reserve~~strong ~~reduced~~competition ~~interest~~from rates on three occasions in 2007 by a total of 100 basis points, to 4.25%, and by another 400 basis points, to a range of 0% to 0.25%, during 2008. Rates remained steady in 2009. On March 18, 2009, the Federal Reserve announced its decision to purchase as much as $300 billion of long-term treasuries in an effort to maintain low interest rates. A significant portion of our loans, including residential construction and development loans and other ~~commercial~~financial ~~loans,~~services ~~bears interest at variable rates~~providers. The interest rates on a significant part of these loans decrease when the Federal Reserve reduces interest rates, while the interest that we pay on our liabilities may not change in the same amount or at the same rates. Accordingly, increases in interest rates may reduce our net interest income. In addition, an increase in interest rates may decrease the demand for consumer and commercial credit, including real estate loans, which are a major component of our loan portfolio. Furthermore, increases in interest rates will add to the expenses of our borrowers, which may adversely affect their ability to repay their loans with us.

22We operate in competitive markets for the products and services we offer. The competition among financial services providers to attract and retain customers is strong. Customer loyalty can be easily influenced by a competitor’s new products, especially offerings that could provide cost savings or a higher return to the customer. Some of our competitors may be better able to provide a wider range of products and services over a greater geographic area. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national and international financial institutions that operate in our market areas and elsewhere. Moreover, this competitive industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Many of our competitors have fewer regulatory constraints and some have lower cost structures. While we believe we can and do successfully compete with these other financial institutions in our market areas, we may face a competitive disadvantage as a result of our smaller size, lack of geographic diversification and inability to spread our marketing costs across a broader market.

~~Table of Contents~~25

Changes in the level of interest rates also may negatively affect the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. A decline in the market value of our assets may limit our ability to borrow additional funds or result in our lenders requiring additional collateral from us under our loan agreements. As a ~~result~~community bank, we ~~could~~have bedifferent ~~required~~lending torisks ~~sell some of our loans and investments under adverse market conditions, upon terms that are not favorable to us, to maintain our liquidity. If those sales are made at prices lower~~ than ~~the~~larger ~~recorded~~banks; ~~amounts~~losses ofon ~~the~~a ~~investments~~few ~~and~~large loans, weor ~~will~~lending ~~incur~~relationships ~~losses. Changes~~can incause ~~Federal~~significant ~~Reserve~~volatility ~~Board~~in ~~policies and laws are beyond our control~~earnings.

~~Diminished~~As ~~access~~a community bank, we lend primarily to ~~alternative~~small ~~sources~~to medium-sized businesses, and, to a lesser extent, individuals. These types of ~~liquidity~~borrowers ~~could~~may ~~adversely~~expose ~~affect~~us ~~our~~to ~~net~~greater ~~income~~lending risks than those of banks lending to larger, ~~net~~better-capitalized ~~interest~~businesses ~~margin~~with ~~and~~longer ~~overall~~operating ~~liquidity~~histories.

WeIn ~~have~~addition, ~~historically~~due ~~had access~~ to aour ~~number~~limited ofsize, ~~alternative~~individual ~~sources~~loan ofvalues ~~liquidity,~~can ~~but~~be ~~given~~large ~~the~~relative ~~recent~~to ~~and dramatic~~our ~~downturn~~earnings infor ~~the~~a ~~credit~~particular ~~and~~period. If ~~liquidity~~a ~~markets,~~few werelatively ~~may~~large ~~not~~loan berelationships ~~able~~become tononperforming ~~obtain~~in ~~liquidity~~a onperiod ~~terms~~and ~~that~~we are ~~favorable~~required to usincrease loss reserves, or atto ~~all. As~~write ~~noted~~off ~~above,~~principal weor ~~are~~interest ~~presently~~relative ~~unable~~ to ~~renew~~such ~~any~~loans, ~~brokered~~the ~~certificates~~operating results of ~~deposit~~that orperiod ~~attract~~and ~~new brokered~~our ~~certificates~~financial ofcondition ~~deposit~~at ~~without~~the ~~prior~~end ~~regulatory~~of ~~approval. In~~that ~~addition,~~period ~~financial~~could ~~institutions may~~ be ~~unwilling~~significantly toadversely ~~extend~~affected. The ~~credit~~effect toon ~~banks~~results ~~because~~ of ~~concerns~~operations ~~about~~for ~~the~~any ~~banking~~given ~~industry~~period ~~and~~from ~~the~~a ~~economy~~change ~~and~~in ~~there~~the ~~may~~performance ~~not~~of be a ~~viable market~~relatively ~~for~~small ~~raising~~number ~~equity~~of ~~capital. If~~loan ~~our~~relationships ~~access~~may tobe ~~these~~disproportionately ~~sources~~larger ofthan ~~liquidity~~the isimpact ~~diminished,~~of orsuch ifloans ~~it is only available~~ on ~~unfavorable~~the ~~terms,~~quality ~~then~~of our ~~net income, net interest margin and~~ overall ~~liquidity~~loan ~~could be adversely affected~~portfolio.

WeRegulatory ~~face~~reform ~~strong~~of ~~competition~~the ~~from~~U.S. ~~other~~banking ~~financial~~system ~~services~~may ~~providers.~~adversely affect us.

~~We operate in competitive markets for the products and services we offer.~~ The ~~competition~~Dodd-Frank ~~among~~Act ~~financial services providers to attract~~ and ~~retain~~related ~~customers~~regulations is strong. Customer loyalty can be easily influenced by a competitor’s new products, especially offerings that could provide cost savings or a higher return to the customer. Some of our competitors may beadversely ~~better~~affect able to provide a wider range of products and services over a greater geographic area. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national and international financial institutions that operate in our ~~market areas and elsewhere. Moreover~~business, this competitive industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Many of our competitors have fewer regulatory constraints and some have lower cost structures. While we believe we can and do successfully compete with these other financial ~~institutions in our market areas~~condition, weliquidity ~~may~~or ~~face~~results ~~a competitive disadvantage as a result~~ of ~~our smaller size, lack of geographic diversification and inability to spread our marketing costs across a broader market~~operations.

23The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was enacted on July 21, 2010. The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with power to promulgate and enforce consumer protection laws. Smaller depository institutions, those with $10 billion or less in assets, will be subject to the Consumer Financial Protection Bureau’s rulemaking, and existing depository institution regulatory agencies will retain examination and enforcement authority for such institutions. The Dodd-Frank Act also establishes a Financial Stability Oversight Council chaired by the Secretary of the Treasury with authority to identify institutions and practices that might pose a systemic risk and, among other things, includes provisions affecting (1) corporate governance and executive compensation of all companies whose securities are registered with the SEC, (2) FDIC insurance assessments, (3) interchange fees for debit cards, which would be set by the Federal Reserve under a restrictive “reasonable and proportional cost” per transaction standard, (4) minimum capital levels for bank holding companies, subject to a grandfather clause for financial institutions with less than $15 billion in assets, (5) derivative and proprietary trading by financial institutions, and (6) the resolution of large financial institutions.

~~Table~~On November 9, 2010, the FDIC issued a Final Rule implementing section 343 of ~~Contents~~the Dodd-Frank Wall Street Reform and Consumer Protection Act that provides for unlimited insurance coverage of noninterest-bearing transaction accounts. Beginning December 31, 2010, through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions. The unlimited insurance coverage is available to all depositors, including consumers, businesses, and government entities. This unlimited insurance coverage is separate from, and in addition to, the insurance coverage provided to a depositor’s other deposit accounts held at an FDIC-insured institution. Money Market Deposit Accounts (MMDAs) and Negotiable Order of Withdrawal (NOW) accounts are not eligible for this unlimited insurance coverage, regardless of the interest rate.

~~We are subject to extensive regulation that could limit or restrict our activities and adversely affect our earnings.~~ 26

WeAt ~~operate~~this ~~in a highly regulated industry and are subject to examination~~time, ~~supervision~~ ~~and~~it ~~comprehensive regulation by various federal and state agencies. Our compliance with these regulations~~ is ~~costly~~difficult and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. Our failure to ~~comply~~predict ~~with~~the ~~these~~extent ~~requirements can lead~~ to, ~~among~~which ~~other~~the ~~remedies,~~Dodd-Frank ~~administrative~~Act ~~enforcement actions, termination~~ or ~~suspension of our licenses, rights of rescission for borrowers, and class action lawsuits. Many of these regulations are intended to protect depositors,~~ the ~~public~~resulting ~~and the FDIC rather than shareholders. The laws and~~ regulations ~~applicable to the banking industry are changing rapidly to reflect the government’s concerns about the economy and the banking system, and these changes~~ may adversely affect ~~our business and profitability. Changes to statutes, regulations or regulatory policies, and the interpretation and implementation of new statutes, regulations or policies could affect~~ us in substantial and unpredictable ways, including limiting the types of financial services and products we may offer and/or increasing the ability of nonbanks to offer competing financial services and products.

~~In addition~~However, ~~like~~compliance ~~other~~with ~~registrants,~~these wenew ~~are subject~~laws toand ~~the~~regulations ~~requirements~~may ofincrease ~~the~~our ~~Sarbanes-Oxley~~costs, ~~Act~~limit ofour ~~2002. Failure~~ability to ~~have~~pursue inattractive ~~place~~business ~~adequate~~opportunities, ~~programs~~cause ~~and~~us ~~procedures~~to ~~could~~modify ~~cause~~our usstrategies toand ~~have~~business ~~gaps~~operations inand increase our ~~internal~~capital ~~control~~requirements ~~environment~~and constraints, ~~putting~~any ~~the~~of ~~Company~~which ~~and~~may ~~its~~have ~~shareholders~~a atmaterial ~~risk~~adverse impact on our business, financial condition, liquidity or results of ~~loss~~operations.

