UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549








FORM
10-KSB





(Mark
One)


x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
fiscal year ended December 31, 2007
 OR
 
 o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
transition period
from                                                                      to


Commission
File Number:  001-16413








FIRST
CENTURY BANCORP.


(Exact
Name of Small Business Issuer in its Charter)





Georgia
            58-2554464(State
      of Incorporation or Organization)
            (I.R.S.
      Employer Identification No.)807
      Dorsey Street, Gainesville, Georgia
            30501(Address
      of Principal Executive Offices)
            (Zip
      Code)





(770)
297-8060


(Registrant’s
telephone number, including area code)





Securities
Registered Pursuant to Section 12(b) of the Act:


None





Securities
Registered Pursuant to Section 12(g) of the Act:


Common
Stock, no par value





Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o





Check
whether the issuer:  (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x   No
o





Check if
there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B contained in this form, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. x





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





The
issuer’s revenue for its most recent fiscal year was approximately $2.3
million.  As of December 31, 2007, there were 1,732,458 shares of
common stock issued and outstanding.  The aggregate market value of
the registrant’s outstanding common stock held by nonaffiliates of the
registrant as of December 31, 2007, was approximately $1.6 million, based upon
an estimate of the fair market value of the common stock of $2.25 per share,
which was the offering price of the issuer’s common stock during 2007
..  There is not an active trading market for the common stock and it
is not possible to identify precisely the market value of the common
stock.





DOCUMENTS
INCORPORATED BY REFERENCE




Document
            Parts Into Which
      IncorporatedNone.





Transitional
Small Business Disclosure Format (check one): Yes o  No x









CAUTIONARY STATEMENT FOR PURPOSES OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.





This
report contains “forward-looking statements” relating to, without limitation,
future economic performance, plans and objectives of management for future
operations, and projections of revenues and other financial items that are based
on the beliefs of management, as well as assumptions made by and information
currently available to management.  The words “may,” “will,”
“anticipate,” “should,” “would,” “believe,” “contemplate,” “expect,” “estimate,”
“continue,” and “intend,” as well as other similar words and expressions of the
future, are intended to identify forward-looking statements.  Our
actual results may differ materially from the results discussed in the
forward-looking statements, and our operating performance each quarter is
subject to various risks and uncertainties that are discussed in detail in our
filings with the Securities and Exchange Commission, including, without
limitation:







·
            significant
      increases in competitive pressure in the banking and financial services
      industries;




·
            changes
      in the interest rate environment which could reduce anticipated or actual
      margins;




·
            changes
      in political conditions or the legislative or regulatory
      environment;




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




·
            changes
      occurring in business conditions and
inflation;




·
            changes
      in technology;




·
            changes
      in monetary and tax policies;




·
            the
      level of allowance for loan loss;




·
            the
      rate of delinquencies and amounts of
  charge-offs;




·
            the
      rates of loan growth and the lack of seasoning of our loan
      portfolio;




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




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




·
            changes
      in the securities markets; and




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






We
undertake no obligation to publicly update or otherwise revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.






Unless the context indicates otherwise,
all references to “FCB,” “the Company,” “we,” “us” and “our” in this Annual
Report on Form 10-KSB refer to First Century Bancorp. and our wholly owned
subsidiary, First Century Bank, National Association (the
“Bank”).


1


PART
I





Item
      1.
            Description
      of Business





Business
of the Company and the Bank





General





First
Century Bancorp.





We are a
Georgia corporation organized in 2000 to serve as the holding company for First
Century Bank, National Association, a national banking association, which is
referred to herein as the “Bank.” The Bank currently maintains a main office in
Gainesville, Georgia, and a loan processing office in Loganville, Georgia. We
own 100% of the outstanding common stock of the Bank.  The Company
currently engages in no business other than owning and managing the
Bank.





Our assets consist primarily of our
investment in the Bank and liquid investments. Our primary activities are
conducted through the Bank. As of December 31, 2007, our consolidated total
assets were $38.7 million, our consolidated total loans were
$19.3 million, our consolidated total deposits were $31 million, and
our total shareholders' equity was approximately $3.5 million.





Our net income is dependent primarily
on our net interest income, which is the difference between the interest income
earned on loans, investments, and other interest-earning assets and the interest
paid on deposits and other interest-bearing liabilities.  To a lesser
extent, our net income also is affected by our noninterest income derived
principally from service charges and fees and income from the sale and/or
servicing of financial assets such as loans and investments, as well as the
level of noninterest expenses such as salaries, employee benefits and occupancy
costs.





Our operations are significantly
affected by prevailing economic conditions, competition, and the monetary,
fiscal, and regulatory policies of governmental agencies. Lending activities are
influenced by a number of factors, including the general credit needs of
individuals and small and medium-sized businesses in our market areas,
competition among lenders, the level of interest rates, and the availability of
funds. Deposit flows and costs of funds are influenced by prevailing market
rates of interest, primarily the rates paid on competing investments, account
maturities, and the levels of personal income and savings in our market
areas.





First
Century Bank





First Century Bank is a national
banking association with its principal executive offices in Gainesville,
Georgia.  The Bank is primarily engaged in the business of accepting
deposits insured by the FDIC and providing commercial, consumer, and mortgage
loans to the general public. We operate under a traditional community banking
model, with a particular focus on real estate and small business lending. We
commenced banking operations in March 2002 in Gainesville,
Georgia.  The Bank is chartered and regulated by the Office of the
Comptroller of the Currency (the “OCC”) and the FDIC.  On September
20, 2007, NBOG Bancorporation Inc. changed its name to First Century
Bancorp.  The Bank’s name was also changed from The National Bank of
Gainesville to First Century Bank, National Association.





Pursuant
to the terms of a formal agreement with the OCC, dated August 18, 2004, we
committed to undertake certain actions, including the maintenance of specified
capital levels, retention of senior management and the formulation of strategic
and capital plans. Following discussions with the OCC, on January 26, 2006, our
Board of Directors passed a resolution to identify, and enter into an agreement
with, a strategic partner who would either purchase the entire institution or a
significant interest in the institution, and the OCC agreed to a ninety day
waiver of certain commitments contained in the formal
agreement.


2


On May 5,
2006, we entered into a merger agreement with El Banco Financial Corporation
(“El Banco”), previously known as Nuestra Tarjeta de Servicios, Inc., that
provided, among other things, for us to be merged into El Banco in a two-step
merger.  On October, 25, 2006, the parties mutually agreed to
terminate the pending merger agreement after concluding that receipt of
regulatory approval would not be forthcoming on a timely enough basis to satisfy
each party’s business requirements.





After a
search of potential investors and third party acquirers in late 2006 and early
2007, we selected a proposal from William R. Blanton, to invest in the
Company.  Mr. Blanton has 35 years of banking experience, with
significant experience in the North Atlanta market.  Most recently he
was with First Capital Bank where he served in various capacities including
President from 1989 until its recent sale.  During his time with First
Capital Bank, the bank’s assets grew from $30 million to $700
million.





In April
2007, Mr. Blanton purchased 738,008 shares of our common stock in a private
placement at $2.71 per share.  We also issued Mr. Blanton warrants to
purchase up to 738,008 shares at $2.71 per share. The warrants do not have an
expiration date.  We received proceeds of approximately $2,000,000
less fees and expenses related to the sale of the shares, which we used for
working capital purposes. There were no brokerages or underwriting commissions
paid in connection with the sale of the shares.





In
December 2007, we completed a private placement of Series B Preferred Stock, no
par value, for $10.00 per share, selling a total of $750,000 worth of
shares.  The investors also received a warrant to acquire one share of
common stock for each share of Series B Preferred Stock purchased in the
offering at an exercise price of $1.50 per share, which we believe was the fair
market value of the common stock on the date of issuance of the
warrants.  The warrants have no expiration date.  As a
result of the issuance of these warrants, the exercise price of a Mr. Blanton’s
prior warrants to purchase 738,008 shares of our common stock at $2.71 per share
was automatically adjusted to $1.50 per share.  The warrants relating
to this private placement also contain a similar provision for automatic
adjustments of the exercise price for the shares if we issue a subsequent
warrant with an exercise price that is less than $1.50 per share.





On
February 5, 2008, the OCC issued a termination of our formal
agreement.





Products
and Services





Deposit
Services.  We offer a full range of interest-bearing and
non-interest-bearing accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts, regular
interest-bearing statement savings accounts and certificates of deposit with
fixed rates along with a range of maturity date options.  The sources
of deposits are residents, businesses, and employees of businesses within our
market area, obtained through the personal solicitation of its officers and
directors, direct mail solicitation, and advertisements published in the local
media.  In addition, at times when needed, we may obtain deposits from
other financial institutions through a nation-wide deposit
network.  We pay competitive interest rates on time and savings
deposits up to the maximum permitted by law or regulation.  In
addition, we offer a service charge fee schedule competitive with other
financial institutions in our market area, covering such matters as maintenance
fees on checking accounts, per item processing fees on checking accounts,
returned check charges and the like.


3





Credit
Services.We emphasize a range of lending services, including
real estate, commercial and consumer loans, to individuals and small-to
medium-sized businesses and professional concerns that are located in or conduct
a substantial portion of their business in our market area.  The
principal economic risk associated with each category of loans that the Bank
makes is the creditworthiness of the borrower.  Borrower
creditworthiness is affected by general economic conditions and the strength of
the relevant business market segment.  General economic factors
affecting a borrower’s ability to repay include interest, inflation and
employment rates, as well as other factors affecting a borrower’s customers,
suppliers and employees.





Real Estate
Loans.  One of the primary components of our loan portfolio is
loans secured by first or second mortgages on real estate.  As of
December 31, 2007, loans secured by first or second mortgages on real estate
made up approximately $14.4 million, or 74% of our loan
portfolio.  These loans generally consist of commercial real estate
loans, construction and development loans, and residential real estate loans
(home equity loans are excluded as they are classified as consumer
loans).





·
            Commercial Real Estate
      Loans.At December 31, 2007, our individual commercial
      real estate loans ranged in size from $50,000 to $900,000, with an average
      commercial real estate loan size of approximately
      $250,000.  Loan terms generally are limited to five years or
      less, although payments may be structured on a longer amortization
      basis.  Interest rates may be fixed or adjustable, and will more
      likely be fixed in the case of shorter term loans. We attempt to reduce
      credit risk in the commercial real estate portfolio by emphasizing loans
      on owner-occupied office and retail buildings where the loan-to-value
      ratio, established by independent appraisals, does not exceed
      80%.  In addition, we typically require personal guarantees of
      the principal owners of the collateral property, combined with our review
      of the personal financial statements of the principal
      owners.  At December 31, 2007, commercial real estate loans
      (other than construction loans) totaled $7.7 million, or approximately 39%
      of our loan portfolio.  Some specific risks associated with
      commercial real estate loans include tenant vacancy rates and the quality
      of the borrower’s
      management.





·
            Residential Real Estate Loans
      and Home Equity Loans.At December 31, 2007, our
      individual residential real estate loans ranged in size from $5,000 to
      $350,000, with an average loan size of approximately
      $71,000.  Generally, we limit the loan-to-value ratio on our
      residential real estate loans to 85%.  We also offer home equity
      lines of credit.  At December 31, 2007, our individual home
      equity lines of credit ranged in size from $10,000 to $300,000, with an
      average of approximately $66,000.  Our underwriting criteria
      for, and the risks associated with, home equity loans and lines of credit
      are generally the same as those for first mortgage loans.  Home
      equity lines of credit typically have terms of 10 years or
      less.  We limit the extension of credit to 89% of the available
      equity of each property.  At December 31, 2007, residential real
      estate loans (other than construction loans) totaled $6.1 million, or 32%
      of our loan portfolio.  Included in the residential real estate
      loans was $4.9 million, or 80% of our residential loan portfolio, in first
      and second mortgages on individuals’ homes, and $1.2 million, or 20% of
      our residential loan portfolio, in home equity
  loans.


4


·
            Construction
      and  Development Real Estate Loans.We offer
      adjustable and fixed rate residential and commercial construction loans to
      builders and developers and to consumers who wish to build their own
      homes.  At December 31, 2007, our commercial construction and
      development real estate loans ranged in size from approximately $400,000
      to $500,000, with an average loan size of approximately
      $445,000.  At December 31, 2007, our individual residential
      construction and development real estate loans ranged in size from
      approximately $60,000 to $70,000, with an average loan size of
      approximately $64,000.  The duration of our construction and
      development loans generally is limited to 12 months, although payments may
      be structured on a longer amortization basis.  Construction and
      development loans generally carry a higher degree of risk than long-term
      financing of existing properties because repayment depends on the ultimate
      completion of the project and usually on the sale of the
      property.  Specific risks
include:





·
            cost
      overruns;


·
            mismanaged
      construction;


·
            inferior
      or improper construction
techniques;


·
            economic
      changes or downturns during
construction;


·
            a
      downturn in the real estate market;


·
            rising
      interest rates which may prevent sale of the property;
  and


·
            failure
      to sell completed projects in a timely
manner.





We
attempt to reduce the risk associated with construction and development loans by
obtaining personal guarantees and by keeping the loan-to-value ratio of the
completed project at or below 80%.  At December 31, 2007, total
construction loans amounted to $509,000, or 3% of our total loan
portfolio.





Consumer
Loans.  We make a variety of loans to individuals for personal
and household purposes, including secured and unsecured installment and term
loans and lines of credit. At December 31, 2007, our individual consumer loans
ranged in size from $2,000 to $40,000, with an average loan size of
approximately $7,000.  These loans typically carry balances of less
than $25,000 and, in the case of non-revolving loans, are amortized over a
period not to exceed 60 months.  The revolving loans typically bear
interest at a fixed rate and require monthly payments of interest and a portion
of the principal balance.  Consumer loans generally involve more risks
than residential mortgage loans because the collateral for defaulted loans may
not provide an adequate source of repayment of the principal due to damage to
the collateral or other loss of value.  In addition, consumer loan
performance depends upon the borrower’s continued financial stability and is
therefore more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy.  At December 31, 2007, consumer loans amounted to
$1.6 million, or 8% of our loan portfolio.





Commercial
Loans.  We make loans for commercial purposes in various lines
of businesses.  At December 31, 2007, our individual commercial
business loans ranged in size from approximately $15,000 to $300,000, with an
average loan size of approximately $71,000.  Equipment loans are
typically for a term of five years or less at fixed or variable rates, with the
loan fully amortized over the term and secured by the financed equipment and
with a loan-to-value ratio of 80% or less.  Working capital loans
typically have terms not exceeding one year and are usually secured by accounts
receivable, inventory, or personal guarantees of the principals of the
business.  For loans secured by accounts receivable or inventory,
principal is typically repaid as the assets securing the loan are converted into
cash, and in other cases principal is typically due at maturity.  The
quality of the commercial borrower’s management and its ability to both evaluate
properly changes in the supply and demand characteristics affecting its markets
for products and services and to respond effectively to such changes are
significant factors in a commercial borrower’s creditworthiness.  At
December 31, 2007, commercial loans amounted to $3.3 million, or 17% of our loan
portfolio.


5


Small Business
Administration (SBA).  In August 2007, we opened an LPO office
in Loganville, Georgia for the purpose of originating SBA loans.  The
SBA allows terms up to 25 years with no calls or balloons, depending upon the
use of the proceeds, thus giving the borrower the ability to repay the loan over
a longer term than offered under our normal guidelines and to make loans which
may not meet all of our normal underwriting criteria.  These loans
typically are partially guaranteed by the government, which helps to reduce
their risk.  Government guarantees of SBA loans do not exceed, and are
generally less than, 80% of the loan.  As of December 31, 2007, we had
originated an aggregate of approximately $0 in SBA loans.





Online Mortgage
Division.  On January 29, 2008 we launched our online lending
division, CenturyPoint Mortgage.  CenturyPoint Mortgage is an
Internet-based lender with offices located in Atlanta, Georgia.  We
anticipate that CenturyPoint will serve borrowers in all fifty states and the
District of Columbia, offering a full line of mortgage products, including loans
for purchase or refinancing of primary residences, second homes and investment
property, as well as home equity loans.  We anticipate that
CenturyPoint will also offer reverse mortgages, which can be used to unlock home
equity and provide access to cash for senior Americans without requiring the
sale of their home.





Loan Approval and
Review.  Certain credit risks are inherent in making
loans.  These include prepayment risks, risks resulting from
uncertainties in the future value of collateral, risks resulting from changes in
economic and industry conditions, and risks inherent in dealing with individual
borrowers.  We attempt to mitigate repayment risks by adhering to
internal credit policies and procedures.  These policies and
procedures include officer and customer lending limits, a multi-layered approval
process for larger loans, documentation examination, and follow-up procedures
for any exceptions to credit policies.  Our loan approval policies
provide for various levels of officer lending authority.  When the
amount of aggregate loans to a single borrower exceeds an individual officer’s
lending authority, the loan request will be reviewed by an officer with a higher
lending authority.  We have established a loan committee of the board
of directors that must approve any loan that exceeds the joint lending limit of
the chief executive officer and senior lender.  We will not make any
loans to any director, officer, or employee on terms more favorable to such
person than would be available to an unaffiliated person.








Other
Services.In addition to deposit and loan services, the Bank
offers banking, travelers’ checks, direct deposit of payroll and social security
checks, and automatic drafts for various accounts.  The Bank is a
member of a network of automated teller machines that may be used by customers
in major cities throughout Georgia, the United States, and in various cities
worldwide.  The Bank offers VISA and MasterCard credit cards and
merchant credit card processing to the Bank’s customers through third party
vendors.  In May 2007, the Bank began offering internet banking
services through a third party vendor relationship.  Cash management
and bill pay services are still not available through internet banking at this
time.  The Bank currently offers telephone banking and
NetImage.  NetImage is a product that allows the customer to view
images of their cleared checks via connection to the internet through a secure
link in the Bank’s website.





Lending
Policies





The Bank’s lending activities are
subject to a variety of lending limits imposed by federal
law.  Differing limits apply based on the type of loan and the nature
of the borrower, including the borrower’s relationship to the
Bank.  In general, however, the Bank is able to loan any one borrower
a maximum amount equal to either:





·
            15%
      of the Bank’s capital and surplus;
or




·
            25%
      of its capital and surplus if the excess over 15% is within federal
      guidelines, which provides an exception to the 15% limit for debt secured
      by readily marketable collateral, as defined by OCC
      regulations.


6


The Bank complies with the statutory
lending limits, as described above.  As of December 31, 2007, our
legal lending limit to one borrower was approximately $565
thousand.  We seek to sell loan participations to other financial
institutions to meet the needs of customers requiring loans above these
limits.  Nevertheless, because this amount is substantially lower than
the lending limit for most of our competitors, it is difficult for us to compete
for many loan relationships.  The Bank’s legal lending limits will
increase or decrease as the Bank’s capital increases or decreases as a result
of, among other reasons, its earnings or losses.





The
interagency guidelines adopted by federal bank regulators, including the OCC,
mandate that financial institutions establish real estate lending policies and
establishing particular minimum real estate loan-to-value
standards.  The Bank has adopted these federal standards as its
minimum standards.  These standards require maximum loan-to-value
ratios for various types of real estate loans, although the Bank may make
exceptions to the maximum guidelines, which exceptions must be accounted for and
tracked.





Asset
Management Policies





A
committee composed of the senior officersof the Bank is charged
with managing the Bank’s assets and liabilities pursuant to policies established
by the directors’ Asset/Liability and Investment Committee.  The
committee attempts to manage asset growth, liquidity and capital in order to
optimize income and reduce interest-rate risk.  The committee directs
the Bank’s overall acquisition and allocation of funds.  The
management committee meets with the director’s Asset/Liability and Investment
Committee on a quarterly basis.  The director’s committee reviews and
discusses the monthly asset and liability funds budget in relation to the actual
flow of funds, as well as peer group comparisons; the ratio of the amount of
rate-sensitive assets to the amount of rate-sensitive liabilities; local market
rates and rate forecasts;  and other variables, such as expected loan
demand, expected loan and deposit maturities, investment opportunities, core
deposit growth within specified categories, regulatory changes, monetary policy
adjustments and the overall state of the economy.





