**Exhibit99.1**

 

#### **FIRST CENTURY BANCORP. ANDSUBSIDIARY**

#### **GAINESVILLE, GEORGIA**

#### ** **

**CONSOLIDATED FINANCIAL STATEMENTS AS OF**

**DECEMBER 31, 2009 AND 2008 AND**

**REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRMS**

 

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**FIRST CENTURY BANCORP. AND SUBSIDIARY**

 

**CONTENTS**

 
| Reports  of Independent Registered Public Accounting Firms       | 1      |
|------------------------------------------------------------------|--------|
|                                                             |   |
| Consolidated  Balance Sheets                                     | 3      |
|                                                             |   |
| Consolidated  Statements of Operations                           | 5      |
|                                                             |   |
| Consolidated  Statements of Comprehensive Loss                   | 6      |
|                                                             |   |
| Consolidated  Statements of Changes in Stockholders’ Equity | 7      |
|                                                             |   |
| Consolidated  Statements of Cash Flows                           | 8      |
|                                                             |   |
| Notes  to Consolidated Financial Statements                      | 9-37   |

 

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

 

To the Board of Directors

First Century Bancorp andSubsidiary

Gainesville, Georgia

 

Wehave audited the consolidated balance sheet of First Century Bancorp andSubsidiary as of December 31, 2009, and the related consolidatedstatements of operations, comprehensive income (loss), stockholders’ equity andcash flows for the year then ended. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.  The financial statements of First CenturyBancorp and Subsidiaryfor the year ended December 31, 2008 were audited by other auditors whosereport, dated March 31, 2009, expressed an unqualified opinion on thosestatements.

 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudit provides a reasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of First Century Bancorp andSubsidiary as of December 31, 2009, and the results of their operationsand their cash flows for the year then ended, in conformity with U.S. generallyaccepted accounting principles.

 

We were not engaged toexamine management’s assertion about the effectiveness of First Century Bancorpand Subsidiary’s internal control over financial reporting as of December 31,2009 included under Item 9A “Controls and Procedures” in First Century Bancorpand subsidiary’s Annual Report on Form 10-K and, accordingly, we do notexpress an opinion thereon.

 

 

 

Atlanta, Georgia

March 31,2010

 

1

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MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLP

CERTIFIED PUBLIC ACCOUNTANTS

389 Mulberry Street · Post Office BoxOne · Macon, GA 31202

Telephone (478) 746-6277 · Facsimile (478)743-6858

*www.mmmcpa.com*

 

March 31, 2009

 

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

TheBoard of Directors and Stockholders

FirstCentury Bancorp.

 

Wehave audited the accompanying consolidated balance sheets of First CenturyBancorp. and Subsidiary as of December 31, 2008, and 2007 and the relatedconsolidated statements of operations, comprehensive income (loss), changes instockholders’ equity and cash flows for the years then ended.  These consolidated financial statements arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

 

Weconducted our audits in accordance with standards of the Public CompanyAccounting Oversight Board (United States).  Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of First CenturyBancorp. and Subsidiary as of December 31, 2008 and 2007, and the resultsof its operations and its cash flows for the years then ended, in conformitywith accounting principles generally accepted in the United States of America.

 

Wewere not engaged to examine management’s assertion about the effectiveness ofFirst Century Bancorp’s internal control over financial reporting as of December 31,2008 included in the Management’s Report on Internal Control Over FinancialReporting and, accordingly, we do not express an opinion thereon.

 

 

McNAIR, McLEMORE, MIDDLEBROOKS &CO., LLP

 

2

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**FIRST CENTURY BANCORP. AND SUBSIDIARY**

#### **CONSOLIDATED BALANCE SHEETS**

**DECEMBER 31, 2009 AND 2008**

 

