CAPITOL CITY BANCSHARES INC - FORM 10-K - EX-13.1 - CONSOLIDATED FINANCIAL STATEMENTS

Attached files

file	filename
10-K - FORM 10-K - CAPITOL CITY BANCSHARES INC	d10k.htm
EX-31.1 - CERTIFICATION - CAPITOL CITY BANCSHARES INC	dex311.htm
EX-23.1 - CONSENT OF NICHOLS CAULEY & ASSOCIATES, LLC - CAPITOL CITY BANCSHARES INC	dex231.htm
EX-31.2 - CERTIFICATION - CAPITOL CITY BANCSHARES INC	dex312.htm
EX-32.1 - CERTIFICATION - CAPITOL CITY BANCSHARES INC	dex321.htm
EX-21.1 - SUBSIDIARIES OF THE COMPANY - CAPITOL CITY BANCSHARES INC	dex211.htm

Index to Financial Statements

EXHIBIT 13.1

CAPITOL CITY BANCSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL REPORT

DECEMBER 31, 2010

Index to Financial Statements

CAPITOL CITY BANCSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL REPORT

DECEMBER 31, 2010

TABLE OF CONTENTS


	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		1

FINANCIAL STATEMENTS

Consolidated balance sheets		2
Consolidated statements of operations		3
Consolidated statements of comprehensive loss		4
Consolidated statements of stockholders’ equity		5
Consolidated statements of cash flows		6
Notes to consolidated financial statements		7-42

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S REPORT ON SUPPLEMENTAL INFORMATION		43

Consolidating balance sheet		44
Consolidating statement of operations		45

Index to Financial Statements


	NICHOLS, CAULEY & ASSOCIATES, LLC
	NICHOLS, CAULEY & ASSOCIATES, LLC
	A Professional Services Firm of:	REPLY TO:
	Certified Public Accountants	2970 Clairmont RD NE
	Certified Internal Auditors	Atlanta, Georgia 30329- 4440
	Certified Financial Planners®	800-823-1224
	Certified Valuation Analysts ____________________	FAX 404-214-1302 atlanta@nicholscauley.com
Atlanta — Clarkesville — Dublin — Lake Oconee — Warner Robins
	www.nicholscauley.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Capitol City Bancshares, Inc.

Atlanta, Georgia

We have audited the accompanying consolidated balance sheets of Capitol City Bancshares, Inc. and its wholly owned subsidiaries, Capitol City Bank & Trust and Capitol City Home Loans, Inc., as of December 31, 2010 and 2009, and the related consolidated statements of operations, other comprehensive loss, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Capitol City Bancshares, Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company is operating under regulatory orders to, among other items, increase capital and maintain certain levels of minimum capital. As of December 31, 2010, the Company was not in compliance with these capital requirements. In addition to its deteriorating capital position, the Company has suffered significant losses related to nonperforming assets, has experienced declining levels of liquid assets, and has significant maturities of liabilities within the next twelve months. These matters raise substantial doubt about the ability of Capitol City Bancshares, Inc. and subsidiaries to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Nichols, Cauley & Associates, LLC

Atlanta, Georgia

April 13, 2011

Index to Financial Statements

CAPITOL CITY BANCSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2010 AND 2009


	2010			2009
Assets
Cash and due from banks	$	5,345,394		$	7,647,982
Interest-bearing deposits at other financial institutions		454,968			2,621
Federal funds sold		730,000			—
Securities available for sale		37,012,468			52,350,752
Restricted equity securities, at cost		1,025,300			1,047,800

Loans, net of unearned income		235,545,772			240,781,721
Less allowance for loan losses		5,223,764			6,649,261

Loans, net		230,322,008			234,132,460


Premises and equipment, net		9,501,807			10,005,605
Foreclosed real estate		8,917,239			6,332,288
Other assets		1,999,543			5,852,959


Total assets	$	295,308,727		$	317,372,467


Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	24,624,361		$	27,677,541
Interest-bearing		250,657,934			252,404,109

Total deposits		275,282,295			280,081,650
Federal funds purchased		—			4,140,000
Note payable		275,250			275,250
Federal Home Loan Bank advances		5,500,000			10,700,000
Securities sold under repurchase agreements		—			6,414,593
Company guaranteed trust preferred securities		3,403,000			3,403,000
Other liabilities		1,606,277			2,304,631

Total liabilities		286,066,822			307,319,124


Commitments and contingencies

Stockholders’ equity
Series A cumulative, non voting preferred stock, 5,000,000 and 16,078 shares authorized respectively; par value $100, 16,078 shares issued and outstanding		1,607,800			1,607,800
Common stock, par value $1.00, 80,000,000 shares authorized (par value $1.50, 20,000,000 share authorized in 2009); 9,777,656 and 9,673,576 issued and outstanding, respectively		9,777,656			3,627,591
Surplus		75,330			4,015,440
Retained earnings (deficit)		(1,785,317	)		189,563
Accumulated other comprehensive income (loss)		(433,564	)		612,949

Total stockholders’ equity		9,241,905			10,053,343


Total liabilities and stockholders’ equity	$	295,308,727		$	317,372,467

See Notes to Consolidated Financial Statements.

Index to Financial Statements

CAPITOL CITY BANCSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2010 AND 2009


	2010			2009
Interest income:
Loans, including fees	$	14,496,500		$	14,937,323
Deposits in banks		2,731			235
Securities		1,047,834			1,682,508
Federal funds sold		4,998			336

Total interest income		15,552,063			16,620,402


Interest expense:
Deposits		7,212,651			10,122,697
Other borrowings		279,238			248,001

Total interest expense		7,491,889			10,370,698

Net interest income		8,060,174			6,249,704
Provision for loan losses		470,000			9,530,064

Net interest income (loss) after provision for loan losses		7,590,174			(3,280,360	)


Other income:
Service charges on deposit accounts		1,497,587			1,565,715
Other fees and commissions		4,277			45,562
Gains on sales of foreclosed real estate, net		25,810			60,585
Gains on sales of available for sale securities, net		568,337			926,292
Other operating income		508,088			263,253

Total other income		2,604,099			2,861,407

Other expenses:
Salaries and employee benefits		3,555,493			4,092,717
Occupancy and equipment expenses, net		1,183,194			1,207,435
Other operating expenses		5,418,556			6,587,392

Total other expenses		10,157,243			11,887,544

Income (loss) before income tax benefit		37,030			(12,306,497	)

Income tax benefit		—			(1,738,559	)

Net income (loss)		37,030			(10,567,938	)


Preferred stock dividend		(62,155	)		(112,155	)


Net loss available to common shareholders	$	(25,125	)	$	(10,680,093	)


Basic losses per common share	$	—		$	(1.12	)


Diluted losses per common share	$	—		$	(1.12	)

See Notes to Consolidated Financial Statements.

Index to Financial Statements

CAPITOL CITY BANCSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

YEARS ENDED DECEMBER 31, 2010 AND 2009


	2010			2009
Net income (loss)	$	37,030		$	(10,567,938	)


Other comprehensive income (loss):

Unrealized holding gains arising during period, net of tax		(478,176	)		1,401,040

Reclassification adjustment for gains on sale of securities, net of tax		(568,337	)		(926,292	)


Other comprehensive income (loss)		(1,046,513	)		474,748


Comprehensive loss	$	(1,009,483	)	$	(10,093,190	)

See Notes to Consolidated Financial Statements.

Index to Financial Statements

CAPITOL CITY BANCSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 2010 AND 2009


																Accumulated
													Retained			Other			Total
	Preferred Stock				Common Stock								Earnings			Comprehensive			Stockholders’
	Shares		Par Value		Shares		Par Value			Surplus			(Deficit)			Income (Loss)			Equity
Balance, December 31, 2008		10,000	$	1,000,000		2,307,853	$	3,461,780		$	3,166,691		$	10,869,656		$	138,201		$	18,636,328
Net loss		—		—		—		—			—			(10,567,938	)		—			(10,567,938	)
Dividends declared on cumulative preferred stock		—		—		—		—			—			(112,155	)		—			(112,155	)
Issuance of preferred stock		6,078		607,800		—		—			—			—			—			607,800
Issuance of common stock for ESOP		—		—		473		709			4,021			—			—			4,730
Issuance of common stock		—		—		95,732		143,598			813,722			—			—			957,320
Exercise of stock options		—		—		14,336		21,504			31,006			—			—			52,510
Other comprehensive income		—		—		—		—			—			—			474,748			474,748

Balance, December 31, 2009		16,078	$	1,607,800		2,418,394		3,627,591			4,015,440			189,563			612,949			10,053,343
Net income		—		—		—		—			—			37,030			—			37,030
Dividends declared on cumulative preferred stock		—		—		—		—			—			(62,155	)		—			(62,155	)
Issuance of common stock for ESOP		—		—		2,300		2,300			3,450			—			—			5,750
Issuance of common stock		—		—		61,385		68,118			186,332			—			—			254,450
Reclassification due to reduction in par		—		—		—		(1,215,930	)		1,215,930			—			—			—
Reclassification due to 4-1 stock split		—		—		7,295,577		7,295,577			(5,345,822	)		(1,949,755	)		—			—
Other comprehensive loss		—		—		—		—			—			—			(1,046,513	)		(1,046,513	)

Balance, December 31, 2010		16,078	$	1,607,800		9,777,656	$	9,777,656			75,330		$	(1,785,317	)	$	(433,564	)	$	9,241,905

See Notes to Consolidated Financial Statements.