~~These~~Departures ~~and~~of ~~other potential changes in government regulation or policies could increase~~ our ~~costs~~key ofpersonnel ~~doing business~~may ~~and~~harm ~~could adversely affect~~ our ~~operations~~ability ~~and~~to ~~the~~operate ~~manner in which we conduct our business~~successfully.

~~Recent~~Our ~~legislative~~success has been and ~~regulatory~~ ~~initiatives~~continues to ~~address~~depend largely on the ~~current~~services ~~difficult~~of ~~market~~our senior management team, including our senior loan officers, and ~~economic~~our ~~conditions~~board ~~may~~of ~~not~~directors, ~~achieve~~many of whom have significant relationships with our customers. Our success will depend, to a significant extent, on the ~~desired~~continued service of these key personnel. The unexpected loss of any additional members of our senior management team could have an adverse effect oron ~~may~~our befinancial ~~allowed~~condition toand ~~expire~~results of operations. We cannot be assured of the continued service of our senior management team or our board of directors.

~~Beginning~~Higher inFDIC ~~October~~deposit ~~2008,~~insurance apremiums ~~host of legislation has been enacted in response to the financial crises affecting the banking system~~ and ~~financial~~assessments ~~markets~~could ~~and~~adversely ~~the~~affect ~~threats~~our ~~to investment banks and other~~ financial ~~institutions~~condition. ~~These include the following:~~

•FDIC Oninsurance ~~October~~premiums 3,increased ~~2008~~substantially in 2009 and 2010, ~~President~~and ~~Bush~~we ~~signed~~expect ~~into~~that ~~law~~our FDIC insurance premiums will remain at current levels or higher in the ~~Emergency~~future. As ~~Economic~~the ~~Stabilization~~large ~~Act~~number ~~(“EESA”)~~of recent bank failures continues to deplete the Deposit Insurance Fund, ~~under~~the FDIC adopted a revised risk-based deposit insurance assessment schedule in February 2009, which ~~the~~raised Udeposit insurance premiums.S The FDIC also implemented a five basis point special assessment of each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009. This ~~Treasury~~special ~~Department~~assessment ~~has~~amount was capped at 10 basis points times the ~~authority,~~institution’s ~~among~~assessment ~~other~~base ~~things,~~for tothe ~~purchase~~second upquarter toof ~~$700~~2009. The ~~billion~~amount of ~~mortgages~~our special assessment on September 30, ~~mortgage-backed~~2009 ~~securities~~was ~~and~~approximately ~~certain~~$360,000. In ~~other~~addition, ~~financial~~the ~~instruments~~FDIC ~~from~~required financial institutions, ~~under~~such as the ~~Troubled~~Bank, ~~Asset~~to ~~Relief~~prepay ~~Program~~their estimated quarterly risk-based assessments for the ~~purpose~~fourth quarter of ~~stabilizing~~2009 and ~~providing~~for ~~liquidity~~all of 2010 through and including 2012 to re-capitalize the UDeposit Insurance Fund, although the FDIC exempted the Bank from this prepayment requirement.S The rule also provides for increasing the FDIC-assessment rates by three basis points effective January 1, 2011. If FDIC deposit insurance premiums and assessments continue to increase, it could adversely affect our financial ~~markets~~condition.

• On October 14, 2008, the Treasury Department announced the Capital Purchase Plan under the EESA pursuant to which it would purchase senior preferred stock and warrants to purchase common stock from participating financial institutions.27

•Regulatory Onreform ~~November~~of ~~21, 2008,~~ the ~~FDIC~~U.S. ~~adopted~~banking asystem ~~Final~~may ~~Rule~~adversely ~~with~~affect respect to its Temporary Liquidity Guarantee Program pursuant to which the FDIC will guarantee certain “newly-issued unsecured debt” of banks and certain holding companies and also guarantee, on an unlimited basis, non-interest bearing bank transaction accountsus.

24On June 17, 2009, the Obama Administration announced a comprehensive plan for regulatory reform of the financial services industry. The plan set forth five separate initiatives that will be the focus of the regulatory reform, including requiring strong supervision and appropriate regulation of all financial firms, strengthening regulation of core markets and market infrastructure, strengthening consumer protection, strengthening regulatory powers to effectively manage failing institutions and improving international regulatory standards and cooperation.

~~Table~~Other ofrecent ~~Contents~~developments include:

•● ~~On February 10, 2009,~~ the ~~Treasury~~Federal ~~Department~~Reserve’s ~~announced~~proposed ~~the~~guidance ~~Financial~~on ~~Stability~~incentive ~~Plan~~compensation ~~under~~policies ~~the~~at ~~EESA,~~banking ~~which is intended to further stabilize financial institutions and stimulate lending across a broad range of economic sectors.~~organizations;

•● Onproposals ~~February~~to ~~18,~~limit ~~2009~~a lender’s ability to foreclose on mortgages or make such foreclosures less economically viable, ~~President~~including ~~Obama~~by ~~signed~~allowing Chapter 13 bankruptcy plans to “cram down” the ~~American~~value ~~Recovery~~of ~~and~~certain ~~Reinvestment~~mortgages ~~Act,~~on a ~~broad~~consumer’s ~~economic~~principal ~~stimulus~~residence ~~package~~to ~~that~~its ~~included~~market ~~additional~~value ~~restrictions~~and/or ~~on,~~reset interest rates and ~~potential~~monthly ~~additional~~payments ~~regulation~~to ~~of,~~permit ~~financial~~defaulting ~~institutions.~~debtors to remain in their home; and

•● Onaccelerating ~~March~~the ~~18,~~effective date of various provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009, ~~the~~which ~~Federal~~restrict ~~Reserve~~certain ~~announced~~credit ~~its~~and ~~decision~~charge tocard ~~purchase~~practices, asrequire ~~much~~expanded asdisclosures ~~$300~~to ~~billion~~consumers ofand ~~long-term~~provide ~~treasuries~~consumers inwith anthe ~~effort~~right to ~~maintain~~opt ~~low~~out of interest ~~rates~~rate increases (with limited exceptions).

•These Oninitiatives ~~March~~may 23increase our expenses or decrease our income by, ~~2009~~among other things, ~~the~~making ~~Treasury~~it ~~Department~~harder ~~announced~~for ~~the~~us ~~Public-Private~~to ~~Investment~~foreclose ~~Program~~on mortgages. Further, ~~which~~the ~~will~~overall ~~purchase~~effects ~~real~~of ~~estate~~these ~~related~~and ~~loans~~other ~~from~~legislative ~~banks~~ and ~~securities~~regulatory ~~from~~efforts on the ~~broader~~financial markets, remain uncertain and isthey may not have the intended tostabilization ~~create~~results. These aefforts ~~market~~may ~~for~~even ~~those~~have ~~distressed~~unintended ~~loans~~harmful consequences on the U.S. financial system and ~~securities~~our business. Should these or other legislative or regulatory initiatives have unintended effects, our business, financial condition, results of operations and prospects could be materially and adversely affected.

~~Each~~In ofaddition, ~~these~~we ~~programs~~may ~~was~~need ~~implemented~~ to ~~help~~modify ~~stabilize~~our strategies and ~~provide~~business ~~liquidity~~operations toin ~~the~~response ~~financial~~to ~~system~~these changes. ~~However,~~ We ~~the~~may ~~long-term~~also ~~effect~~incur ~~that~~increased ~~these~~capital requirements and constraints or ~~any~~additional ~~other~~costs ~~governmental~~to ~~program~~satisfy ~~may~~new ~~have~~regulatory onrequirements. Given the ~~financial~~ ~~markets~~volatile nature of the current market and the uncertainties underlying efforts to mitigate or ~~our~~reverse ~~business~~disruptions, we may not timely anticipate or ~~financial~~manage ~~performance~~existing, isnew ~~unknown. A~~or ~~continuation~~additional risks, contingencies or ~~worsening~~developments ofin the current ~~financial~~or ~~market~~future ~~conditions~~environment. Our failure to do so could materially and adversely affect our business, financial condition, results of operations, and ~~access to credit~~prospects.

~~Regulatory reform of the U.S. banking system may adversely affect us.~~ 28

OnItem ~~June 17, 2009, the Obama Administration announced a comprehensive plan for regulatory reform of the financial services industry~~1B. ~~The~~ ~~plan~~UNRESOLVED ~~set~~STAFF forth five separate initiatives that will be the focus of the regulatory reform, including requiring strong supervision and appropriate regulation of all financial firms, strengthening regulation of core markets and market infrastructure, strengthening consumer protection, strengthening regulatory powers to effectively manage failing institutions and improving international regulatory standards and cooperation. COMMENTS

~~Other recent developments include:~~ None

•Item ~~the~~2. ~~Federal Reserve’s proposed guidance on incentive compensation policies at banking organizations;~~PROPERTIES

•The ~~proposals~~assets toof ~~limit~~the aCompany ~~lender’s~~consist ~~ability~~almost toentirely ~~foreclose~~of onits ~~mortgages~~equity orownership ~~make~~in ~~such~~The ~~foreclosures~~First ~~less~~State ~~economically~~Bank. ~~viable,~~The ~~including~~assets byof ~~allowing~~the ~~Chapter~~Bank 13consist ~~bankruptcy~~primarily ~~plans to “cram down” the value~~ of ~~certain~~loans ~~mortgages~~and oninvestment asecurities. However, ~~consumer’s~~it ~~principal~~also ~~residence~~owns tothe ~~its~~real ~~market~~estate ~~value~~ and~~/or~~ ~~reset~~improvements ~~interest~~thereon ~~rates~~from ~~and~~which ~~monthly~~it ~~payments~~conducts toits ~~permit~~banking ~~defaulting~~operations. Those ~~debtors~~locations toare ~~remain~~more inparticularly ~~their~~described ~~home;~~as ~~and~~follows:

•4806 ~~accelerating~~N. Henry Boulevard, Stockbridge, Georgia. This location houses the ~~effective~~Bank’s ~~date~~main ofoffice, ~~various~~a ~~provisions~~two-story ofbuilding containing 20,800 square feet constructed in 1965. The location is a full service bank facility including a standalone ATM machine and four-lane drive-thru service located in the ~~Credit~~adjacent ~~Card~~operations ~~Accountability~~center facility.