The
Bank’s investment policy is to optimize income, consistent with liquidity, asset
quality and regulatory constraints.  The policy is reviewed from time
to time by the Board of Directors of the Bank.  Individual
transactions, portfolio composition and performance are reviewed and approved
monthly by the Board of Directors or a committee thereof.  Management
of the Bank implements the policy and reports to the full Board of Directors on
a quarterly basis information concerning sales, purchases, resultant gains or
losses, average maturity, federal taxable equivalent yields, and appreciation or
depreciation by investment categories.





Correspondent
banking involves the provision of services by one bank to another bank which
cannot provide that service for itself from an economic or practical
standpoint.  The Bank has purchased correspondent services offered by
larger banks, including check collections, services relating to the purchase of
Federal Funds, security safekeeping, investment services, coin and currency
supplies, overline and liquidity loan participations and sales of loans to or
participations with correspondent banks.  The Bank sells loan
participations to correspondent banks with respect to loans that exceed the
Bank’s lending limit.  As compensation for services provided by a
correspondent, the Bank may maintain balances with such correspondents in
noninterest-bearing accounts.





Market
Opportunities and Competition





The Bank
primarily serves the northern Georgia market of Hall County, including
Gainesville and five smaller municipalities.  Hall County has a
population of approximately 139,000 and encompasses 394 square
miles.  Lake Lanier, a manmade lake with 607 miles of shoreline, forms
the county’s western boundary.  Gainesville, the county seat, is
situated approximately 50 miles northeast of Atlanta and 100 miles
southwest of Greenville, South Carolina.  According to the 2000
Census, the median income for a family in Hall County was
$50,100.


7


The Bank
competes as a financial intermediary with other lenders and deposit-takers,
including other commercial banks, thrift institutions, credit unions, finance
companies, mutual funds, insurance companies, and brokerage companies and
investment banking firms.  According to information provided by the
FDIC, as of June 30, 2007, there were 54 offices of 15 banks operating in Hall
County with a total of approximately $2.6 billion in
deposits.  As of June 30, 2007, the Bank had approximately .89%
of the deposit market share.  In addition to competition from large
national and regional banks, including Regions, Wachovia, SunTrust and Bank of
America, the Bank also competes with a number of local competitors, including
Gainesville Bank & Trust, United Community Bank and Peach State
Bank.





Employees





As of
December 31, 2007, we had 18 employees, including 17 full-time
employees.  We consider the relationship with our employees to be
good.





Risk Factors




An
investment in our common stock involves a significant degree of
risk.  If any of the following risks or other risks, which have not
been identified or which we may believe are immaterial or unlikely, actually
occurs, our business, financial condition and results of operations could be
harmed.  In such a case, the trading price of our common stock could
decline, and our shareholders may lose all or part of their
investment.  The risks discussed below include forward-looking
statements, and our actual results may differ substantially from those discussed
in these forward-looking statements.




We
have experienced significant losses since our inception and have a significant
accumulated deficit.





We
experienced losses of $1.7 million in 2007, $1.2 million in 2006, and $1.1
million in 2005.  We also had an accumulated deficit of $7.6 million
at December 31, 2007.  In the last several years, we have experienced
a significant amount of management turn-over, been subject to a formal order
with the OCC, and devoted a substantial amount of our time and attention to
seeking a merger partner.  In late 2006 we terminated our merger
agreement with El Banco Financial Corporation.  In many respects, we
were essentially starting over in 2007, but with a significant accumulated
deficit.  We raised capital in two private placements in 2007, and the
OCC terminated our formal agreement in February 2008.  We expect to
continue to lose money through at least the third quarter of 2008.  To
become profitable, we must increase our net interest income and non-interest
income above existing levels.  To accomplish this, we need to attract
more customers and make more loans.  Although we believe we are taking
the appropriate steps to accomplish these goals, there is a risk that we will
not be successful and that we will never become profitable.





We may need to
raise additional capital, which may not be available or may only be available on
unfavorable terms.





We are required by regulatory
authorities to maintain adequate levels of capital to support our
operations.  In the future, if additional capital is needed, there can
be no assurance that it will be available when desired or on such terms as we
may find acceptable.  If we cannot raise additional capital when
needed, our operations could be materially impaired.  In addition,
future efforts to raise capital through the sale of securities could reduce the
proportionate interest of our shareholders.


8


Our
ability to estimate our loan loss reserves accurately may have an adverse effect
on our financial performance.





Lending
money is our primary business.  However, every loan we make carries a
risk that it will not be repaid in accordance with its terms or that any
underlying collateral will not be sufficient to assure repayment.  We
attempt to maintain an appropriate allowance for loan losses to provide for
potential losses in our loan portfolio.  At December 31, 2007, our
allowance for probable loan losses represented 1.43% of our total loans, 29.07%
of our total non-performing assets, and 32.43% of our total non-performing
loans.  If our loan losses exceed our allowance for probable loan
losses, our business, financial condition and profitability will
suffer.





We
periodically determine the amount of the allowance based on consideration of
several factors, including:





·
            an
      ongoing review of the quality, mix, and size of our overall loan
      portfolio;


·
            our
      historical loan loss experience;


·
            evaluation
      of economic conditions;


·
            regular
      reviews of loan delinquencies and loan portfolio quality;
    and


·
            the
      amount and quality of collateral, including guarantees, securing the
      loans.





However,
there is no precise method of predicting credit losses, since any estimate of
loan losses is necessarily subjective and the accuracy depends on the outcome of
future events. Although we believe the allowance for loan losses is a reasonable
estimate of known and inherent losses in our loan portfolio, we cannot fully
predict such losses or that our loan loss allowance will be adequate in the
future.  In general, loans do not begin to show signs of credit
deterioration or default until they have been outstanding for some period of
time, a process we refer to as “seasoning.”  As a result, a portfolio
of older loans will usually behave more predictably than a newer
portfolio.  Because our loan portfolio is relatively new, the current
level of delinquencies and defaults may not be representative of the level that
will prevail when the portfolio becomes more seasoned, which may be higher than
current levels.  If delinquencies and defaults increase, we may be
required to increase our provision for loan losses, which would adversely affect
our results of operations and financial condition.  Excessive loan
losses could have a material impact on our financial performance. Consistent
with our loan loss reserve methodology, we expect to make additions to our loan
loss reserve levels as a result of our loan growth, which may affect our
short-term earnings.





Federal
regulators periodically review our allowance for loan losses and may require us
to increase our provision for loan losses or recognize further loan charge-offs,
based on judgments different than those of our management. Any increase in the
amount of our provision or loans charged-off as required by these regulatory
agencies could have a negative effect on our operating results.





We
have previously identified weaknesses in our overall credit risk management
process.





In a
series of audits conducted during the last quarter of 2003 and first quarter of
2004 by the Bank's internal and external auditors and the OCC, several
weaknesses were identified in the overall credit risk management process of the
Bank.  To addresses these weaknesses, bank management contracted with
an independent loan review company, Professional Bank Services, Inc., to perform
a major review of the Bank’s loan portfolio.  The purpose of the review was
to identify problem loans and ensure proper reserves were allocated and/or the
problem loans were charged off.  Significant work was done to reduce loan
exceptions which totaled over 1,400 at that time to less than a hundred at the
completion of this effort.  The Bank’s policy for maximum loan exceptions
today is 30.  A substantial number of loans were charged off during the
2003 and 2004 time frame based on the findings of the independent loan audit
company and the Bank’s internal loan review.  The Bank continues to use the
services of an external, independent loan review company.


9




An
economic downturn, especially in Northern Georgia, could have an adverse effect
on the quality of our loan portfolio and our financial performance.





Economic
recession over a prolonged period or other economic problems in Hall County,
Georgia or in our state or nation generally could have a material adverse impact
on the quality of our loan portfolio and the demand for our products and
services.  For example, a downturn in the local economy could make it
more difficult for borrowers to repay their loans, which could lead to loan
losses.  This could in turn reduce our net income and
profitability.





Moreover,
the value and liquidity of real estate or other collateral that may secure our
loans in our market area could be adversely affected by an economic
downturn.  Unlike many larger institutions, we are not able to spread
the risks of unfavorable local economic conditions across a large number of
diversified economies or markets. We often secure loans with real estate
collateral. As of December 31, 2007, approximately 79% of our loans had real
estate as a primary or secondary component of collateral. The real estate
collateral in each case provides an alternate source of repayment in the event
of default by the borrower and may deteriorate in value during the time the
credit is extended. If we are required to liquidate the collateral securing a
loan to satisfy the debt during a period of reduced real estate values, our
business, financial condition, and results of operations could be negatively
affected. A general economic downturn, including a decline in the real estate
market, could, therefore, result in losses that materially and adversely affect
our business.





Changes
in interest rates and our ability to successfully manage interest rates may
reduce our profitability.




Our
results of operations depend in large part upon the level of our net interest
income, which is the difference between interest income from interest-earning
assets, such as loans and investment securities, and interest expense on
interest-bearing liabilities, such as deposits and other
borrowings.  Depending on the terms and maturities of our assets and
liabilities, a significant change in interest rates could have a material
adverse effect on our profitability.  Many factors cause changes in
interest rates, including governmental monetary policies and domestic and
international economic and political conditions.  While we intend to
manage the effects of changes in interest rates by adjusting the terms,
maturities, and pricing of our assets and liabilities, our efforts may not be
effective and our financial condition and results of operations could
suffer.





Because
of the differences in maturities and repricing characteristics of our
interest-earning assets and interest-bearing liabilities, changes in interest
rates do not produce equivalent changes in interest income earned on
interest-earning assets and interest paid on interest-bearing liabilities.
Fluctuations in interest rates are not predictable or controllable and
therefore, there can be no assurances of our ability to continue to maintain a
consistent positive spread between the interest earned on our interest-earning
assets and the interest paid on our interest-bearing liabilities. Accordingly,
fluctuations in interest rates could adversely affect our net interest income
and, in turn, our profitability. In addition, loan volumes are affected by
market interest rates on loans. Rising interest rates generally are associated
with a lower volume of loan originations while lower interest rates are usually
associated with higher loan originations. Conversely, in rising interest rate
environments, loan repayment rates will generally decline and in falling
interest rate environments, loan repayment rates will likely increase. Interest
rates also affect how much money we can lend. When interest rates rise, the cost
of borrowing increases.  Accordingly, changes in market interest rates
could materially and adversely affect our net interest income, asset quality,
and loan origination volume.


10


Industry
competition may have an adverse effect on our profitability.





Competition
in the banking and financial services industry is intense, and our profitability
depends upon our continued ability to compete in our market area.  We
compete with national, regional and community banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies and brokerage and investment banking firms operating locally and
elsewhere.  In addition, because the Gramm-Leach-Bliley Act now
permits banks, securities firms and insurance companies to affiliate, a number
of larger financial institutions and other corporations offering wider variety
of financial services than we currently offer could enter and aggressively
compete in the market we currently serve.  Many of these competitors
have substantially greater resources, lending limits and operating histories
than we do and may offer services that we do not or cannot provide.





Our  success
depends on our ability to identify and retain individuals with experience and
relationships in the markets in which we compete.





Our
success depends, in part, on our ability to identify and retain experienced key
management members with local expertise and relationships in our
market.  We expect that competition for qualified management will be
intense and that there will be a limited number of qualified persons with
knowledge of and experience in the community banking industry in our
markets.  Even if we identify individuals that we believe could assist
us in growing our presence in the market, we may be unable to recruit these
individuals away from more established banks.  In addition, the
process of identifying and recruiting individuals with the combination of skills
and attributes required to carry out our strategy is often
lengthy.  Our inability to identify, recruit, and retain talented
personnel would limit our growth and could materially adversely affect our
business, financial condition, and results of operations.





We
face strong competition for customers, which could prevent us from obtaining
customers and may cause us to pay higher interest rates to attract
customers.





The
banking business is highly competitive, and we experience competition in our
market from many other financial institutions.  We compete with
commercial banks, credit unions, savings and loan associations, mortgage banking
firms, consumer finance companies, securities brokerage firms, insurance
companies, money market funds, and other mutual funds, as well as other
super-regional, national, and international financial institutions that operate
offices in our primary market areas and elsewhere.





We
compete with these institutions both in attracting deposits and in making
loans.  In addition, we have to attract our customer base from other
existing financial institutions and from new residents.  Many of our
competitors are well-established, larger financial institutions, such as
Regions, Wachovia, SunTrust and Bank of America.  These institutions
offer some services, such as extensive and established branch networks and trust
services that we do not provide.  We also compete with local community
banks in our market.  There is a risk that we will not be able to
compete successfully with other financial institutions in our market, and that
we may have to pay higher interest rates to attract deposits, resulting in
reduced profitability.  In addition, competitors that are not
depository institutions are generally not subject to the extensive regulations
that apply to us.


11




We
may not be able to compete with our larger competitors for larger customers
because our lending limits are lower than theirs.





We are
limited in the amount we can loan a single borrower by the amount of the Bank’s
capital.  Our legal lending limit is 15% of the bank’s capital and
surplus, or $564,571 at December 31, 2007.  These limits are
significantly less than the limits for most of our competitors, and as a result
we will have difficulty in obtaining business from the larger businesses in our
market area.  We seek to sell loan participations to other financial
institutions to meet the needs of customers requiring loans above these
limits.  Nevertheless, because this amount is substantially lower than
the lending limit for most of our competitors, it is difficult for us to compete
for many loan relationships.





We
depend on the accuracy and completeness of information about clients and
counterparties and our financial condition could be adversely affected if we
rely on misleading information.





In
deciding whether to extend credit or to enter into other transactions with
clients and counterparties, we may rely on information furnished to us by or on
behalf of clients and counterparties, including financial statements and other
financial information. We also may rely on representations of clients and
counterparties as to the accuracy and completeness of that information and, with
respect to financial statements, on reports of independent auditors. For
example, in deciding whether to extend credit to clients, we may assume that a
customer’s audited financial statements conform with GAAP and present fairly, in
all material respects, the financial condition, results of operations and cash
flows of the customer. Our financial condition and results of operations could
be negatively affected to the extent we rely on financial statements that do not
comply with GAAP or are materially misleading.





Our
small to medium-sized business target markets may have fewer financial resources
to weather a downturn in the economy.





We target the banking and financial
services needs of small and medium-sized businesses.  These businesses
generally have fewer financial resources in terms of capital borrowing capacity
than larger entities.  If general economic conditions negatively
impact these businesses in the markets in which we operate, our business,
financial condition, and results of operations may be adversely
affected.





We
are subject to extensive regulation that could limit or restrict our
activities.





We
operate in a highly regulated industry and are subject to examination,
supervision, and comprehensive regulation by the OCC, the FDIC, and the Federal
Reserve Board. Our compliance with these regulations is costly and restricts
certain of our activities, including payment of dividends, mergers and
acquisitions, investments, loans and interest rates charged, interest rates paid
on deposits, and locations of branches. We must also meet regulatory capital
requirements. If we fail to meet these capital and other regulatory
requirements, our financial condition, liquidity, and results of operations
would be materially and adversely affected. Our failure to remain “well
capitalized” and “well managed” for regulatory purposes could affect customer
confidence, our ability to grow, our cost of funds and FDIC insurance, our
ability to pay dividends on our capital stock, and our ability to make
acquisitions.





The laws
and regulations applicable to the banking industry could change at any time, and
we cannot predict the effects of these changes on our business and
profitability. For example, new legislation or regulation could limit the manner
in which we may conduct our business, including our ability to obtain financing,
attract deposits, make loans and expand our business through opening new branch
offices. Many of these regulations are intended to protect depositors, the
public, and the FDIC, not shareholders. In addition, the burden imposed by these
regulations may place us at a competitive disadvantage compared to competitors
who are less regulated. The laws, regulations, interpretations, and enforcement
policies that apply to us have been subject to significant change in recent
years, sometimes retroactively applied, and may change significantly in the
future. Our cost of compliance with these laws and regulations could adversely
affect our ability to operate profitably. See “Supervision and Regulation.”
Moreover, as a regulated entity, we are subject to examination and supervision
and can be requested by our regulators to implement changes to our operations.
We have addressed areas of regulatory concern, including interest rate risk,
through the adoption of board resolutions and improved policies and
procedures.


12




Efforts
to comply with Sarbanes-Oxley Act will involve significant expenditures, and
non-compliance with the Sarbanes-Oxley Act may adversely affect us.





The
Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by
the Securities and Exchange Commission that are now applicable to us, have
increased the scope, complexity, and cost of corporate governance, reporting,
and disclosure practices.  We have experienced, and we expect to
continue to experience, greater compliance costs, including costs related to
internal controls, as a result of the Sarbanes-Oxley Act.  We expect
these rules and regulations to continue to increase our accounting, legal, and
other costs, and to make some activities more difficult, time consuming, and
costly.  In the event that we are unable to maintain or achieve
compliance with the Sarbanes-Oxley Act and related rules, we may be adversely
affected.





We are
evaluating our internal control systems in order to allow management to report
on, and our independent registered public accounting firm to attest to, our
internal control over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act.  If we identify significant deficiencies or
material weaknesses in our internal control over financial reporting that we
cannot remediate in a timely manner, or if we are unable to receive a positive
attestation from our independent registered public accounting firm with respect
to our internal control over financial reporting, the trading price of our
common stock could decline, or our ability to obtain any necessary equity or
debt financing could suffer. In this event, the liquidity of our common stock
would be severely limited and the market price of our common stock would likely
decline significantly.





In
addition, the rules adopted as a result of the Sarbanes-Oxley Act could make it
more difficult or more costly for us to obtain certain types of insurance,
including directors’ and officers’ liability insurance, which could make it more
difficult for us to attract and retain qualified persons to serve on our board
of directors or as executive officers.





Changes
in federal laws could adversely affect our wholesale mortgage
division.





Changes
in federal laws regarding the oversight of mortgage brokers and lenders could
adversely affect our ability to originate, finance, and sell our residential
mortgage loans. The enactment of federal laws, such as licensing requirements
for mortgage bankers, applicable to the types of mortgage loans we originate
could increase our costs of operations and adversely affect our origination
volume, which would negatively impact our business, financial condition, and
results of operation.





Weakness
in the real estate market, including the secondary residential mortgage loan
markets has adversely affected us and may continue to do so.





Significant
ongoing disruptions in the secondary market for residential mortgage loans have
limited the market for and liquidity of most mortgage loans other than
conforming Fannie Mae and Freddie Mac loans. At December 31, 2007, we held
approximately $2.8 million of loans available for sale that were not eligible
for purchase by these agencies. The effects of ongoing mortgage market
challenges, combined with the ongoing correction in residential real estate
market prices and reduced levels of home sales, could result in further price
reductions in single family home values, adversely affecting the value of
collateral securing mortgage loans held, mortgage loan originations and gains on
sale of mortgage loans. Declining real estate prices and higher interest rates
have caused higher delinquencies and losses on certain mortgage loans,
particularly second lien mortgages and home equity lines of credit. These trends
could continue. These conditions have resulted in losses, write downs and
impairment charges in the mortgage business, especially in the fourth quarter of
2007, and we have curtailed various product offerings and limited our mortgage
originations generally to Fannie Mae and Freddie Mac eligible mortgages.
Continued declines in real estate values, home sales volumes and financial
stress on borrowers as a result of job losses, interest rate resets on
adjustable rate mortgage loans or other factors could have further adverse
effects on borrowers that result in higher delinquencies and greater charge-offs
in future periods, which would adversely affect financial condition or results
of operations. In the event the allowance for loan losses is insufficient to
cover such losses, earnings, capital and parent company liquidity could be
adversely affected.


13


Our real estate
portfolios are exposed to weakness in the U.S. housing markets and the overall
state of the economy.





The
declines in home prices in many markets across the U.S., along with the reduced
availability of mortgage credit, have resulted in sharp increases in
delinquencies and losses in our portfolios of broker-originated,
out-of-footprint home equity lines and loans, nonprime mortgages, and loans
related to residential real estate construction and development. Further
declines in home prices coupled with an economic recession and associated rises
in unemployment levels could drive losses beyond that which is provided for in
the allowance for loan losses. In that event, our earnings and capital could be
adversely affected.