Index to Financial Statements

CAPITOL CITY BANCSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2010 AND 2009


	2010			2009
OPERATING ACTIVITIES
Net income (loss)	$	37,030		$	(10,567,938	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization, and accretion		1,298,390			1,389,896
Provision for loan losses		470,000			9,530,064
Deferred taxes		—			1,474,405
Gain on sale of foreclosed real estate		(25,810	)		(60,585	)
Net gain on sale of securities available for sale		(568,337	)		(926,292	)
Gain on sale of premises and equipment		—			(334	)
Other than temporary impairment charge		125,125			—
Increase in dividends payable on preferred stock		(62,155	)		(62,155	)
Decrease in interest receivable		865,796			1,038,847
Decrease in interest payable		(912,489	)		(48,518	)
Net other operating activities		3,272,621			(306,813	)


Net cash provided by operating activities		4,500,171			1,460,577


INVESTING ACTIVITIES
Purchases of securities available for sale		(45,021,066	)		(73,771,057	)
Proceeds from maturities of securities available for sale		11,919,797			9,885,804
Proceeds from sales of securities available for sale		47,105,286			60,301,909
Redemptions (purchases) of restricted equity securities		22,500			(400,100	)
Net increase in federal funds sold		(730,000	)		—
Net (increase) decrease in loans		368,729			(20,939,193	)
Proceeds from sale of foreclosed real estate		341,716			395,535
Net (increase) decrease in interest-bearing deposits
at other financial institutions		(452,347	)		141,642
Purchase of premises and equipment		(63,626	)		(214,922	)
Proceeds from sale of premises and equipment		—			20,525


Net cash provided by (used in) investing activities		13,490,989			(24,579,857	)


FINANCING ACTIVITIES
Net increase (decrease) in deposits		(4,799,355	)		10,156,609
Net increase (decrease) in securities sold under repurchase agreement		(6,414,593	)		3,914,593
Net increase (decrease) in Federal Home Loan Bank advances		(5,200,000	)		8,700,000
Net increase (decrease) in federal funds purchased		(4,140,000	)		2,365,000
Payment of dividends on preferred stock		—			(50,000	)
Repayment of note payable		—			(91,750	)
Proceeds from issuance of preferred stock		—			607,800
Proceeds from issuance of common stock from secondary stock offering		254,450			957,320
Proceeds from issuance of common stock under ESOP plan		5,750			4,730
Proceeds from exercise of stock options		—			52,510


Net cash provided by (used in) financing activities		(20,293,748	)		26,616,812


Net increase (decrease) in cash and due from banks		(2,302,588	)		3,497,532

Cash and due from banks at beginning of year		7,647,982			4,150,450


Cash and due from banks at end of year	$	5,345,394		$	7,647,982


SUPPLEMENTAL DISCLOSURES
Cash paid (received) for:
Interest	$	8,404,378		$	10,419,216
Income taxes	$	(3,208,698	)	$	(896,551	)

NONCASH TRANSACTIONS
Principal balances of loans transferred to foreclosed real estate	$	4,477,714		$	7,264,660
Financed sales of foreclosed real estate	$	1,505,991		$	1,269,163

See Notes to Consolidated Financial Statements.

Index to Financial Statements

CAPITOL CITY BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Capitol City Bancshares, Inc. (the “Company”) is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiaries, Capitol City Bank & Trust (the “Bank”) and Capitol City Home Loans. Inc. (the “mortgage company”). The Bank is a commercial bank located in Atlanta, Fulton County, Georgia with two branches located in Atlanta, one located at Hartsfield Jackson International Airport, one branch located in Stone Mountain, one branch located in Albany, one branch located in Savannah, and one branch located in Augusta, Georgia. The Bank provides a full range of banking services in its primary market areas of Fulton County and the metropolitan Atlanta area, Dougherty County, Chatham County, and Richmond County. In addition to its geographical market area, the Bank actively markets to minority groups throughout the southeastern United States.

Basis of Presentation and Accounting Estimates

The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany transactions and balances have been eliminated in consolidation.

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, fair market value of financial instruments, the valuation of foreclosed real estate and deferred tax assets.

The Company has evaluated all transactions, events, and circumstances for consideration or disclosure through April 13, 2011, the date these financial statements were issued, and has reflected or disclosed those items within the consolidated financial statements and related footnotes as deemed appropriate.

Cash, Due From Banks and Cash Flows

For purposes of reporting cash flows, cash and due from banks include cash on hand, cash items in process of collection and amounts due from banks. Cash flows from loans, interest-bearing deposits at other financial institutions, federal funds sold, Federal Home Loan Bank advances, deposits and securities sold under repurchase agreements are reported net.

The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. The total of those reserve balances was approximately $406,000 and $528,000 at December 31, 2010 and 2009, respectively.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash, Due From Banks and Cash Flows (Continued)

The Bank also maintains certain cash deposits at the Federal Home Loan Bank which are used to secure borrowings and are, therefore, restricted. At December 31, 2010 and 2009, those restricted balances were $2,315,500.

Securities

Securities, including equity securities and trust preferred securities with readily determinable fair values, are classified as available for sale and recorded at fair value with unrealized gains and losses excluded from earnings and reported in the statements of comprehensive income (loss), net of the related deferred tax effect. Equity securities without a readily determinable fair value are classified as available for sale and recorded at cost. The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the life of the securities. Realized gains and losses, determined on the basis of the cost of specific securities sold, are included in earnings. Declines in the fair value of securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses.

Accounting guidance related to other-than-temporary impairments of debt securities (FASB ASC 320-10) requires that, when considering whether losses on debt and equity securities are other-than-temporary, management consider whether a credit loss has occurred on the security. If management does not intend to sell the security and it is more likely than not that they will not have to sell the security before recovery of the cost basis, management will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.

Trust preferred securities are financial instruments that combine the characteristics of both equity instruments and debt instruments. These securities are non-callable for five years or more with original maturities of 30 years or greater similar to debt instruments; however, the securities are subordinated to the issuer’s senior liabilities similar to equity instruments. As an investment, trust preferred securities offer relatively high yields when compared to other types of issues with similar maturities.

Restricted Equity Securities

The Company is required to maintain an investment in capital stock of the Federal Home Loan Bank. Based on redemption provisions of this entity, the stock has no quoted market value and is carried at cost. At its discretion, the Federal Home Loan Bank may declare dividends on the stock. Management reviews for impairment based on the ultimate recoverability of the cost basis in this stock.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances less unearned income, net deferred fees and costs on originated loans, and the allowance for loan losses. Interest income is accrued based on the outstanding principal balance.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans (Continued)

Loan origination fees that approximate the direct cost of loans originated are recognized at the time the loan is recorded. Loan origination fees for other loans are deferred and recognized into income over the life of the loans as an adjustment of the yield.

The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due, unless the loan is well-secured. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income, unless management believes that the accrued interest is recoverable through the liquidation of collateral. Interest income on nonaccrual loans is recognized on the cash-basis or cost-recovery method, until the loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

A loan is considered impaired when it is probable, based on current information and events; the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Impaired loans are measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes the collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of loans in light of historical experience, the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions that may affect the borrower’s ability to pay, estimated value of underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses, and may require the Company to make changes to the allowance based on their judgment about information available to them at the time of their examinations.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Loan Losses (Continued)

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For impaired loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

The general components cover unimpaired loans and are based on historical loss experience adjusted for qualitative factors, such as the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Unsecured loans – Loans in this segment are any loans, whether guaranteed, endorsed or co-made, that are not fully collateralized. The overall health of the economy, including unemployment rates will have an effect on the credit quality in the segment.

Cash value loans – Loans in this segment are fully secured by cash or cash equivalents.

Residential real estate loans – Loans in this segment include all mortgages and other liens on residential real estate, as well as vacant land designated as residential real estate. Loans in this segment are dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rate will have an effect on the credit quality in the segment.

Commercial real estate loans – Loans in this segment includes all mortgages and other liens on commercial real estate. The underlying cash flows generated by the properties are adversely impacted by a downtown in the economy as evidences by increased vacancy rates, which in turn will have an effect on the credit quality in this segment.

Business assets loans – Loans in this segment are made to businesses and are generally secured by business assets, equipment, inventory and accounts receivable. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending will have an effect on the credit quality in this segment.

Vehicle loans – Loans in this segment are made to individuals and are secured by motor vehicles. Loans in this segment are dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rate will have an effect on the credit quality in the segment.

Other loans – Loans in this segment are generally secured consumer loans, but include all loans that do not belong in one of the other segments. Loans in this segment are dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rate will have an effect on the credit quality in the segment.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Premises and Equipment

Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets. The range of estimated useful lives for premises and equipment are:


Buildings and improvements			10-40 years
Furniture and equipment			2-10 years

Foreclosed Real Estate

Foreclosed real estate acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less selling costs. Any write-down to fair value at the time of transfer to foreclosed real estate is charged to the allowance for loan losses. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Costs of improvements are capitalized, whereas costs relating to holding foreclosed real estate and subsequent adjustments to the value are expensed.

Income Taxes (Benefits)

The Company accounts for income taxes in accordance with income tax accounting guidance (FASB ASC 740, Income Taxes). This guidance sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions.

The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets may be reduced by deferred tax liabilities and a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes (Benefits) (Continued)

In accordance with ASC 740-10 Income Taxes it is the Bank’s policy to recognize interest and penalties associated with uncertain tax positions as components of income taxes and to disclose the recognized interest and penalties, if material. Management has evaluated all tax positions that could have a significant effect on the financial statements and determined the Bank had no uncertain tax positions at December 31, 2010. Further, all years subsequent to 2007 remain subject to evaluation.

Profit-Sharing Plan

Profit-sharing plan contributions are based on a percentage of individual employee’s salary, not to exceed the amount that can be deducted for Federal income tax purposes.

Stock-Based Compensation Plans

At December 31, 2010, the Company has a stock-based employee/director compensation plan which is more fully described in Note 13 of the consolidated financial statements.

Stock compensation accounting guidance (FASB ASC 718, Compensation—Stock Compensation) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.

The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Scholes model is used to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards and stock grants.