254800 N. Henry Boulevard, Stockbridge, Georgia. This location houses the operations center for the Bank and includes a four-lane drive-thru service. It is a single story building constructed in 1999, consisting of 20,622 square feet.

~~Table~~295 ofFairview ~~Contents~~Road, Ellenwood, Georgia. This is a full service banking location with ATM and drive-thru service. It is a single story building containing 3,520 square feet.

~~Responsibility~~114 ~~and~~John ~~Disclosure~~Frank ~~Act~~Ward ofBoulevard, ~~2009~~McDonough, ~~which~~Georgia. This ~~restrict~~site ~~certain~~contains ~~credit~~a ~~and charge card practices~~4,000 ~~require~~square ~~expanded~~foot ~~disclosures~~single tostory ~~consumers~~building ~~and provide consumers~~ with ~~the~~ATM ~~right~~and todrive-thru ~~opt out of interest rate increases (with limited exceptions)~~service.

~~These~~1810 ~~initiatives~~Hudson ~~may~~Bridge ~~increase our expenses or decrease our income by~~Road, ~~among other things~~Stockbridge, ~~making~~Georgia. This itlocation ~~harder~~contains ~~for~~a ustwo-story tofacility ~~foreclose~~consisting onof ~~mortgages. Further~~4,787 ~~the~~square ~~overall~~feet. The ~~effects~~lower offloor ~~these~~contains ~~and~~a ~~other~~full ~~legislative~~service ~~and~~banking ~~regulatory~~location ~~efforts~~with onATM ~~the financial markets remain uncertain~~ and ~~they~~drive-thru ~~may not have the intended stabilization results~~service. ~~These~~ The ~~efforts~~upper ~~may~~floor ~~even~~housed ~~have unintended harmful consequences on~~ the ~~U.S.~~operations ~~financial~~of ~~system~~First ~~and~~Metro ~~our~~Mortgage ~~business. Should~~until ~~these~~December ~~or other legislative or regulatory initiatives have unintended effects~~15, ~~our~~ ~~business, financial condition, results of operations and prospects could be materially and adversely affected~~2009.

In4979 ~~addition,~~Bill weGardner may need to modify our strategies and business operations in response to these changes. We may also incur increased capital requirements and constraints or additional costs to satisfy new regulatory requirements. Given the volatile nature of the current market and the uncertainties underlying efforts to mitigate or reverse disruptionsParkway, weLocust ~~may not timely anticipate or manage existing~~Grove, ~~new or additional risks, contingencies or developments in the current or future environment~~Georgia. ~~Our~~ ~~failure~~This tolocation docontains soa ~~could~~one-story ~~materially~~building ~~and~~consisting ~~adversely~~of ~~affect our business~~4,000 ~~financial~~square ~~condition,~~feet ~~results~~with ofATM ~~operations~~ and ~~prospects.~~drive-thru service.

~~Departures~~2316 ofHighway ~~our~~155, ~~key~~McDonough, ~~personnel~~Georgia. This ~~may~~full ~~harm~~service ~~our~~banking ~~ability~~location tois ~~operate~~a ~~successfully.~~single-story facility consisting of approximately 5,500 square feet with ATM and drive-thru service.

~~Our~~1908 ~~success~~Highway ~~has~~81 ~~been and continues to depend largely on the services of our senior management team~~East, ~~including our senior loan officers~~McDonough, ~~and our board of directors, many of whom have significant relationships with our customers~~Georgia. ~~Our~~ This ~~success~~full ~~will depend, to a significant extent, on the continued~~ service ofbanking ~~these~~location ~~key~~is ~~personnel. The~~a ~~unexpected~~single-story ~~loss~~facility ofconsisting ~~any additional members~~ of ~~our~~approximately ~~senior~~5,500 ~~management~~square ~~team~~feet ~~could~~with ~~have~~ATM ~~an adverse effect on our financial condition~~ and ~~results~~drive-thru ~~of operations. We cannot be assured of the continued~~ service ~~of our senior management team or our board of directors~~.

~~Higher~~The ~~FDIC~~Bank ~~deposit~~also ~~insurance~~owns ~~premiums~~two additional parcels of land, one located in Henry County at the intersection of Chambers Road and ~~assessments~~Jonesboro ~~could~~Road ~~adversely~~and ~~affect~~one ~~our~~located ~~financial~~at ~~condition~~620 W. Third Street in Jackson, Butts County, Georgia.

FDIC insurance premiums increased substantially in 2009, and we expect to pay significantly higher FDIC premiums in the future. As the large number of recent bank failures continues to deplete the Deposit Insurance Fund, the FDIC adopted a revised risk-based deposit insurance assessment schedule in February 2009, which raised deposit insurance premiums. The FDIC also implemented a five basis point special assessment of each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009. This special assessment amount was capped at 10 basis points times the institution’s assessment base for the second quarter of 2009. The amount of our special assessment on September 30, 2009 was approximately $360,000. In addition, the FDIC required financial institutions, such as the Bank, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010 through and including 2012 to re-capitalize the Deposit Insurance Fund, although the FDIC exempted the Bank from this prepayment requirement. The rule also provides for increasing the FDIC-assessment rates by three basis points effective January 1 2011. If FDIC deposit insurance premiums and assessments continue to increase, it could adversely affect our financial condition. 29

26The Bank conducts its own data processing and owns the equipment used for that purpose. The Bank also owns the furniture, fixtures and equipment located on its premises and several automobiles.

~~Table~~Item of3. ~~Contents~~LEGAL PROCEEDINGS

WeThe ~~suspended~~Bank ~~payment~~is ofinvolved ~~dividends~~in ~~during~~various legal actions resulting from normal business activities. Management believes that the ~~fourth~~liability, ~~quarter~~if ofany, ~~2008~~arising ~~and~~from ~~currently~~such ~~are~~actions will not ~~permitted~~ tohave ~~declare~~a ormaterial ~~pay~~adverse ~~any~~effect ~~dividend~~on ~~without~~ the ~~prior~~Company’s ~~written~~financial ~~approval~~statements. Neither ofthe ~~our~~Bank ~~regulators. As~~nor the Company is a ~~result~~party to any proceeding to which any director, ~~capital~~officer ~~appreciation~~or affiliate of the issuer, ifor any, owner of ~~our~~more ~~common~~than ~~stock~~five ~~may~~percent be(5%) ~~the~~of ~~sole~~its ~~opportunity~~voting ~~for~~stock ~~gains~~is ona ~~investment~~party ~~for~~adverse to the ~~foreseeable~~Bank ~~future.~~or the Company.

InItem ~~the third quarter of 2008, we suspended payment of dividends on our common stock~~4. In ~~addition,~~REMOVED asAND a result of the MOU, Resolution, and proposed Order we are not permitted to declare or pay any dividend without the prior written approval of our Supervisory Authorities. As a result, we currently cannot declare a dividend on our common shares. We do not expect to be granted a waiver or be released from this restriction until our financial performance and capital ratios improve significantly. Assuming our Supervisory Authorities permit us to pay dividends in the future, our ability to pay dividends will be limited by regulatory restrictions and the need to maintain sufficient consolidated capital. Holders of our common stock are only entitled to receive the dividends that our board of directors declares out of funds legally available for those payments. RESERVED

~~Item~~Part ~~1B. UNRESOLVED STAFF COMMENTS~~II

~~None~~Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

~~Item~~Stock 2.Price ~~PROPERTIES~~and Dividends

~~The~~There ~~assets~~is ofno ~~the~~established ~~Company~~public ~~consist~~trading ~~almost~~market ~~entirely~~for ofthe ~~its~~Company’s ~~equity~~common ~~ownership~~stock. It inis ~~The~~not ~~First~~traded ~~State~~on ~~Bank~~an ~~and~~exchange ~~First~~or ~~Metro~~in ~~Mortgage~~the Coover-the-counter market. There ~~The~~is ~~assets~~no ofassurance ~~First~~that ~~Metro~~an ~~Mortgage~~active ~~Co.~~market ~~consist~~will ~~almost~~develop ~~entirely~~for ofthe ~~loans~~Company’s ~~originated~~common ~~and~~stock in the ~~proceeds~~future. Therefore, management of ~~those loans~~the ~~when~~Company ~~sold~~is tofurnished ~~investors.~~with ~~The~~only ~~assets~~limited information concerning trades of the ~~Bank~~Company’ ~~consist~~common ~~primarily~~stock. There ofwere ~~loans~~no ~~and~~shares ~~investment~~traded ~~securities~~in 2010. The ~~However,~~following ittable ~~also~~sets ~~owns~~forth ~~the~~for ~~real~~each ~~estate~~quarter ~~and~~during ~~improvements~~2009 ~~thereon~~the ~~from~~number ~~which~~of itshares ~~conducts~~traded ~~its~~and ~~banking~~the ~~operations.~~high ~~Those~~and ~~locations~~low ~~are~~per ~~more particularly~~share ~~described~~sales asprices ~~follows:~~to the extent known to management.

4806 N. Henry Boulevard, Stockbridge, Georgia. This location houses the Bank’s main office, a two-story building containing 20,800 square feet constructed in 1965. It is a full service bank facility equipped with an ATM machine and four lane drive-up service.