We
will face risks with respect to future expansion and acquisitions or
mergers.





Although
we do not have any current plans to do so, we may seek to acquire other
financial institutions or parts of those institutions.  We may also
expand into new markets or lines of business or offer new products or
services.  These activities would involve a number of risks,
including:





·
            taking
      additional time and creating expense associated with identifying and
      evaluating potential acquisitions and merger
  partners;


·
            using
      inaccurate estimates and judgments to evaluate credit, operations,
      management, and market risks with respect to the target institution or
      assets;


·
            diluting
      our existing shareholders in an
acquisition;


·
            taking
      additional time and creating expense associated with evaluating new
      markets for expansion, hiring experienced local management, and opening
      new offices, as there may be a substantial time lag between these
      activities before we generate sufficient assets and deposits to support
      the costs of the expansion;


·
            taking
      a significant amount of time negotiating a transaction or working on
      expansion plans, resulting in management’s attention being diverted from
      the operation of our existing
business;


·
            taking
      time and creating expense integrating the operations and personnel of the
      combined businesses;


·
            creating
      an adverse short-term effect on our results of operations;
    and


·
            losing
      key employees and customers as a result of an acquisition that is poorly
      received.


14




We have
never acquired another institution before, so we lack experience in handling any
of these risks.  There is also a risk that any expansion effort will
not be successful.





Our
directors and executive officers own a significant portion of our common stock
and can influence shareholder decisions and may vote to take actions adverse to
your interests.





Our
directors and executive officers, as a group, beneficially owned approximately
69.7% of our outstanding common stock as of December 31, 2007 of which
approximately 48.4% is owned by William R. Blanton.  As a result of
their ownership, the directors and officers will have the ability, by voting
their shares in concert, to influence the outcome of any matter submitted to our
shareholders for approval, including the election of directors.  The
directors and executive officers may vote to cause the company to take actions
with which you do not agree or that are not beneficial to you as a
shareholder.




Supervision
and Regulation





Both the
Company and the Bank are subject to extensive state and federal banking laws and
regulations that impose specific requirements or restrictions on and provide for
general regulatory oversight of virtually all aspects of our
operations.  These laws and regulations are generally intended to
protect depositors, not shareholders.  The following summary is
qualified by reference to the statutory and regulatory provisions
discussed.  Changes in applicable laws or regulations may have a
material effect on our business and prospects.  Our operations may be
affected by legislative changes and the policies of various regulatory
authorities.  We cannot predict the effect that fiscal or monetary
policies, economic control, or new federal or state legislation may have on our
business and earnings in the future.





The
following discussion is not intended to be a complete list of all the activities
regulated by the banking laws or of the impact of such laws and regulations on
our operations.  It is intended only to briefly summarize some
material provisions.





First
Century Bancorp.





We own
100% of the outstanding capital stock of the Bank, and therefore we are
considered to be a bank holding company under the federal Bank Holding Company
Act of 1956 (the “Bank Holding Company Act”). As a result, we are primarily
subject to the supervision, examination and reporting requirements of the Board
of Governors of the Federal Reserve (the "Federal Reserve") under the Bank
Holding Company Act and its regulations promulgated
thereunder.  Moreover, as a bank holding company of a bank located in
Georgia, we also are subject to the Georgia Department of Banking and
Finance.





Permitted
Activities. Under the Bank Holding
Company Act, a bank holding company is generally permitted to engage in, or
acquire direct or indirect control of more than 5% of the voting shares of any
company engaged in the following activities:





·
            banking
      or managing or controlling banks;




·
            furnishing
      services to or performing services for our subsidiaries;
    and




·
            any
      activity that the Federal Reserve determines to be so closely related to
      banking as to be a proper incident to the business of
    banking.





Activities
that the Federal Reserve has found to be so closely related to banking as to be
a proper incident to the business of banking include:


15




·
            factoring
      accounts receivable;




·
            making,
      acquiring, brokering or servicing loans and usual related
      activities;




·
            leasing
      personal or real property;




·
            operating
      a non-bank depository institution, such as a savings
      association;




·
            trust
      company functions;




·
            financial
      and investment advisory activities;




·
            conducting
      discount securities brokerage
activities;




·
            underwriting
      and dealing in government obligations and money market
      instruments;




·
            providing
      specified management consulting and counseling
  activities;




·
            performing
      selected data processing services and support
  services;




·
            acting
      as agent or broker in selling credit life insurance and other types of
      insurance in connection with credit transactions;
  and




·
            performing
      selected insurance underwriting
activities.





As a bank
holding company we also can elect to be treated as a “financial holding
company,” which would allow us to engage in a broader array of
activities.  In sum, a financial holding company can engage in
activities that are financial in nature or incidental or complementary to
financial activities, including insurance underwriting, sales and brokerage
activities, providing financial and investment advisory services, underwriting
services and limited merchant banking activities.  We have not sought
financial holding company status, but may elect such status in the future as our
business matures.  If we were to elect financial holding company
status, each insured depository institution we control would have to be well
capitalized, well managed, and have at least a satisfactory rating under the
Community Reinvestment Act (discussed below).





The
Federal Reserve has the authority to order a bank holding company or its
subsidiaries to terminate any of these activities or to terminate its ownership
or control of any subsidiary when it has reasonable cause to believe that the
bank holding company’s continued ownership, activity or control constitutes a
serious risk to the financial safety, soundness or stability of it or any of its
bank subsidiaries.





Change in
Control.  In addition, and subject to certain exceptions, the
Bank Holding Company Act and the Change in Bank Control Act, together with
regulations promulgated thereunder, require Federal Reserve approval prior to
any person or company acquiring “control” of a bank holding
company.  Control is conclusively presumed to exist if an individual
or company acquires 25% or more of any class of voting securities of a bank
holding company.  Control is rebuttably presumed to exist if a person
acquires 10% or more, but less than 25%, of any class of voting securities and
either the company has registered securities under Section 12 of the Securities
Exchange Act of 1934 or no other person owns a greater percentage of that class
of voting securities immediately after the transaction.  In certain
cases, a company may also be presumed to have control under the Bank Holding
Company Act if it acquires 5% or more of any class of voting securities of a
bank holding company.  Our common stock is registered under
Section 12 of the Securities Exchange Act.  The regulations
provide a procedure for rebutting control when ownership of any class of voting
securities is below 25%.


16


Source of
Strength.  In accordance with Federal Reserve Board policy, we
are expected to act as a source of financial strength to the Bank and to commit
resources to support the Bank in circumstances in which we might not otherwise
do so.  Under the Bank Holding Company Act, the Federal Reserve Board
may require a bank holding company to terminate any activity or relinquish
control of a non-bank subsidiary, other than a non-bank subsidiary of a bank,
upon the Federal Reserve's determination that such activity or control
constitutes a serious risk to the financial soundness or stability of any
depository institution subsidiary of a bank holding company.  Further,
federal bank regulatory authorities have additional discretion to require a bank
holding company to divest itself of any bank or non-bank subsidiaries if the
agency determines that divestiture may aid the depository institution’s
financial condition.  Further, any loans by a bank holding company to
a subsidiary bank are subordinate in right of payment to deposits and certain
other indebtedness of the subsidiary bank.  In the event of a bank
holding company’s bankruptcy, any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital of a subsidiary bank at a
certain level would be assumed by the bankruptcy trustee and entitled to
priority payment.





Capital
Requirements.  The Federal Reserve Board imposes certain
capital requirements on the bank holding company under the Bank Holding Company
Act, including a minimum leverage ratio and a minimum ratio of “qualifying”
capital to risk-weighted assets.  These requirements are essentially
the same as those that apply to the Bank and are described below under “First
Century Bank.”  Subject to our capital requirements and certain other
restrictions, we are able to borrow money to make a capital contribution to the
Bank, and these loans may be repaid from dividends paid from the Bank to the
Company.  Our ability to pay dividends depends on the Bank's ability
to pay dividends to us, which is subject to regulatory restrictions as described
below in “First Century Bank – Dividends.”  We are also able to raise
capital for contribution to the Bank by issuing securities without having to
receive regulatory approval, subject to compliance with federal and state
securities laws.





First
Century Bank





The Bank
operates as a national banking association incorporated under the laws of the
United States and subject to examination by the OCC.  Deposits in the
Bank are insured by the FDIC up to a maximum amount, which is currently $100,000
for each non-retirement depositor and $250,000 for certain retirement-account
depositors.  Accordingly, the FDIC also has enforcement authority over
the Bank.  Together, the OCC and the FDIC regulate or monitor
virtually all areas of the Bank’s operations, including:




·
            security
      devices and procedures;




·
            adequacy
      of capitalization and loss
reserves;




·
            loans;




·
            investments;




·
            borrowings;




·
            deposits;




·
            mergers;




·
            issuances
      of securities;




·
            payment
      of dividends;




·
            interest
      rates payable on deposits;




·
            interest
      rates or fees chargeable on loans;




·
            establishment
      of branches;




·
            corporate
      reorganizations;


17




·
            maintenance
      of books and records; and




·
            adequacy
      of staff training to carry on safe lending and deposit gathering
      practices.





The OCC
requires that the Bank maintain specified capital ratios of capital to assets
and imposes limitations on the Bank’s aggregate investment in real estate, bank
premises, and furniture and fixtures.  Two categories of regulatory
capital are used in calculating these ratios—Tier 1 capital and total
capital.  Tier 1 capital generally includes common equity, retained
earnings, a limited amount of qualifying preferred stock, and qualifying
minority interests in consolidated subsidiaries, reduced by goodwill and certain
other intangible assets, such as core deposit intangibles, and certain other
assets.  Total capital generally consists of Tier 1 capital plus Tier
2 capital, which includes the allowance for loan losses, preferred stock that
did not qualify as Tier 1 capital, certain types of subordinated debt and a
limited amount of other items.





The Federal Reserve
guidelines contain an exemption from the capital requirements for “small bank
holding companies”which in 2006 were amended to cover most bank holding
companies with less than $500 million in total assets that do not have a
material amount of debt or equity securities outstanding registered with the
SEC.  Although our class of common stock is registered under Section
12 of the Securities Exchange Act, we believe that because our stock is not
listed on any exchange or otherwise actively traded, the Federal Reserve Board
will interpret its new guidelines to mean that we qualify as a small bank
holding company.  Nevertheless, our Bank remains subject to these
capital requirements.





The Bank
is required to calculate three ratios:  the ratio of Tier 1 capital to
risk-weighted assets, the ratio of total capital to risk-weighted assets, and
the “leverage ratio,” which is the ratio of Tier 1 capital to average assets on
a non-risk-adjusted basis. For the two ratios of capital to risk-weighted
assets, certain assets, such as cash and U.S. Treasury securities, have a zero
risk weighting. Others, such as commercial and consumer loans, have a 100% risk
weighting. Some assets, notably purchase-money loans secured by first-liens on
residential real property, are risk-weighted at 50%. Assets also include amounts
that represent the potential funding of off-balance sheet obligations such as
loan commitments and letters of credit. These potential assets are assigned to
risk categories in the same manner as funded assets. The total assets in each
category are multiplied by the appropriate risk weighting to determine
risk-adjusted assets for the capital calculations.





Under the
terms of the Formal Agreement, the Bank was required to maintain a total capital
ratio to risk-weighted assets of at least 14.0% and a Tier 1 Capital to
average assets of at least 9.0%.  At December 31, 2007, our ratio of
total capital to risk-weighted assets was 16.6%, our ratio of Tier 1
Capital to risk-weighted assets was 15.4% and our ratio of Tier 1 Capital
to average assets was 9.4%.





Since the
Formal Agreement has been terminated, the minimum guideline for the ratio of
total capital to risk-weighted assets is 8% and Tier 1 Capital must equal
at least 4% of risk-weighted assets.  New banks are generally required
to maintain a minimum ratio of Tier 1 Capital to average assets of 8.0% for
the first three years of operations.  To be eligible to be classified
as “well-capitalized,” the Bank must generally maintain a total capital ratio of
10% or more, a Tier 1 capital ratio of 6% or more, and a leverage ratio of 5% or
more.  In addition, the Federal Reserve has established minimum
leverage ratio guidelines for bank holding companies.  These
guidelines provide for a minimum ratio of Tier 1 Capital to average assets,
less goodwill and other specified intangible assets, of 3% for bank holding
companies that meet specified criteria, including having the highest regulatory
rating and implementing the Federal Reserve’s risk-based capital measure for
market risk.  All other bank holding companies generally are required
to maintain a leverage ratio of at least 4%.  The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without reliance on intangible
assets.  The Federal Reserve considers the leverage ratio and other
indicators of capital strength in evaluating proposals for expansion or new
activities.


18


Failure
to meet capital guidelines could subject a bank or bank holding company to a
variety of enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on accepting
brokered deposits, and other restrictions on its business.  As
described above, significant additional restrictions can be imposed on
FDIC-insured depository institutions that fail to meet applicable capital
requirements.  See “—First Century Bank—Prompt Corrective
Action.”





Prompt Corrective
Action.  The Federal Deposit Insurance Corporation Improvement
Act of 1991 (“FDICIA”) established a “prompt corrective action” program in which
every bank is placed in one of five regulatory categories, depending primarily
on its regulatory capital levels.  The OCC and the other federal
banking regulators are permitted to take increasingly severe action as a bank’s
capital position or financial condition declines below the “Adequately
Capitalized” level described below.  Regulators are also empowered to
place in receivership or require the sale of a bank to another depository
institution when a bank’s leverage ratio reaches two percent. Better capitalized
institutions are generally subject to less onerous regulation and supervision
than banks with lesser amounts of capital.  The OCC’s regulations set
forth five capital categories, each with specific regulatory
consequences.  The categories are:





·
            Well
      Capitalized — The institution exceeds the required minimum level for each
      relevant capital measure.  A well capitalized institution is one
      (i) having a total capital ratio of 10% or greater, (ii) having
      a Tier 1 capital ratio of 6% or greater, (iii) having a leverage
      capital ratio of 5% or greater and (iv) that is not subject to any
      order or written directive to meet and maintain a specific capital level
      for any capital measure.





·
            Adequately
      Capitalized — The institution meets the required minimum level for each
      relevant capital measure.  No capital distribution may be made
      that would result in the institution becoming
      undercapitalized.  An adequately capitalized institution is one
      (i) having a total capital ratio of 8% or greater, (ii) having a
      Tier 1 capital ratio of 4% or greater and (iii) having a leverage
      capital ratio of 4% or greater or a leverage capital ratio of 3% or
      greater if the institution is rated composite 1 under the CAMELS (Capital,
      Assets, Management, Earnings, Liquidity and Sensitivity to market risk)
      rating system.





·
            Undercapitalized
      — The institution fails to meet the required minimum level for any
      relevant capital measure.  An undercapitalized institution is
      one (i) having a total capital ratio of less than 8% or
      (ii) having a Tier 1 capital ratio of less than 4% or (iii) having a
      leverage capital ratio of less than 4%, or if the institution is rated a
      composite 1 under the CAMELS rating system, a leverage capital ratio of
      less than 3%.





·
            Significantly
      Undercapitalized — The institution is significantly below the required
      minimum level for any relevant capital measure.  A significantly
      undercapitalized institution is one (i) having a total capital ratio
      of less than 6% or (ii) having a Tier 1 capital ratio of less than 3%
      or (iii) having a leverage capital ratio of less than
    3%.





·
            Critically
      Undercapitalized — The institution fails to meet a critical capital level
      set by the appropriate federal banking agency.  A critically
      undercapitalized institution is one having a ratio of tangible equity to
      total assets that is equal to or less than
2%.


19


If the
OCC determines, after notice and an opportunity for hearing, that the Bank is in
an unsafe or unsound condition, the regulator is authorized to reclassify the
Bank to the next lower capital category (other than critically undercapitalized)
and require the submission of a plan to correct the unsafe or unsound
condition.





If the
Bank is not well capitalized, it cannot accept brokered time deposits without
prior FDIC approval and, if approval is granted, cannot offer an effective yield
in excess of 75 basis points on interests paid on deposits of comparable size
and maturity in such institution’s normal market area for deposits accepted from
within its normal market area, or national rate paid on deposits of comparable
size and maturity for deposits accepted outside the Bank’s normal market
area.  Moreover, if the Bank becomes less than adequately capitalized,
it must adopt a capital restoration plan acceptable to the OCC that is subject
to a limited performance guarantee by the corporation.  The Bank also
would become subject to increased regulatory oversight, and is increasingly
restricted in the scope of its permissible activities.  Each company
having control over an undercapitalized institution also must provide a limited
guarantee that the institution will comply with its capital restoration
plan.  Except under limited circumstances consistent with an accepted
capital restoration plan, an undercapitalized institution may not
grow.  An undercapitalized institution may not acquire another
institution, establish additional branch offices or engage in any new line of
business unless determined by the appropriate Federal banking agency to be
consistent with an accepted capital restoration plan, or unless the FDIC
determines that the proposed action will further the purpose of prompt
corrective action.  The appropriate federal banking agency may take
any action authorized for a significantly undercapitalized institution if an
undercapitalized institution fails to submit an acceptable capital restoration
plan or fails in any material respect to implement a plan accepted by the
agency.  A critically undercapitalized institution is subject to
having a receiver or conservator appointed to manage its affairs and for loss of
its charter to conduct banking activities.





An
insured depository institution may not pay a management fee to a bank holding
company controlling that institution or any other person having control of the
institution if, after making the payment, the institution, would be
undercapitalized.  In addition, an institution cannot make a capital
distribution, such as a dividend or other distribution that is in substance a
distribution of capital to the owners of the institution if following such a
distribution the institution would be undercapitalized.  Thus, if
payment of such a management fee or the making of such would cause the Bank to
become undercapitalized, it could not pay a management fee or dividend to
us.





As of
December 31, 2007, the Bank was deemed to be “well capitalized.”





Standards for
Safety and Soundness. The FDIC also requires the
federal banking regulatory agencies to prescribe, by regulation or guideline,
operational and managerial standards for all insured depository institutions
relating to: (i) internal controls, information systems and internal audit
systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; and (v) asset growth. The agencies
also must prescribe standards for asset quality, earnings, and stock valuation,
as well as standards for compensation, fees and benefits.  The federal
banking agencies have adopted regulations and Interagency Guidelines Prescribing
Standards for Safety and Soundness to implement these required standards. These
guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired.  Under the regulations, if the OCC
determines that the Bank fails to meet any standards prescribed by the
guidelines, the agency may require the Bank to submit to the agency an
acceptable plan to achieve compliance with the standard, as required by the
OCC.  The final regulations establish deadlines for the submission and
review of such safety and soundness compliance plans.


20


Regulatory
Examination. The OCC requires the Bank to prepare
annual reports on the Bank’s financial condition and to conduct an annual audit
of its financial affairs in compliance with its minimum standards and
procedures.




All
insured institutions must undergo regular on-site examinations by their
appropriate banking agency.  The cost of examinations of insured
depository institutions and any affiliates may be assessed by the appropriate
federal banking agency against each institution or affiliate as it deems
necessary or appropriate.  Insured institutions are required to submit
annual reports to the FDIC, their federal regulatory agency, and state
supervisor when applicable.  The FDIC has developed a method for
insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insureddepository
institution.  The federal banking regulatory agencies to prescribe, by
regulation, standards for all insured depository institutions and depository
institution holding companies relating, among other things, to the
following:







·
            internal
      controls;




·
            information
      systems and audit systems;




·
            loan
      documentation;




·
            credit
      underwriting;




·
            interest
      rate risk exposure; and




·
            asset
      quality.