#### **ASSETS**

 
| ** **                                                                                                                  | ** ** | **2009**       | ** **     | **2008**   | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|----------------|----------------|------------|------------|
|                                                                                                                        |       |           |           |       |       |
| **Cash and Cash Equivalents**                                                                                               |       |           |           |       |       |
| Cash and Due from Banks                                                                                                     | ** ** | **$**          | **2,531,126**  |       | $          | 1,525,027 |   |
| Federal Funds Sold                                                                                                          | ** ** | **—**     |           | 700,000    |       |
|                                                                                                                        | ** ** | ** **     |           |       |       |
|                                                                                                                        | ** ** | **2,531,126**  |           | 2,225,027  |       |
|                                                                                                                        | ** ** | ** **     |           |       |       |
| **Investment Securities**                                                                                                   | ** ** | ** **     |           |       |       |
| Available for Sale, at Fair Value                                                                                           | ** ** | **7,594,425**  |           | 11,100,067 |       |
| Held to Maturity, at Cost (Fair Value of  $18,048,359, and $7,129,889 as of December 31, 2009 and 2008,  Respectively) | ** ** | **16,794,363** |           | 7,178,040  |       |
| ** **                                                                                                                  | ** ** | ** **     |           |       |       |
| ** **                                                                                                                  | ** ** | **24,388,788** |           | 18,278,107 |       |
| ** **                                                                                                                  | ** ** | ** **     |           |       |       |
| **Other Investments**                                                                                                       | ** ** | **400,800**    |           | 427,170    |       |
|                                                                                                                        | ** ** | ** **     |           |       |       |
| **Loans Held for Sale**                                                                                                     | ** ** | **9,637,123**  |           | 1,863,750  |       |
|                                                                                                                        | ** ** | ** **     |           |       |       |
| **Loans**                                                                                                                   | ** ** | **36,630,587** |           | 38,101,070 |       |
| Allowance for Loan Losses                                                                                                   | ** ** | **(414,670**   | **)**          | (838,234   | )          |
|                                                                                                                        | ** ** | ** **     |           |       |       |
|                                                                                                                        | ** ** | **36,215,917** |           | 37,262,836 |       |
|                                                                                                                        | ** ** | ** **     |           |       |       |
| **Premises and Equipment**                                                                                                  | ** ** | **2,276,681**  |           | 2,425,568  |       |
| ** **                                                                                                                  | ** ** | ** **     |           |       |       |
| **Other Real Estate**                                                                                                       | ** ** | **653,501**    |           | —     |       |
| ** **                                                                                                                  | ** ** | ** **     |           |       |       |
| **Other Assets**                                                                                                            | ** ** | **462,021**    |           | 396,053    |       |
| ** **                                                                                                                  | ** ** | ** **     |           |       |       |
| **Total Assets**                                                                                                            | ** ** | **$**          | **76,565,957** |       | $          | 62,878,510 |   |

 

Theaccompanying notes are an integral part of these consolidated statements.

 

3

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**FIRST CENTURY BANCORP. AND SUBSIDIARY**

**CONSOLIDATED BALANCE SHEETS**

**DECEMBER 31, 2009 AND 2008**

 

#### **LIABILITIES ANDSTOCKHOLDERS’ EQUITY**

 
| ** **                                                                                                                                                                                                                                    | ** ** | **2009**        | ** **     | **2008**    | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|----------------|-------------|------------|
|                                                                                                                                                                                                                                          |       |            |           |        |       |
| **Deposits**                                                                                                                                                                                                                                  |       |            |           |        |       |
| Noninterest-Bearing                                                                                                                                                                                                                           | ** ** | **$**           | **3,076,222**  |        | $          | 3,036,337 |   |
| Interest-Bearing                                                                                                                                                                                                                              | ** ** | **66,490,456**  |           | 54,084,517  |       |
|                                                                                                                                                                                                                                          |       |            |           |        |       |
|                                                                                                                                                                                                                                          | ** ** | **69,566,678**  |           | 57,120,854  |       |
|                                                                                                                                                                                                                                          |       |            |           |        |       |
| **Borrowings**                                                                                                                                                                                                                                | ** ** | **2,000,000**   |           | 2,000,000   |       |
|                                                                                                                                                                                                                                          |       |            |           |        |       |
| **Other Liabilities**                                                                                                                                                                                                                         | ** ** | **600,370**     |           | 593,755     |       |
|                                                                                                                                                                                                                                          |       |            |           |        |       |
| **Stockholders’ Equity**                                                                                                                                                                                                                 |       |            |           |        |       |
| Preferred Stock, Non-voting; Non-participating;  Variable Rate Cumulative; No Par Value; 10,000,000 Shares Authorized; 75,000  Shares Issued and Outstanding; Liquidation Preference of $10 Per Share Plus  Accumulated Undeclared Dividends; | ** ** | **750,000**     |           | 750,000     |       |
| Common Stock, No Par Value; 50,000,000 Shares Authorized;  4,998,820 and 3,979,129 Shares Issuedand  Outstanding in 2009 and 2008, Respectively                                                                                               | ** ** | **14,948,028**  |           | 13,572,151  |       |
| Accumulated Deficit                                                                                                                                                                                                                           | ** ** | **(11,031,585** | **)**          | (11,075,145 | )          |
| Treasury Stock, 670 shares, at cost                                                                                                                                                                                                           | ** ** | **(1,005**      | **)**          | —      |       |
| Accumulated Other Comprehensive Loss                                                                                                                                                                                                          | ** ** | **(266,529**    | **)**          | (83,105     | )          |
|                                                                                                                                                                                                                                          |       |            |           |        |       |
|                                                                                                                                                                                                                                          | ** ** | **4,398,909**   |           | 3,163,901   |       |
|                                                                                                                                                                                                                                          |       |            |           |        |       |
| **Total Liabilities and  Stockholders’ Equity**                                                                                                                                                                                          | ** ** | **$**           | **76,565,957** |        | $          | 62,878,510 |   |

 

The accompanying notes are an integral part of these consolidatedstatements.