	Shares		Sales Price Per Share
2009	Traded		High			Low

First Quarter		850	$	12.00		$	12.00
Second Quarter		-	$	-		$	-
Third Quarter		15,110	undisclosed		undisclosed
Fourth Quarter		1,102	$	8.00		$	8.00

~~4800 N. Henry Boulevard, Stockbridge, Georgia. This location houses the operations center for the Bank. It is a single story building constructed in 1999, consisting of 20,622 square feet.~~ 30

~~295~~The ~~Fairview~~Company ~~Road~~has historically paid dividends on an annual basis. Any declaration and payment of dividends will be based on the Company’s earnings, ~~Ellenwood~~economic conditions, ~~Georgia~~ and the evaluation by the Board of Directors of other relevant factors. The ~~This~~Company’s ability to pay dividends is adependent ~~full~~on ~~service~~cash ~~banking~~dividends ~~location~~paid ~~with~~to ~~ATM~~it by the Bank. In addition, because of the Order and ~~drive-thru~~Resolution, ~~service~~we are not permitted to declare or pay any dividend without the prior written approval of the FRB and our Supervisory Authorities. As Ita isresult, we currently cannot declare a ~~single~~dividend ~~story~~on ~~building~~our ~~containing~~common 3shares. We do not expect to be granted a waiver or be released from this restriction until our financial performance and capital ratios improve significantly. Assuming our Supervisory Authorities permit us to pay dividends in the future,~~520~~ ~~square~~our ~~feet~~ability to pay dividends will be limited by regulatory restrictions and the need to maintain sufficient consolidated capital. The following table sets forth cash dividends which have been declared and paid by the Company since January 1, 2008. There were no cash dividends paid in 2009 and 2010.

~~114~~Cash ~~John~~Dividends ~~Frank~~Declared ~~Ward~~Per ~~Boulevard, McDonough, Georgia. This site contains a 4,000 square foot single story building with ATM and drive-thru service.~~ Share


	2010		2009		2008

First Quarter	$	-	$	-	$	0.06

Second Quarter	$	-	$	-	$	0.06

Third Quarter	$	-	$	-	$	0.03

Fourth Quarter	$	-	$	-	$	-

Total	$	-	$	-	$	0.15

~~Table~~As of ~~Contents~~March 1, 2011, 14,245,690 shares of common stock were outstanding and held of record by approximately 550 persons (not including the number of persons or entities holding stock in nominee or street name through various brokerage houses).

~~1810~~The ~~Hudson~~holders ~~Bridge~~of ~~Road,~~the ~~Stockbridge,~~Company’s ~~Georgia.~~common ~~This~~stock ~~location~~are ~~contains a~~entitled ~~two-story~~to ~~facility~~receive ~~consisting~~dividends ~~of 4~~when,~~787~~ ~~square~~as ~~feet.~~and ~~The~~if ~~lower~~declared ~~floor~~by ~~contains~~the aBoard ~~full~~of ~~service~~Directors ~~banking~~out ~~location~~of ~~with~~funds ~~ATM~~legally ~~and~~available. Funds ~~drive-thru~~for ~~service.~~the ~~The~~payment ~~upper~~of ~~floor~~dividends ~~housed~~of the ~~operations~~Company ofare ~~First~~primarily ~~Metro~~obtained ~~Mortgage~~from ~~until~~dividends ~~December 15,~~paid ~~2009.~~by the Bank.

~~4979~~There ~~Bill~~are ~~Gardner~~no ~~Parkway,~~shares ~~Locust~~of ~~Grove,~~the ~~Georgia.~~Company’s ~~This~~common ~~location~~stock ~~contains~~that aare ~~one-story~~subject ~~building~~to ~~consisting~~outstanding ofoptions 4or warrants to purchase,~~000 square~~ ~~feet~~or ~~with~~that ~~ATM~~are ~~and~~convertible ~~drive-thru~~into, ~~service.~~common equity of the Company.

~~2316~~Issuer ~~Highway~~Purchases ~~155, McDonough, Georgia. This full service banking location is a single-story facility consisting~~ of ~~approximately~~Equity ~~5,500 square feet with ATM and drive-thru service.~~ Securities

~~1908~~The ~~Highway~~Company 81did ~~East,~~not ~~McDonough,~~purchase ~~Georgia.~~any ~~This~~of ~~full~~its ~~service~~common ~~banking~~stock ~~location~~during isthe ayears ended ~~single-story~~December ~~facility consisting of approximately 5~~31,~~500~~ ~~square~~2010 ~~feet with ATM~~ and ~~drive-thru service~~2009.

The Bank also owns two additional parcels of land, one located in Henry County at the intersection of Chambers Road and Jonesboro Road and one located at 620 W. Third Street in Jackson, Butts County, Georgia. 31

~~The~~ITEM ~~Bank conducts its own data processing and owns the equipment used for that purpose~~6. ~~The~~SELECTED ~~Bank~~FINANCIAL ~~also owns the furniture, fixtures and equipment located on its premises and several automobiles.~~ DATA

~~Item~~For 3.the ~~LEGAL~~years ~~PROCEEDINGS~~ended December 31,

The Bank is involved in various legal actions resulting from normal business activities. Management believes that the liability, if any, arising from such actions will not have a material adverse effect on the Company’s financial statements. Neither the Bank nor the Company is a party to any proceeding to which any director, officer or affiliate of the issuer, or any owner of more than five percent (5%) of its voting stock is a party adverse to the Bank or the Company.

(in thousands, except per share and other data)	2010			2009			2008			2007			2006
SUMMARY OF OPERATIONS
Interest income	$	19,994		$	21,349		$	35,784		$	52,357		$	48,311
Interest expense		9,960			14,752			19,628			26,307			20,498
Net interest income		10,034			6,597			16,156			26,050			27,813
Provision for loan losses		1,169			39,168			24,286			2,959			477
Other income		3,888			2,595			2,681			2,972			3,296
Other expenses		19,233			17,785			15,470			12,519			10,614
Earnings (loss) before income taxes		(6,480	)		(47,761	)		(20,919	)		13,544			20,018
Income tax expense (benefit)		229			(11,109	)		(6,572	)		4,835			7,609
Net earnings (losses)	$	(6,709	)	$	(36,652	)	$	(14,347	)	$	8,709		$	12,409
PERFORMANCE MEASURES
Per common share:
Earnings (loss) per share	$	(0.47	)	$	(2.57	)	$	(1.01	)	$	0.61		$	0.87
Cash dividends per share		-			-			0.15			0.28			0.31
Book value		1.07			1.64			4.17			5.30			4.97
Profitability ratios:
Return on average equity		-28.75	%		-69.47	%		-19.33	%		11.53	%		18.24	%
Return on average assets		-1.15	%		-5.51	%		-2.06	%		1.19	%		1.84	%
Net interest margin		2.00	%		1.07	%		2.47	%		3.64	%		4.31	%
Efficiency ratio		138.15	%		190.78	%		82.13	%		43.14	%		34.12	%
Liquidity ratios:
Total loans to total deposits		69.81	%		74.20	%		90.37	%		90.98	%		94.41	%
Average loans to average earning assets		82.05	%		82.25	%		85.32	%		80.95	%		85.05	%
Noninterest-bearing deposits to total deposits		11.02	%		10.21	%		11.55	%		11.41	%		13.03	%
Capital ratios:
Leverage		2.68	%		3.38	%		8.43	%		9.89	%		9.85	%
Risk-based capital
Tier 1		3.14	%		4.30	%		10.32	%		12.13	%		11.90	%
Total		4.39	%		5.55	%		11.59	%		13.37	%		12.77	%
ASSET QUALITY
Non-performing loans	$	88,482		$	102,029		$	97,870		$	37,458		$	1,417
Foreclosed properties		79,451			49,732			18,398			10,374			1,411
Total non-performing assets (NPAs)		167,933			151,761			116,268			47,832			2,828
Allowance for loan losses		10,824			13,324			17,730			7,657			5,230
Net charge-offs		3,669			43,574			14,213			532			219
Allowance for loan losses to loans		2.85	%		3.06	%		3.32	%		1.34	%		0.93	%
Net charge-offs to average loans		0.89	%		8.61	%		2.55	%		0.09	%		0.04	%
NPAs to loans and foreclosed properties		36.53	%		31.32	%		21.06	%		7.44	%		0.32	%
NPAs to total assets		29.78	%		24.69	%		17.73	%		6.00	%		0.26	%
AVERAGE BALANCES
Loans	$	411,824		$	505,927		$	557,646		$	562,478		$	548,046
Investment securities		59,168			70,464			82,936			109,244			80,589
Earning assets		501,895			615,145			653,563			694,835			644,354
Total assets		584,101			664,846			695,704			731,474			676,069
Deposits		556,774			608,790			608,904			631,130			580,564
Stockholders’ equity		23,333			52,759			74,220			75,534			68,038
Weighted average shares		14,245,690			14,245,690			14,245,715			14,314,171			14,303,517
AT YEAR END
Loans	$	380,242		$	434,891		$	533,608		$	569,388		$	561,646
Investment securities		67,590			72,872			63,817			91,882			88,708
Total assets		563,879			614,648			655,877			718,996			694,311
Deposits		544,663			586,101			590,476			625,851			594,873
Stockholders’ equity		15,281			23,327			59,343			75,534			71,198
Common shares outstanding		14,245,690			14,245,690			14,245,690			14,250,190			14,321,468

~~Item 4. REMOVED AND RESERVED~~32

~~Part~~SELECTED IIFINANCIAL DATA, continued

Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

	2010												2009
	Fourth			Third			Second			First			Fourth			Third			Second			First
(in thousands, except per share and other data)	Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter
SUMMARY OF OPERATIONS
Interest income	$	4,405		$	4,670		$	5,237		$	5,682		$	5,009		$	5,796		$	3,946		$	6,597
Interest expense		2,251			2,365			2,484			2,860			3,357			3,741			3,804			3,850
Net interest income		2,154			2,305			2,753			2,822			1,652			2,055			142			2,747
Provision for loan losses		690			1,175			2,180			(2,876	)		24,850			378			12,340			1,600
Other income		677			790			952			1,469			724			832			706			608
Other expenses		4,908			4,257			7,070			2,998			5,516			3,552			4,859			4,132
Earnings (loss) before income taxes		(2,767	)		(2,337	)		(5,545	)		4,169			(27,990	)		(1,043	)		(16,351	)		(2,377	)
Income tax expense (benefit)		229			-			-			-			(11,109	)		-			-			-
Net earnings (losses)	$	(2,996	)	$	(2,337	)	$	(5,545	)	$	4,169		$	(16,881	)	$	(1,043	)	$	(16,351	)	$	(2,377	)