Deposit Insurance
and Assessments.  Deposits at the Bank are insured by the
Deposit Insurance Fund (the “DIF”) as administered by the FDIC, up to the
applicable limits established by law—generally $100,000 per account holder and
$250,000 for certain retirement account holders.  In November 2006,
the FDIC adopted final regulations that set the deposit insurance assessment
rates that took effect in 2007.  The FDIC uses a risk-based assessment
system that assigns insured depository institutions to one of four risk
categories based on three primary sources of information—supervisory risk
ratings for all institutions, financial ratios for most institutions, including
the Company, and long-term debt issuer ratings for large institutions that have
such ratings.  The new premium rate structure imposes a minimum
assessment of from five to seven cents for every $100 of domestic deposits on
institutions that are assigned to the lowest risk category.  This
category is expected to encompass substantially all insured institutions,
including the Bank.  A one time assessment credit is available to
offset up to 100% of the 2007 assessment.  Any remaining credit can be
used to offset up to 90% of subsequent annual assessments through
2010.  For institutions assigned to higher risk categories, the
premium that took effect in 2007 ranges from ten cents to forty-three cents per
$100 of deposits.




The FDIC
also collects a deposit-based assessment from insured financial institutions on
behalf of The Financing Corporation (“FICO”).  The funds from these
assessments are used to service debt issued by FICO in its capacity as a
financial vehicle for the Federal Savings and Loan Insurance
Corporation.  The FICO assessment rate is set quarterly and in 2007
ranged from 1.22 cents to 1.14 cents per $100 of assessable
deposits.  For the first quarter of 2008, the FICO assessment rate was
1.12 cents per $100 of assessable deposits.





Transactions with
Affiliates and Insiders.The Company is a legal entity separate and
distinct from the Bank and its other subsidiaries.  Various legal
limitations restrict the Bank from lending or otherwise supplying funds to the
Company or its non-bank subsidiaries.  The Company and the Bank are
subject to Sections 23A and 23B of the Federal Reserve Act and Federal Reserve
Regulation W.  Section 23A of the Federal Reserve Act places
limits on the amount of loans or extensions of credit to, or investments in, or
certain other transactions with, affiliates and on the amount of advances to
third parties collateralized by the securities or obligations of
affiliates.  The aggregate of all covered transactions is limited in
amount, as to any one affiliate, to 10% of the Bank’s capital and surplus and,
as to all affiliates combined, to 20% of the Bank’s capital and
surplus.  Furthermore, within the foregoing limitations as to amount,
each covered transaction must meet specified collateral
requirements.  The Bank is forbidden to purchase low quality assets
from an affiliate.


21


Section 23B
of the Federal Reserve Act, among other things, prohibits an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at the time for comparable
transactions with nonaffiliated companies.





Regulation
W generally excludes all non-bank and non-savings association subsidiaries of
banks from treatment as affiliates, except to the extent that the Federal
Reserve Board decides to treat these subsidiaries as affiliates. The regulation
also limits the amount of loans that can be purchased by a bank from an
affiliate to not more than 100% of the bank’s capital and surplus.





The Bank
is also subject to certain restrictions on extensions of credit to executive
officers, directors, certain principal shareholders, and their related
interests.  Such extensions of credit (i) must be made on
substantially the same terms, including interest rates, and collateral, as those
prevailing at the time for comparable transactions with third parties and
(ii) must not involve more than the normal risk of repayment or present
other unfavorable features.





Commercial Real
Estate Lending.The Bank’s lending operations may be subject
to enhanced scrutiny by federal banking regulators based on its concentration of
commercial real estate loans.  On December 6, 2006, the federal
banking regulators issued final guidance to remind financial institutions of the
risk posed by commercial real estate (“CRE”) lending
concentrations.  CRE loans generally include land development,
construction loans and loans secured by multifamily property, and nonfarm,
nonresidential real property where the primary source of repayment is derived
from rental income associated with the property.  The guidance
prescribes the following guidelines for its examiners to help identify
institutions that are potentially exposed to significant CRE risk and may
warrant greater supervisory scrutiny:




·
            total
      reported loans for construction, land development and other land represent
      100% or more of the institutions total capital,
  or




·
            total
      commercial real estate loans represent 300% or more of the institution’s
      total capital, and the outstanding balance of the institution’s commercial
      real estate loan portfolio has increased by 50% or more during the prior
      36 months.





Branching.  National
banks are required by the National Bank Act to adhere to branch office banking
laws applicable to state banks in the states in which they are
located.  Under current Georgia law, the Bank may open branch offices
throughout Georgia with the prior approval of the OCC.  In addition,
with prior regulatory approval, the Bank is able to acquire existing banking
operations in Georgia.   Furthermore, federal legislation permits
interstate branching, including out-of-state acquisitions by bank holding
companies, interstate branching by banks if allowed by state law, and interstate
merging by banks.  Georgia law, with limited exceptions, currently
permits branching across state lines only through interstate
mergers.





Anti-Tying
Restrictions.Under amendments to the Bank Holding Company Act
and Federal Reserve regulations, a bank is prohibited from engaging in certain
tying or reciprocity arrangements with its customers.  In general, a
bank may not extend credit, lease, sell property, or furnish any services or fix
or vary the consideration for these on the condition that (i) the customer
obtain or provide some additional credit, property, or services from or to the
bank, the bank holding company or subsidiaries thereof or (ii) the customer
may not obtain some other credit, property, or services from a competitor,
except to the extent reasonable conditions are imposed to assure the soundness
of the credit extended.  Certain arrangements are permissible: a bank
may offer combined-balance products and may otherwise offer more favorable terms
if a customer obtains two or more traditional bank products; and certain foreign
transactions are exempt from the general rule.  A bank holding company
or any bank affiliate also is subject to anti-tying requirements in connection
with electronic benefit transfer services.


22


Community
Reinvestment Act.  The Community Reinvestment Act requires that
the OCC evaluate the record of the Bank in meeting the credit needs of its local
community, including low and moderate income neighborhoods.  These
factors are also considered in evaluating mergers, acquisitions, and
applications to open a branch or facility.  Failure to adequately meet
these criteria could impose additional requirements and limitations on the
Bank.





Finance
Subsidiaries.Under the Gramm-Leach-Bliley Act (the “GLBA”), subject to
certain conditions imposed by their respective banking regulators, national and
state-chartered banks are permitted to form “financial subsidiaries” that may
conduct financial or incidental activities, thereby permitting bank subsidiaries
to engage in certain activities that previously were
impermissible.  The GLBA imposes several safeguards and restrictions
on financial subsidiaries, including that the parent bank’s equity investment in
the financial subsidiary be deducted from the bank’s assets and tangible equity
for purposes of calculating the bank’s capital adequacy.   In
addition, the GLBA imposes new restrictions on transactions between a bank and
its financial subsidiaries similar to restrictions applicable to transactions
between banks and non-bank affiliates.





Consumer
Protection Regulations.Activities of the Bank are subject to a variety
of statutes and regulations designed to protect consumers.  Interest
and other charges collected or contracted for by the Bank are subject to state
usury laws and federal laws concerning interest rates.  The Bank’s
loan operations are also subject to federal laws applicable to credit
transactions, such as:




·
            the
      federal Truth-In-Lending Act, governing disclosures of credit terms to
      consumer borrowers;




·
            the
      Home Mortgage Disclosure Act of 1975, requiring financial institutions to
      provide information to enable the public and public officials to determine
      whether a financial institution is fulfilling its obligation to help meet
      the housing needs of the community it
serves;




·
            the
      Equal Credit Opportunity Act, prohibiting discrimination on the basis of
      race, creed or other prohibited factors in extending
    credit;




·
            the
      Fair Credit Reporting Act of 1978, governing the use and provision of
      information to credit reporting
agencies;




·
            the
      Fair Debt Collection Act, governing the manner in which consumer debts may
      be collected by collection agencies;
and




·
            the
      rules and regulations of the various federal agencies charged with the
      responsibility of implementing such federal
  laws.


23




The
deposit operations of the Bank also are subject to:





·
            the
      Right to Financial Privacy Act, which imposes a duty to maintain
      confidentiality of consumer financial records and prescribes procedures
      for complying with administrative subpoenas of financial records;
      and




·
            the
      Electronic Funds Transfer Act and Regulation E issued by the Federal
      Reserve Board to implement that Act, which governs automatic deposits to
      and withdrawals from deposit accounts and customers’ rights and
      liabilities arising from the use of automated teller machines and other
      electronic banking services.





Enforcement
Powers.  The Bank and its “institution-affiliated parties,”
including its management, employees, agents, independent contractors and
consultants such as attorneys and accountants and others who participate in the
conduct of the financial institution’s affairs, are subject to potential civil
and criminal penalties for violations of law, regulations or written orders of a
government agency. These practices can include the failure of an institution to
timely file required reports or the filing of false or misleading information or
the submission of inaccurate reports.  Civil penalties may be as high
as $1,000,000 a day for such violations.  Criminal penalties for some
financial institution crimes have been increased to twenty years.  In
addition, regulators are provided with greater flexibility to commence
enforcement actions against institutions and institution-affiliated
parties.  Possible enforcement actions include the termination of
deposit insurance.  Furthermore, banking agencies’ power to issue
cease-and-desist orders were expanded.  Such orders may, among other
things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnifications or
guarantees against loss.  A financial institution may also be ordered
to restrict its growth, dispose of certain assets, rescind agreements or
contracts, or take other actions as determined by the ordering agency to be
appropriate.





Anti-Money
Laundering.Financial institutions must maintain anti-money
laundering programs that include established internal policies, procedures, and
controls; a designated compliance officer; an ongoing employee training program;
and testing of the program by an independent audit function. The Company and the
Bank are also prohibited from entering into specified financial transactions and
account relationships and must meet enhanced standards for due diligence and
“knowing your customer” in their dealings with foreign financial institutions
and foreign customers. Financial institutions must take reasonable steps to
conduct enhanced scrutiny of account relationships to guard against money
laundering and to report any suspicious transactions, and recent laws provide
law enforcement authorities with increased access to financial information
maintained by banks. Anti-money laundering obligations have been substantially
strengthened as a result of the USA Patriot Act, enacted in 2001 and renewed in
2006. Bank regulators routinely examine institutions for compliance with these
obligations and are required to consider compliance in connection with the
regulatory review of applications. The regulatory authorities have been active
in imposing “cease and desist” orders and money penalty sanctions against
institutions found to be violating these obligations.





USA PATRIOT
Act/Bank Secrecy Act.The USA PATRIOT Act, amended, in part,
the Bank Secrecy Act and provides for the facilitation of information sharing
among governmental entities and financial institutions for the purpose of
combating terrorism and money laundering by enhancing anti-money laundering and
financial transparency laws, as well as enhanced information collection tools
and enforcement mechanics for the U.S. government, including: (i) requiring
standards for verifying customer identification at account opening;
(ii) rules to promote cooperation among financial institutions, regulators,
and law enforcement entities in identifying parties that may be involved in
terrorism or money laundering; (iii) reports by nonfinancial trades and
businesses filed with the Treasury Department’s Financial Crimes Enforcement
Network for transactions exceeding $10,000; and (iv) filing suspicious
activities reports if a bank believes a customer may be violating U.S. laws and
regulations and requires enhanced due diligence requirements for financial
institutions that administer, maintain, or manage private bank accounts or
correspondent accounts for non-U.S. persons.  Bank regulators
routinely examine institutions for compliance with these obligations and are
required to consider compliance in connection with the regulatory review of
applications.


24


Under the
USA PATRIOT Act, the FBI can send to the banking regulatory agencies lists of
the names of persons suspected of involvement in terrorist
activities.  The Bank can be requested to search its records for any
relationships or transactions with persons on those lists.  If the
Bank finds any relationships or transactions, it must file a suspicious activity
report and contact the FBI.





The
Office of Foreign Assets Control (“OFAC”), which is a division of the U.S.
Department of the Treasury, is responsible for helping to insure that United
States entities do not engage in transactions with “enemies” of the United
States, as defined by various Executive Orders and Acts of
Congress.  OFAC has sent, and will send, our banking regulatory
agencies lists of names of persons and organizations suspected of aiding,
harboring or engaging in terrorist acts.  If the Bank finds a name on
any transaction, account or wire transfer that is on an OFAC list, it must
freeze such account, file a suspicious activity report and notify the
FBI.  The Bank has appointed an OFAC compliance officer to oversee the
inspection of its accounts and the filing of any notifications.  The
Bank actively checks high-risk OFAC areas such as new accounts, wire transfers
and customer files.  The Bank performs these checks utilizing
software, which is updated each time a modification is made to the lists
provided by OFAC and other agencies of Specially Designated Nationals and
Blocked Persons.





Privacy and
Credit Reporting.Financial institutions are required to
disclose their policies for collecting and protecting confidential
information.  Customers generally may prevent financial institutions
from sharing nonpublic personal financial information with nonaffiliated third
parties except under narrow circumstances, such as the processing of
transactions requested by the consumer.  Additionally, financial
institutions generally may not disclose consumer account numbers to any
nonaffiliated third party for use in telemarketing, direct mail marketing or
other marketing to consumers.  It is the Bank’s policy not to disclose
any personal information unless required by law.  The OCC and the
federal banking agencies have prescribed standards for maintaining the security
and confidentiality of consumer information.  The Bank is subject to
such standards, as well as standards for notifying consumers in the event of a
security breach.





Like
other lending institutions, the Bank utilizes credit bureau data in its
underwriting activities.  Use of such data is regulated under the
Federal Credit Reporting Act on a uniform, nationwide basis, including credit
reporting, prescreening, sharing of information between affiliates, and the use
of credit data.  The Fair and Accurate Credit Transactions Act of 2003
(the “FACT Act”) permits states to enact identity theft laws that are not
inconsistent with the conduct required by the provisions of the FACT
Act.





Check
21.  The Check Clearing for the 21st Century Act gives
“substitute checks,” such as a digital image of a check and copies made from
that image, the same legal standing as the original paper check.  Some
of the major provisions include:




·
            allowing
      check truncation without making it
mandatory;




·
            demanding
      that every financial institution communicate to accountholders in writing
      a description of its substitute check processing program and their rights
      under the law;




·
            legalizing
      substitutions for and replacements of paper checks without agreement from
      consumers;


25




·
            retaining
      in place the previously mandated electronic collection and return of
      checks between financial institutions only when individual agreements are
      in place;




·
            requiring
      that when accountholders request verification, financial institutions
      produce the original check (or a copy that accurately represents the
      original) and demonstrate that the account debit was accurate and valid;
      and




·
            requiring
      the re-crediting of funds to an individual’s account on the next business
      day after a consumer proves that the financial institution has
      erred.





Effect of
Governmental Monetary Policies.  Our earnings are
affected by domestic economic conditions and the monetary and fiscal policies of
the United States government and its agencies.  The Federal Reserve
Bank’s monetary policies have had, and are likely to continue to have, an
important impact on the operating results of commercial banks through its power
to implement national monetary policy in order, among other things, to curb
inflation or combat a recession.  The monetary policies of the Federal
Reserve Board have major effects upon the levels of bank loans, investments and
deposits through its open market operations in United States government
securities and through its regulation of the discount rate on borrowings of
member banks and the reserve requirements against member bank
deposits.  It is not possible to predict the nature or impact of
future changes in monetary and fiscal policies.





Proposed
Legislation and Regulatory Action.  New regulations
and statutes are regularly proposed that contain wide-ranging proposals for
altering the structures, regulations, and competitive relationships of the
nation’s financial institutions.  We cannot predict whether or in what
form any proposed regulation or statute will be adopted or the extent to which
our business may be affected by any new regulation or statute.





Formal
Agreement





On August 18, 2004, the Bank entered a
Formal Agreement with the OCC.  The Formal Agreement required specific
actions to strengthen or correct identified weaknesses.  The Bank
agreed to maintain a Total Capital to risk-weighted assets ratio of at least
fourteen percent (14%) and a Tier 1 Capital to adjusted total assets ratio
of at least nine percent (9%).





In addition, the Bank committed
to:




·
            adopt
      a written strategic plan covering at least a three-year
      period;




·
            review
      and revise its written loan policy;




·
            obtain
      an independent review of its loan program;
and




·
            review
      the adequacy, and establish a program to maintain the adequacy of, its
      allowance for loan and lease
losses.





On
February 5, 2008, the OCC issued a Termination of the Agreement by and between
First Century Bank, National Association and the Comptroller of the Currency
pursuant to which the OCC determined that the protection of the depositors,
other customers and shareholders of the Bank as well as the Bank’s safe and
sound operation do not require the continued existence of the
agreement.




26




Federal
Reserve Resolutions





On October 21, 2004, pursuant to the
request of the Federal Reserve Bank of Atlanta, the Company's Board of Directors
adopted resolutions (the "Resolutions") that provide that the Company shall not
(without the prior written approval of the Federal Reserve):




·
            incur
      debt (or take any action, such as refinancing) that would cause a change
      in debt instruments or a change in any of the terms of any existing debt
      instruments;




·
            declare
      or pay dividends to its shareholders;
or




·
            reduce
      its capital position by purchasing or redeeming treasury
      stock.





The Resolutions also require quarterly
financial information on the parent company, the subsidiary bank and written
progress on the financial condition of the organization be provided to the
Federal Reserve.





Payment
of Dividends




The
Company is a legal entity separate and distinct from the Bank.  The
principal sources of the Company’s cash flow, including cash flow to pay
dividends to its shareholders, are dividends that the Bank pays to its sole
shareholder, the Company.  Statutory and regulatory limitations apply
to the Bank’s payment of dividends to the Company as well as to the Company’s
payment of dividends to its shareholders.  The Bank is precluded from
paying dividends until it is cumulatively profitable.  The Company is
currently prohibited from paying dividends without Federal Reserve approval
pursuant to the Resolutions.





The Bank
is required by federal law to obtain prior approval of the Office of the
Comptroller of the Currency for payments of dividends if the total of all
dividends declared by our board of directors in any year will exceed
(1) the total of the Bank’s net profits for that year, plus (2) the
Bank’s retained net profits of the preceding two years, less any required
transfers to surplus.





The
payment of dividends by the Company and the Bank may also be affected by other
factors, such as the requirement to maintain adequate capital above regulatory
guidelines.  If, in the opinion of the Office of the Comptroller of
the Currency, the Bank were engaged in or about to engage in an unsafe or
unsound practice, the Office of the Comptroller of the Currency could require,
after notice and a hearing, that the Bank stop or refrain engaging in the
practice.  The federal banking agencies have indicated that paying
dividends that deplete a depository institution’s capital base to an inadequate
level would be an unsafe and unsound banking practice.  Under the
Federal Deposit Insurance Corporation Improvement Act of 1991, a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized.  Moreover, the
federal agencies have issued policy statements that provide that bank holding
companies and insured banks should generally only pay dividends out of current
operating earnings.  See “—First Century Bank—Prompt Corrective
Action” above.





Item
      2.
            Description
      of Property.





The Bank
began operations in a modular temporary office of approximately 2,200 square
feet on property located at the corner of Pearl Nix Extension and Dorsey Street
in Gainesville, Georgia.  In August 2004 the Company completed
construction of its permanent main office at 807 Dorsey Street, Gainesville,
Georgia.  The main office provides approximately 12,000 square feet
and also serves as the Company’s headquarters.  The main office
facilities include a teller line, customer service area, offices for the Bank’s
lenders and officers, a vault with safe deposit boxes, drive-in teller lanes and
a drive-up automated teller machine.


27


In May
2007, the Bank leased 2,050 square feet of space for a Loan Processing Office
(LPO) at 3915 Harrison Road, Ste 400, Loganville, Georgia.  The office
was to serve as headquarters for the bank’s SBA Department.  The
department was dissolved in January 2008.





In
November 2007, the bank subleased 3,477 square feet of space for an Online
Mortgage Division (CenturyPoint Mortgage).





Item
      3.
            Legal
      Proceedings.





There are
no material legal proceedings to which the Company is a party or of which any of
its properties are subject, nor are there material proceedings known to the
Company to be contemplated by any governmental
authority.  Additionally, the Company is unaware of any material
proceedings, pending or contemplated, in which any director, officer or
affiliate, or any principal security holder of the company or any associate of
any of the foregoing, is a party or has an interest adverse to the
Company.




Item
      4.
            Submission
      of Matters to a Vote of
Security-Holders.