All outstanding options were fully vested and there were no options granted during the years ended December 31, 2010 and 2009. Therefore, there was no compensation cost related to share-based payments for the years ended December 31, 2010 and 2009.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings (Losses) Per Share

Basic earnings (losses) per share are computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the year. Diluted earnings (losses) per share are computed by dividing net income (loss) by the sum of the weighted-average number of shares of common stock outstanding and diluted potential common shares. Potential common shares consist of all outstanding stock options. Potential dilutive shares is determined using the treasury stock method.

Financial Instruments

In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.

Fair Values of Financial Instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Quoted market prices, if available, are utilized as estimates of the fair values of financial instruments. Since no quoted market prices exist for a significant part of the Company’s financial instruments, the fair values of such instruments have been derived based on management’s assumptions, the estimated amount and timing of future cash flows, and estimated discount rates.

The estimation methods for individual classifications of financial instruments are described in Note 21. Different assumptions could significantly affect these estimates. Accordingly, net realizable values could be materially different from the estimates presented. In addition, the estimates are only indicative of the value of individual financial instruments and should not be considered an indication of the fair value of the combined Company.

Comprehensive Loss

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income (loss). Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income (loss), are components of comprehensive loss.

Advertising

The Company expenses advertising costs as incurred. For the years ended December 31, 2010 and 2009, advertising expense was $52,415 and $87,399, respectively.

Reclassifications

Certain reclassifications have been made to the December 31, 2009 financial statements in order to be better compared to the December 31, 2010 financial statements.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Improving Disclosures about Fair Value Measurements (“ASU No. 2010-06”). ASU No. 2010-06 amends FASB ASC Topic 820-10-50, Fair Value Measurements and Disclosures, to require additional information to be disclosed principally regarding Level 3 measurements and transfers to and from Level 1 and 2. In addition, enhanced disclosure is required concerning inputs and valuation techniques used to determine Level 2 and Level 3 measurements. This guidance is generally effective for interim and annual reporting periods beginning after December 15, 2009; however, requirements to disclose separately purchases, sales, issuances, and settlements in the Level 3 reconciliation are effective for fiscal years beginning after December 15, 2010 (and for interim periods within such years). ASU No. 2010-06 is not expected to have a material impact on the Company’s results of operations or financial position, and will have a minimal impact on its disclosures.

The FASB issued Accounting Standards Update No. 2010-09, Subsequent Events: Amendments to Certain Recognition and Disclosure Requirements, during February 2010. The Update removes some contradictions between the requirements of GAAP and the filing rules of the Securities and Exchange Commission (“SEC”). The revised guidance requires entities which are neither (1) an SEC filer nor (2) a conduit bond obligor for conduit debt securities which are traded in a public market, to evaluate subsequent events through the date the financial statements are available to be issued. SEC filers are required to evaluate subsequent events through the date the financial statements are issued, and they are no longer required to disclose the date through which subsequent events have been evaluated. This guidance was effective upon issuance except for the use of the issued date for conduit debt obligors, and it is not expected to have a material impact on the Company’s results of operations, financial position, or disclosures.

In April 2010, the FASB issued Accounting Standards Update No. 2010-18, Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset (“ASU No. 2010-18”). ASU No. 2010-18 provides guidance on the accounting for loan modifications when the loan is part of a pool of loans accounted for as a single asset such as acquired loans that have evidence of credit deterioration upon acquisition which are accounted for under the guidance in ASC 210-30. ASU No. 2010-18 addresses diversity in practice on whether a loan that is part of a pool of loans accounted for as a single asset should be removed from that pool upon a modification that would constitute a troubled debt restructuring or remain in the pool after modification. ASU No. 2010-18 clarifies that modifications of loans that are accounted for within a pool under ASC 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if the expected cash flows of the pool change. The amendments in this update do not require any additional disclosures and are effective for modifications of loans accounted for within pools under ASC 310-30 occurring in the first annual period ending on or after July 15, 2010. ASU 2010-18 did not have a material impact on the Company’s results of operations, financial position, or disclosures.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)

In July 2010, the FASB issued Accounting Standards Update No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU NO. 2010-20”). ASU NO. 2010-20 requires disclosures regarding loans and the allowance for loan losses that are disaggregated by portfolio segment and class of financing receivable. Existing disclosures were amended to require a roll forward of the allowance for loan losses by portfolio segment, with the ending balance broken out by basis of impairment method, as well as the recorded investment in the respective loans. Nonaccrual and impaired loans by class must also be shown. ASU No. 2010-20 also requires disclosures regarding: 1) credit quality indicators by class, 2) aging of past due loans by class, 3) troubled debt restructurings (“TDRs”) by class and their effect on the allowance for loan losses, 4) defaults on TDRs by class and their effect on the allowance for loan losses, and 5) significant purchases and sales of loans disaggregated by portfolio segment. This guidance is effective for interim and annual reporting periods ending on or after December 15, 2010, for end of period type disclosures. Activity related disclosures are effective for interim and annual reporting periods beginning on or after December 15, 2010. ASU No. 2010-20 will have an impact on the Company’s disclosures, but not its financial position or results of operations.

The FASB issued Accounting Standards Update No. 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (“ASU No. 2011-01), during January 2011. ASU 2011-01 temporarily delays the effective date of troubled debt restructuring disclosures required by ASU 2010-20 for public companies. The disclosures regarding troubled debt restructurings will be effective for interim and annual periods ending after June 15, 2011. ASU No. 2011-01 will have an impact on the Company’s disclosures, but not its financial position or results of operations.

NOTE 2.

GOING CONCERN AND MANAGEMENT’S PLAN OF ACTION

The Company’s financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company experienced losses from operations during 2008 and 2009 and had minimal net income in 2010. The Company’s ability to continue as a going concern is contingent upon its ability to obtain the capital necessary to sustain profitable operations, implementing a management plan to develop a profitable operation, overcoming and satisfying the requirements of the regulatory order detailed in Note 20, and lowering the level of problem assets to an acceptable level.

In this regard, management has developed a capital plan, which includes, but is not limited to: (1) actively working to reduce assets as well as the overall concentrations in acquisition, development, and construction lending and commercial real estate lending, (2) reducing adversely classified assets, (3) maintaining a Tier 1 leverage capital ratio of not less than 8%, (4) maintaining a total risk-based capital ratio of not less than 10%, (5) maintaining an adequate allowance for loan losses, (6) actively working to improve its liquidity while reducing its reliance on wholesale deposit funding and increasing core deposit levels, and (7) continuing to sell the Company’s common stock through the secondary offering discussed in Note 15.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.

RISK FACTORS

The Company’s operations are affected by various risk factors, including interest rate risk, credit risk, liquidity risk, and risk from geographic concentration in lending, real estate, marketing, and sales activities. Management attempts to manage interest rate risk through various asset/liability management techniques designed to match maturities of assets and liabilities. Loan policies and administration are designed to provide assurance that loans will only be granted to credit-worthy borrowers, although credit losses are expected to occur because of subjective factors and factors beyond the control of the Company.

The Company’s operations are significantly dependent upon economic conditions and related uncertainties.

The Company is affected, directly and indirectly, by domestic and international economic and political conditions and by governmental monetary and fiscal policies. Conditions such as inflation, recession, unemployment, volatile interest rates, real estate values, government monetary policy, international conflicts, the actions of terrorists, drought, natural disasters, and other factors beyond the Company’s control may adversely affect the results of operations. Changes in interest rates, in particular, could adversely affect the net interest income and could have many other adverse effects on operations. Adverse economic conditions also could result in an increase in loan delinquencies, foreclosures, nonperforming assets, and a decrease in the value of the property or other collateral which secures the loans, all of which could adversely affect the results of operations. The Company is particularly sensitive to changes in economic conditions and related uncertainties in Georgia because the Company derives substantially all of its loans, deposits, and other business from this area. Accordingly, the Company remains subject to the risks associated with prolonged declines in national and local economies.

The Company is subject to extensive federal and state governmental supervision and regulation intended primarily for the protection of depositors. In addition, the Company is subject to changes in federal and state laws, as well as changes in regulations, governmental policies and accounting principles. The effects of any such potential changes cannot be predicted, but could adversely affect the Company’s future business and operations.

The Company is subject to vigorous competition in all aspects and areas of business from banks and other financial institutions, including savings and loan associations, savings banks, finance companies, credit unions, and other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies, and insurance companies. The Company also competes with non-financial institutions, including retail stores that maintain their own credit programs and governmental agencies that make available low cost or guaranteed loans to certain borrowers. Certain competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems, and a wider array of commercial banking services.

The Bank is a community bank and as such, is mandated by the Community Reinvestment Act and other regulations to conduct most of its lending activities within the geographic area where it is located. As a result, the Bank and its borrowers may be especially vulnerable to the consequences of changes in the local economy.

In addition, the Bank conducts business daily with correspondent banks. These banks are not immune to financial difficulties. Regulation F “Limitations on Interbank Liabilities” requires the Bank to establish and maintain written policies and procedures to prevent excessive exposure to any individual correspondent in relation to the financial condition of the correspondent. Actions resulting from the TLGP have reduced the risk somewhat, but the Bank will be vulnerable to the financial difficulties of its major correspondent banks.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.