 

4

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**FIRST CENTURY BANCORP. ANDSUBSIDIARY**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**FOR THE YEARS ENDED DECEMBER 31,2009 AND 2008**

** **
| ** **                                               | ** ** | **2009**      | ** **    | **2008**   | ** ** |
|----------------------------------------------------------|------------|---------------|---------------|------------|------------|
| **Interest Income**                                      |       |          |          |       |       |
| Loans, Including Fees                                    | ** ** | **$**         | **2,367,833** |       | $          | 1,722,303 |   |
| Investments                                              | ** ** | **2,529,228** |          | 562,050    |       |
| Federal Funds Sold                                       | ** ** | **176**       |          | 99,156     |       |
| Interest Bearing  Deposits                               | ** ** | **1,475**     |          | 39,167     |       |
|                                                     |       |          |          |       |       |
|                                                     | ** ** | **4,898,712** |          | 2,422,676  |       |
|                                                     |       |          |          |       |       |
| **Interest Expense**                                     |       |          |          |       |       |
| Deposits                                                 | ** ** | **1,649,373** |          | 1,482,529  |       |
| Borrowings                                               | ** ** | **65,591**    |          | 103,420    |       |
|                                                     |       |          |          |       |       |
|                                                     | ** ** | **1,714,964** |          | 1,585,949  |       |
|                                                     |       |          |          |       |       |
| **Net Interest Income**                                  | ** ** | **3,183,748** |          | 836,726    |       |
|                                                     |       |          |          |       |       |
| Provision for Loan  Losses                               | ** ** | **333,673**   |          | 639,760    |       |
|                                                     |       |          |          |       |       |
| **Net Interest Income After  Provision for Loan Losses** | ** ** | **2,850,075** |          | 196,966    |       |
|                                                     |       |          |          |       |       |
| **Noninterest Income**                                   |       |          |          |       |       |
| Service Charges on  Deposits                             | ** ** | **61,521**    |          | 55,312     |       |
| Mortgage Origination  and Processing Fees                | ** ** | **2,175,625** |          | 543,679    |       |
| Securities Gains                                         | ** ** | **24,984**    |          | 3,507      |       |
| Impairment loss on  other investments                    | ** ** | **(62,420**   | **)**         | —     |       |
| Other                                                    | ** ** | **27,571**    |          | 6,569      |       |
|                                                     |       |          |          |       |       |
|                                                     | ** ** | **2,227,281** |          | 609,067    |       |
|                                                     |       |          |          |       |       |
| **Noninterest  Expense**                                 |       |          |          |       |       |
| Salaries and Employee  Benefits                          | ** ** | **2,480,962** |          | 2,006,318  |       |
| Occupancy and  Equipment                                 | ** ** | **436,669**   |          | 485,775    |       |
| Professional Fees                                        | ** ** | **285,627**   |          | 274,953    |       |
| Advertising  and Marketing                               | ** ** | **259,696**   |          | 430,260    |       |
| Data  Processing                                         | ** ** | **560,775**   |          | 546,596    |       |
| Telephone                                                | ** ** | **55,201**    |          | 69,148     |       |
| Postage  and Delivery Services                           | ** ** | **29,338**    |          | 42,407     |       |
| Office  Supplies                                         | ** ** | **27,586**    |          | 70,231     |       |
| Insurance,  Tax, and Regulatory Assessments              | ** ** | **253,229**   |          | 131,931    |       |
| Lending  Related Expense                                 | ** ** | **426,456**   |          | 206,221    |       |
| Other  Noninterest Expense                               | ** ** | **218,257**   |          | 57,465     |       |
|                                                     |       |          |          |       |       |
| Total Noninterest  Expense                               | ** ** | **5,033,796** |          | 4,321,305  |       |
| ** **                                               |       |          |          |       |       |
| **Income  (Loss) Before Income Taxes**                   | ** ** | **43,560**    |          | (3,515,272 | )          |
| ** **                                               |       |          |          |       |       |
| Provision for Income  Taxes                              | ** ** | **—**    |          | —     |       |
|                                                     |       |          |          |       |       |
| **Net  Income (Loss)**                                   | ** ** | **$**         | **43,560**    |       | $          | (3,515,272 | ) |
|                                                     |       |          |          |       |       |
| **Earnings  (Loss) Per Share**                           |       |          |          |       |       |
| **Basic**                                                | ** ** | **$**         | **.00**       |       | $          | (1.47 | ) |
| **Diluted**                                              | ** ** | **$**         | **.00**       |       | $          | (1.47 | ) |
| ** **                                               |       |          |          |       |       |
| **Weighted  Average Shares Outstanding**                 | ** ** | **4,744,478** |          | 2,391,229  |       |

 

Theaccompanying notes are an integral part of these consolidated statements.