Weighted average shares		14,245,690			14,245,690			14,245,690			14,245,690			14,245,690			14,245,690			14,245,690			14,245,690

PERFORMANCE MEASURES
Per common share:
Earnings (loss) per share	$	(0.21	)	$	(0.16	)	$	(0.39	)	$	0.29		$	(1.18	)	$	(0.07	)	$	(1.15	)	$	(0.17	)
Cash dividends per share		-			-			-			-			-			-			-			-

Profitability ratios:
Return on average equity		-64.00	%		-43.28	%		-82.56	%		63.53	%		-214.00	%		-10.41	%		-134.18	%		-16.33	%
Return on average assets		-2.12	%		-1.62	%		-3.77	%		2.75	%		-10.66	%		-0.63	%		-9.75	%		-1.44	%
Net interest margin		1.80	%		1.95	%		2.17	%		2.16	%		1.19	%		1.37	%		0.09	%		1.82	%
Efficiency ratio		173.37	%		137.54	%		190.82	%		69.87	%		232.15	%		123.03	%		573.00	%		123.16	%
Loan Quality Indicators
Net charge-offs (recoveries)		2,305			166			4,485			(3,287	)		26,096			978			15,166			1,334
Net charge-offs (recoveries) to average loans		0.59	%		0.04	%		1.08	%		-0.76	%		5.52	%		0.20	%		2.91	%		0.25	%

AVERAGE BALANCES
Loans	$	390,775		$	408,363		$	416,877		$	431,729		$	472,626		$	495,245		$	521,762		$	533,253
Investment securities		61,194			61,486			51,751			57,810			72,815			72,800			72,149			67,636
Earning assets		477,521			473,842			507,255			523,121			554,631			599,576			610,330			602,499
Total assets		566,179			575,419			589,063			606,236			633,543			663,058			670,680			661,780
Deposits		543,740			549,946			558,710			575,076			597,216			617,906			616,607			598,104
Stockholders’ equity		18,724			21,598			26,864			26,247			31,553			40,094			48,745			58,212

AT QUARTER END
Loans	$	380,242		$	406,731		$	408,207		$	418,384		$	434,891		$	482,784		$	496,473		$	530,510
Investment securities		67,590			65,108			56,845			53,565			72,872			72,757			72,843			71,454
Total assets		563,879			563,557			580,294			600,269			614,648			652,438			673,678			667,682
Deposits		544,663			541,203			554,283			569,457			586,101			608,331			627,481			605,732
Stockholders’ equity		15,281			19,231			21,263			26,619			23,327			39,779			40,409			57,080
Common shares outstanding		14,245,690			14,245,690			14,245,690			14,245,690			14,245,690			14,245,690			14,245,690			14,245,690
Book value		1.07			1.35			1.49			1.87			1.64			2.79			2.84			4.01

Liquidity ratios:
Total loans to total deposits		69.81	%		75.15	%		73.65	%		73.47	%		74.20	%		79.36	%		79.12	%		87.58	%
Average loans to average earning assets		81.83	%		86.18	%		82.18	%		82.53	%		85.21	%		82.60	%		85.49	%		88.51	%
Noninterest-bearing deposits to total deposits		11.02	%		12.64	%		12.93	%		10.51	%		10.21	%		11.14	%		10.89	%		11.22	%
Capital ratios:
Leverage		2.68	%		3.16	%		3.48	%		4.30	%		3.38	%		5.79	%		5.92	%		8.61	%
Risk-based capital
Tier 1		3.14	%		3.73	%		4.19	%		5.15	%		4.30	%		7.42	%		7.40	%		10.20	%
Total		4.39	%		4.99	%		5.45	%		6.42	%		5.55	%		8.69	%		8.67	%		11.47	%
ASSET QUALITY
Non-performing loans	$	88,482		$	106,678		$	92,435		$	83,580		$	102,029		$	94,025		$	107,334		$	87,425
Foreclosed properties		79,451			62,493			65,336			64,469			49,732			35,903			28,037			17,238
Total non-performing assets (NPAs)		167,933			169,171			157,771			148,049			151,761			129,928			135,371			104,663
Allowance for loan losses		10,824			12,439			11,430			13,735			13,324			14,571			15,171			17,997
Allowance for loan losses to loans		2.85	%		3.06	%		2.80	%		3.28	%		3.06	%		3.02	%		3.06	%		3.39	%
NPAs to loans and foreclosed properties		36.53	%		36.05	%		33.32	%		30.66	%		31.32	%		25.05	%		25.81	%		19.11	%
NPAs to total assets		29.78	%		30.02	%		27.19	%		24.66	%		24.69	%		19.91	%		20.09	%		15.68	%

~~Stock Price and Dividends~~ 33

~~There~~ITEM ~~is no established public trading market for the Company’s common stock~~7. ~~It is not traded on an exchange or in the over-the-counter market. There is no assurance that an active market will develop for the Company~~MANAGEMENT’sS ~~common~~DISCUSSION ~~stock~~AND inANALYSIS ~~the~~OF ~~future.~~FINANCIAL ~~Therefore,~~CONDITION ~~management~~AND ofRESULTS ~~the~~OF Company is furnished with only limited information concerning trades of the Company’ common stock. The following table sets forth for each quarter during the most two recent fiscal years the number of shares traded and the high and low per share sales prices to the extent known to management. OPERATIONS

28 Overview

~~Table~~The following discussion is intended to provide insight into the financial condition and results of ~~Contents~~operations of the Company and its subsidiaries and should be read in conjunction with the consolidated financial statements and accompanying notes.

	SharesTraded	Sales Price Per Share
		High		Low
2009
First Quarter	850	$	12.00	$	12.00
Second Quarter	—	$	—	$	—
Third Quarter	15,110		undisclosed		undisclosed
Fourth Quarter	1,102	$	8.00	$	8.00
2008
First Quarter	102,091	$	13.50	$	11.00
Second Quarter	52,570	$	13.50	$	11.00
Third Quarter	13,121	$	13.50	$	12.00
Fourth Quarter	6,330	$	13.50	$	10.50

Since mid-2007, and continuing through 2010, the financial markets and economic conditions generally were materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity. Although the economic crisis was initially triggered by declines in home prices and the values of subprime mortgages, it soon spread to all residential construction and residential mortgages as property prices declined rapidly. The effect of the market and economic downturn also spread to other areas of the credit markets and in the availability of liquidity. The magnitude of these declines led to a crisis of confidence in the financial sector because of concerns about the capital base and viability of certain financial institutions. During this period, interbank lending and commercial paper borrowing fell sharply, precipitating a credit freeze for both institutional and individual borrowers. Unemployment has also increased significantly.

~~The Company~~These ~~has~~events ~~historically~~created ~~paid~~serious ~~dividends~~concerns onabout anthe ~~annual~~safety ~~basis. Any declaration~~ and ~~payment~~soundness of ~~dividends will be based on~~ the ~~Company’s~~entire ~~earnings,~~financial ~~economic~~services ~~conditions,~~industry. The ~~and~~recently ~~the~~enacted ~~evaluation~~Emergency byEconomic ~~the~~Stabilization ~~Board~~Act (“EESA”) of ~~Directors~~2008 ofwas ~~other~~signed ~~relevant~~into ~~factors.~~law ~~The Company’s~~in ~~ability~~response to ~~pay~~the ~~dividends~~financial iscrisis ~~dependent~~affecting onthe ~~cash~~banking ~~dividends~~system, ~~paid~~financial tomarkets itand byeconomic ~~the~~conditions ~~Bank~~generally. Pursuant Into ~~addition~~EESA, asThe aUnited ~~result~~States Department of the ~~MOU,~~Treasury ~~Resolution,~~(“Treasury”) ~~and~~has ~~proposed~~the ~~Order~~authority weunder ~~are~~the ~~not~~Troubled ~~permitted~~Asset toRelief ~~declare~~Program or(“TARP) ~~pay~~to ~~any~~purchase ~~dividend~~up ~~without~~to ~~the~~$700 ~~prior~~billion ~~written approval~~ of ~~our~~mortgages, ~~Supervisory~~mortgage-backed ~~Authorities. As~~securities aand ~~result,~~certain weother ~~currently~~financial ~~cannot~~instruments ~~declare~~from afinancial ~~dividend~~institutions onfor ~~our~~the ~~common~~purpose ~~shares. We~~of dostabilizing ~~not~~and ~~expect~~providing liquidity to bethe ~~granted~~U.S. afinancial ~~waiver~~markets. Treasury orannounced bethe ~~released~~Capital ~~from~~Purchase ~~this~~Program ~~restriction~~under ~~until~~TARP ~~our~~pursuant ~~financial~~to ~~performance~~which ~~and~~it ~~capital~~has ~~ratios improve~~purchased ~~significantly. Assuming~~and ~~our~~will ~~Supervisory~~continue ~~Authorities~~to ~~permit~~purchase ussenior topreferred ~~pay~~stock ~~dividends~~ in ~~the~~participating ~~future,~~financial ~~our~~institutions. These ~~ability~~actions tohave ~~pay~~been ~~dividends~~followed ~~will~~by benumerous ~~limited~~other actions by ~~regulatory~~the ~~restrictions~~Board ~~and~~of ~~the~~Governors ~~need~~of tothe ~~maintain~~Federal ~~sufficient~~Reserve ~~consolidated~~System, ~~capital~~the U. ~~The following~~S. ~~table~~Congress, ~~sets~~Treasury, ~~forth~~the ~~cash~~Federal ~~dividends~~Deposit ~~which~~Insurance ~~have~~Corporation, ~~been~~the ~~declared~~SEC and ~~paid~~others byto address the ~~Company~~current ~~since January 1~~crisis, ~~2007.~~including ~~There~~the ~~were~~implementation noof ~~cash~~the ~~dividends~~American ~~paid~~Recovery inand Reinvestment Act of 2009.