SECURITIES

The amortized cost and fair value of securities with gross unrealized gains and losses are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2010:
U.S. Government sponsored enterprises (GSEs)	$	582,112	$	1,579	$	—		$	583,691
Mortgage-backed securities GSE residential		33,832,986		88,554		(378,370	)		33,543,170
State and municipal securities		2,353,058		—		(145,326	)		2,207,732
Trust preferred securities		627,875		—		—			627,875

Total debt securities		37,396,031		90,133		(523,696	)		36,962,468
Equity securities		50,000		—		—			50,000

Total securities	$	37,446,031	$	90,133	$	(523,696	)	$	37,012,468


December 31, 2009:
U.S. Government sponsored enterprises (GSEs)	$	5,277,930	$	$50,068	$	(17,639	)	$	5,310,359
Mortgage-backed securities GSE residential		45,656,874		631,375		(50,856	)		46,237,393
Trust preferred securities		753,000		—		—			753,000

Total debt securities		51,687,804		681,443		(68,495	)		52,300,752
Equity securities		50,000		—		—			50,000

Total securities	$	51,737,804	$	681,443	$	(68,495	)	$	52,350,752

The amortized cost and fair value of debt securities as of December 31, 2010 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized Cost		Fair Value
Due from five to ten years	$	1,552,504	$	1,504,499
Due after ten years		2,010,541		1,914,799
Mortgage-backed securities		33,832,986		33,543,170

	$	37,396,031	$	36,962,468

Securities with a carrying value of $18,790,667 and $16,146,413 at December 31, 2010 and 2009, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Proceeds from sales of securities available for sale for the years ended December 31, 2010 and 2009 totaled $47,105,286 and $60,301,909, respectively. Gross gains and losses of $569,225 and $(888), respectively, were realized on the sales for the year ended December 31, 2010. Gross gains and losses of $1,010,314 and $(84,022), respectively, were realized on the sales for the year ended December 31, 2009.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.

SECURITIES (Continued)

Temporarily Impaired Securities

The following table shows the gross unrealized losses and fair value of securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that securities have been in a continuous unrealized loss position at December 31, 2010 and 2009.


	Less Than Twelve Months					Twelve Months or More				Total Unrealized Losses
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Total Unrealized Losses
December 31, 2010:
Mortgage-backed GSE residential	$	24,689,777	$	(378,370	)	$	—	$	—	$	(378,370	)
State and municipal		2,207,732		(145,326	)		—		—		(145,326	)

	$	26,897,509	$	(523,696	)	$	—	$	—	$	(523,696	)


December 31, 2009:
U.S. GSEs	$	3,004,868	$	(17,639	)	$	—	$	—	$	(17,639	)
Mortgage-backed GSE residential		5,519,435		(50,856	)		—		—		(50,856	)

	$	8,524,303	$	(68,495	)	$	—	$	—	$	(68,495	)

GSE residential mortgage-backed securities. There were unrealized losses on seventeen GSE mortgage-backed securities resulting from temporary changes in the interest rate market. The Company purchased those investments at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2010.

State and municipal securities. There were unrealized losses on five state and municipal securities resulting from temporary changes in the interest rate market. Because the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2010.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.

SECURITIES (Continued)

Other-Than-Temporary Impairment

The Company conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred. While all securities are considered, the securities primarily impacted by other-than-temporary impairment considerations have been certain securities included in equity securities and corporate bonds. For each security in the investment portfolio, a regular review is conducted to determine if an other-than-temporary impairment has occurred. Various factors are considered to determine if an other-than-temporary impairment has occurred. However, the most significant factors are default rates or interest deferral rates and the creditworthiness of the issuer. Other factors may include geographic concentrations, credit ratings, and other performance indicators of the underlying asset.

During the first and third quarters of 2010, the Company recorded other than temporary impairment charges of $97,500 and $27,625, respectively, on its investment in a trust preferred security. As of December 31, 2009, the value of the trust preferred security for which other than temporary impairment was recognized was $650,000. Management determined the value of this security declined significantly due to declines in its underlying collateral. The security has a new cost basis of approximately $524,875.

NOTE 5. LOANS

The composition of loans is summarized as follows:


	December 31,
	2010			2009
Unsecured	$	882,795		$	1,073,118
Cash value		4,824,758			5,391,247
Residential real estate		38,447,647			36,964,577
Commercial real estate		186,281,923			189,190,557
Business assets		3,386,296			6,277,939
Vehicles		2,585,997			2,973,019
Other		106,559			108,850

		236,515,975			241,979,307
\Net deferred loan fees and costs		(970,203	)		(1,197,586	)
Allowance for loan losses		(5,223,764	)		(6,649,261	)

Loans, net	$	230,322,008		$	234,132,460

For purposes of the disclosures required pursuant to the adoption of amendments to ASC 310, the loan portfolio was disaggregated into segments. A portfolio segment is defined as the level at which the entity develops and documents a systematic method for determining its allowance for loan losses. There are seven loan portfolio segments that include unsecured, cash value, residential real estate, commercial real estate, business assets, vehicles, and other.

Unsecured

Loans in this segment are any loans, whether guaranteed, endorsed or co-made, that are not fully collateralized. Unsecured loans are subject to the lending policies and procedures described in Note 1. Total unsecured loans as of December 31, 2010 were 0.3% of the total loan portfolio.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.

LOANS (Continued)

Cash Value

These are loans fully secured by cash or cash equivalents. Cash value loans are subject to the lending policies and procedures described in Note 1. Total cash value loans as of December 31, 2010 were 2.0% of the total loan portfolio.

Residential Real Estate

These loans include all mortgages and other liens on residential real estate, as well as vacant land designated as residential real estate. Residential real estate loans are subject to the lending policies and procedures described in Note 1. Total residential real estate loans as of December 31, 2010 were 16.3% of the total loan portfolio.

Commercial Real Estate

The commercial real estate portfolio represents the largest category of the Company’s loan portfolio. These loans include all mortgages and other liens on commercial real estate. Commercial real estate loans are subject to the lending policies and procedures described in Note 1. Total commercial real estate loans as of December 31, 2010 were 78.8% of the total loan portfolio.

Business Assets

Loans in this segment are made to businesses and are generally secured by business assets, equipment, inventory, and accounts receivable. Business assets loans are subject to the lending policies and procedures described in Note 1. Total business assets loans as of December 31, 2010 were 1.4% of the total loan portfolio.

Vehicles

Loans in this segment are secured by motor vehicles. Vehicle loans are subject to the lending policies and procedures described in Note 1. Total vehicle loans as of December 31, 2010 were 1.1% of the total loan portfolio.

Other

Loans in this segment are generally secured by consumer loans, but include all loans that do not belong in one of the other segments. Other loans are subject to the lending policies and procedures described in Note 1. Total other loans as of December 31, 2010 were 0.1% of the total loan portfolio.

Changes in the allowance for loan losses are as follows:


	Years Ended December 31,
	2010			2009
Balance, beginning of year	$	6,649,261		$	4,368,690
Provision for loan losses		470,000			9,530,064
Loans charged off		(2,165,634	)		(7,354,748	)
Recoveries of loans previously charged off		270,137			105,255

Balance, end of year	$	5,223,764		$	6,649,261

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.

LOANS (Continued)

The allowance for loan losses for the year ended December 31, 2010, by portfolio segment, is as follows (in thousands):


	Unsecured			Cash Value			Residential Real Estate			Commercial Real Estate			Business Assets			Vehicles			Other			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	121,061		$	68,835		$	2,945,465		$	2,821,151		$	483,536		$	209,172		$	41		$	—	$	6,649,261
Charge-offs		(48,444	)		(2,840	)		(1,107,937	)		(989,904	)		—			(16,509	)		—			—		(2,165,634	)
Recoveries		30,594			—			11,184			195,909			32,450			—			—			—		270,137
Provision		(40,191	)		(60,785	)		410,121			207,769			(199,142	)		(50,904	)		(36	)		203,168		470,000

Ending balance	$	63,020		$	5,210		$	2,258,833		$	2,234,925		$	316,844		$	141,759		$	5		$	203,168	$	5,223,764

Ending balance - individually evaluated for impairment	$	4,535		$	—		$	638,268		$	989,599		$	255,338		$	122,269		$	—		$	—	$	2,010,009

Loans:
Ending balance	$	882,795		$	4,824,758		$	38,447,647		$	186,281,923		$	3,386,296		$	2,585,997		$	106,559		$	—	$	236,515,975

Ending balance - individually evaluated for impairment	$	83,801		$	—		$	18,707,869		$	29,430,587		$	1,940,334		$	238,945		$	—		$	—	$	50,401,536

A loan is considered impaired, in accordance with the impairment accounting guidance (FASB ASC 310-10-35-16), when based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual term of the loan. Impaired loans include loans modified in troubled debt restructuring where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

Included in the loan categories above are loans considered troubled debt restructurings. At December 31, 2010, the Company had loans totaling $12,614,321 that were modified in a troubled debt restructuring and impaired. In addition to these restructures, the Company had troubled debt restructurings that were performing in accordance with their modified terms totaling $7,193,074.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.

LOANS (Continued)

The following is a summary of information pertaining to impaired loans, nonaccrual loans, and loans past due ninety days or more.


	As of and for the Years Ended December 31,
	2010		2009
Impaired loans without a valuation allowance	$	41,280,542	$	24,918,578
Impaired loans with a valuation allowance		9,120,994		11,698,424

Total impaired loans	$	50,401,536	$	36,617,002

Valuation allowance related to impaired loans	$	2,010,009	$	3,176,734

Average investment in impaired loans	$	43,509,270	$	26,142,140

Interest income recognized on impaired loans	$	1,734,686	$	1,883,767

Nonaccrual loans	$	29,546,836	$	22,511,415

Loans past due ninety days or more and still accruing	$	619,895	$	2,257

No additional funds are committed to be advanced in connection with impaired loans.