 

5

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**FIRSTCENTURY BANCORP.  AND SUBSIDIARY**

**CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE LOSS**

**DECEMBER31, 2009 AND 2008**

 
| ** **                                               | ** ** | **2009**     | ** **   | **2008** | ** ** |
|----------------------------------------------------------|------------|--------------|--------------|----------|------------|
|                                                     | ** ** | ** **   |         |     |       |
| **Net Income (Loss)**                                    | ** ** | **$**        | **43,560**   |     | $          | (3,515,272 | ) |
|                                                     | ** ** | ** **   |         |     |       |
| **Other Comprehensive Loss**                             | ** ** | ** **   |         |     |       |
| Unrealized  Losses on Securities Arising During the Year | ** ** | **(158,440** | **)**        | (71,953  | )          |
| Reclassification  Adjustment                             | ** ** | **(24,984**  | **)**        | (3,507   | )          |
|                                                     | ** ** | ** **   |         |     |       |
| Net  Change in Unrealized Losses on Securities           | ** ** | **(183,424** | **)**        | (75,460  | )          |
|                                                     | ** ** | ** **   |         |     |       |
| **Comprehensive Loss**                                   | ** ** | **$**        | **(139,864** | **)**    | $          | (3,590,732 | ) |

 

Theaccompanying notes are an integral part of these consolidated statements.

 

6

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F**IRST CENTURY BANCORP. AND SUBSIDIARY**

**CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

**FOR THEYEARS ENDED DECEMBER 31, 2009 AND 2008**

 
| ** **                                                        |       |                 |       |              |       |            |       |         |       |              |       |       |        |            |       |       |       |   |     |   |      |      |
|-------------------------------------------------------------------|------------|----------------------|------------|-------------------|------------|-----------------|------------|--------------|------------|-------------------|------------|------------|-------------|-----------------|------------|------------|------------|--------|----------|--------|-----------|-----------|
| ** **                                                        | ** ** | ** **           | ** ** | ** **        | ** ** | ** **      | ** ** | ** **   | ** ** | ** **        | ** ** | ** ** | ** **  | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | **Preferred  Stock** | ** ** | **Common  Stock** | ** ** | **Accumulated** | ** ** | **Treasury** | ** ** | **Comprehensive** | ** ** | ** ** | ** **  |
| ** **                                                        | ** ** | **Shares**           | ** ** | **Amount**        | ** ** | **Shares**      | ** ** | **Amount**   | ** ** | **Deficit**       | ** ** | **Stock**  | ** **  | **Loss**        | ** ** | **Total**  | ** ** |
|                                                              |       |                 |       |              |       |            |       |         |       |              |       |       |        |            |       |       |       |
| **Balance,  December 31, 2007**                              |       | 75,000               |       | $                 | 750,000    |            | 1,732,458  |         | $          | 10,311,206        |       | $          | (7,559,873  | )               |       |       | $          | (7,645 | )        | $      | 3,493,688 |      |
|                                                              |       |                 |       |              |       |            |       |         |       |              |       |       |        |            |       |       |       |
| Issuance  of Common Stock                                         |       | —               |       | —            |       | 2,246,669       |       | 3,370,006    |       | —            |       |       |        | —          |       | 3,370,006  |       |
| Common  Stock Issuance Costs                                      |       | —               |       | —            |       | —          |       | (140,333     | )          | —            |       |       |        | —          |       | (140,333   | )          |
| Stock  Compensation Costs                                         |       | —               |       | —            |       | —          |       | 31,272       |       | —            |       |       |        | —          |       | 31,272     |       |
| Net  Change in Unrealized Losses onSecurities  Available for Sale |       | —               |       | —            |       | —          |       | —       |       | —            |       |       |        | (75,460         | )          | (75,460    | )          |
| Net  Loss                                                         |       | —               |       | —            |       | —          |       | —       |       | (3,515,272        | )          |       |        | —          |       | (3,515,272 | )          |
|                                                              |       |                 |       |              |       |            |       |         |       |              |       |       |        |            |       |       |       |
| **Balance,  December 31, 2008**                              |       | 75,000               |       | $                 | 750,000    |            | 3,979,127  |         | $          | 13,572,151        |       | $          | (11,075,145 | )               | $          | —     |       | $      | (83,105  | )      | $         | 3,163,901 |   |
|                                                              |       |                 |       |              |       |            |       |         |       |              |       |       |        |            |       |       |       |
| Issuance  of Common Stock                                         |       | —               |       | —            |       | 1,019,693       |       | 1,529,541    |       | —            |       |       |        | —          |       | 1,529,541  |       |
| Common  Stock Issuance Costs                                      |       | —               |       | —            |       | —          |       | (206,211     | )          | —            |       |       |        | —          |       | (206,211   | )          |
| Stock  Compensation Costs                                         |       | —               |       | —            |       | —          |       | 52,547       |       | —            |       |       |        | —          |       | 52,547     |       |
| Purchase  of Treasury Stock                                       |       |                 |       |              |       |            |       |         |       |              |       | (1,005     | )           |            |       | (1,005     | )          |
| Net  Change in Unrealized Losses onSecurities  Available for Sale |       | —               |       | —            |       | —          |       | —       |       | —            |       |       |        | (183,424        | )          | (183,424   | )          |
| Net  Income                                                       |       | —               |       | —            |       | —          |       | —       |       | 43,560            |       |       |        | —          |       | 43,560     |       |
|                                                              |       |                 |       |              |       |            |       |         |       |              |       |       |        |            |       |       |       |
| **Balance,  December 31, 2009**                              |       | 75,000               |       | $                 | 750,000    |            | 4,998,820  |         | $          | 14,948,028        |       | $          | (11,031,585 | )               | $          | (1,005     | )          | $      | (266,529 | )      | $         | 4,398,909 |   |