The Company held its 2007 Annual
Meeting of Shareholders on November 15, 2007, where the following two directors
were elected to serve as Class I Directors for a three-year term expiring in
2010: Dr. Wendell Turner and R. K. Whitehead, III.  There were
1,137,682 shares cast as a vote in favor of the election of Dr. Turner,
1,100 shares cast as a vote against his election, and 0 shares
abstained.  There were 1,137,682 shares cast as a vote in favor of the
election of Mr. Whitehead, 1,100 shares as a vote against his election, and 0
shares were abstained.


28


PART
II





Item
      5.
            Market
      for Common Equity, Related Stockholder Matters and Small Business Issuer
      Purchases of Equity Securities.





As of January 17, 2008, FCB had
1,732,458 shares of common stock outstanding and approximately 838 shareholders
of record.  There is currently no
market for our shares of common stock, and it is not likely that an active
trading market will develop for the shares in the future.  In 2007, we
were aware of a few trades at prices ranging from $2.25 to
$2.71.  There are no present plans for the common stock to be traded
on any stock exchange or over-the-counter-market.  There is only
incomplete information about trades of our shares and the prices at which any
shares have traded.





In April 2007, William R.
Blanton, purchased 738,008 shares of our common stock at $2.71 per share, for a
total investment of $2 million. The shares were sold under the exemption from
registration provided by Section 4(2) of the Securities Act of 1933 and Rule 506
of Regulation D under the Securities Act.  We also issued Mr. Blanton
warrants to purchase up to 738,008 shares at $2.71 per share. The warrants do
not have an expiration date.  We received proceeds of approximately
$2,000,000 less fees and expenses related to the sale of the shares, which we
used for working capital purposes. There were no brokerages or underwriting
commissions paid in connection with the sale of the shares.





On May 4,
2007, FCB redeemed 35,000 shares of preferred stock at $10.00 per share that it
had issued at the same price per share in 2006 to each of its
directors.





In
September 2007, two new members of the board of directors purchased 445 shares
each from the Company for the price of $2.25 per share.  There were no
brokerage or underwriting commissions paid in the private
placement.  The stock was sold under the exemption from registration
provided by Section 4(2) of the Securities Act of 1933.





In
December 2007, we completed a private placement of Series B Preferred Stock, no
par value, for $10.00 per share, selling a total of $750,000 worth of
shares.  The investors also received a warrant to acquire one share of
common stock for each share of Series B Preferred Stock purchased in the
offering at an exercise price of $1.50 per share, which we believe was the fair
market value of the common stock on the date of issuance of the
warrants.  The warrants have no expiration date.  As a
result of the issuance of these warrants, the exercise price of a Mr. Blanton’s
prior warrants to purchase 738,008 shares of our common stock at $2.71 per share
was automatically adjusted to $1.50 per share.  The warrants relating
to this private placement also contain a similar provision for automatic
adjustments of the exercise price for the shares if we issue a subsequent
warrant with an exercise price that is less than $1.50 per
share.  There were no brokerage or underwriting commissions paid in
the private placement.  The stock was sold solely to accredited,
sophisticated investors under the exemption from registration provided by
Section 4(2) of the Securities Act of 1933.





We have
not declared or paid any cash dividends on our common stock since our
inception.  For the foreseeable future, we do not intend to declare
cash dividends.  We intend to retain earnings to grow our business and
strengthen our capital base.  Our ability to pay dividends depends on
the ability of our subsidiary, First Century Bank, to pay dividends to
us.  Statutory and regulatory limitations apply to the Bank’s payment
of dividends to the Company as well as to the Company’s payment of dividends to
its shareholders.  The Bank is precluded from paying dividends until
it is cumulatively profitable.  The Company is currently prohibited
from paying dividends without Federal Reserve approval pursuant to the
Resolutions.  The Bank is required by federal law to obtain prior
approval of the Office of the Comptroller of the Currency for payments of
dividends if the total of all dividends declared by our board of directors in
any year will exceed (1) the total of the Bank’s net profits for that year,
plus (2) the Bank’s retained net profits of the preceding two years, less
any required transfers to surplus.


29




Item
      6.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.





This
discussion and analysis is intended to assist you in understanding our financial
condition and results of operations.  You should read this commentary
in conjunction with the financial statements and the related notes and the other
statistical information included elsewhere in this report, as well as with an
understanding of our short operating history.





General





First Century Bancorp. opened for
business through its banking subsidiary, First Century Bank, on March 25,
2002.





The following discussion describes our
results of operations for 2007 as compared to 2006 and also analyzes our
financial condition as of December 31, 2007 as compared to December 31,
2006.  Like most community banks, we derive a significant portion of
our income from interest we receive on our loans and investments.  Our
primary sources of funds for making these loans and investments are our deposits
and borrowings, on which we pay interest.  Consequently, one of the
key measures of our success is our amount of net interest income, or the
difference between the income on our interest-earning assets, such as loans and
investments, and the expense on our interest-bearing liabilities, such as
deposits and borrowings.  Another key measure is the spread between
the yield we earn on these interest-earning assets and the rate we pay on our
interest-bearing liabilities.





We have included a number of tables to
assist in our description of these measures.  For example, the
“Average Balances” table shows the average balance during 2007 and 2006 of each
category of our assets and liabilities, as well as the yield we earned or the
rate we paid with respect to each category.  A review of this table
shows that our loans typically provide higher interest yields than do other
types of interest earning assets, which is why we intend to channel a
substantial percentage of our earning assets into our loan
portfolio.  Similarly, the “Rate/Volume Analysis” table helps
demonstrate the impact of changing interest rates and changing volume of assets
and liabilities during the years shown.  We also track the sensitivity
of our various categories of assets and liabilities to changes in interest
rates, and we have included a “Sensitivity Analysis Table” to help explain
this.  Finally, we have included a number of tables that provide
detail about our investment securities, our loans, and our
deposits.





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





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





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


30


Critical
Accounting Policies





We have adopted various accounting
policies, which govern the application of accounting principles generally
accepted in the United States of America, in the preparation of our consolidated
financial statements.  Our significant accounting policies are
described in note 1 in the footnotes to the consolidated financial statements at
December 31, 2007 included elsewhere in this annual report.





We believe that the allowance for loan
losses is a critical accounting policy that requires the most significant
judgments and estimates used in preparation of our consolidated financial
statements.  Please refer to the portion of management’s discussion
and analysis of financial condition and results of operations that addresses the
allowance for loan losses for a description of our processes and methodology for
determining the allowance for loan losses.





Formal
Agreement





On August 18, 2004, the Bank entered a
formal written agreement with the OCC, which set forth a series of actions
necessary to correct identified weaknesses.  On February 5, 2008, the
OCC determined that the protection of the depositors, other customers and
shareholders of the Bank as well as the Bank’s safe and sound operation did not
require the continued existence of the agreement, and the OCC terminated the
formal agreement.





The table below describes each
requirement of the formal agreement with the OCC, and the Bank’s corrective
action and efforts to correct the issues identified in the formal
agreement.





Requirement
            
            Corrective
      Action/StatusAppoint
      a compliance committee to monitor the Bank’s compliance with the Formal
      Agreement.
            
            In
      Compliance.The Bank’s entire Board of Directors is
      responsible for monitoring the Bank’s compliance with the Formal
      Agreement.Obtain
      a permanent President and Senior Lender.
            
            In
      Compliance.On October 25, 2006, R. Allen Smith agreed
      to serve as the Company’s and the Bank’s permanent President and
      CEO.  Lance G. Jones was named the Bank’s new permanent Senior
      Lender on October 19, 2006.By
      September 30, 2004, achieve and maintain the following capital
      ratios:
              ·Total Capital at least equal to 12% of risk-weighted assets;
      and
              ·Tier 1 Capital at least equal to 8% of adjusted total
      assets.
            
            In
      Compliance.At the end of April 2007, the Bank achieved
      and has since maintained Total Capital at least equal to 12% of
      risk-weighted assets and Tier 1 Capital at least equal to 9% of adjusted
      total assets.By
      March 31, 2005, achieve and maintain the following capital
      ratios:
              ·Total Capital at least equal to 14% of risk-weighted assets;
      and
              ·Tier 1 Capital at least equal to 9% of adjusted total
      assets.
            
            In
      Compliance.At the end of April 2007, the Bank achieved
      and has since maintained Total Capital at least equal to 12% of
      risk-weighted assets and Tier 1 Capital at least equal to 9% of adjusted
      total assets.





31




Requirement
            
            Corrective
      Action/StatusDevelop,
      implement and thereafter ensure Bank adherence to a three-year capital
      program.
            
            In
      Compliance.An updated three-year capital plan has been
      completed and approved by the Board of Directors on November 15, 2007 and
      was forwarded to the OCC for its review.Revise
      the Bank’s written loan policy.
            
            In
      Compliance.The Board of Directors has reviewed and
      revised the Bank’s written loan policy.  This policy has been
      adopted and implemented by the Board and will be monitored for Bank
      adherence.  A copy of the policy was forwarded to the
      OCC.Employ
      a qualified consultant to perform an ongoing asset quality review of the
      Bank until such time as an ongoing internal asset quality review system is
      developed by the Board, implemented and demonstrated to be
      effective.
            
            In
      Compliance.The Bank has entered into a one time service
      agreement with Professional Bank Services (PBS) of Louisville, Kentucky to
      perform the 2007 periodic credit review examination.  The review
      was completed in August 2007.Obtain
      current and satisfactory credit information on all loans over $25,000
      lacking such information and obtain proper collateral documentation on all
      loans.
            
            In
      Compliance.Current and satisfactory credit information
      has been obtained on all loans over $25,000.  Proper collateral
      documentation has also been obtained on all loans identified with
      collateral deficiencies. Any loans for which the Bank was unable to obtain
      satisfactory credit or collateral documentation have been classified by
      the Bank.Adopt,
      implement and thereafter take all available measures to ensure the Bank’s
      adherence to a written program designed to eliminate the basis of
      criticism of assets criticized in the Report of Examination, in any
      subsequent Report of Examination or by any internal or external loan
      review, or in any list provided to management by the National Bank of
      Examiners.  The Board or a designated committee, shall conduct a
      review of this process on a quarterly basis to determine the status of
      each criticized asset or criticized portion thereof that equals or exceeds
      $50,000, management’s adherence to the program adopted pursuant to this
      requirement, the status and effectiveness of the written program, and the
      need to revise the program or take alternative action.
            
            In
      Compliance.The Bank has adopted and implemented the
      appropriate measures to ensure the Bank’s adherence to the written program
      designed to eliminate the basis of criticism of assets criticized in the
      Report of Examination, in any subsequent Report of Examination or by any
      internal or external loan review, or in any list provided to management by
      the National Bank of Examiners.  The Compliance Committee
      reviews a list of all criticized assets each month to ensure Bank
      adherence and forwards a copy of this list to the
  OCC.


32




Requirement
            
            Corrective
      Action/StatusReview
      on a quarterly basis the Bank’s Allowance for Loan Losses and establish a
      program for maintenance of an adequate allowance.  Any
      deficiency in the allowance shall be remedied in the quarter it is
      discovered by additional provisions from earnings.  Written
      documentation shall also be maintained indicating the required factors
      considered and conclusions reached by the Board in determining the
      adequacy of the allowance.
            
            In
      Compliance.The Board has established a methodology to
      analyze and review the adequacy of the Bank’s Allowance for Loan Losses,
      which is reviewed on a monthly basis to ensure adequate reserves will be
      maintained at the end of the fiscal quarter.  Any deficiency in
      the amount of reserves maintained in the loan loss allowance will be
      remedied by the end of the quarter as required by the Formal
      Agreement.  Written documentation is also maintained in the file
      indicating the factors considered and conclusions reached by the Board in
      determining the adequacy of the Allowance for Loan and Lease
      Losses.Adopt,
      implement and thereafter ensure Bank adherence to a written strategic plan
      for the Bank covering at least a three-year period.
            
            In
      Compliance.A three-year strategic plan has been
      completed and approved by the Board of Directors on November 15, 2007 and
      was forwarded to the OCC for its
review.





Pursuant
to the terms of the formal agreement, we committed to undertake certain actions,
including the maintenance of specified capital levels, retention of senior
management and the formulation of strategic and capital plans. Following
discussions with the OCC, on January 26, 2006, our Board of Directors passed a
resolution to identify, and enter into an agreement with, a strategic partner
who would either purchase the entire institution or a significant interest in
the institution, and the OCC agreed to a ninety day waiver of certain
commitments contained in the formal agreement.





On May 5,
2006, we entered into a merger agreement with El Banco Financial Corporation
(“El Banco”), previously known as Nuestra Tarjeta de Servicios, Inc., that
provided, among other things, for us to be merged into El Banco in a two-step
merger.  On October, 25, 2006, the parties mutually agreed to
terminate the pending merger agreement after concluding that receipt of
regulatory approval would not be forthcoming on a timely enough basis to satisfy
each party’s business requirements.





In April
2007, William R. Blanton, purchased 738,008 shares of our common stock at $2.71
per share, for a total investment of $2 million. We also issued Mr. Blanton
warrants to purchase up to 738,008 shares at $2.71 per share. The warrants do
not have an expiration date.  We received proceeds of approximately
$2,000,000 less fees and expenses related to the sale of the shares, which we
used for working capital purposes.





In
December 2007, we completed a private placement of Series B Preferred Stock, no
par value, for $10.00 per share, selling a total of $750,000 worth of
shares.  The investors also received a warrant to acquire one share of
common stock for each share of Series B Preferred Stock purchased in the
offering at an exercise price of $1.50 per share, which we believe was the fair
market value of the common stock on the date of issuance of the
warrants.  The warrants have no expiration date.  As a
result of the issuance of these warrants, the exercise price of a Mr. Blanton’s
prior warrants to purchase 738,008 shares of our common stock at $2.71 per share
was automatically adjusted to $1.50 per share.  The warrants relating
to this private placement also contain a similar provision for automatic
adjustments of the exercise price for the shares if we issue a subsequent
warrant with an exercise price that is less than $1.50 per
share.


33


Results
of Operations





A net loss of $1,746,000 was incurred
for 2006 up $589,000 from the net loss of $1,157,000 that was incurred during
2006.  Our operational results depend to a large degree on three
factors: our net interest income, our provision for loan losses, and our
non-interest expenses.  Net interest income is the difference between
the interest income received on investments (such as loans, investment
securities, and federal funds sold) and the interest expense on deposit
liabilities and borrowings.  Net interest income decreased to $764,000
for the year ended December 31, 2007 compared to $1,144,000 for the year ended
December 31, 2006.  This decrease was due to a lower
volume of loan demand during the last twelve months along with pay-out of
participation loans originated outside of our lending
area.  Additionally, this decrease is part of an ongoing effort by
management to seek and reduce classified and criticized loans by payoff or by
their exit from the Bank.  This decrease was also due to interest
foregone on classified loans being placed in a non-earning status.





The provision for loan losses for 2007
was $115,000 versus the $0 that was expensed for 2006.  The current
allowance for loan losses at December 31, 2007 reflects management's estimate of
potential losses inherent and remaining in the loan portfolio.  We
consider the current allowance for loan losses to be adequate to sustain any
estimated or potential losses based on the Bank’s internal analysis and on
external credit review examinations conducted by regulatory authorities and by
third-party review services.   Management continues to monitor
closely its portfolio’s credit quality in efforts fo identify and reduce
criticized and classified loans.  The allowance for loan loss was
$275,920 (1.43% of total gross loans) at December 31, 2007 compared to
$445,629 (2.19% of total gross loans) at December 31,
2006.  See
“Provision and Allowance for Loan Losses” below for further
discussion.





Non-interest income for the year ended
December 31, 2007 totaled $60,000 compared to $86,000 in
2006.  Non-interest income includes service charges on deposit
accounts, customer service fees, and mortgage origination fee
income.  Non-interest expenses in 2007 were $2,455,000 compared to
$2,387,000 in 2006.  The largest component of non-interest expenses is
salaries and employee benefits, which totaled $1,161,000 for the year ended
December 31, 2007, compared to $943,000 for the year ended December 31,
2006.





Net
Interest Income





For the years ended December 31, 2007
and 2006, net interest income totaled $764,000 and $1,144,000,
respectively.  This decrease of $380,000 was due to a lower volume of
loan demand during 2007 as well as interest foregone due to classified loans
being placed in a non-earning status.  In addition, this reduction was
part of an ongoing effort by management to seek and reduce classified and
criticized loans by payoff or by their exit from the Bank.Interest
income from loans, including fees, was $1,635,000, which represented a lower
yield of 8.64% in 2007 compared to the 8.70% yield earned in
2006.  The falling interest rate environment of 2007 had a negative
impact on the bank’s adjustable rate loans.  Interest expense totaled
$1,453,000 for the year ended December 31, 2007 compared to $1,347,000 in
2006.  The net interest margin realized on earning assets and the
interest rate spread were 2.47% and 2.07%, respectively, for the year ended
December 31, 2007, as compared to an interest rate margin of 3.42% and interest
rate spread of 3.05% in 2006.


34


Average
Balances and Interest Rates





The table below details the average
balances outstanding for each category of interest earning assets and
interest-bearing liabilities for 2007 and 2006 and the average rate of interest
earned or paid thereon.  Average balances have been derived from the
daily balances throughout the period indicated.




For the Year Ended December 31,
      2007
              
              
              For the Year Ended December 31,
      2006(Amounts
      presented in thousands)Average
              
              
              
              
              
              Yield/
              
              
              Average
              
              
              
              
              
              Yield/Balance
              
              
              Interest
              
              
              Rate
              
              
              Balance
              
              
              Interest
              
              
              RateAssets:Interest
      earning assets:Loans
      (including loan fees)
              
              $
              18,446
              
              
              $
              1,635
              
              
              
              8.64
              %
              
              $
              23,625
              
              
              $
              2,068
              
              
              
              8.75
              %Investment
      securities and other investments
              
              
              9,077
              
              
              
              416
              
              
              
              4.59
              %
              
              
              8,621
              
              
              
              364
              
              
              
              4.22
              %Interest
      bearing deposits
              
              
              426
              
              
              
              23
              
              
              
              5.25
              %
              
              
              186
              
              
              
              9
              
              
              
              4.84
              %Federal
      funds sold
              
              
              2,969
              
              
              
              143
              
              
              
              4.76
              %
              
              
              974
              
              
              
              50
              
              
              
              5.13
              %Total
      interest earning assets
              
              
              30,918
              
              
              
              2,217
              
              
              
              7.04
              %
              
              
              33,406
              
              
              
              2,491
              
              
              
              7.42
              %Other
      non-interest earnings assets
              
              
              3,520
              
              
              
              
              
              
              
              
              
              
              
              3,109Total
      assets
              
              $
              34,438
              
              
              
              
              
              
              
              
              
              
              $
              36,515Liabilities
      and shareholders’ equity:Interest-bearing
      liabilities:Deposits:Interest-bearing
      demand
              
              $
              1,518
              
              
              $
              44
              
              
              
              2.93
              %
              
              $
              1,166
              
              
              $
              32
              
              
              
              2.74
              %Savings
      and money market
              
              
              916
              
              
              
              18
              
              
              
              1.92
              %
              
              
              1,233
              
              
              
              19
              
              
              
              1.54
              %Time
              
              
              23,731
              
              
              
              1,239
              
              
              
              5.23
              %
              
              
              27,001
              
              
              
              1,219
              
              
              
              4.52
              %Federal
      funds purchased
              
              
              180
              
              
              
              9
              
              
              
              2.08
              %
              
              
              20
              
              
              
              1
              
              
              
              5.00
              %Borrowings
              
              
              2,882
              
              
              
              143
              
              
              
              4.99
              %
              
              
              1,403
              
              
              
              76
              
              
              
              5.42
              %Total
      interest-bearing liabilities
              
              
              29,227
              
              
              
              1,453
              
              
              
              4.97
              %
              
              
              30,823
              
              
              
              1,347
              
              
              
              4.37
              %Other
      non-interest bearing liabilities
              
              
              1,987
              
              
              
              
              
              
              
              
              
              
              
              2,485Shareholders’
      equity
              
              
              3,224
              
              
              
              
              
              
              
              
              
              
              
              3,207Total
      liabilities and shareholders’ equity
              
              $
              34,438
              
              
              
              
              
              
              
              
              
              
              $
              36,515Excess
      of interest-earning assets over interest-bearing
    liabilities
              
              $
              1,691
              
              
              
              
              
              
              
              
              
              
              $
              2,583Ratio
      of interest-earning assts to interest-bearing liabilities
              
              
              105.79
              %
              
              
              
              
              
              
              
              
              
              
              108.38
              %Net
      interest income
              
              
              
              
              
              $
              764
              
              
              
              
              
              
              
              
              
              
              $
              1,144Net
      interest spread
              
              
              
              
              
              
              
              
              
              
              2.07
              %
              
              
              
              
              
              
              
              
              
              
              3.05
              %Net
      interest margin
              
              
              
              
              
              
              
              
              
              
              2.47
              %
              
              
              
              
              
              
              
              
              
              
              3.42
              %




Non-accrual
loans are included in average loan balances during the periods
presented.