Impaired loans as of December 31, 2010, by portfolio segment, are as follows:


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Unsecured	$	76,446	$	76,446	$	—	$	39,789
Cash value		—		—		—		—
Residential real estate		17,387,990		17,387,990		—		14,234,958
Commercial real estate		22,062,076		22,062,076		—		17,924,953
Business assets		1,673,333		1,673,333		—		859,512
Vehicles		80,697		80,697		—		40,348
Other		—		—		—		—

With a related allowance recorded:
Unsecured		7,355		7,355		4,535		32,768
Cash value		—		—		—		45,829
Residential real estate		1,319,879		1,319,879		638,268		2,329,487
Commercial real estate		7,368,511		7,368,511		989,599		7,688,210
Business assets		267,001		267,001		255,338		166,326
Vehicles		158,248		158,248		122,269		147,090
Other		—		—		—		—

Total:
Unsecured		83,801		83,801		4,535		72,556
Cash value		—		—		—		45,829
Residential real estate		18,707,869		18,707,869		638,268		16,564,446
Commercial real estate		29,430,587		29,430,587		989,599		25,613,162
Business assets		1,940,334		1,940,334		255,338		1,025,838
Vehicles		238,945		238,945		122,269		187,439
Other		—		—		—		—

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.

LOANS (Continued)

A primary credit quality indicator for financial institutions is delinquent balances. Following are the delinquent amounts, by portfolio segment, as of December 31, 2010:


	Current		30-89 Days		Greater Than 90 Days		Total Accruing Past Due		Non-Accrual		Total Financing Receivables
Unsecured	$	748,934	$	86,414	$	—	$	86,414	$	47,447	$	882,795
Cash value		4,790,927		33,831		—		33,831		—		4,824,758
Residential real estate		25,093,331		3,101,601		610,925		3,712,526		9,641,790		38,447,647
Commercial real estate		159,067,792		8,305,542		—		8,305,542		18,908,589		186,281,923
Business assets		2,181,829		571,309		—		571,309		633,158		3,386,296
Vehicles		2,174,963		86,212		8,970		95,182		315,852		2,585,997
Other		106,559		—		—		—		—		106,559

	$	195,164,335	$	12,184,909	$	619,895	$	12,804,804	$	29,546,836	$	236,515,975

The Company uses an eight-grade internal loan rating system for its loan portfolio as follows:

Grade 1—Prime (Excellent)

Loans to borrowers with unquestionable financial strength and a solid earning history. This category includes national, international, regional, local entities, and individuals with commensurate capitalization, profitability, income, or ready access to capital markets as well as loans collateralized by cash equivalents. These loans are considered substantially risk free.

Grade 2—Good (Superior)

Loans which exhibit a strong earnings record, and liquidity and leverage ratios that compare favorably with the industry. There are excellent prospects for continued growth. This category also includes those loans secured within margins with marketable collateral. Limited risk. The elements for risk for these borrowers are slightly greater than those associated with risk grade Prime.

Grade 3—Acceptable (Average)

Loans to borrowers with a satisfactory financial condition, liquidity, and earnings history which indications that the trend will continue. Working capital is considered adequate and income is sufficient to repay debt as scheduled. Handles normal credit needs in a satisfactory manner.

Grade 4—Fair (Watch)

Loans to borrowers which may show at least one of the following: start-up operation or venture capital, financial condition, adverse events which have not yet become trends such as sporadic profitability, occasional overdrafts, instances of slow pay, documentation deficiencies. Borrower may also exhibit substantial grantor support. Debt is being handled as agreed, and the primary source of repayment remains available. Circumstances may warrant more than normal monitoring, but are not serious enough to warrant criticism of classification.

Grade 5—Special Mention

Loans with potential weaknesses which may, if not checked and corrected, would weaken the assets or inadequately protect the Bank’s credit position at some future date. These loans may require resolution of specific pending events before the associated risk can be adequately evaluated. These are criticized loans.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.

LOANS (Continued)

Grade 6—Substandard

Loans, which are inadequately protected by the net worth and cash flow capacity of the borrower or the collateral pledged. The credit risk in this situation relates to the possibility of some loss of principal or interest if the deficiencies are not corrected. These loans are considered classified.

Grade 7—Doubtful

Loans, which are inadequately protected by the net worth of the borrower or the collateral pledged and repayment in full is improbable on the basis of existing facts, values and conditions. The possibility of loss is high, but because of certain important and reasonable specific pending factors, which may work to the advantage and strengthening of the facility, its classification as an estimated loss is deferred until its more exact status may be determined. These loans are considered classified, as value is impaired. A full or partial reserve is warranted.

Grade 8—Loss

Loans, which are considered uncollectible and continuance as an unacceptable asset are not warranted. These loans are considered classified and are either charged off or fully reserved against.

The following table presents the Company’s loans by risk rating at December 31, 2010:


Rating:	Unsecured		Cash Value		Residential Real Estate		Commercial Real Estate		Business Assets		Vehicles		Other		Total
Grade 1 (Prime)	$	—	$	44,674	$	—	$	—	$	—	$	—	$	—	$	44,674
Grade 2 (Superior)		22,945		70,500		—		371,277		—		42,733		—		507,455
Grade 3 (Acceptable-Average)		538,193		4,006,005		14,756,707		134,777,727		844,321		1,770,983		—		156,693,936
Grade 4 - Fair (Watch)		34,410		703,579		2,717,276		9,840,462		1,707,272		355,056		106,559		15,464,614
Grade 5 - (Special Mention)		68,892		—		2,741,872		4,143,158		—		30,812		—		6,984,734
Grade 6 (Substandard)		218,355		—		17,787,787		36,936,982		834,703		381,283		—		56,159,110
Grade 7 (Doubtful)		—		—		444,005		—		—		5,130		—		449,135
Grade 8 (Loss)		—		—		—		212,317		—		—		—		212,317

	$	882,795	$	4,824,758	$	38,447,647	$	186,281,923	$	3,386,296	$	2,585,997	$	106,559	$	236,515,975

In the ordinary course of business, the Company has granted loans to certain related parties including directors, executive officers, and their affiliates. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan. Changes in related party loans for the year ended December 31, 2010 are as follows:


Balance, beginning of year	$	6,624,193
Advances		1,228,353
Repayments		(378,300	)
Change in related parties		(4,447,390	)

Balance, end of year	$	3,026,856

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.

PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:


	December 31,
	2010			2009
Land	$	1,344,962		$	1,344,962
Buildings and improvements		8,931,190			8,824,422
Furniture and equipment		4,358,396			4,401,538

		14,634,548			14,570,922
Accumulated depreciation		(5,132,741	)		(4,565,317	)

	$	9,501,807		$	10,005,605

Depreciation expense was $567,424 and $601,847 for the years ended December 31, 2010 and 2009, respectively.

Leases

The Company has an operating sublease agreement for the rental of a branch banking facility at Hartsfield Jackson Atlanta International Airport. The sublease agreement covers approximately 475 square feet of space located in the main terminal of the airport. The sublessor agreed to pay all of the Company’s obligations under the sublease with the exception of the Company’s pro rata share of actual maintenance and operating costs for the Bank center (currently estimated at $25 per square foot per year). The lease calls for lease payments of $1,000 per month and has a term of five years.

The Company also has an operating lease agreement for the rental of a branch banking facility in Albany, Georgia. The lease calls for lease payments of $1,000 per month and has a lease term of four years. There is also an option to extend this lease for an additional two years at the end of this term.

The following represents the minimum monthly lease payments under noncancelable operating leases:


2011	$	24,000
2012		6,000

	$	30,000

Total rental expense for the years ended December 31, 2010 and 2009 was $66,632 and $68,163, respectively.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7.

FORECLOSED REAL ESTATE

A summary of foreclosed real estate are presented as follows:


	Years Ended December 31,
	2010			2009
Balance, beginning of year	$	6,332,288		$	2,220,082
Additions		4,477,714			7,264,660
Capitalized expenses		3,858			304,579
Writedowns		(74,724	)		(2,165,870	)
Sales		(341,716	)		(395,535	)
Internally financed sales		(1,505,991	)		(1,269,163	)
Deferred gain on sale		—			312,950
Net gain (loss) on sales		25,810			60,585

Balance, end of year	$	8,917,239		$	6,332,288

As of December 31, 2010 and 2009, deferred gains on sales of foreclosed real estate of $312,950 and $312,950 are included in the balance sheet as a reduction of loans.

(Income) expenses applicable to foreclosed real estate include the following:


	Years Ended December 31,
	2010			2009
Net loss (gain) on sales of real estate	$	(25,810	)	$	(60,585	)
Operating expenses, net of rental income		396,703			2,103,190

	$	370,893		$	2,042,605

NOTE 8.

DEPOSITS

Deposit account balances at December 31, 2010 and 2009 are summarized as follows:


	2010		2009
Non-interest bearing	$	24,624,361	$	27,677,541
Interest-bearing demand		5,088,279		5,298,668
Money market		20,539,734		21,736,216
Individual savings		9,037,684		9,184,095
Time deposits $100,000 or greater		113,019,690		47,721,726
Other time deposits		102,972,547		168,463,404

	$	275,282,295	$	280,081,650

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.

DEPOSITS (Continued)

The scheduled maturities of time deposits at December 31, 2010 are as follows:


2011	$	122,892,094
2012		48,177,688
2013		15,021,543
2014		17,978,215
2015		11,922,697

	$	215,992,237

At December 31, 2010 and 2009, the Company had brokered deposits of $19,571,210 and $37,604,240, respectively.

At December 31, 2010 and 2009, overdraft demand deposits reclassified to loans totaled $69,940 and $120,277, respectively.

NOTE 9.

SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

Securities sold under repurchase agreements, which are secured borrowings, generally mature within one to four days from the transaction date. Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transactions. The Company may be required to provide additional collateral based on the fair value of the underlying securities. The Company monitors the fair value of the underlying securities on a daily basis. Securities sold under repurchase agreements at December 31, 2010 and 2009 were $- and $6,414,593, respectively.

NOTE 10.