 

Theaccompanying notes are an integral part of these consolidated statements.

 

7

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**FIRSTCENTURY BANCORP. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

**FOR THE YEARS ENDED DECEMBER 31,2009 AND 2008**

 
| ** **                                                                                  | ** ** | **2009**        | ** **    | **2008**    | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------|---------------|-------------|------------|
| **Cash Flows from Operating Activities**                                                    |       |            |          |        |       |
| Net  Income (Loss)                                                                          | ** ** | **$**           | **43,560**    |        | $          | (3,515,272 | ) |
| Adjustments  to Reconcile Net Income (Loss) to Net Cash Used by Operating Activities        |       |            |          |        |       |
| Provision  for Loan Losses                                                                  | ** ** | **333,673**     |          | 639,760     |       |
| Depreciation                                                                                | ** ** | **201,255**     |          | 190,279     |       |
| Amortization  and Accretion                                                                 | ** ** | **(968,310**    | **)**         | (43,054     | )          |
| Loss  on Sale of Repossessed Assets                                                         | ** ** | **11,665**      |          | 20,897      |       |
| Loss  on Sale of Other Real Estate                                                          | ** ** | **—**      |          | 24,832      |       |
| Impairment  Loss on Other Investments                                                       | ** ** | **62,420**      |          | —      |       |
| Gains  on Sale of Securities                                                                | ** ** | **(24,984**     | **)**         | (3,507      | )          |
| Stock  Compensation Expense                                                                 | ** ** | **52,547**      |          | 31,272      |       |
| Change  In                                                                                  |       |            |          |        |       |
| Loans  Held for Sale                                                                        | ** ** | **(7,773,373**  | **)**         | (1,863,750  | )          |
| Other  Assets                                                                               | ** ** | **(131,988**    | **)**         | (172,229    | )          |
| Other  Liabilities                                                                          | ** ** | **6,615**       |          | 441,938     |       |
|                                                                                        |       |            |          |        |       |
|                                                                                        |       | **(8,186,920**  | **)**         | (4,248,834  | )          |
|                                                                                        |       |            |          |        |       |
| **Cash Flows from Investing Activities**                                                    |       |            |          |        |       |
| Purchases  of Investment Securities Available for Sale                                      | ** ** | **(9,691,104**  | **)**         | (8,287,843  | )          |
| Proceeds  from Maturities, Calls and Pay downs of Investment Securities Available for  Sale | ** ** | **6,577,621**   |          | 5,538,398   |       |
| Proceeds  from the Sale of Investment Securities Available for Sale                         | ** ** | **6,642,492**   |          | —      |       |
| Purchases  of Investment Securities Held to Maturity                                        | ** ** | **(11,599,251** | **)**         | (7,166,192  | )          |
| Proceeds  from Maturities, Calls and Pay downs of Investment Securities Held to  Maturity   | ** ** | **2,769,432**   |          | 12,869      |       |
| Purchases  of Other Investments                                                             | ** ** | **(73,750**     | **)**         | (311,850    | )          |
| Proceeds  from the Sale of Other Investments                                                | ** ** | **37,700**      |          | 287,450     |       |
| Net  Change in Loans                                                                        | ** ** | **59,744**      |          | (18,958,672 | )          |
| Proceeds  from the Sale of Other Real Estate                                                | ** ** | **54,353**      |          | 158,768     |       |
| Purchases  of Premises and Equipment                                                        | ** ** | **(52,368**     | **)**         | (493,082    | )          |
|                                                                                        |       |            |          |        |       |
|                                                                                        |       | **(5,275,131**  | **)**         | (29,220,154 | )          |
|                                                                                        |       |            |          |        |       |
| **Cash Flows from Financing Activities**                                                    |       |            |          |        |       |
| Net  Change in Deposits                                                                     | ** ** | **12,445,824**  |          | 26,114,896  |       |
| Repayments  of Borrowings                                                                   | ** ** | **—**      |          | (2,000,000  | )          |
| Purchase  of Treasury Stock                                                                 | ** ** | **(1,005**      | **)**         | —      |       |
| Payment  of Stock Issuance Costs                                                            | ** ** | **(206,211**    | **)**         | (140,333    | )          |
| Proceeds  from the Issuance of Common Stock                                                 | ** ** | **1,529,541**   |          | 3,370,006   |       |
|                                                                                        |       |            |          |        |       |
| ** **                                                                                  |       | **13,768,150**  |          | 27,344,569  |       |
|                                                                                        |       |            |          |        |       |
| **Net Increase (Decrease) in Cash and Cash  Equivalents**                                   | ** ** | **306,099**     |          | (6,124,419  | )          |
|                                                                                        |       |            |          |        |       |
| **Cash and Cash Equivalents, Beginning**                                                    | ** ** | **2,225,027**   |          | 8,349,446   |       |
|                                                                                        |       |            |          |        |       |
| **Cash and Cash Equivalents, Ending**                                                       | ** ** | **$**           | **2,531,126** |        | $          | 2,225,027 |   |