Volume/Rate
Analysis





Net interest income can also be
analyzed in terms of the impact of changing rates and changing
volume.  The following table describes the extent to which changes in
interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected our interest income and interest
expense during the periods indicated.  Changes attributed to both rate
and volume have been allocated on a pro rata basis.


35




2007
      Compared to 2006Increase
      (decrease) due to changes inVolume
            
            
            Rate
            
            
            NetChangeInterest
      income on:Loans
      (including loan fees)
            
            $
            (424
            )
            
            $
            (9
            )
            
            $
            (433
            )Investment
      securities
            
            
            25
            
            
            
            27
            
            
            
            52Interest
      bearing deposits
            
            
            12
            
            
            
            2
            
            
            
            14Federal
      funds sold
            
            
            93
            
            
            
            -
            
            
            
            93(294
            )
            
            
            (20
            )
            
            
            (274
            )Interest
      expense on:Deposits:Interest-bearing
      demand
            
            
            10
            
            
            
            1
            
            
            
            11Savings
      and money market
            
            
            (7
            )
            
            
            7
            
            
            
            -Time
            
            
            (182
            )
            
            
            202
            
            
            
            20Borrowings
            
            
            75
            
            
            
            (8
            )
            
            
            67Federal
      funds purchased
            
            
            8
            
            
            
            -
            
            
            
            8(96
            )
            
            
            204
            
            
            
            106$
            (198
            )
            
            $
            (184
            )
            
            $
            (380
            )





Interest
Rate Sensitivity and Asset Liability Management





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





Net interest income is the primary
component of net income for financial institutions.  Net interest
income is affected by the timing and magnitude of repricing of as well as the
mix of interest sensitive and non-interest sensitive assets and
liabilities.  “Gap” is a static measurement of the difference between
the contractual maturities or repricing dates of interest sensitive assets and
interest sensitive liabilities within the following twelve
months.  Gap is an attempt to predict the behavior of the Bank’s net
interest income in general terms during periods of movement in interest
rates.  In general, if the Bank is liability sensitive, more of its
interest sensitive liabilities are expected to reprice within twelve months than
its interest sensitive assets over the same period.  In a rising
interest rate environment, liabilities repricing more quickly is expected to
decrease net interest income.  Alternatively, decreasing interest
rates would be expected to have the opposite effect on net interest income since
liabilities would theoretically be repricing at lower interest rates more
quickly than interest sensitive assets.  Although it can be used as a
general predictor, Gap as a predictor of movements in net interest income has
limitations due to the static nature of its definition and due to its inherent
assumption that all assets will reprice immediately and fully at the
contractually designated time.  At December 31, 2007, the Bank, as
measured by Gap, is in a liability sensitive position within one
year.  Management has several tools available to it to evaluate and
affect interest rate risk, including deposit pricing policies and changes in the
mix of various types of assets and liabilities.


36


We also measure the actual effects that
repricing opportunities have on earnings through simulation modeling, referred
to as earnings at risk.  For short-term interest rate risk, the Bank’s
model simulates the impact of balance sheet strategies on net interest income,
pre-tax income, and net income.  The model includes interest rate
simulations to test the impact of rising and falling interest rates on projected
earnings.  The Bank determines the assumptions that are used in the
model.





The following table summarizes the
amounts of interest-earning assets and interest-bearing liabilities outstanding
at December 31, 2007, that are expected to mature, prepay, or reprice in
each of the future time periods shown.  Except as stated below, the
amount of assets or liabilities that mature or reprice during a particular
period was determined in accordance with the contractual terms of the asset or
liability.  Adjustable rate loans are included in the period in which
interest rates are next scheduled to adjust rather than in the period in which
they are due, and fixed rate loans and mortgage-backed securities are included
in the periods in which they are anticipated to be repaid based on scheduled
maturities. The Bank’s savings accounts and interest-bearing demand accounts,
which are generally subject to immediate withdrawal, are included in the “Three
Months or Less” category, although historical experience has proven these
deposits to be more stable over the course of a year.





At
      December 31, 2007
              Maturing or Repricing
      in
              (dollars
      in thousands)Three
      Months
            
            
            Four
      Months
            
            
            1
      to 5
            
            
            Over
      5or Less
            
            
            to 12 Months
            
            
            Years
            
            
            Years
            
            
            TotalInterest-earning
      assets:Investment
      securities
            
            $
            1,941
            
            
            $
            269
            
            
            $
            2,827
            
            
            $
            3,367
            
            
            $
            8,404Federal
      funds sold
            
            
            6,238
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            6,238Loans
            
            
            2,805
            
            
            
            6,164
            
            
            
            8,053
            
            
            
            2,283
            
            
            
            19,305Total
      interest-bearing assets
            
            
            10,984
            
            
            
            6,433
            
            
            
            10,880
            
            
            
            5,650
            
            
            
            33,947Interest-bearing
      liabilities:Deposits:Savings
      and demand
            
            
            2,482
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,482Time
      deposits
            
            
            5,451
            
            
            
            17,822
            
            
            
            3,685
            
            
            
            -
            
            
            
            26,958Other
      Borrowings
            
            
            -
            
            
            
            4,000
            
            
            
            -
            
            
            
            -
            
            
            
            4,000Total
      interest-bearing liabilities
            
            
            7,933
            
            
            
            21,822
            
            
            
            3,685
            
            
            
            -
            
            
            
            33,440Interest
      sensitive difference per period
            
            
            3,051
            
            
            
            (15,389
            )
            
            
            7,165
            
            
            
            5,650
            
            
            $
            507Cumulative
      interest sensitivity difference
            
            $
            3,051
            
            
            $
            (12,338
            )
            
            $
            (5,173
            )
            
            $
            477Cumulative
      difference to total interest earning assets
            
            
            8.99
            %
            
            
            (36.34
            )%
            
            
            (15.24
            )%
            
            
            1.41
            %





At December 31, 2007, the difference
between the Bank’s liabilities and assets repricing or maturing within one year
was $9,294,000.  Due to an excess of liabilities re-pricing or
maturing within one year, an increase in interest rates could cause the Bank's
net interest income to decrease.  Because the liabilities that will be
re-pricing in the next year were originally made at higher promotional rates, we
believe that our liability sensitive position will not substantially impact net
interest income despite rising interest rates, since deposit rates are typically
managed based on loan demand and current liquidity levels.


37


Certain shortcomings are inherent in
the method of analysis presented in the foregoing table.  For example,
although particular assets and liabilities may have similar maturities or
periods of repricing, they may reflect changes in market interest rates
differently.  Additionally, some assets, such as adjustable-rate
mortgages, have features that restrict changes in interest rates, both on a
short-term basis and over the life of the asset.  Other factors which
may affect the assumptions made in the table include changes in interest rates,
pre-payment rates, early withdrawal levels, and the ability of borrowers to
service their debt.





Provision
and Allowance for Loan Losses





The provision for loan losses is the
charge to operating earnings that management believes is necessary to maintain
the allowance for loan losses at an adequate level.  The provision
charged to expense was $115,000 for the year ended December 31, 2007 as
compared to the $0 that was charged against earnings in 2006.  The
loan portfolio decreased by approximately $1,059,000 during the year ended
December 31, 2007.  The allowance for loan losses was $276,000, or
1.43% of gross loans at December 31, 2007 compared to $446,000, or 2.19% of
gross loans at December 31, 2006.  Management considers the current
allowance for loan losses to be adequate to sustain any estimated or potential
losses based on the Bank’s internal analysis and on external credit review
examinations conducted by regulatory authorities and by third-party review
services.





In 2004,
prior to the replacement of senior management, there was an increase in the
provision for loan losses, which was a direct result of the deterioration of the
Bank’s credit quality as problem loans were identified by management, credit
review services and regulators.  In an effort to correct this and
other identified weaknesses, the Company entered a formal agreement with the OCC
dated August 8, 2004, under which the Company committed to undertake certain
actions, including the maintenance of specified capital levels, retention of
senior management and the formulation of strategic and capital
plans.  By 2005, the allowance for loan loss decreased 21%, as a
result of the reduction in criticized and classified loans during
2005.  As indicated above, there was no provision for loan losses
recorded for the twelve months ended December 31, 2006, and only $115,000
recorded for the twelve months ended December 31, 2007..  These
differences continue to demonstrate the improvement in the credit quality of the
Bank's loan portfolio and of management's efforts to identify and reduce
criticized and classified loans.  The formal agreement with the OCC
was terminated in February 2008.





In general, loans do not begin to show
signs of credit deterioration or default until they have been outstanding for
some period of time, a process we refer to as “seasoning.”  As a
result, a portfolio of older loans will usually behave more predictably than a
newer portfolio.  Because our loan portfolio is relatively new, the
current level of delinquencies and defaults may not be representative of the
level that will prevail when the portfolio becomes more seasoned, which may be
higher than current levels.There are risks inherent
in making all loans, including risks with respect to the period of time over
which loans may be repaid, risks resulting from changes in economic and industry
conditions, risks inherent in dealing with individual borrowers, and, in the
case of a collateralized loan, risks resulting from uncertainties about the
future value of the collateral.  We anticipate maintaining an
allowance for loan losses based on, among other things, historical experience,
an evaluation of economic conditions, and regular reviews of delinquencies and
loan portfolio quality.  Our judgment about the adequacy of the
allowance is based upon a number of assumptions about future events, which we
believe to be reasonable, but which may not prove to be
accurate.  Thus, there is a risk that charge-offs in future periods
could exceed the allowance for loan losses or that substantial additional
increases in the allowance for loan losses could be required.  Our
loan loss reserve methodology incorporates any anticipated write-downs and
charge-offs in all problem loans identified by management, credit review
services and regulatory authorities.  We consider the current
allowance for loan losses to be adequate to sustain any estimated or potential
losses based on the Bank’s internal analysis and on credit review examinations
conducted by regulatory authorities and third-party review
services.


38


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





December
      31,2007
            
            
            2006Amount
            
            
            Percent
      of loans in
                each
      category to total
                loans
            
            
            Amount
            
            
            Percent
      of loans in
                each
      category to total
                loansCommercial,
      financial and agricultural
            
            $
            77
            
            
            
            10
            %
            
            $
            94
            
            
            
            21
            %Real
      estate - mortgage
            
            
            95
            
            
            
            46
            %
            
            
            263
            
            
            
            59
            %Real
      estate - construction
            
            
            40
            
            
            
            36
            %
            
            
            31
            
            
            
            7
            %Consumer
            
            
            64
            
            
            
            8
            %
            
            
            58
            
            
            
            13
            %$
            276
            
            
            
            100
            %
            
            $
            446
            
            
            
            100
            %





The following table presents a summary
of changes in the allowance for loan losses for the past two years (dollar
amounts are presented in thousands):





For
      the years ended December 31,2007
            
            
            2006Balance
      at the beginning of period
            
            $
            446
            
            
            $
            785Charge-offs:Commercial,
      financial and agricultural
            
            
            106
            
            
            
            155Real
      estate - mortgage
            
            
            136
            
            
            
            144Real
      estate - construction
            
            
            -
            
            
            
            -Consumer
            
            
            93
            
            
            
            73Total
      Charged-off
            
            
            335
            
            
            
            372Recoveries:Commercial,
      financial and agricultural
            
            
            2
            
            
            
            1Real
      estate - mortgage
            
            
            4
            
            
            
            -Consumer
            
            
            44
            
            
            
            32Total
      Recoveries
            
            
            50
            
            
            
            33Net
      Charge-offs
            
            
            285
            
            
            
            339Provision
      for Loan Loss
            
            
            115
            
            
            
            -Balance
      at end of period
            
            $
            276
            
            
            $
            446Total
      loans at end of period
            
            $
            19,305
            
            
            $
            20,364Average
      loans outstanding
            
            $
            19,632
            
            
            $
            23,625As
      a percentage of average loans:Net
      loans charged-off
            
            
            1.45
            %
            
            
            1.44
            %Provision
      for loan losses
            
            
            .59
            %
            
            
            -Allowance
      for loan losses as a percentage of:Year
      end loans
            
            
            1.43
            %
            
            
            2.19
            %




39




The following table summarizes
non-performing assets and the income that would have been reported on
non-accrual loans as of December 31, 2007 and 2006 (amounts are presented in
thousands):





December
      31,2007
            
            
            2006Other
      real estate and repossessions
            
            $
            98
            
            
            $
            97Non-accrual
      loans
            
            
            851
            
            
            
            210Accruing
      loans 90 days or more past due
            
            
            -
            
            
            
            -Total
      non-performing assets
            
            $
            949
            
            
            $
            307As
      a percentage of gross loans:
            
            
            4.92
            %
            
            
            1.51
            %





A loan is placed on non-accrual status
when, in management's judgment, the collection of interest appears doubtful. As
a result of management's ongoing review of the loan portfolio, loans are
classified as non-accrual when management believes that, after considering
economic and business conditions and collection efforts, the borrower’s
financial condition is such that collection of interest is doubtful. Generally,
loans are placed on nonacrual status when principal or interest payments are
past due for more than 90 days.  Exceptions are allowed for loans past
due greater than 90 days when such loans are well secured and in process of
collection.  At December 31, 2007 there were $851,000 in loans
outstanding, which were accounted for as non-accrual loans whereas there were
$210,000 in outstanding loans accounted for as non-accrual loans at December 31,
2006, a difference of $641,000, or 75%.  Non performing assets
increased $642,000, or 209% from December 31, 2006 to December 31,
2007.  Interest income that would have been reported on the
non-accrual loans in 2007 totaled $34,151 and in 2006 totaled
$21,981.  Interest income recognized on impaired loans approximated
$97,000 and $9,300 in 2007 and 2006, respectively.





The Bank classifies all loans whose
collection status is in doubt.  As of December 31, 2007, there were no
loans not currently past due, on non-accrual, or restructured where the Bank had
serious doubts regarding the borrower(s) ability to repay the debt.





Non-interest
Income and Expense





Non-interest income for the year ended
December 31, 2007 totaled $60,000 as compared to $86,000 for the year ended
December 31, 2006.  This decrease in non-interest income was primarily
due to the $40,000 decrease in service charges and fees on deposit.





Total non-interest expense for the year
ended December 31, 2007 was $2,455,000 as compared to $2,387,000 for the same
period in 2006.  Salaries and benefits, the largest component of
non-interest expense, totaled $1,161,000 for the year ended December 31,
2007, compared to $943,000 for the same period a year ago.  Salary and
benefits expense increased primarily due to the opening of the SBA and Mortgage
Departments.  Occupancy totaled $357,000 for the year ended
December 31, 2007, compared to $339,000 for the year ended December 31,
2006.  Occupancy expense increased primarily due to the increase in
fixed assets aquired for the SBA and Mortgage
Departments.  Professional fees totaled $352,000 for the year ended
December 31, 2007, compared to $369,000 for 2006.





Other non-interest expenses were
$585,000 for the year ended December 31, 2007 as compared to $737,000 for the
year ended December 31, 2006.  This decrease is due primarily to a
provision to other real estate expense of $209,000 for 2006.


40





Income
Taxes





The Company will be subject to taxation
whenever taxable income is generated.  As of December 31, 2007, the
Company had federal and state net operating loss carryforwards for tax purposes
of approximately $8,098,000 and $6,118,000, respectively, which will expire
beginning in 2022 if not previously utilized.





Financial
Condition





Total assets increased $5,407,000, or
16% from December 31, 2006 to December 31, 2007.  The primary source
of the increase was in federal funds sold and due from banks, which increased
$7,012,000, or 524%, during the year ended December 31, 2007.  The
Bank increased the funds in anticipation of loans being generated by the SBA and
Mortgage Departments.  Investment securities available-for-sale
decreased $667,000 from $9,071,000 at December 31, 2006 to $8,404,000 at
December 31, 2007. Federal funds sold increased $5,397,000 from $841,000 at
December 31, 2006 to $6,238,000 at December 31, 2007.





Total deposits increased $2,784,000, or
10%, from December 31, 2006 to December 31, 2007.  This increase was
also part of management’s efforts to increase funds for anticipated
lending.  In addition, the Bank’s local deposit market is very
competitive, and the Bank will at times lose deposits to financial institutions
paying the highest and most attractive interest rates and terms.  If
needed, management believes it can raise the Bank’s interest rates or match
local deposit rates to attract new funds or retain existing
deposits.





Loans





Gross loans totaled $19,305,000 at
December 31, 2007, a decrease of $1,059,000, or 5% since December 31,
2006.  This reduction was part of an ongoing effort by management to
seek and reduce classified and criticized loans by payoff or by their exit from
the bank.  However, management anticipated that these credits would be
replaced by SBA loans they were not due to market condtions.  The bank
is investigating other avenues to generate loan growth aside from SBA loans
until the market improves.  Balances within the major loans receivable
categories as of December 31, 2007 and December 31, 2006 are as follows (amounts
are presented in thousands):





2007
            
            
            
            
            
            2006Commercial,
      financial and agricultural
            
            $
            3,339
            
            
            
            17
            %
            
            
            4,293
            
            
            
            21
            %Real
      estate – mortgage
            
            
            13,865
            
            
            
            72
            %
            
            
            12,052
            
            
            
            59
            %Real
      estate – construction
            
            
            509
            
            
            
            3
            %
            
            
            1,291
            
            
            
            6
            %Consumer
            
            
            1,592
            
            
            
            8
            %
            
            
            2,728
            
            
            
            14
            %$
            19,305
            
            
            
            100
            %
            
            
            20,364
            
            
            
            100
            %


41





As of December 31, 2007, maturities of
loans in the indicated classifications were as follows (amounts are presented in
thousands):





Commercial
            
            
            Real
      Estate
              Mortgage
            
            
            Real
      Estate
              Construction
            
            
            Consumer
            
            
            TotalWithin
      1 year
            
            $
            2,530
            
            
            $
            5,162
            
            
            $
            509
            
            
            $
            768
            
            
            $
            8,9691
      to 5 years
            
            
            809
            
            
            
            6,466
            
            
            
            -
            
            
            
            778
            
            
            
            8,053Over
      5 years
            
            
            -
            
            
            
            2,237
            
            
            
            -
            
            
            
            46
            
            
            
            2,283Totals
            
            $
            3,339
            
            
            $
            13,865
            
            
            $
            509
            
            
            $
            1,592
            
            
            $
            19,305





As of December 31, 2007, the interest
terms of loans in the indicated classification for the indicated maturity ranges
are as follows (amounts are presented in thousands):





Fixed
      Interest
              Rates
            
            
            Variable
              Interest
              Rates
            
            
            TotalCommercial,
      financial and agriculturalWithin
      1 year
            
            $
            1,500
            
            
            $
            1,030
            
            
            $
            2,5301
      to 5 years
            
            
            561
            
            
            
            248
            
            
            
            809Over
      5 years
            
            
            -
            
            
            
            -
            
            
            
            -Real
      estate – MortgageWithin
      1 year
            
            $
            3,563
            
            
            $
            1,599
            
            
            $
            5,1621
      to 5 years
            
            
            4,912
            
            
            
            1,554
            
            
            
            6,466Over
      5 years
            
            
            181
            
            
            
            2,056
            
            
            
            2,237Real
      estate – ConstructionWithin
      1 year
            
            $
            -
            
            
            $
            509
            
            
            $
            5091
      to 5 years
            
            
            -
            
            
            
            -
            
            
            
            -Over
      5 years
            
            
            -
            
            
            
            -
            
            
            
            -ConsumerWithin
      1 year
            
            $
            768
            
            
            
            -
            
            
            $
            7681
      to 5 years
            
            
            778
            
            
            
            -
            
            
            
            778Over
      5 years
            
            
            46
            
            
            
            -
            
            
            
            46





Investment
Securities





Investment securities
available-for-sale decreased to $8,404,000 at December 31, 2007 from $9,071,000
at December 31, 2006.  This decrease was primarily due to paydowns on
mortgage backed and CMO securities.  All of the Bank’s marketable
investment securities were designated as available-for-sale at December 31, 2007
and 2006.