29 34

~~Table~~The South Metropolitan Atlanta area and especially the Henry County economy has deteriorated along with the national economy due to depressed housing sales and real estate values as well as significant local job losses due to reductions in construction and land development activity. The downturn experienced in our market area has been greater than that nationally because of ~~Contents~~the area’s significant dependence on the housing industry to drive the local economy. Although housing permits in 2010 showed a slight increase (11 permits or 1.4%) over 2009 levels, the 805 permits for 2010 represent only 6.4% of the total housing permits in 2006. The chart below shows the significant decline in housing permits for Henry and surrounding counties for the years 2006 through 2010.

	2009		2008			2007
	Total Number of Housing Permits By County
First Quarter	$	—	$	0.06		$	0.06
	2010			2009				2008		2007		2006
Second Quarter	$	—	$	0.06		$	0.06
Henry		270			257				895		1,960		3,076
Third Quarter	$	—	$	0.03		$	0.06
Clayton		109			94				395		1,144		2,075
Fourth Quarter	$	—	$	—		$	0.10
Dekalb		336			321				3,370		4,445		4,791
Total	$	—	$	0.15		$	0.28
Newton		54			55				183		901		1,654
Rockdale		36			67				154		569		1,009
Total		805			794				4,997		9,019		12,605

The economic challenges resulted in the Company reporting a net loss of $6.7 million or $.47 per share compared to a net loss of $36.7 million or $2.57 per share in 2009 and a net loss of $14.3 million or $1.01 per share in 2008. The decrease in the 2010 net loss reflects an improved net interest margin primarily resulting from lower funding costs, lower provision for loan losses (reflecting reduced net charge-offs), improvement in service charge income and a decline in controllable operating expenses (salaries and employee benefits, occupancy and equipment expenses and other operating expenses). The decline in controllable operating expenses however, was more than offset by increases in net foreclosed properties expenses and FDIC and regulatory expenses.

AsWith oflethargic ~~February 23~~economic activity, ~~2010~~interest rates at historically low levels for the third consecutive year, 14 and the number of failed banks increasing,~~245~~ the need and competition for funding has declined significantly resulting in a rationalization between local and national pricing for deposits. For all these reasons,~~690~~ ~~shares~~we have been reducing rates we pay on deposit products resulting in a reduction of ~~common~~the ~~stock~~cost ~~were~~of ~~outstanding~~interest bearing liabilities to 2.03% for 2010 compared to 2.71% and ~~held~~3.60% for 2009 and 2008, respectively. Yields on earning assets increased for 2010 to 3.98% compared to 3.47% in 2009 and 5.48% in 2008. Net charge-offs declined to $3.7 million in 2010 compared to $43.6 million and $14.2 million in 2009 and 2008, respectively. The reduction in net charge-offs translated to a lower provision charged to operating expenses in 2010 of ~~record~~$1.2 bymillion ~~approximately~~compared ~~550~~to ~~persons~~provisions ~~(not~~of ~~including~~$39.2 million and $24.3 million for 2009 and 2008, respectively. Even though the ~~number~~provision for loan losses declined in 2010, we experienced a significant increase in costs relating to foreclosed properties. Operating expenses on foreclosed properties, net of ~~persons~~rental orincome ~~entities~~totaled ~~holding~~$3.3 ~~stock~~million in ~~nominee~~2010 orcompared ~~street~~to ~~name~~$1.4 ~~through~~million ~~various~~and ~~brokerage~~$324,000 ~~houses)~~in 2009 and 2008, respectively. The primary reason for

The holders of the Company’s common stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available. Funds for the payment of dividends of the Company are primarily obtained from dividends paid by the Bank. 35

~~There~~the ~~are~~increase noin ~~shares~~operating ofexpenses on foreclosed properties was the ~~Company’s~~payment ~~common~~of ~~stock~~property ~~that~~taxes ~~are~~on ~~subject~~foreclosed toproperties ~~outstanding~~and ~~options~~non-performing orloans. In ~~warrants~~addition to ~~purchase~~foreclosed properties operating expenses, orduring ~~that~~2010 ~~are~~we ~~convertible~~recognized ~~into~~$4.3 million in impairment charges related to recording foreclosed properties at fair value compared to $2.6 million and $2.9 million for 2009 and 2008 respectively. In addition to impairment losses, ~~common~~we ~~equity~~recognized oflosses on the ~~Company~~sale of foreclosed properties of $222,000 in 2010 compared to $1.2 million in 2009 and $324,000 in 2008.

~~Issuer~~Loans ~~Purchases~~declined by $54.6 million or 12.6% during 2010 and totaled $380.2 million at December 31, 2010. Loans moved to foreclosed properties and other assets of ~~Equity~~$42.9 ~~Securities~~million offset by internally financed sales of foreclosed properties totaling $4.1 million were the major contributors to the decline. The allowance for loan losses amounted to $10.8 million at December 31, 2010 or 2.85% of loans compared to $13.3 million or 3.06% at December 31, 2009. The reduction in the allowance for loan losses as a percentage of loans is reflective of the reduction in nonperforming loans during 2010. Nonperforming loans totaled $88.5 million or 23.27% of total loans compared to $102.0 million or 23.46% of total loans at December 31, 2010 and 2009, respectively. The movement from loans to foreclosed properties caused foreclosed properties to increase from $49.7 million at December 31, 2009 to $79.5 million at December 31, 2010. Total nonperforming assets were $167.9 million or 29.78% of total assets compared to $151.8 million or 24.69% of total assets at December 31, 2010 and 2009, respectively. Even though non-performing assets increased, we continue with aggressive efforts to collect nonperforming loans while making every attempt to sell foreclosed properties. Due to the depressed real estate markets in which we operate, certain types of properties, especially unimproved real estate, are very difficult to sell at any price.

~~The~~Critical ~~Company~~Accounting ~~did not purchase any of its common stock during the fourth quarter ended December 31, 2009.~~ Policies

30Our accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. Our significant accounting policies are described in the notes to the consolidated financial statements. Certain accounting policies require management to make significant estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities, and we consider these critical accounting policies. The estimates and assumptions used are based on historical experience and other factors that management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and results of operations for the reporting periods.

~~Table~~The following is a summary of ~~Contents~~our more critical significant accounting policies that are highly dependent on estimates, assumptions and judgments.

~~ITEM~~Allowance 6for loan losses. The ~~SELECTED~~allowance ~~FINANCIAL~~for ~~DATA~~loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. Estimating the amount of the allowance for loan losses requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on non-impaired loans based on historical loss experience, management’s evaluation of the current loan portfolio, and consideration of current economic trends and conditions. The loan

~~For the years ended December 31,~~ 36

(in thousands, except per share and other data)	2009			2008			2007			2006			2005
SUMMARY OF OPERATIONS
Interest income	$	21,348		$	35,784		$	52,357		$	48,311		$	36,602
Interest expense		14,752			19,628			26,307			20,498			13,859
Net interest income		6,596			16,156			26,050			27,813			22,743
Provision for loan losses		39,168			24,286			2,959			477			546
Other income		2,870			2,681			2,972			3,296			3,983
Other expenses		18,059			15,470			12,519			10,614			10,239
Earnings (loss) before income taxes		(47,761	)		(20,919	)		13,544			20,018			15,941
Income tax expense (benefit)		(11,109	)		(6,572	)		4,835			7,609			5,665
Net earnings (losses)	$	(36,652	)	$	(14,347	)	$	8,709		$	12,409		$	10,276
PERFORMANCE MEASURES
Per common share:
Earnings (loss) per share	$	(2.57	)	$	(1.01	)	$	0.61		$	0.87		$	0.72
Cash dividends per share		—			0.15			0.28			0.31			0.25
Book value		1.64			4.17			5.30			4.97			4.39
Profitability ratios:
Return on average equity		-69.47	%		-19.33	%		11.53	%		18.24	%		17.13	%
Return on average assets		-5.51	%		-2.06	%		1.19	%		1.84	%		1.67	%
Net interest margin		1.07	%		2.41	%		3.64	%		4.31	%		3.90	%
Efficiency ratio		190.78	%		82.13	%		43.14	%		34.12	%		38.31	%
Liquidity ratios:
Total loans to total deposits		74.20	%		90.37	%		90.98	%		94.41	%		95.02	%
Average loans to average earning assets		82.06	%		85.32	%		80.95	%		85.05	%		87.51	%
Noninterest-bearing deposits to total deposits		10.21	%		11.55	%		11.41	%		13.03	%		15.52	%
Capital ratios:
Leverage		3.38	%		8.43	%		9.89	%		9.85	%		9.73	%
Risk-based capital
Tier 1		4.30	%		10.32	%		12.13	%		11.90	%		11.53	%
Total		5.55	%		11.59	%		13.37	%		12.77	%		12.44	%
ASSET QUALITY
Non-performing loans	$	102,029		$	97,870		$	32,744		$	416		$	782
Foreclosed properties		49,732			18,398			10,394			1,411			194
Total non-performing assets (NPAs)		151,761			116,268			43,138			1,827			976
Allowance for loan losses		13,324			17,730			7,657			5,230			4,972
Net charge-offs		43,574			14,213			532			219			63
Allowance for loan losses to loans		3.06	%		3.32	%		1.34	%		0.93	%		0.96	%
Net charge-offs to average loans		8.61	%		2.55	%		0.09	%		0.04	%		0.01	%
NPAs to loans and foreclosed properties		31.32	%		21.06	%		7.44	%		0.32	%		0.19	%
NPAs to total assets		24.69	%		17.73	%		6.00	%		0.26	%		0.15	%
AVERAGE BALANCES
Loans	$	505,927		$	557,646		$	562,478		$	548,046		$	510,733
Investment securities		70,464			82,936			109,244			80,589			58,470
Earning assets		616,530			653,563			694,835			644,354			583,619
Total assets		664,846			695,704			731,474			676,069			616,167
Deposits		608,790			608,904			631,130			580,564			528,921
Stockholders’ equity		52,759			74,220			75,534			68,038			60,003
Weighted average shares		14,245,690			14,245,715			14,314,171			14,303,517			7,151,684
AT YEAR END
Loans	$	434,891		$	533,608		$	569,388		$	561,646		$	518,114
Investment securities		72,872			63,817			91,882			88,708			70,645
Total assets		614,648			655,877			718,996			694,311			631,033
Deposits		586,101			590,476			625,851			594,873			545,247
Stockholders’ equity		23,327			59,343			75,534			71,198			62,748
Common shares outstanding		14,245,690			14,245,690			14,250,190			14,321,468			7,151,684

portfolio also represents the largest asset type on the consolidated balance sheet. Loan losses are charged against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for loan losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