 

The accompanying notes are an integral part of these consolidatedstatements.

 

8

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**FIRST CENTURY BANCORP. AND SUBSIDIARY**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**NOTE 1- Summary of Significant Accounting Policies**

 

**Natureof Operations**

 

The Bank provides a variety of retail and commercial banking servicesfor consumers and businesses located in the northern Georgia market, with itsmain branch office located in Gainesville, Georgia.  In 2008, the Bank opened an Oakwood loan anddeposit production (LP/DP) office in south Hall County, Georgia, and an AthensLP/DP office in Athens-Clarke County, Georgia. Lending and investing activitiesare funded primarily by deposits gathered through its banking offices.

 

**Principlesof Consolidation**

 

Theconsolidated financial statements include the accounts of First CenturyBancorp. (the Company) and its wholly-owned subsidiary, First Century Bank,National Association (the Bank).  Allsignificant intercompany balances and transactions have been eliminated in consolidation.

 

**Use ofEstimates**

 

Inpreparing the consolidated financial statements in conformity with generallyaccepted accounting principles, management is required to make estimates andassumptions that affect the reported amounts of assets and liabilities as ofthe date of the balance sheet and reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from those estimates. Material estimates that are particularly susceptible to significantchange in the near term relate to the determination of the allowance for loanlosses, the valuation of real estate owned, the determination of fair value ofsecurities, the determination of fair value of financial instruments, and thevaluation of deferred tax assets.

 

**Concentrationsof Credit Risk**

 

Lendingis concentrated in mortgage, commercial and consumer loans to borrowers in ourmarket area.  In management’s opinion,although the Bank has a high concentration of real estate loans, these loansare adequately collateralized and do not pose an adverse credit risk.

 

Thesuccess of the Bank is dependent, to a certain extent, upon the economicconditions in the geographic markets it serves. No assurance can be given that the current economic conditions will notcontinue.  Adverse changes in theeconomic conditions in these geographic markets would likely have a materialdetrimental effect on the Bank’s results of operations and financial condition.The operating results of the Bank depend primarily on its net interest incomeand mortgage origination income. Accordingly, operations are subject to risks and uncertaintiessurrounding the exposure to changes in the interest rate environment.

 

Attimes, the Bank may have cash and cash equivalents at financial institutions inexcess of insured limits.  The Bankplaces its cash and cash equivalents with high credit quality financialinstitutions whose credit rating is monitored by management to minimize creditrisk.

 

9

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**InvestmentSecurities**

 

Investmentsecurities are recorded as trading, available for sale or held tomaturity.  Trading securities arepurchased and held for sale in the near term. Securities held to maturity are those which the Bank has the ability andintent to hold until maturity.  All othersecurities not classified as trading or held to maturity are consideredavailable for sale.

 

Securitiesavailable for sale are reported at estimated fair value.  Unrealized gains and losses on securitiesavailable for sale are excluded from earnings and are reported in accumulatedother comprehensive loss, a component of stockholders’ equity.  Gains and losses from sales of securitiesavailable for sale are computed using the specific identification method andrecorded on the trade date.  Securitiesavailable for sale may be sold to meet liquidity needs arising fromunanticipated deposit and loan fluctuations, changes in regulatory capitalrequirements or unforeseen changes in market conditions.  Premiums and discounts are recognized ininterest income using the interest method over the period to maturity.