The following table presents the
investments by category at December 31, 2007 and 2006 (amounts are presented in
thousands):





2007
            
            
            2006Amortized
              Cost
            
            
            Estimated
              Fair
      Value
            
            
            Amortized
              Cost
            
            
            Estimated
              Fair
      ValueU.S.
      Government agencies
            
            $
            4,899
            
            
            $
            4,908
            
            
            
            5,400
            
            
            $
            5,336Mortgage-backed
      securities
            
            
            3,513
            
            
            
            3,496
            
            
            
            3,804
            
            
            
            3,735$
            8,412
            
            
            $
            8,404
            
            
            
            9,204
            
            
            $
            9,071




42




The following table presents the
maturities of investment securities at carrying value and the weighted average
yields for each range of maturities presented as of December 31, 2007 (amounts
are presented in thousands):





U.S.
              Government
      Agencies
            
            
            Weighted
              Average
              Yields
            
            
            Mortgage
              Backed
              Securities
            
            
            Weighted
              Average
              Yields3
      Months or Less
            
            $
            1,500
            
            
            
            3.77
            %
            
            $
            -
            
            
            
            N/AAfter
      3 Months through 1 Year
            
            
            -
            
            
            
            N/A
            
            
            
            767
            
            
            
            3.88
            %After
      1 through 5 years
            
            
            2,999
            
            
            
            5.23
            
            
            
            2,038
            
            
            
            4.46Over
      5 years
            
            
            400
            
            
            
            6.00
            
            
            
            708
            
            
            
            4.43





Deposits





At December 31, 2007, total deposits
increased by $2,784,000, or 10% from December 31, 2006. Demand deposits
(interest bearing and non-interest bearing) decreased $568,000, or 17% during
2007 whereas time deposits increased $2,277,000, or 9% during the same time
period.





Balances within the major deposit
categories as of December 31, 2007 and December 31, 2006 are as follows (amounts
are presented in thousands):





2007
            
            
            
            
            
            2006Amount
            
            
            Rate
            
            
            Amount
            
            
            RateNon-interest-bearing
      demand deposits
            
            $
            1,567
            
            
            
            N/A
            
            
            $
            1,645
            
            
            
            N/AInterest-bearing
      demand deposits
            
            
            1,296
            
            
            
            3.01
            %
            
            
            1,274
            
            
            
            2.42
            %Savings
      deposits
            
            
            1,185
            
            
            
            1.24
            %
            
            
            621
            
            
            
            1.24
            %Time
      deposits
            
            
            26,152
            
            
            
            5.16
            %
            
            
            20,984
            
            
            
            4.89
            %Time
      deposits over $100,000
            
            
            806
            
            
            
            5.32
            %
            
            
            3,698
            
            
            
            4.91
            %$
            31,006
            
            
            
            
            
            
            $
            28,222





Maturities of time certificates of
deposit of $100,000 or more outstanding at December 31, 2007 are summarized as
follows (amounts are presented in thousands):





Within
      3 months
            
            $
            202After
      3 through 6 months
            
            
            350After
      6 through 12 months
            
            
            256After
      12 months
            
            
            -Total
            
            $
            806





Capital
Resources





Total shareholders' equity increased
from $2,853,000 at December 31, 2006 to $3,494,000 at December 31,
2007.  This increase was attributable to the capital infusion from the
sale of stock to Bill Blanton in April and a preferred stock issue to the
directors in December.  Capital contributions received during 2007
were $2,402,000.


43


Bank holding companies and their
banking subsidiaries are required by banking regulators to meet specific minimum
levels of capital adequacy, which are expressed in the form of
ratios.  Capital is separated into Tier 1 capital (essentially common
stockholders' equity less intangible assets) and Tier 2 capital (essentially the
allowance for loan losses limited to 1.25% of risk-weighted
assets).  The first two ratios, which are based on the degree of
credit risk in our assets, provide for the weighting of assets based on assigned
risk factors and include off-balance sheet items such as loan commitments and
stand-by letters of credit.  The ratio of Tier 1 capital to
risk-weighted assets must be at least 4.0% and the ratio of Total capital (Tier
1 capital plus Tier 2 capital) to risk-weighted assets must be at least
8.0%.





Banks and bank holding companies are
also required to maintain a minimum ratio of Tier 1 capital to adjusted
quarterly average total assets of 4.0%.





The following table summarizes the
Bank's risk-based capital ratios at December 31, 2007:





Tier
      1 capital (to risk-weighted assets)
            
            
            15.4
            %Total
      capital (to risk-weighted assets)
            
            
            16.6
            %Tier
      1 capital (to total average assets)
            
            
            9.4
            %





Under the terms of the formal agreement
with the OCC, the Bank was required to achieve and maintain by March 31, 2005
capital ratios of Total Capital (to risk-weighted assets) of 14.0% and Tier 1
Capital (to adjusted quarterly average total assets) of 9.0%.  As indicated
in the table above, the Bank, as of December 31, 2007, met the minimum capital
ratios of 14.0% for Total Capital (to risk-weighted assets) and 9.0% for the
Tier 1 Capital (to adjusted quarterly average total assets) as required by the
formal agreement.





On
February 5, 2008, the OCC determined that the protection of the depositors,
other customers and shareholders of the Bank as well as the Bank’s safe and
sound operation do not require the continued existence of the agreement, and the
OCC terminated the formal agreement.




Liquidity





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





Management is not aware of any
significant concentrations of loans to classes of borrowers or industries that
would be affected similarly by economic conditions.  Although the
Bank’s loan portfolio is diversified, a substantial portion of its borrowers'
ability to honor the terms of their loans depends on the economic conditions in
Hall County and surrounding areas.





The Bank maintains relationships with
correspondent banks that can provide funds to it on short notice, if
needed.  Presently, the Bank has arrangements with commercial banks
for short term unsecured advances up to $2,000,000. No amounts were advanced on
these lines at December 31, 2007.  AtDecember 31,
2007, the Bank had an advance from the Federal Home Loan Bank of Atlanta in the
amount of $4,000,000.  The FHLB advance outstanding at December 31,
2007 mature on April 21, 2008 which bears interest at a variable rate of 3 month
libor and July 23, 2008 which bears interest at the overnight fed funds
rate.  The Bank has pledged as collateral investment securities
available for sale with a carrying amount of $7,010,000 as of December 31,
2007.


44


Cash and cash equivalents as of
December 31, 2007 increased $7,012,000 from December 31, 2006.  Net
cash used by operating activities totaled $1,369,000 in 2007.  Inflows
from financing activities totaled $7,017,000, which were attributable to net
increase in deposits of $2,784,000 while financing activities resulting from the
issuance of common stock provided the Company cash proceeds in the amount of
$2,402,002.  An advance of $2,000,000 from The Federal Home Loan Bank
was procured for funding an increase in loan volume anticipated for third
quarter 2007.





During 2007, investing activities
provided $1,364,000 to cash and cash equivalents.  A decrease in net
loans provided approximately $609,000, while purchases, maturities, calls and
principal pay-downs of investment securities available-for-sale provided another
$1,766,000.  Also, proceeds from the sale of Other Real Estate
provided an additional $137,000 to cash and cash equivalents.  Cash
from investing activities was used for $1,090,000 in purchases of investment
securities available-for-sale and equity securities with no readily available
market value.





Off
Balance Sheet Arrangements





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





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





The following table summarizes our
off-balance-sheet financial instruments whose contract amounts represent credit
risk as of December 31, 2007:





Commitments
      to extend credit
            
            $
            2,442,000Standby
      letters of credit
            
            $
            294,000





Inflation





Inflation impacts the growth in total
assets in the banking industry and causes a need to increase equity capital at
higher than normal rates to meet capital adequacy requirements.  We
cope with the effects of inflation through the management of interest rate
sensitivity gap position, by periodically reviewing and adjusting our pricing of
services to consider current costs and through managing our level of net income
relative to our dividend payout policy.


45




Selected
Ratios





The following table sets out specified
ratios of the Company for the years indicated.





2007
            
            
            2006Net
      loss to:Average
      shareholders’ equity
            
            
            (54.19
            )%
            
            
            (36.51
            )%Average
      assets
            
            
            (4.56
            )%
            
            
            (3.17
            )%Dividends
      to net loss
            
            
            -
            
            
            
            -Average
      equity to average assets
            
            
            8.42
            %
            
            
            8.68
            %





Recent
Accounting Pronouncements





Accounting standards that have been
issued or proposed by the Financial Accounting Standards Board and other
standard setting entities that do not require adoption until a future date are
not expected to have a material impact on our consolidated financial statements
upon adoption.




Item
      7.
            Financial
      Statements





The
following financial statements are included as Exhibit 99.1, and are
incorporated herein by reference:




·
            Report
      of Independent Registered Public Accounting
  Firm;




·
            Consolidated
      Balance Sheets;




·
            Consolidated
      Statements of Operations;




·
            Consolidated
      Statements of Comprehensive Income
(Loss);




·
            Consolidated
      Statements of Changes in Shareholders’
Equity;




·
            Consolidated
      Statements of Cash Flows; and




·
            Notes
      to Consolidated Financial
Statements.





Item
      8.
            Changes
      In and Disagreements With Accountants and Financial
      Disclosure.





Not applicable.





Item
      8A.
            Controls
      and Procedures.





Evaluation
of Disclosure Controls and Procedures





As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures as defined in Exchange Act Rule
13a-15(e).  Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that our current disclosure controls
and procedures are effective as of December 31, 2007.  There have been
no significant changes in our internal controls over financial reporting during
the fourth fiscal quarter ended December 31, 2007 that have materially affected,
or are reasonably likely to materially affect, our internal controls over
financial reporting.


46


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





Management’s
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness of
internal control over financial reporting.  Our internal control over
financial reporting is a process designed, as defined in Rule 13a-15(f) under
the Exchange Act, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of consolidated financial statements for
external purposes in accordance with generally accepted accounting
principles.





Our
internal control over financial reporting is supported by written policies and
procedures that:





1.
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of our
      assets;


2.
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of consolidated financial statements in accordance with
      generally accepted accounting principles, and that our receipts and
      expenditures are being made only in accordance with authorizations of our
      management and directors; and


3.
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of our assets that could
      have a material effect on the consolidated financial
      statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





In
connection with the preparation of our annual consolidated financial statements,
our management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2007.  Management based this assessment
on the criteria established in “Internal Control—Integrated
Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission (which is sometimes referred to as the COSO
Framework).  Management’s assessment included an evaluation of the
design of our internal control over financial reporting and testing of the
operational effectiveness of our internal control over financial
reporting.  Based on this assessment, our management has concluded
that our internal control over financial reporting was effective as of December
31, 2007.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management’s report in this annual
report.





Changes
in Internal Controls





There was
no change in our internal control over financial reporting that occurred during
the quarter ended December 31, 2007 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.


47


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








Item
      8B.
            Other
      Information





Not Applicable.


48


PART
III





Item
      9.
            Directors,
      Executive Officer, Promoters, Control Persons and Corporate Governance;
      Compliance with Section 16(a) of the Exchange
  Act.





Directors





The
Company’s Board of Directors consists of 8 members and is divided into three
classes.  Each class of directors serves a staggered three-year
term.  The term of each class expires at the annual meeting in the
years indicated below and upon the election and qualification of the director’s
successor.  The following table shows for each
director:  (a) his or her name; (b) his or her age at
December 31, 2007; (c) how long he or she has been a director of the
Company; (d) his or her position(s) with the Company, other than as a director;
and (e) his or her principal occupation and business
experience.  Unless otherwise indicated, each director has served
continuously in his or her current occupation for the past five
years.  Each of the directors listed below is also a director of First
Century Bank.





Name
      (Age)
              Director
                Since
              Position
      with the Company
                and Business
      ExperienceClass
      I Directors:(Term
      Expiring 2010)Dr.
      Wendell A. Turner (50)
              2001
              Medical
      doctor, Gainesville Gynecology, LLC.R.K.
      Whitehead III (42)
              2007
              President
      of Whitehead Die Casting, Co. Inc.Class
      II Directors:(Term Expiring
      2008)William
      R. Blanton (60)
              2007
              Terrazza
      Realty Investments, LLC.- Managing memberTerrazza
      Reality Advisors, LLC.-Managing memberCINC
      Systems, LLC.- Software Development, Managing memberWilliam
      A. Bagwell, Jr. (36)
              2007
              Homestead
      Investments, LLC.J.
      Allen Nivens, Jr. (32)
              2007
              The
      Norton AgencyClass
      III Directors:(Term
      Expiring 2009)William
      M. Evans, Jr. (56)
              2007
              Associated
      with Fox Creek Properties and Piedmont InvestmentsLanny
      W. Dunagan (56)
              2002
              Sole
      owner of Lanny Dunagan’s Welding Service.Gilbert
      T. Jones, Sr. (70)
              2000
              Retired;
      sole owner of Great Southern Resource & Investment, Inc. (a
      development and construction
company).
  49




Executive
Officers





The table
below shows the following information for the Company’s executive officers as of
March 30, 2008:  (a) his or her name; (b) his or her age at
December 31, 2007; (c) how long he or she has been an executive officer of
the Company; (d) his or her positions with the Company and the Bank; and
(e) his or her principal occupation for the last five years:




Name
      (Age)
            Executive
              Officer
              Since
            Position
      with the Company
              and Business
      ExperienceR.
      Allen Smith (67)
            2006
            President
      and Chief Executive Officer of the Company and the Bank; previously
      interim Chief Executive Officer, interim Chief Financial Officer and
      consultant to the Company and its Board of Directors.Sondra
      Perkins (37)
            2007
            On
      February 20, 2007, the Company appointed Sondra J. Perkins as Principal
      Financial Officer and Controller.  Ms. Perkins has been with the
      bank for six years as Chief Operations Officer.Lance
      Jones (59)
            2007
            Senior
      Lending Officer of the Company and the Bank; Previously employed with
      Regions Bank of Corneila, Georgia from 1999 to 2006, during which time Mr.
      Jones served as a Commercial
Lender.





Section
16(a) Beneficial Ownership Reporting Compliance





Section 16(a) of the Securities
Exchange Act of 1934 requires the Company’s directors, its executive officer,
and persons who own beneficially more than 10% of the Company’s outstanding
common stock to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in their ownership of the Company’s common
stock.  The directors, its executive officer, and greater than 10%
shareholders are required to furnish the Company with copies of the forms they
file.  To our knowledge, based solely on a review of the copies of
these reports furnished to the Company, all of our directors and our executive
officer complied with all applicable Section 16(a) filing requirements during
2007.





Code
of Ethics





The Company has adopted a Code of
Ethics that applies to the Company’s Chief Executive Officer and Chief Financial
and Accounting Officer.  The Company will provide a copy of the Code
of Ethics free of charge to any person upon written request to the
Company.





Audit
Committee





The Boards of Directors of FCB and the
Bank have established a joint Audit Committee for the purpose of reviewing FCB’s
annual report and internal audit report of independent public
accountants.  The Audit Committee members for 2007 were William R.
Blanton, Chairman; Lanny W. Dunagan; Dr. Wendell A. Turner; Gilbert Jones, Sr.,
William M. Evans, Jr., William A. Bagwell, Jr. J. Allen Nivens and R.K.
Whitehead, III.  Each of these members meets the requirement for
independence as defined by the National Association of Securities Dealers’
listing standards.  Although none of the Audit Committee members meets
the criteria specified under applicable Securities and Exchange Commission
regulations for an “audit committee financial expert,” the Board believes each
has the financial knowledge, business experience and independent judgment
necessary for service on the Audit Committee.


50


Item
      10.
            Executive
      Compensation.





The
following table sets forth the annual compensation for our executive officers,
for services in all capacities to the Company for fiscal year
2007.  No other executive officer received total compensation in
excess of $100,000 for services rendered to the Company during
2007.





Summary
Compensation Table





Name
      and Principal Position
            Year
            
            Salary
                ($)
            
            
            Bonus
                ($)
            
            
            Stock
      Awards ($)
            
            
            Option
      Awards1
                ($)
            
            
            Non-Equity
      Incentive Plan Comp-ensation
                ($)
            
            
            Nonqualified
      Deferred Compensation Earnings
                ($)
            
            
            All
      Other
                Comp-
                ensation
      2
                ($)
            
            
            Total
                ($)(Amounts
      in Thousands)R.
      Allen Smith,
            2007
            
            $
            212
            
            
            
            -
            
            
            
            -
            
            
            $
            24
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            236Principal
      Executive Officer since October 25, 2006
            2006
            
            $
            115
            
            
            
            -
            
            
            
            -
            
            
            $
            24
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            139Lance
      G. Jones
            2007
            
            $
            115
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            108Senior
      Lending Officer and Principal Executive Officer since March 15,
      2007





1
Represents the FAS 123R expense related to the options held by each
individual.  All assumptions made in the valuation of the options are
disclosed in Note 12 to the financial statements.


2 We have
omitted information on perquisites and other personal benefits because the
aggregate amount of these items does not meet the minimum amount required for
disclosure under the SEC’s regulations.





On October 25, 2006, Allen Smith, was
named President of the Bank and Principal Executive Officer of the
Company.  Prior to this appointment, Mr. Smith had served as a
consultant to the Company and its Board of Directors. Mr. Smith also previously
served as Interim Chief Executive and Financial Officer of the
Company.  Pursuant to the terms of the consulting arrangement with the
Company, Mr. Smith will continue to be paid $125 per hour for his
services.





On October 30, 2006, we entered into
an employment agreement with Lance G. Jones under which he agreed to serve as
our Senior Vice President.  Under the terms of his employment
agreement, Mr. Jones was entitled to an annual salary of $115,000 per
year.  Mr. Jones was also entitled to participate in the Bank’s
insurance and benefits plans.  The employment contract had a one-year
term and expired on October 30, 2007.


51


Outstanding
Equity Awards at December 31, 2007





Option
      AwardsName
            Number
      of Securities
              Underlying
      Unexercised
              Options
              (#)
              Exercisable
            Number
      of Securities
              Underlying
      Unexercised
              Options
              (#)
              Unexercisable
            Option
      Exercise Price
              ($)
            Option
      Expiration DateR.
      Allen Smith
            100,000
            -
            $5.00
            September
      20, 2015Sondra
      J. Perkins
            3,332
            1,668
            5.00
            October
      20, 2015





Director
Compensation





The
directors of the Company were not compensated separately for their services as
directors for fiscal year 2007.





Item 11.
            Security Ownership of Certain
      Beneficial Owners and
Management.





The following table sets forth the
number of shares of the Company’s common stock beneficially owned as of
December 31, 2007 by (a) each director and executive officer named in the
Summary Compensation Table and (b) the executive officer and all directors, as a
group.  The information shown below is based upon information
furnished to the Company by the named persons.  Other than the
directors, executive officer, and shareholder listed below, we are unaware of
any holder of more than 5% of the Company’s common stock.





Information relating to beneficial
ownership of the Company is based upon “beneficial ownership” concepts set forth
in the rules promulgated under the Securities Exchange Act.  Under
these rules a person is deemed to be a “beneficial owner” of a security if that
person has or shares “voting power,” which includes the power to vote or to
direct the voting of a security, or “investment power,” which includes the power
to dispose or to direct the disposition of a security.  Under the
rules, more than one person may be deemed to be a beneficial owner of the same
securities.  A person is also deemed to be a beneficial owner of any
security as to which that person has the right to acquire beneficial ownership
within 60 days of December 31, 2007.