NOTE PAYABLE

The Company has a line of credit with a financial institution. Under the terms of the line of credit, the Company could borrow funds during the first two years “draw period” of the agreement. During the “draw period,” interest only payments were due on a quarterly basis. Effective September 1, 2006, the Company was required to begin amortizing the loan over a ten year period maturing June 1, 2016 through equal annual principal payments and accrued interest payments due quarterly. This line of credit is secured by the outstanding shares of Capitol City Bank & Trust common stock. As of December 31, 2010 and 2009, total borrowings under this line of credit were $275,250.

On April 10, 2009, certain terms of the line of credit were modified including the increase in the interest rate to prime plus 3.00%. The Company is required to make principal payments of $45,875 per quarter together with accrued interest. Payments totaling $183,500 were due in 2010, but were not paid and a waiver has not been provided by the lender.

Contractual maturities of the note payable are as follows:


2011	$	275,250
2012		—

	$	275,250

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11.

OTHER BORROWINGS

At December 31, 2010, the Company had a federal fund line available with a correspondent bank of $5,000,000.

FHLB advances are secured by a lien on the Company’s FHLB stock, the Company’s deposits with the FHLB, and a blanket floating line on the Company’s loan portfolio. As of December 31, 2010 and 2009, the Company had advances outstanding with the FHLB totaling $5,500,000 and $10,700,000, respectively. As of December 31, 2010, advances had a weighted average rate of 0.58% and mature on various dates between April 1, 2011 and August 3, 2011.

On May 10, 2010, the Company was notified by the FHLB that, based on the current financial and operating condition of the Company, all credit availability of the Company with the FHLB has been rescinded. Additionally, the Company is also now required to provide all collateral underlying existing advances outstanding for safekeeping at the FHLB. On March 23, 2011, the Company was notified that its credit availability had been reinstated.

NOTE 12.

TRUST PREFERRED SECURITIES

In 2003, the Company formed a wholly-owned grantor trust to issue cumulative trust preferred securities in a private placement offering. The grantor trust has invested the proceeds of the trust preferred securities in subordinated debentures of the Company. The trust preferred securities can be redeemed, in whole or in part, from time to time, prior to maturity at the option of the Company on or after April 7, 2008. The sole assets of the grantor trust are the Junior Subordinated Debentures of the Company (the “Debentures”). The Debentures have the same variable interest rate of LIBOR plus 3.3% provided that the applicable interest rate could not exceed 12.5% through April 7, 2008 (3.59% at December 31, 2010). The Company had the right to defer interest payments on the Debentures up to ten consecutive semi-annual periods (five years), so long as the Company is not in default under the subordinated debentures. Interest compounds during the deferral period. No deferral period may extend beyond the maturity date.

The preferred securities are subject to redemption, in whole or in part, upon repayment of the subordinated debentures at maturity on April 7, 2033 or their earlier redemption. The Company has the right to redeem the debentures, in whole or in part, from time to time, on or after April 7, 2008, at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest.

The Company has guaranteed the payment of all distributions the Trust is obligated to make, but only to the extent the Trust has sufficient funds to satisfy those payments. The Company and the Trust believe that, taken together, the obligations of the Company under the Guarantee Agreement, the Trust Agreement, the Subordinated Debentures, and the Indenture provide, in the aggregate, a full, irrevocable and unconditional guarantee of all of the obligations of the Trust under the Preferred Securities on a subordinated basis.

The Company is required by the Federal Reserve Board to maintain certain levels of capital for bank regulatory purposes. The Federal Reserve Board determined that certain cumulative preferred securities having the characteristics of trust preferred securities qualify as minority interest, which is included in Tier 1 capital for bank and financial holding companies. In calculating the amount of Tier 1 qualifying capital, the trust preferred securities can only be included up to the amount constituting 25% of total Tier 1 capital elements (including trust preferred securities). Such Tier 1 capital treatment provides the Company with a more cost-effective means of obtaining capital for bank regulatory purposes than if the Company were to issue preferred stock.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12.

TRUST PREFERRED SECURITIES (Continued)

The trust preferred securities and the related Debentures were issued on April 7, 2003. Both financial instruments bear an identical annual rate of interest at 3.58% at December 31, 2010. Distributions on the trust preferred securities are paid quarterly on January 7, April 7, July 7, and October 7 of each year, beginning July 7, 2003. Interest on the Debentures is paid on the corresponding dates. The Company has exercised its right to defer payment of interest on the debentures beginning during the first quarter of 2010, continuing through December 31, 2010. The aggregate principal amount of trust preferred certificates outstanding at December 31, 2010 and 2009 was $3,403,000. The aggregate principal amount of Debentures outstanding at December 31, 2010 and 2009 was $3,403,000.

NOTE 13.

EMPLOYEE BENEFIT PLANS

Stock-Based Compensation

The Company has a Stock Option Plan in which the Company can grant to directors, emeritus directors, and employees options for an aggregate of 638,400 shares of the Company’s common stock. For incentive stock options, the option price shall be not less than the fair market value of such shares on the date the option is granted. If the optionee owns shares of the Company representing more than 10% of the total combined voting power, then the price shall not be less than 110% of the fair market value of such shares on the date the option is granted. With respect to nonqualified stock options, the option price shall be set in the Board’s sole and absolute discretion. The option period will not exceed ten years from date of grant. Other pertinent information related to the options is as follows:

A summary of stock option activity under the Plan as of December 31, 2010 and 2009, and changes during the years then ended is presented below:


December 31, 2010	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Outstanding at January 1, 2010		178,656	$	0.94
Granted		—		—
Forfeited		—		—
Exercised		—		—

Outstanding at December 31, 2010		178,656	$	0.94		2.0

Vested at December 31, 2010		178,656	$	0.94		2.0

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13.

EMPLOYEE BENEFIT PLANS (Continued)

Stock-Based Compensation (Continued)


December 31, 2009	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Outstanding at January 1, 2009		1,592,000		$	0.67
Granted		—			—
Forfeited		(1,360,000	)		0.63
Exercised		(53,344	)		0.94

Outstanding at December 31, 2009		178,656		$	0.94		3.0

Vested at December 31, 2009		178,656		$	0.94		3.0

Cash received from option exercises for the years ended December 31, 2010 and 2009 was $- and $52,510, respectively.

At December 31, 2010, the aggregate intrinsic value of options outstanding and exercisable was $279,150.

Employee Stock Purchase Plan

In 2007, the Company adopted a stock purchase plan. Under the plan, employees of the Company meeting certain eligibility requirements are eligible to participate in the plan. Participants in the plan may participate through payroll deductions which are limited to 15% of gross pay. The purchase price of the shares of common stock is based on 85% of the fair market value. The initial offering commenced on January 1, 2007. For the years ended December 31, 2010 and 2009, 2,300 and 473 shares, respectively, were purchased under the plan. A total of 7,440 shares have been purchased under the plan as of December 31, 2010.

401(k) Profit-Sharing Plan

The Company has a 401(k) profit-sharing plan covering all employees, subject to certain minimum age and service requirements. Contributions to the plan charged to expense for the years ended December 31, 2010 and 2009 amounted to $74,703 and $130,819, respectively.

NOTE 14.

STOCK SPLIT

On June 22, 2010, the Company’s shareholders approved a 4 for 1 stock split and a change in the par value of its common stock from $1.50 to $1.00. All per share amounts in all periods have been retroactively adjusted for this split as it occurred in the first period presented.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15.

SECONDARY STOCK OFFERING

On May 8, 2008, the Company filed an S-1 registration statement for a stock offering of up to 6,000,000 shares of the Company’s common stock at a price of $10 per share. As a result of the stock split in 2010, this price was adjusted to $2.50 per share. The offering originally was to terminate on November 8, 2008 or when all 6,000,000 shares of common stock are sold, whichever occurs first. The Company has extended the offering for up to 90 days several times, and it is currently scheduled to close in 2011.

NOTE 16.

INCOME TAXES

Income tax benefit consists of the following:


	Years Ended December 31,
	2010		2009
Current	$	—	$	(3,212,964	)
Deferred		—		1,474,405

Income tax benefit	$	—	$	(1,738,559	)

The Company’s income tax expense (benefit) differs from the amounts computed by applying the federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows:


	Years Ended December 31,
	2010			2009
Tax benefit at statutory federal rate	$	12,591		$	(4,184,209	)
Tax-free income		—			(19,962	)
Disallowed interest expense		—			3,566
State income tax benefit		39			(409,446	)
Valuation allowance		(56,429	)		2,858,643
Other items, net		43,799			12,849

Income tax benefit	$	—		$	(1,738,559	)

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16.

INCOME TAXES (Continued)

The components of the net deferred tax asset, included in other assets, are as follows:


	December 31,
	2010			2009
Deferred tax assets:
Loan loss reserves	$	1,171,780		$	1,765,620
Reserve for other real estate		383,154			392,139
Income tax loss carryover		1,448,731			933,251
Other		4,552			4,576

		3,008,217			3,095,586

Deferred tax liabilities:
Depreciation		206,003			236,943

Valuation allowance		(2,802,214	)		(2,858,643	)
Net deferred tax assets	$	—		$	—

The Company has net operating loss carryforwards expiring in 2029, if not utilized.

NOTE 17.

LOSSES PER SHARE

Presented below is a summary of the components used to calculate basic and diluted losses per share:


	Years Ended December 31,
	2010			2009
Net loss available to common shareholders	$	(25,125	)	$	(10,680,093	)

Weighted average number of common shares outstanding		9,719,293			9,298,920
Effect of dilutive options		111,482			275,114

Weighted average number of common shares outstanding used to calculate dilutive earnings per share		9,830,775			9,574,034

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18.

COMMITMENTS AND CONTINGENCIES

Loan Commitments

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The majority of all commitments to extend credit and standby letters of credit are variable rate instruments.