 

During 2009, the Company adopted newaccounting guidance related to recognition and presentation ofother-than-temporary impairment (FASB ASC 320-10).  The guidance replaced the “intent and ability”indication by specifying that (a) if the Company does not have the intentto sell a debt security prior to recovery and (b) it is more likely thannot that it will not have to sell the debt security prior to recovery, thesecurity considered other-than-temporarily impaired unless there is a creditloss.  If the Company does not intend tosell the security, and it is more likely than not, the Company will not have tosell the security before recovery of its cost basis, it will recognize the creditcomponent of an other-than-temporary impairment of a debt security in earningsand the remaining portion in other comprehensive income.

 

**OtherInvestments**

 

Otherinvestments include equity securities with no readily determinable fairvalue.  These investments are carried atcost.  Dividends are recorded whenearned.  Management reviews forimpairment based on the ultimate recoverability of the cost basis in theseinstruments.

 

**LoansHeld For Sale**

 

Loansoriginated and intended for sale in the secondary market are reported at thelower of cost or market value.  Netunrealized losses, if any, are recognized in a valuation allowance throughcharges to earnings.  Gains and losses onthe sale of loans held for sale are determined using the specific identificationmethod.  The estimated fair value ofloans held for sale is based on independent third party quoted prices.

 

**Loans**

 

Loansthat the Bank has the ability and intent to hold for the foreseeable future oruntil maturity are recorded at their principal amount outstanding, net of anydeferred loan fees and costs.  Interestincome on loans is accrued on the outstanding principal balance using theeffective interest method.  Loan origination fees, net of certaindirect origination costs of consumer and installment loans are recognized atthe time the loan is placed on the books. Loan origination fees for all other loans are deferred and recognized asan adjustment of the yield over the life of the loan using the straight-linemethod.

 

10

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Aloan is considered to be delinquent when payments have not been made accordingto contractual terms, typically evidenced by nonpayment of a monthlyinstallment by the due date.

 

Theaccrual of interest is discontinued when a loan becomes 90 days past due andmanagement believes there is sufficient doubt that the principal or interestwill not be collectible in the normal course of business.  When a loan is placed on nonaccrual status,previously accrued and uncollected interest is charged against interest incomeon loans.  Interest payments received onnonaccrual loans are either applied against principal or reported as income onthe cash basis, according to management’s judgment as to the collectibility ofprincipal.  Loans are returned to anaccrual status when factors indicating doubtful collectibility on a timelybasis no longer exist and the loan is brought current.

 

**Allowancefor Loan Losses**

 

Theallowance for loan losses is established through a provision for loan losses chargedto earnings.  Loan losses are chargedagainst the allowance when management believes the uncollectibility of a loanbalance is confirmed.  Subsequentrecoveries are credited to the allowance.

 

Theallowance for loan losses is evaluated on a regular basis by management and isbased upon management’s periodic review of the collectibility of the loans inlight of historical experience, the nature and volume of the loan portfolio,adverse situations that may affect the borrower’s ability to repay, estimatedvalue of any underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective, asit requires estimates that are susceptible to significant revisions as moreinformation becomes available.

 

Theallowance consists of general and specific reserves.  The general reserve applies to groups ofloans with similar risk characteristics and is based on historical lossexperience, adjusted for environmental and qualitative factors.  The specific reserves relate to individualloans that are identified as impaired.  Aloan is considered impaired when, based on current information and events, itis probable that the Bank will be unable to collect the scheduled payments ofprincipal or interest when due according to the contractual terms of the loanagreement. The need for specific reserves is evaluated on impaired loansgreater than $100,000.  The specificreserves are determined on an individual loan basis based on management’sevaluation of the circumstances and the value of any underlyingcollateral.   Impaired loans are measuredbased on either the present value of expected future cash flows discounted atthe loan’s effective interest rate, the loan’s observable market price or thefair value of the collateral if the loan is collateral dependent.  Loans that have been identified as impairedare excluded from the calculation of general reserves.

 

Managementbelieves the allowance for loan losses is adequate to absorb estimated lossesrelating to specifically identified loans, as well as probable credit lossesinherent in the balance of the loan portfolio. While management uses available information to recognize losses onloans, future additions to the allowance may be necessary based on changes ineconomic conditions.  In addition, regulatoryagencies, as an integral part of their examination process, periodically reviewthe Company’s allowance for loan losses. Such agencies may require the Company to recognize additions ordeductions to the allowance based on their judgment and information availableto them at the time of their examination.

 

**Off-BalanceSheet Credit Related Financial Instruments**

 

Inthe ordinary course of business, the Bank has entered into commitments toextend credit, including commitments under standby letters of credit.  Such financial instruments are recorded whenthey are funded.