31The allowance for loan losses consists of specific and general components. The specific component of the allowance for loan losses reflects expected losses resulting from analyses developed through evaluations of individual impaired or potential impaired loans. The specific credit allocations are based on regular analyses of loan relationships typically in excess of $500,000 but may include a review of other loan relationships on which full collection may not be reasonably assumed. These analyses involve judgment in estimating the amount of loss associated with the specific loans, including estimating the underlying collateral values. The general component of the allowance for loan losses is based on historical loss experience for each loan category. The historical loss experience used in determining general allocations is determined using the average of actual losses incurred over the most recent eighteen months for each type of loan. The historical loss experience is adjusted for the loan grade and known changes in economic conditions as well as other qualitative factors. The resulting loss allocation factors are applied to the balance of each type of loan after removing the balance of impaired loans that have been specifically reviewed from each category.

~~Table~~Although ofmanagement ~~Contents~~believes its processes for determining the allowance adequately consider all the factors that could potentially result in credit losses, the process includes subjective elements and may be susceptible to significant change. In addition, there could be potential problem loans in the portfolio that have not been identified as problems because they continue to perform as set forth in the loan agreements. Continued weaknesses in our market area could cause currently performing credits to deteriorate. To the extent actual outcomes differ from management estimates, additional provision for loan losses could be required that could adversely affect earnings or financial position in future periods.

~~SELECTED~~Additional ~~FINANCIAL~~information ~~DATA,~~on ~~continued~~the Company’s loan portfolio and allowance for loan losses can be found in the sections of Management’s Discussion and Analysis titled “Risk Elements” and “Allowance for Loan Losses” and in the Consolidated Financial Statements and accompanying notes.

	2009												2008
(in thousands, except per shareand other data)	FourthQuarter			ThirdQuarter			SecondQuarter			FirstQuarter			FourthQuarter			ThirdQuarter			SecondQuarter			FirstQuarter
SUMMARY OF OPERATIONS
Interest income	$	5,009		$	5,796		$	3,946		$	6,597		$	7,080		$	8,734		$	8,718		$	11,252
Interest expense		3,357			3,741			3,804			3,850			4,180			4,557			4,964			5,927
Net interest income		1,652			2,055			142			2,747			2,900			4,177			3,754			5,325
Provision for loan losses		24,850			378			12,340			1,600			16,000			5,650			1,526			1,110
Other income		724			832			706			608			568			674			728			711
Other expenses		5,516			3,552			4,859			4,132			4,748			3,632			3,896			3,194
Earnings (loss) before income taxes		(27,990	)		(1,043	)		(16,351	)		(2,377	)		(17,280	)		(4,431	)		(940	)		1,732
Income tax expense (benefit)		(11,109	)		—			—			—			(4,890	)		(1,820	)		(503	)		641
Net earnings (losses)	$	(16,881	)	$	(1,043	)	$	(16,351	)	$	(2,377	)	$	(12,390	)	$	(2,611	)	$	(437	)	$	1,091
PERFORMANCE MEASURES
Per common share:
Earnings (loss) per share	$	(1.18	)	$	(0.07	)	$	(1.15	)	$	(0.17	)	$	(0.87	)	$	(0.18	)	$	(0.03	)	$	0.08
Cash dividends per share		—			—			—			—			—			0.03			0.06			0.06
Book value		1.64			2.79			2.84			4.01			4.17			4.98			5.18			5.34
Profitability ratios:
Return on average equity		-214.00	%		-10.41	%		-134.18	%		-16.33	%		-76.05	%		-14.43	%		-2.33	%		5.76	%
Return on average assets		-10.66	%		-0.63	%		-9.75	%		-1.44	%		-7.41	%		-1.53	%		-0.25	%		0.61	%
Net interest margin		1.19	%		1.37	%		0.09	%		1.82	%		1.90	%		2.68	%		2.35	%		3.20	%
Efficiency ratio		232.15	%		123.03	%		573.00	%		123.16	%		136.91	%		74.87	%		86.93	%		52.92	%
Liquidity ratios:
Total loans to total deposits		74.20	%		79.36	%		79.12	%		87.58	%		90.37	%		91.30	%		93.44	%		90.49	%
Average loans to average earning assets		85.21	%		82.60	%		85.49	%		88.51	%		89.95	%		88.46	%		87.72	%		85.43	%
Noninterest-bearing deposits to total deposits		10.21	%		11.14	%		10.89	%		11.22	%		11.55	%		10.50	%		11.57	%		11.28	%
Capital ratios:
Leverage		3.38	%		5.79	%		5.92	%		8.61	%		8.43	%		10.46	%		10.73	%		10.47	%
Risk-based capital
Tier 1		4.30	%		7.42	%		7.40	%		10.20	%		10.32	%		12.13	%		12.44	%		12.45	%
Total		5.55	%		8.69	%		8.67	%		11.47	%		11.59	%		13.40	%		13.70	%		13.70	%
ASSET QUALITY
Non-performing loans	$	102,029		$	94,025		$	107,334		$	87,425		$	97,870		$	63,653		$	54,727		$	39,950
Foreclosed properties		49,732			35,903			28,037			17,238			18,398			14,810			16,666			11,093
Total non-performing assets (NPAs)		151,761			129,928			135,371			104,663			116,268			78,463			71,393			51,043
Allowance for loan losses		13,324			14,571			15,171			17,997			17,730			15,352			10,220			8,718
Net charge-offs		26,096			978			15,166			1,334			13,622			517			25			49
Allowance for loan losses to loans		3.06	%		3.02	%		3.06	%		3.39	%		3.32	%		2.80	%		1.84	%		1.55	%
Net charge-offs to average loans		5.52	%		0.20	%		2.91	%		0.25	%		2.48	%		0.09	%		0.00	%		0.01	%
NPAs to loans and foreclosed properties		31.32	%		25.05	%		25.81	%		19.11	%		21.06	%		13.94	%		12.50	%		8.89	%
NPAs to total assets		24.69	%		19.91	%		20.09	%		15.68	%		17.73	%		11.49	%		10.49	%		7.24	%
AVERAGE BALANCES
Loans	$	472,626		$	495,245		$	521,762		$	533,253		$	549,210		$	552,320		$	560,483		$	568,571
Investment securities		72,815			72,800			72,149			67,636			71,859			78,828			80,905			87,968
Earning assets		554,631			599,576			610,330			602,499			610,592			624,386			638,951			665,534
Total assets		633,543			663,058			670,680			661,780			669,241			681,504			692,893			712,189
Deposits		597,216			617,906			616,607			598,104			595,453			596,964			607,719			623,895
Stockholders’ equity		31,553			40,094			48,745			58,212			65,169			72,391			74,942			75,815
Weighted average shares		14,245,690			14,245,690			14,245,690			14,245,690			14,245,690			14,245,690			14,245,690			14,284,744
AT QUARTER END
Loans	$	434,891		$	482,784		$	496,473		$	530,510		$	533,608		$	548,189		$	554,544		$	562,807
Investment securities		72,872			72,757			72,843			71,454			63,817			79,900			77,755			84,054
Total assets		614,648			652,438			673,678			667,682			655,877			682,605			680,403			705,382
Deposits		586,101			608,331			627,481			605,732			590,476			600,429			593,498			621,939
Stockholders’ equity		23,327			39,779			40,409			57,080			59,343			70,994			73,788			76,096
Common shares outstanding		14,245,690			14,245,690			14,245,690			14,245,690			14,245,690			14,245,690			14,245,690			14,245,690

32Fair Value Measurements. The Company’s impaired loans and foreclosed assets may be measured and carried at “fair value”, the determination of which requires management to make assumptions, estimates and judgments. See Note 15 “Fair Value of Assets and Liabilities” to the consolidated financial statements included elsewhere herein for additional disclosures regarding the fair value of our assets and liabilities.

~~Table~~When a loan is considered impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of ~~Contents~~estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. In addition, foreclosed assets are carried at the lower of cost or “fair value”, less cost to sell, following foreclosure. “Fair value” is defined by GAAP “as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.” GAAP further defines an “orderly transaction” as “a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets that are not a forced transaction (for example, a forced liquidation or distress sale).” Recently in the Bank’s markets there have been very few transactions in the type of assets which represent the vast majority of the Bank’s impaired loans and foreclosed properties which reflect “orderly transactions” as so defined. Instead, most transactions in comparable assets have been distressed sales not indicative of “fair value.” Accordingly, the determination of fair value in the current environment is difficult and more subjective than it would be in a stable real estate environment. Management uses independent appraisals and internal evaluations, adjusted accordingly to take into consideration various economic factors, in determining fair value. Although management believes its processes for determining the value of these assets are appropriate and allow the Company to arrive at an appropriate fair value, the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be significantly different from management’s determination of fair value.