The Company’s exposure to credit loss is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. A summary of the Company’s commitments is as follows:


	December 31,
	2010		2009
Commitments to extend credit	$	4,894,000	$	8,071,000
Financial standby letters of credit		2,058,000		2,483,000
Other standby letters of credit		400,000		300,000

	$	7,352,000	$	10,854,000

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral held varies and is required in instances which the Company deems necessary.

At December 31, 2010 and 2009, the carrying amount of liabilities related to the Company’s obligation to perform under financial standby letters of credit was insignificant. The Company has not been required to perform on any financial standby letters of credit, and the Company has not incurred any losses on financial standby letters of credit for the years ended December 31, 2010 and 2009.

Contingencies

The Company’s nature of business is such that it ordinarily results in a certain amount of litigation. In the opinion of management for the Company, there is no litigation in which the outcome will have a material effect on the consolidated financial statements.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19.

CONCENTRATIONS OF CREDIT

The Company originates primarily commercial, residential, and consumer loans to customers in Fulton County, Dougherty County, Chatham County, Richmond County, metropolitan Atlanta, and to various minority groups throughout the southeastern United States. The ability of the majority of the Company’s customers to honor their contractual loan obligations is dependent on the economy in these market areas. Ninety-five percent of the Company’s loan portfolio is concentrated in loans secured by real estate, of which a substantial portion is secured by real estate in the Company’s primary market areas. Included in loans secured by real estate are loans to churches and convenience stores in the Company’s market areas which make up twenty-four percent and twenty-seven percent, respectively, of the total loan portfolio. Accordingly, the ultimate collectibility of the Company’s loan portfolio is susceptible to changes in real estate conditions in the Company’s primary market areas. The other concentrations of credit by type of loan are set forth in Note 5.

The Company, as a matter of policy, does not generally extend credit to any single borrower or group of related borrowers in excess of 25% of the Bank’s statutory capital or net assets, as defined, which amounted to approximately $3,223,000 at December 31, 2010.

The Company has cash deposits with a financial institution in excess of the insured limitation of the Federal Deposit Insurance Corporation. If the financial institution were not to honor its contractual liability, the Company could incur losses. Management is of the opinion that there is no material risk because of the financial strength of the institution.

NOTE 20.

REGULATORY MATTERS

The Bank is subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval. At December 31, 2010, no dividends could be declared without regulatory approval.

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier I capital (as defined by the regulations), to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined).

On January 13, 2010, the Company received a consent order (“order”) from the Federal Deposit Insurance Corporation and the Georgia Department of Banking and Finance. Contained in the order were various reporting requirements by management and the Board of Directors. In addition, the order requires that the Bank achieve and maintain the following minimum capital levels:

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20.

REGULATORY MATTERS (Continued)

(i)

Tier I capital at least equal to 8% of total average assets;

(ii)

Total risk-based capital at least equal to 10% of total risk-weighted assets.

Additional requirements include, but are not limited to, reducing the levels of classified assets, prohibition of the acceptance, renewal, or rollover of brokered deposits, reducing concentrations of credit, prohibition of paying dividends, and maintaining an adequate allowance for loan losses.

As of December 31, 2010, the Bank and Company’s capital amounts and ratios fall under the category of “under capitalized” under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum Total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table and also must not be subject to any written agreement, order, capital directive, or prompt corrective action directive issued by federal banking regulators. Management has implemented plans to raise additional capital to restore the Bank and Company to “well-capitalized” status.

The Company and Bank’s actual capital amounts and ratios are presented in the following table.

Actual

Minimum
Required for
Capital Adequacy
Purposes

Minimum Required
For Compliance
With Consent
Order

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in Thousands)

As of December 31, 2010:

Total Capital to Risk Weighted Assets:

Consolidated

16,176

6.21

20,825

8.00

N/A

Bank

16,600

6.38

20,801

8.00

26,001

10.00

Tier I Capital to Risk Weighted Assets:

Consolidated

12,901

4.96

10,412

4.00

N/A

Bank

13,325

5.12

10,401

4.00

N/A

Tier I Capital to Average Assets:

Consolidated

12,901

4.17

12,382

4.00

N/A

Bank

13,325

4.31

12,370

4.00

24,739

8.00


	Actual					Minimum Required For Capital Adequacy Purposes					Minimum Required To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
As of December 31, 2009:
Total Capital to Risk Weighted Assets:
Consolidated	$	15,176		5.69	%	$	21,333		8.00	%	$	—		N/A
Bank	$	16,283		6.10	%	$	21,350		8.00	%	$	26,678		10.00	%
Tier I Capital to Risk Weighted Assets:
Consolidated	$	11,800		4.43	%	$	10,667		4.00	%	$	—		N/A
Bank	$	12,907		4.84	%	$	10,671		4.00	%	$	16,007		6.00	%
Tier I Capital to Average Assets:
Consolidated	$	11,800		3.71	%	$	12,722		4.00	%	$	—		N/A
Bank	$	12,907		4.06	%	$	12,727		4.00	%	$	15,909		5.00	%

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21.

FAIR VALUE OF ASSETS AND LIABILITIES

Determination of Fair Value

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

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

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

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

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

Level 3—Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

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

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21.

FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

Fair Value Hierarchy (Continued)

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash, Due From Banks, Interest-Bearing Deposits at Other Financial Institutions, and Federal Funds Sold: The carrying amounts of cash, due from banks, interest-bearing deposits at other financial institutions, and federal funds sold approximates fair value.

Securities: Where quoted prices are available in an active market, we classify the securities within level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds and exchange-traded equities.

If quoted market prices are not available, management estimates fair values using pricing models and discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, and credit spreads. Examples of such instruments, which would generally be classified within level 2 of the valuation hierarchy, including GSE obligations, corporate bonds, and other securities. Mortgage-backed securities are included in level 2 if observable inputs are available. In certain cases where there is limited activity or less transparency around inputs to the valuation, management classifies those securities in level 3.

Loans: The carrying amount of variable-rate loans that reprice frequently and have no significant change in credit risk approximates fair value. Fair value of fixed rate loans is estimated using discounted contractual cash flow analyses, using market interest rates for comparable loans. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date. The carrying amounts of variable-rate certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation using market interest rates currently being offered for certificates of similar maturities.

Federal Funds Purchased: The carrying amounts of federal funds purchased approximate their fair values.

Securities Sold Under Repurchase Agreements: The carrying amount of securities sold under repurchase agreements approximates their fair value.

Trust Preferred Securities: The fair value of the Company’s variable rate trust preferred securities approximates the carrying value.

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

Off-balance Sheet Credit-Related Instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21.

FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

Fair Value Hierarchy (Continued)

Assets Measured at Fair Value on a Recurring Basis: Assets measured at fair value on a recurring basis are summarized below:


	Fair Value Measurements at December 31, 2010 Using
	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Carrying Value
Securities available for sale	$	—	$	37,012,468	$	—	$	37,012,468

Total assets at fair value	$	—	$	37,012,468	$	—	$	37,012,468


	Fair Value Measurements at December 31, 2009 Using
	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Carrying Value
Securities available for sale	$	—	$	52,350,752	$	—	$	52,350,752

Total assets at fair value	$	—	$	52,350,752	$	—	$	52,350,752

Assets Measured at Fair Value on a Nonrecurring Basis: Under certain circumstances we make adjustments to fair value for our assets and liabilities although they are not measured at fair value on an ongoing basis. The following table presents the financial instruments carried on the consolidated balance sheet by caption and by level in the fair value hierarchy, for which a nonrecurring change in fair value has been recorded:


	Fair Value Measurements at December 31, 2010 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Impaired loans	$	—	$	—	$	19,201,393		$	(6,424,524	)
Foreclosed real estate		—		—		1,175,349			(271,788	)

Total	$	—	$	—	$	20,376,742		$	(6,696,312	)

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21.

FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

Fair Value Hierarchy (Continued)


	Fair Value Measurements at December 31, 2009 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Impaired loans	$	—	$	—	$	18,412,424		$	(8,188,592	)
Foreclosed real estate		—		—		5,228,081			(2,172,192	)

Total	$	—	$		$	23,640,505		$	(10,360,784	)

At December 31, 2010, in accordance with the provisions of the loan impairment guidance (FASB ASC 310-10-35), individual loans with a carrying amount, after partial charge-offs of $4,414,515, of which $19,201,393 were written down to their fair value of $17,191,384, resulting in an impairment charge of $2,010,009. $9,120,994 of these impaired loans are referred to in Note 5 as impaired loans with a valuation allowance and have $2,010,009 in specific valuation allowances included in the allowance for loan losses. Write downs of impaired loans are estimated using the present value of expected cash flows or the appraised value of the underlying collateral discounted as necessary due to management’s estimates of changes in economic conditions.

Foreclosed real estate is adjusted to fair value upon transfer of the loans to foreclosed real estate. Subsequently, foreclosed real estate is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed real estate as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed real estate as nonrecurring Level 3.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21.

FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

Fair Value Hierarchy (Continued)

The carrying amount and fair value of the Company’s financial instruments were as follows:


	December 31, 2010				December 31, 2009
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash, due from banks, interest-bearing deposits at other financial institutions, and federal funds sold	$	6,530,362	$	6,530,362	$	7,650,603	$	7,650,603
Securities		38,037,768		38,037,768		53,398,552		53,398,552
Loans, net		230,322,008		233,696,460		234,132,460		233,915,000
Accrued interest receivable		1,124,611		1,124,611		1,990,407		1,990,407

Financial liabilities:
Deposits		275,282,295		277,390,698		280,081,650		285,431,000
Federal funds purchased		—		—		4,140,000		4,140,000
Note payable		275,250		275,250		275,250		275,250
Federal Home Loan Bank advances		5,500,000		5,521,875		10,700,000		10,700,000
Securities sold under repurchase agreements		—		—		6,414,593		6,414,593
Company guaranteed trust preferred securities		3,403,000		3,403,000		3,403,000		3,403,000
Accrued interest payable		999,367		999,367		1,911,856		1,911,856

NOTE 22.