Name
              
              Number
      of
                  Shares
              
              Exercisable
                  Warrants
      &
                  Options
              
              Total
                  Beneficial
                  Ownership
              
              %
      of
                  Class
      (1)
              
              Nature
      of Beneficial
                  OwnershipDirectors:William
      A. Bagwell, Jr.
              
              3,194
              
              -
              
              3,194
              
              -*William
      R. Blanton
              
              553,506
              
              553,506
              
              1,107,012
              
              48.4%William
      M. Evans, Jr.
              
              187,696
              
              184,502
              
              372,198
              
              19.4%
              
              Includes
      184,502 shares held by Silver Hill Enterprises LP with
      warrantsLanny
      Dunagan
              
              42,042
              
              13,334
              
              55,376
              
              3.2%
              
              Includes
      500 shares held jointly with Son.Gilbert
      Jones, Sr.
              
              48,926
              
              20,534
              
              69,460
              
              4.0%
              
              Includes
      500 shares held as joint custodian for grandchildrenJ.
      Allen Nivens, Jr.
              
              445
              
              -
              
              445
              
              -*Dr.
      Wendell Turner
              
              77,327
              
              27,067
              
              104,394
              
              6.0%R.
      K. Whitehead, III
              
              445
              
              -
              
              445
              
              -*Named
      Executive Officers:R.
      Allen Smith
              
              11,631
              
              100,000
              
              111,631
              
              6.4%Lance
      G. Jones
              
              6,666
              
              -
              
              6,666
              
              -*Sondra
      J. Perkins
              
              1,858
              
              3,333
              
              5,191
              
              -*
              
              Includes
      525 shares held as joint custodian for
children




All
      Directors and Executive Officers as a Group (11 persons):933,736
              
              902,276
              
              1,836,012
              
              69.7%


52


5%
Shareholder:





*
            Represents
      less than 1%.





(1) Based
on 1,732,458 shares of common stock of the company outstanding as of December
31, 2007, plus the number of shares which the named person exercising all
options or warrants has the right to acquire within 60 days, but that no other
persons exercise any options or warrants.





Equity
Compensation Plan Information





The table below sets forth information
regarding shares of the Company’s common stock authorized for issuance as of
December 31, 2007 under the following the Company equity compensation plans
or agreements:





·
            the
      First Century Bancorp., Inc. 2003 Stock Incentive
  Plan;




·
            the
      First Century Bancorp., Inc. Non-Qualified Stock Option Agreement with R.
      Allen Smith and




·
            First
      Century Bancorp. Warrant Agreements with certain directors of the
      Company.





The Stock
Incentive Plan was approved by shareholders on May 29, 2003.  None of
the other equity compensation plans or agreements listed above have been
approved by the Company’s shareholders.  Each of those plans or
agreements is described below.





Number
      of
              securities
      to be
              issued
      upon exercise
              of
      outstanding
              options
            
            
            Weighted-average
              exercise
      price of
              outstanding
      options
            
            
            Number
      of securities
              remaining
      available for
              future
      issuance under the
              equity
      compensation plans
              (excluding
      shares subject
              to
      outstanding options)Equity
      compensation plans approved by security holders
            
            
            38,001
            
            
            $
            7.04
            
            
            
            86,500Equity
      compensation plans not approved by security holders
            
            
            998,068
            
            
            $
            4.11
            
            
            
            -Total
            
            
            1,036,069
            
            
            $
            4.22
            
            
            
            86,500


53




Non-Qualified
Stock Option Agreement with R. Allen Smith.On September 20, 2005
the Company entered a consulting agreement with Mr. Smith, pursuant to which the
Company issued a warrant to Mr. Smith to purchase 100,000 shares of the
Company’s common stock at an exercise price of $5.00 per
share.  One-third of the option was vested and exercisable upon grant,
with the remaining thirds vesting on an annual basis.





Warrant
Agreements with Certain of the Company’s Directors.  On March
25, 2002 the Company issued warrants to its directors to purchase an aggregate
of 199,736 shares of the Company’s common stock at an exercise price of $10.00
per share.  The warrants become exercisable in one-third annual
increments beginning on the first anniversary of the issuance date, provided
that throughout the period beginning on the date of the initial issuance of the
warrants and ending on the particular anniversary, the warrant holder has served
continuously as a director of the Company and the Bank and has attended at least
75% of the meetings of the relevant boards of directors.  Warrants
which fail to vest as provided in the previous sentence will expire and no
longer be exercisable.  Exercisable warrants will generally remain
exercisable for the ten-year period following the date of
issuance.  The exercise price of each warrant is subject to adjustment
for stock splits, recapitalizations or other similar events.  As of
December 31, 2007, 891,401 warrants remained outstanding of which 891,401 are
exercisable.





Warrant Agreement
with William R. Blanton.  In connection with Mr. Blanton’s
April 2007 purchase of 738,008 shares of our common stock in a private placement
at $2.71 per share, we also issued Mr. Blanton warrants to purchase up to
738,008 shares at $2.71 per share. The warrants do not have an expiration
date.  The warrants relating to this private placement contain a
provision for automatic adjustment of the exercise price for the shares if we
issue a subsequent warrant with an exercise price that is less than $2.71 per
share.  In December 2007, we completed a private placement of Series B
Preferred Stock, no par value, for $10.00 per share, selling a total of $750,000
worth of shares.  The investors also received a warrant to acquire one
share of common stock for each share of Series B Preferred Stock purchased in
the offering at an exercise price of $1.50 per share, which we believe was the
fair market value of the common stock on the date of issuance of the
warrants.  As a result of the issuance of these warrants, the exercise
price of a Mr. Blanton’s prior warrants to purchase 738,008 shares of our common
stock at $2.71 per share was automatically adjusted to $1.50 per
share.





Warrant Agreement
with Investors Purchasing Series B Preferred Stock.  In
December 2007, we completed a private placement of Series B Preferred Stock, no
par value, for $10.00 per share, selling a total of $750,000 worth of
shares.  The investors also received a warrant to acquire one share of
common stock for each share of Series B Preferred Stock purchased in the
offering at an exercise price of $1.50 per share, which we believe was the fair
market value of the common stock on the date of issuance of the
warrants.  The warrants have no expiration date.  The
warrants relating to this private placement also contain a provision for
automatic adjustments of the exercise price for the shares if we issue a
subsequent warrant with an exercise price that is less than $1.50 per
share.





Item
      12.
            Certain
      Relationships and Related Transactions, and Director
      Independence





Related
Party Transactions





The Company’s directors and officers,
and the businesses and other organizations with which they are associated, from
time to time may have banking transactions in the ordinary course of business
with the Bank.  The Bank’s policy is that any loans or other
commitments to those persons or entities be made in accordance with applicable
law and on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons or entities of similar standing.  All transactions with
affiliates must be on terms no less favorable than could be obtained from an
unaffiliated third party and must be approved by a majority of directors
including a majority of disinterested directors.


54


In addition, each loan by the Bank to
any officer, director or controlling person of the Bank or any of its affiliates
may be made only in compliance with the following conditions:





The loan:




·
            must
      be evidenced by a promissory note naming the Bank as payee and must
      contain an annual percentage rate which is reasonably comparable to that
      normally charged to non-affiliates by other commercial lenders for similar
      loans made in the Bank's locale;




·
            must
      be repaid according to appropriate amortization schedules and contain
      default provisions comparable to those normally used by other commercial
      lenders for similar loans made to non-affiliates in the Bank's
      locale;




·
            must
      be made only if credit reports and financial statements, or other
      reasonable investigation appropriate in light of the nature and terms of
      the loan and which meet the loan policies normally used by other
      commercial lenders for similar loans made to non-affiliates in the Bank's
      locale, show the loan to be collectible and the borrower a satisfactory
      credit risk; and




·
            the
      purpose of the loan and the disbursement of proceeds are reviewed and
      monitored in a manner comparable to that normally used by other commercial
      lenders for similar loans made in the Bank's
  locale.





In April
2007, Mr. Blanton purchased 738,008 shares of our common stock in a private
placement at $2.71 per share.  We also issued Mr. Blanton warrants to
purchase up to 738,008 shares at $2.71 per share. The warrants do not have an
expiration date.  We received proceeds of approximately $2,000,000
less fees and expenses related to the sale of the shares, which we used for
working capital purposes. Shortly after the transaction, Mr. Blanton was
appointed to our Board of Directors.





On May 4,
2007, FCB redeemed 35,000 shares of preferred stock at $10.00 per share that it
had issued at the same price per share in 2006 to each of its
directors.





In
December 2007, we completed a private placement of Series B Preferred Stock, no
par value, for $10.00 per share, selling a total of $750,000 worth of
shares.  The investors also received a warrant to acquire one share of
common stock for each share of Series B Preferred Stock purchased in the
offering at an exercise price of $1.50 per share, which we believe was the fair
market value of the common stock on the date of issuance of the
warrants.  The warrants have no expiration date.  As a
result of the issuance of these warrants, the exercise price of a Mr. Blanton’s
prior warrants to purchase 738,008 shares of our common stock at $2.71 per share
was automatically adjusted to $1.50 per share.  The warrants relating
to this private placement also contain a similar provision for automatic
adjustments of the exercise price for the shares if we issue a subsequent
warrant with an exercise price that is less than $1.50 per share.





Director
Independence





The Board of Directors has determined
that all of the directors of First Century Bancorp., Inc. are independent in
accordance with the NASDAQ independence standards.  Specifically,
William Bagwell, Jr., William Blanton, William Evans, Jr., Lanny W. Dunagan,
Gilbert T. Jones, Sr., J. Allen Nivens, Jr., Dr. Wendell A. Turner and R.K.
Whitehead, III are each independent.  In determining that each
director could exercise independent judgment in carrying out his or her
responsibilities, the Board of Directors considered any transactions,
relationships and arrangements between the Company or the Bank and the director
and his or her family.


55


Item
      13.
            Exhibits
      List.





ExhibitNumber
            Description3.1
            Articles
      of Incorporation of First Century Bancorp., Inc.  Incorporated
      by reference to Exhibit 3(i) of the Registration Statement on Form SB-2,
      File No. 333-47280, filed on October 4, 2000.3.2
            Amendment
      to Articles of Incorporation of First Century Bancorp.,
      Inc.  Incorporated by reference to Exhibit 3.1 of the
      Current Report on Form 8-K, filed October 5, 2006.3.3
            Bylaws
      of First Century Bancorp., Inc.  Incorporated by reference to
      Exhibit 3(ii) of the Registration Statement on Form SB-2, File No.
      333-47280, filed on October 4, 2000.4.1
            See
      Exhibits 3.1, 3.2 and 3.3 for provisions of the Articles of Incorporation
      and Bylaws defining the rights of shareholders.4.2
            Form
      of common stock certificate of First Century Bancorp.,
      Inc.  Incorporated by reference to Exhibit 4(ii) of the
      Registration Statement on Form SB-2, File No. 333-47280, filed on October
      4, 2000.10.1*
            First
      Century Bancorp., Inc.’s 2003 Stock Incentive
      Plan.  Incorporated by reference to Exhibit 10.2 of the
      Registration Statement on Form SB-2, File No. 333-122567, filed on
      February 4, 2005.10.2*
            Form
      of Incentive Stock Option Award.  Incorporated by reference to
      Exhibit 10.3 of the Registration Statement on Form SB-2, File No.
      333-122567, filed on February 4, 2005.10.3*
            Form
      of Nonqualified Stock Option Award.  Incorporated by reference
      to Exhibit 10.4 of the Registration Statement on Form SB-2, File No.
      333-122567, filed on February 4, 2005.10.4*
            Form
      of First Century Bancorp., Inc. Organizer’s Warrant
      Agreement.  Incorporated by reference to Exhibit 10(iv) of the
      Registration Statement on Form SB-2, File No. 333-47280, filed on October
      4, 2000.10.5
            Agreement
      by and between First Century Bank and the Office of the Comptroller of the
      Currency, dated August 18, 2004.  Incorporated by reference to
      Exhibit 10.6 of the Annual Report on Form 10-KSB for the year ended
      December 30, 2004, filed on March 31, 2005.10.6
            Agreement
      and Plan of Merger by and between El Banco Financial Corporation, formerly
      known as Nuestra Tarjeta de Servicios, Inc. and First Century Bancorp.,
      Inc, dated as of May 5, 2006.  Incorporation by reference to
      Exhibit 2.1 to the Quarterly Report on Form 10-QSB for the period ended
      June 30, 2006.10.7
            Termination
      Agreement by and between El Banco Financial Corporation and First Century
      Bancorp., Inc., dated as of October 25, 2006.  Incorporated by
      reference to Exhibit 10.1 to the Current Report on Form 8-K, filed October
      25, 2006.


56





10.8
            Stock
      Purchase Agreement, by and between FCB, First Century Bank and William R.
      Blanton, dated January 23, 2007.  Incorporated by reference to
      Exhibit 10.1 to the Current Report on Form 8-K, filed January 29,
      2007.21
            Subsidiaries
      of First Century Bancorp., Inc.  Incorporated by reference to
      Exhibit 21 of the Annual Report on Form 10-KSB for the year ended December
      31, 2001, filed on April 1, 2002.24
            Power
      of Attorney (contained in Signature Page).31.1
            Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            Certifications
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 200232.199.1
            Audited
      Financial Statements


_____________________


*Indicates
      management contract or compensatory plan or
  arrangement.


57


Item
      14.
            Principal
      Accountant Fees and Services.





The following table sets forth the fees
billed and, as to audit and audit-related fees, expected to be billed to the
Company for the fiscal years ended December 31, 2007 and 2006 by McNair,
McLemore, Middlebrooks & Co., LLP.





2007
            
            
            2006Audit
      Fees 1
            
            $
            48,203
            
            
            $
            52,877Audit-Related
      Fees
            
            
            -
            
            
            
            -Tax
      Fees 2
            
            
            3,407
            
            
            
            5,089All
      Other Fees
            
            
            -
            
            
            
            -Total
      Fees
            
            $
            51,610
            
            
            $
            57,970




1
              Represents
      fees related to the audit and quarterly reviews of consolidated financial
      statements of the Company and review of regulatory
  filings.
 2
              Represents
      fees related to tax compliance, tax advice and tax planning
      service.




All of
the services provided by the independent accountants were pre-approved by the
Audit Committee.  The Audit Committee pre-approves all audit and
non-audit services provided by the Company’s independent accountants and may not
engage them to perform any prohibited non-audit services.  The Audit
Committee has determined that the rendering of non-audit professional services,
as identified above, is compatible with maintaining the independence of the
Company’s auditors.





58




SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





FIRST
      CENTURY BANCORP., INC.By:
            /s/ R. Allen SmithR.
      Allen Smith,Chief
      Executive OfficerDate:  March
      31, 2008







POWER
OF ATTORNEY





KNOW ALL MEN BY THESE
PRESENTS, that each person whose signature appears on the signature page
to this Report constitutes and appoints R. Allen Smith and Sondra J.
Perkins, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place, and stead, in any and all capacities, to sign any and all amendments to
this Report, and to file the same, with all exhibits hereto, and other documents
in connection herewith with the Securities and Exchange Commission, granting
unto these attorneys-in-fact and agents, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as they might or could
do in person, hereby ratifying and confirming all that these attorneys-in-fact
and agents or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.





Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of First Century Bancorp. and in
the capacities and on the dates indicated.





Signature
            Title
            Date/s/ William R. BlantonWilliam
      R. Blanton
            Chairman
      and Director
            March 31,
      2008/s/ R. Allen SmithR.
      Allen Smith
            Principal
      Executive Officer
            March 31,
      2008/s/ Sondra J. Perkins
            Principal
      Financial andSondra
      J. Perkins
            Accounting
      Officer
            March 31,
      2008/s/ William A. BagwellWilliam
      A. Bagwell
            Director
            March 31,
      2008/s/ William M. Evans, Jr.William
      M. Evans, Jr.
            Director
            March 31,
      2008/s/ J. Allen Nivens, Jr.J.
      Allen Nivens, Jr.
            Director
            March 31,
      2008/s/ Lanny W. DunaganLanny
      W. Dunagan
            Director
            March 31,
      2008/s/ Gilbert T. Jones, Sr..Gilbert
      T. Jones, Sr
            Director
            March 31,
      2008/s/ Dr. Wendell A. TurnerDr.
      Wendell A. Turner
            Director
            March 31,
      2008/s/ R. K. Whitehead, IIIR.
      K. Whitehead, III
            Director
            March 31,
      2008





EXHIBIT
INDEX








ExhibitNumber
            Description3.1
            Articles
      of Incorporation of First Century Bancorp., Inc.  Incorporated
      by reference to Exhibit 3(i) of the Registration Statement on Form SB-2,
      File No. 333-47280, filed on October 4, 2000.3.2
            Amendment
      to Articles of Incorporation of First Century Bancorp.,
      Inc.  Incorporated by reference to Exhibit 3.1 of the
      Current Report on Form 8-K, filed October 5, 2006.3.3
            Bylaws
      of First Century Bancorp., Inc.  Incorporated by reference to
      Exhibit 3(ii) of the Registration Statement on Form SB-2, File No.
      333-47280, filed on October 4, 2000.4.1
            See
      Exhibits 3.1, 3.2 and 3.3 for provisions of the Articles of Incorporation
      and Bylaws defining the rights of shareholders.4.2
            Form
      of common stock certificate of First Century Bancorp.,
      Inc.  Incorporated by reference to Exhibit 4(ii) of the
      Registration Statement on Form SB-2, File No. 333-47280, filed on October
      4, 2000.10.1*
            First
      Century Bancorp., Inc.’s 2003 Stock Incentive
      Plan.  Incorporated by reference to Exhibit 10.2 of the
      Registration Statement on Form SB-2, File No. 333-122567, filed on
      February 4, 2005.10.2*
            Form
      of Incentive Stock Option Award.  Incorporated by reference to
      Exhibit 10.3 of the Registration Statement on Form SB-2, File No.
      333-122567, filed on February 4, 2005.10.3*
            Form
      of Nonqualified Stock Option Award.  Incorporated by reference
      to Exhibit 10.4 of the Registration Statement on Form SB-2, File No.
      333-122567, filed on February 4, 2005.10.4*
            Form
      of First Century Bancorp., Inc. Organizer’s Warrant
      Agreement.  Incorporated by reference to Exhibit 10(iv) of the
      Registration Statement on Form SB-2, File No. 333-47280, filed on October
      4, 2000.10.5
            Agreement
      by and between First Century Bank and the Office of the Comptroller of the
      Currency, dated August 18, 2004.  Incorporated by reference to
      Exhibit 10.6 of the Annual Report on Form 10-KSB for the year ended
      December 30, 2004, filed on March 31, 2005.10.6
            Agreement
      and Plan of Merger by and between El Banco Financial Corporation, formerly
      known as Nuestra Tarjeta de Servicios, Inc. and First Century Bancorp.,
      Inc, dated as of May 5, 2006.  Incorporation by reference to
      Exhibit 2.1 to the Quarterly Report on Form 10-QSB for the period ended
      June 30, 2006.10.7
            Termination
      Agreement by and between El Banco Financial Corporation and First Century
      Bancorp., Inc., dated as of October 25, 2006.  Incorporated by
      reference to Exhibit 10.1 to the Current Report on Form 8-K, filed October
      25, 2006.10.8
            Stock
      Purchase Agreement, by and between FCB, First Century Bank and William R.
      Blanton, dated January 23, 2007.  Incorporated by reference to
      Exhibit 10.1 to the Current Report on Form 8-K, filed January 29,
      2007.21
            Subsidiaries
      of First Century Bancorp., Inc.  Incorporated by reference to
      Exhibit 21 of the Annual Report on Form 10-KSB for the year ended December
      31, 2001, filed on April 1, 2002.24
            Power
      of Attorney (contained in Signature Page).31.1
            Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.








31.2
            Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            Certifications
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 200232.199.1
            Audited
      Financial Statements


_____________________


*Indicates
      management contract or compensatory plan or
  arrangement.