~~ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~38

~~Overview~~Results of Operations

~~The~~Net ~~following discussion~~Interest is intended to provide insight into the financial condition and results of operations of the Company and its subsidiaries and should be read in conjunction with the consolidated financial statements and accompanying notes. Income

~~Since~~Our ~~mid-2007,~~results ~~and~~of ~~continuing~~operations ~~through~~are ~~2009,~~determined ~~the~~by ~~financial~~our ~~markets~~ability ~~and~~to ~~economic~~manage ~~conditions~~interest ~~generally~~income ~~were materially~~ and ~~adversely~~expense ~~affected by~~effectively, ~~significant~~to ~~declines~~minimize inloan ~~the~~and ~~values~~investment oflosses, ~~nearly~~to ~~all~~generate ~~asset~~non-interest ~~classes~~income, and byto acontrol ~~serious~~operating ~~lack of liquidity~~expenses. Because ~~Although~~interest ~~the~~rates ~~economic~~are ~~crisis~~determined ~~was initially triggered~~ by ~~declines~~market inforces ~~home prices~~ and ~~the~~economic ~~values~~conditions ofbeyond ~~subprime~~our ~~mortgages~~control, itour ~~soon~~ability ~~spread~~ to ~~all residential~~generate ~~construction~~net ~~and~~interest ~~residential~~income ~~mortgages~~depends ason ~~property~~our ~~prices~~ability ~~declined~~to ~~rapidly. The~~obtain ~~effect~~an ofadequate ~~the~~net ~~market~~interest ~~and economic downturn also~~ spread tobetween ~~other areas of~~ the ~~credit~~rate ~~markets~~we ~~and~~pay inon ~~the~~interest-bearing ~~availability~~liabilities ofand ~~liquidity. The magnitude of these declines led to a crisis of confidence in~~ the ~~financial~~rate ~~sector~~we asearn aon ~~result~~interest-earning ~~of concerns about the capital base and viability of certain financial institutions~~assets. During this period, interbank lending and commercial paper borrowing fell sharply, precipitating a credit freeze for both institutional and individual borrowers. Unemployment has also increased significantly.

~~These~~The ~~events~~net ~~created~~interest ~~serious~~margin ~~concerns~~increased ~~about~~from ~~the~~1.07% ~~safety~~in ~~and~~2009 ~~soundness~~to of2.00% ~~the~~in ~~entire financial services industry~~2010. The ~~recently~~primary ~~enacted~~reason ~~Emergency~~for ~~Economic~~the ~~Stabilization~~increase ~~Act of 2008~~ was ~~signed~~a ~~into~~decline ~~law~~ in ~~response to~~ the ~~financial~~cost ~~crisis affecting~~of ~~the~~interest-bearing ~~banking~~liabilities. For ~~system~~2010, ~~financial~~the ~~markets~~cost ~~and~~of ~~economic~~interest-bearing ~~conditions~~liabilities ~~generally. Pursuant~~was ~~to EESA~~2.03%, ~~The~~compared ~~United~~to ~~States~~a ~~Department~~cost of ~~the~~2.71% ~~Treasury~~for ~~(“Treasury”) has~~ the ~~authority~~same ~~under~~period ~~the~~in ~~Troubled~~2009, ~~Asset~~a ~~Relief~~decrease ~~Program~~of ~~(“TARP)~~68 ~~to purchase~~basis uppoints. The todecline ~~$700~~in ~~billion~~the cost of ~~mortgages,~~interest ~~mortgage-backed~~bearing ~~securities~~liabilities ~~and~~is ~~certain~~reflective ~~other~~of ~~financial~~the ~~instruments~~overall ~~from~~decline ~~financial~~in ~~institutions~~interest ~~for~~rates ~~the purpose of stabilizing~~ and ~~providing~~the ~~liquidity~~decline toin ~~the~~funding ~~U.S.~~needs ~~financial~~of ~~markets. Treasury announced~~ the ~~Capital~~Bank ~~Purchase~~due ~~Program under TARP pursuant~~ to ~~which~~a itweak ~~has~~economy ~~purchased~~ and ~~will~~decreased ~~continue~~loan todemand. The ~~purchase~~decline ~~senior preferred stock~~ in ~~participating~~funding ~~financial~~needs ~~institutions.~~has ~~These~~allowed ~~actions have been followed by numerous other actions by~~ the ~~Board~~Bank ~~of Governors~~to ofnot ~~the~~renew ~~Federal~~higher ~~Reserve System~~cost, ~~the~~non ~~U.S.~~customer ~~Congress,~~related ~~Treasury~~deposits, ~~the~~which ~~Federal~~has ~~Deposit~~helped ~~Insurance~~reduce ~~Corporation,~~ the ~~SEC~~overall ~~and~~cost ~~others to address the current crisis, including the implementation~~ of ~~the~~interest ~~American~~bearing ~~Recovery~~liabilities and ~~Reinvestment~~reduce ~~Act~~the ofoverall ~~2009~~balance sheet.

33The average yield on interest earning assets was 3.98% for 2010 and 3.47% for 2009. Average yields on loans were 4.34 % and 3.67% for 2010 and 2009, respectively. The impact of non recurring interest adjustments from loans placed on nonaccrual status and the collection of interest on nonaccrual loans impacted the yields in both periods. During 2010 some customers cured defaults that brought their loans current. These amounts were partially offset by interest reversed on loans placed on nonaccrual. In addition, an unrecorded 2009 advance on a line of credit for payment of interest was collected through foreclosure in 2010. The following chart shows the impact of these non recurring interest adjustments on the yield on earning assets and the net interest margin for 2010 and 2009.

	For the years ended December 31,
	2010								2009
	Average					Average			Average				Average
(in thousands)	Balance		Interest			Rate			Balance		Interest		Rate

Amounts reflected in financial statements	$	501,895	$	19,994			3.98	%	$	615,145	$	21,349		3.47	%

Effect of non accrual interest (collected) reversed				(169	)							1,856
Effect of interest advance (collected) reversed				(691	)							1,472
Total adjustments				(860	)							3,328

Amounts excluding the effect of nonaccrual interest income/reversals	$	501,895	$	19,134			3.81	%	$	615,145	$	24,677		4.01	%
Adjusted net interest revenue			$	9,174							$	9,925
Adjusted net interest margin							1.83	%						1.61	%

The South Metropolitan Atlanta area and especially the Henry County economy has deteriorated along with the national economy due to depressed housing sales and real estate values as well as significant local job losses due to reductions in construction and land development activity. The downturn experienced in our market area has been greater than that nationally because of the area’s significant dependence on the housing industry to drive the local economy. The chart below shows the significant decline in housing permits for Henry and surrounding counties for the years 2006 through 2009. 39

~~Total~~Net ~~Number~~interest income totaled $6.6 million in 2009, a decrease of ~~Housing~~$9.6 ~~Permits~~million, or 59% from the level recorded in 2008. The net interest margin on average interest-earning assets decreased to 1.07% in 2009 from 2.47% in 2008.

ByTable ~~County~~1-Average Consolidated Balance Sheet and Net Interest Margin Analysis

	2009	2008	2007	2006
Henry	257	895	1,960	3,076
Clayton	94	395	1,144	2,075
Dekalb	321	3,370	4,445	4,791
Newton	55	183	901	1,654
Rockdale	67	154	569	1,009
Total	794	4,997	9,019	12,605

For the Years Ended December 31,

The Company’s performance reflects the impact of slowed economic activity, depressed real estate values, reduced sales and a challenging banking environment. Total nonperforming assets at December 31, 2009 were $151.8 million compared to $116.3 million at December 31, 2008. Even though non-performing assets increased, we continued to aggressively address our non-performing assets in 2009. Net charge-offs increased to $43.6 million in 2009 compared to $14.2 million in 2008 and we added to our allowance for loan losses by increasing our provision for loan losses in 2009 to $39.2 million compared to $24.2 million in 2008. At December 31, 2009, our allowance for loan losses was $13.3 million or 3.06% of loans compared to an allowance for loan losses of $17.7 million or 3.32% of loans at December 31, 2008. During 2009, we also recognized $2.6 million in impairment charges related to recording foreclosed properties at fair value in addition to losses on the sale of foreclosed properties in the amount of $1.2 million. The (amounts ~~charged to operations~~ in ~~these two categories in 2008 were $2.9 million and $300,000 respectively.~~ thousands)

The increase in net charge offs allowed the Company to take advantage of a onetime change in the tax code relating to the treatment of net operating losses. In February of 2009, the American Recovery and Reinvestment Act amended the Internal Revenue Code to allow eligible small businesses to carry back 2008 net operating losses (“NOL’s”) for a period of three, four or five years, instead of the usual two-year limit. In November of 2009, the Worker, Homeownership, and Business Assistance Act expanded this treatment to include NOL’s incurred in 2009 and allowed all businesses, not just eligible small businesses, to make the election. We have elected to carry back our 2009 losses to offset taxable income in the past five years, which will result in a refund of federal and state taxes previously paid of $17.5 million.

	2010								2009								2008
	Average					Average			Average					Average			Average					Average
(in thousands)	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
Assets:
Interest-earning assets:
Loans (1)	$	411,824		$	17,892		4.34	%	$	505,927		$	18,587		3.67	%	$	557,646		$	31,538		5.66	%
Taxable securities (2)		54,777			1,832		3.34	%		64,522			2,370		3.67	%		72,698			3,641		5.01	%
Tax-exempt securities (2)(4)		4,391			156		3.55	%		5,942			300		5.05	%		10,238			355		3.47	%
Overnight investments and other interest-earning assets		30,903			114		0.37	%		38,754			92		0.24	%		12,981			250		1.93	%
Total interest-earning assets		501,895			19,994		3.98	%		615,145			21,349		3.47	%		653,563			35,784		5.48	%
Non-interest-earning assets:
Allowance for loan losses		(13,891	)							(13,980	)							(10,181	)
Cash and due from banks		10,751								13,582								14,633
Other assets (3)		85,346								50,099								37,689
Total assets	$	584,101							$	664,846							$	695,704

Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing deposits:

Filing Compare · HENRY COUNTY BANCSHARES INC