SUPPLEMENTAL FINANCIAL DATA

Components of other operating expenses in excess of 1% of total revenue are as follows:


	Years Ended December 31,
	2010		2009
Security	$	356,803	$	441,227
Computer expenses		1,046,775		980,400
Audit and professional fees		797,478		559,498
Telephone expenses		243,817		254,008
FDIC insurance assessments		1,416,624		793,889
Other real estate expenses		534,015		1,611,024

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23.

PARENT COMPANY FINANCIAL INFORMATION

The following information presents the condensed balance sheets, statements of operations and cash flows of Capitol City Bancshares, Inc., as of and for the years ended December 31, 2010 and 2009:

CONDENSED BALANCE SHEETS


	2010		2009
Assets
Cash	$	14,584	$	61,546
Investment in subsidiaries		12,935,586		13,569,267
Investment in trust preferred securities		103,000		103,000
Securities available for sale		50,000		50,000
Other assets		81,639		46,224


Total assets	$	13,184,809	$	13,830,037


Other liabilities	$	264,654	$	98,444
Note payable		275,250		275,250
Company guaranteed trust preferred securities		3,403,000		3,403,000
Stockholders’ equity		9,241,905		10,053,343


Total liabilities and stockholders’ equity	$	13,184,809	$	13,830,037

CONDENSED STATEMENTS OF OPERATIONS


	2010			2009
Income
Interest income	$	943		$	5,425
Dividends from bank subsidiary		25,000			250,000
Other income		816			—

Total income		26,759			255,425


Expense
Interest expense		144,786			159,530
Other expenses		64,723			573,038

Total expenses		209,509			732,568


Income (loss) before income tax benefit and equity 10 in undistributed income (loss) of subsidiaries		(182,750	)		(477,143	)

Income tax benefit		—			244,272


Loss before equity in undistributed income (loss) of subsidiaries		(182,750	)		(232,871	)

Equity in undistributed income (distributions in excess of earnings) of subsidiaries		219,780			(10,335,067	)


Net income (loss)	$	37,030		$	(10,567,938	)

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23.

PARENT COMPANY FINANCIAL INFORMATION (Continued)

CONDENSED STATEMENTS OF CASH FLOWS


	2010			2009
Operating activities
Net income (loss)	$	37,030		$	(10,567,938	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
(Earnings) losses of subsidiaries		(244,780	)		10,085,067
Net other operating activities		130,793			221,235


Net cash used in operating activities		(76,957	)		(261,636	)


Investing activities
Capital contribution in bank		(193,050	)		(1,617,630	)


Net cash used in investing activities		(193,050	)		(1,617,630	)


Financing activities
Repayment of note payable		—			(91,750	)
Proceeds from issuance of preferred stock		—			607,800
Cash dividends received from subsidiary		25,000			250,000
Payment of dividends on preferred stock		(62,155	)		(50,000	)
Proceeds from issuance of common stock under secondary stock offering		254,450			957,320
Proceeds from issuance of common stock under ESOP plan		5,750			4,730
Proceeds from exercise of stock options		—			52,510


Net cash provided by financing activities		223,045			1,730,610


Net decrease in cash		(46,962	)		(148,656	)

Cash at beginning of year		61,546			210,202


Cash at end of year	$	14,584		$	61,546

Index to Financial Statements


	NICHOLS, CAULEY & ASSOCIATES, LLC
	A Professional Services Firm of:	REPLY TO:
	Certified Public Accountants	2970 Clairmont RD NE
	Certified Internal Auditors	Atlanta, Georgia 30329-4440
	Certified Financial Planners®	800-823-1224
	Certified Valuation Analysts ____________________	FAX 404-214-1302 atlanta@nicholscauley.com
	Certified Valuation Analysts ____________________
Atlanta — Clarkesville — Dublin — Lake Oconee — Warner Robins
	www.nicholscauley.com

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S

REPORT ON SUPPLEMENTAL INFORMATION

Board of Directors

Capitol City Bancshares, Inc.

Atlanta, Georgia

We have audited the consolidated financial statements of Capitol City Bancshares, Inc. and subsidiaries as of and for the year ended December 31, 2010, and our report thereon dated April 13, 2011, which expressed an unqualified opinion on those consolidated financial statements, appears on page 1. Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying supplementary information as listed in the table of contents for the year ended December 31, 2010, is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.

/s/ Nichols, Cauley & Associates, LLC

Atlanta, Georgia

April 13, 2011

Index to Financial Statements

CAPITOL CITY BANCSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2010


	Capitol City Bank & Trust			Capitol City Bancshares, Inc.			Capitol City Home Loans			Eliminations			Consolidated
Assets
Cash and due from banks	$	5,354,489		$	14,584		$	35,790		$	(59,469	)	$	5,345,394
Interest-bearing deposits
at other financial institutions		454,968			—			—			—			454,968
Federal funds sold		730,000			—			—			—			730,000
Restricted equity securities, at cost		1,025,300			—			—			—			1,025,300
Securities available for sale		36,859,468			153,000			—			—			37,012,468
Investment in subsidiaries		—			12,935,586			—			(12,935,586	)		—
Loans, net of unearned income		235,545,772			—			—			—			235,545,772
Less allowance for loan losses		5,223,764			—			—			—			5,223,764

Loans, net		230,322,008			—			—			—			230,322,008

Premises and equipment, net		9,492,533			—			9,274			—			9,501,807
Foreclosed real estate		8,917,239			—			—			—			8,917,239
Other assets		1,917,904			81,639			—			—			1,999,543

Total assets	$	295,073,909		$	13,184,809		$	45,064		$	(12,995,055	)	$	295,308,727


Liabilities and Stockholders' Equity

Deposits
Noninterest-bearing	$	24,674,735		$	—		$	—		$	(50,374	)	$	24,624,361
Interest-bearing		250,657,934			—			—			—			250,657,934

Total deposits		275,332,669			—			—			(50,374	)		275,282,295
Note payable		—			275,250			—			—			275,250
Federal Home Loan Bank advances		5,500,000			—			—			—			5,500,000
Company guaranteed trust preferred securities		—			3,403,000			—			—			3,403,000
Other liabilities		1,350,718			264,654			—			(9,095	)		1,606,277

Total liabilities		282,183,387			3,942,904			—			(59,469	)		286,066,822


Stockholders' equity
Preferred stock		—			1,607,800			—			—			1,607,800
Common stock		3,192,528			9,777,656			341,000			(3,533,528	)		9,777,656
Surplus		21,981,866			75,330			—			(21,981,866	)		75,330
Retained earnings (accumulated deficit)		(11,850,308	)		(1,785,317	)		(295,936	)		12,146,244			(1,785,317	)
Accumulated other comprehensive income (loss)		(433,564	)		(433,564	)		—			433,564			(433,564	)

Total stockholders' equity		12,890,522			9,241,905			45,064			(12,935,586	)		9,241,905


Total liabilities and stockholders' equity	$	295,073,909		$	13,184,809		$	45,064		$	(12,995,055	)	$	295,308,727

See Independent Registered Public Accounting Firm's Report on Supplemental Information

Index to Financial Statements

CAPITOL CITY BANCSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2010


	Capitol City Bank & Trust		Capitol City Bancshares, Inc.			Capitol City Home Loans			Eliminations			Consolidated
Interest income
Loans, including fees	$	14,496,500	$	—		$	—		$	—		$	14,496,500
Deposits in banks		2,731		—			—			—			2,731
Securities:
Taxable		1,029,104		943			—			—			1,030,047
Nontaxable		17,787		—			—			—			17,787
Federal funds sold		4,998		—			—			—			4,998
Dividends from bank subsidiary		—		25,000			—			(25,000	)		—

Total interest income		15,551,120		25,943			—			(25,000	)		15,552,063


Interest expense
Deposits		7,212,651		—			—			—			7,212,651
Other borrowings		134,452		144,786			—			—			279,238

Total interest expense		7,347,103		144,786			—			—			7,491,889


Net interest income		8,204,017		(118,843	)		—			(25,000	)		8,060,174
Provision for loan losses		470,000		—			—			—			470,000

Net interest income (loss) after provision for loan losses		7,734,017		(118,843	)		—			(25,000	)		7,590,174


Other income
Service charges on deposit accounts		1,497,587		—			—			—			1,497,587
Other fees and commissions		4,277		—			—			—			4,277
Gains on sales of foreclosed real estate, net		25,810		—			—			—			25,810
Gains on sales of available for sale securities, net		568,337		—			—			—			568,337
Other operating income		506,869		816			403			—			508,088

Total other income		2,602,880		816			403			—			2,604,099


Other expenses
Salaries and employee benefits		3,555,493		—			—			—			3,555,493
Occupancy and equipment expenses, net		1,179,865		—			3,329			—			1,183,194
Other operating expenses		5,352,460		64,723			1,373			—			5,418,556

Total other expenses		10,087,818		64,723			4,702			—			10,157,243


Income (loss) before equity in undistributed loss of subsidiaries		249,079		(182,750	)		(4,299	)		(25,000	)		37,030

Equity in undistributed income of subsidiaries		—		219,780			—			(219,780	)		—


Income (loss) before income tax benefit		249,079		37,030			(4,299	)		(244,780	)		37,030

Income tax benefit		—					—			—			—


Net income (loss)	$	249,079	$	37,030		$	(4,299	)	$	(244,780	)	$	37,030

See Independent Registered Public Accounting Firm's Report on Supplemental Information

CAPITOL CITY BANCSHARES INC - FORM 10-K - EX-13.1 - CONSOLIDATED FINANCIAL STATEMENTS - April 15, 2011

Attached files

CAPITOL CITY BANCSHARES INC Reports