 

11

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**Premisesand Equipment**

 

Premises and equipment are carried atcost less accumulated depreciation. Depreciation of premises and equipment is provided over the estimateduseful lives of the respective assets utilizing the straight-line method.  Expenditures for major renewals andbetterments are capitalized and those for maintenance and repairs are chargedto income as incurred.  When premises andequipment are retired or sold, the cost and accumulated depreciation areremoved from their respective accounts and any gain or loss is reflected inother income or expense. .  The range of estimated useful lives forpremises and equipment are generally as follows:

 
| Buildings  and improvements |   | 5 - 40 years  |   |
|-----------------------------|--------|---------------|--------|
| Furniture  and equipment    |   | 3  - 10 years |   |

 

**OtherReal Estate**

 

Otherreal estate owned represents property acquired through or in lieu offoreclosure.  Other real estate iscarried at the fair value less selling costs. Losses from the acquisition of property in full or partial satisfactionof debt are recorded as charges to the allowance for loan losses.  Subsequent declines in value, routine holdingcosts and gains or losses upon disposition are included in other expense.

 

**Transfersof Financial Assets**

 

Transfersof financial assets are accounted for as sales, when control over the asset hasbeen surrendered.  Control overtransferred assets is deemed to be surrendered when (1) the assets havebeen isolated from the Company (put presumptively beyond the reach of thetransferor and its creditors, even in bankruptcy or other receivership), (2) thetransferee obtains the right (free of conditions that constrain it from takingadvantage of that right) to pledge or exchange the transferred assets, and (3) theCompany does not maintain effective control over the transferred assets throughan agreement to repurchase them before their maturity, or the ability tounilaterally cause the holder to return specific assets.

 

**IncomeTaxes**

 

The Company accounts for income taxes inaccordance with income tax accounting guidance (FASB ASC 740, *Income Taxes)*.  On January 1,2009, the Company adopted the recent accounting guidance related to accountingfor uncertainty in income taxes, which sets out a consistent framework todetermine the appropriate level of tax reserves to maintain for uncertain taxpositions.

 

Income tax accounting consists of twocomponents of income tax expense: current and deferred.  Current income tax expense reflects taxes tobe paid or refunded for the current period by applying the provisions of theenacted tax law to the taxable income or excess of deductions overrevenues.  The Company determines deferredincome taxes using the liability (or balance sheet) method.  Under this method, the net deferred tax assetor liability is based on the tax effects of the differences between the bookand tax bases of assets and liabilities, and enacted changes in tax rates andlaws are recognized in the period in which they occur.

 

Deferredincome tax expense results from changes in deferred tax assets and liabilitiesbetween periods.  Deferred tax assets arerecognized if it is more likely than not, based on the technical merits, thatthe tax position will be realized or sustained upon examination.  The term more likely than not means alikelihood of more than 50 percent; the terms examined and upon examinationalso include resolution of the related appeals or litigation processes, ifany.  A tax position that meets themore-likely-than-not recognition threshold is initially and subsequentlymeasured as the largest amount of tax benefit that has a greater than 50percent likelihood of being realized upon settlement with a taxing authoritythat has full knowledge of all relevant information.  The determination of whether or not a taxposition has met the more-likely-than-not recognition threshold considers thefacts, circumstances, and information available at the reporting date and issubject to management’s 

 

12

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judgment.  Deferred tax assets are reduced by avaluation allowance if, based on the weight of evidence available, it is morelikely than not that some portion or all of a deferred tax asset will not berealized.

 

**ComprehensiveIncome (Loss)**

 

Accountingprinciples generally require that recognized revenue, expenses, gains andlosses be included in net income (loss). Certain changes in assets and liabilities, such as unrealized gains andlosses on securities available for sale, represent equity changes from economicevents of the period and are not reported in the consolidated statements ofoperations but as a separate component of the equity section of theconsolidated balance sheets.  Such itemsare considered components of other comprehensive income (loss) and arepresented in the Consolidated Statements of Comprehensive Income (Loss).

 

**Earnings(Loss) Per Share**

 

Net income (loss) per commonshare is based on the weighted average number of common shares outstandingduring the year.  The effects ofpotential common shares outstanding are included in diluted earnings (loss) pershare.  No common stock equivalents wereconsidered in 2008 as the effects of such would be antidilutive to the loss pershare calculation.   Dividendsaccumulated on cumulative preferred stock, which totaled $ 70,266 and $45,891for the years ended December 31, 2009 and 2008, respectively, reduced theearnings available to common stockholders in the computation.

 

**StockCompensation Plans**

 

TheCompany uses the fair value method of recognizing expense for stock basedcompensation based on the fair value of options at the date of grant asprescribed by Accounting Standards Codification Topic 781-10, *Compensation-Stock Compensation*.

 

Thatexpense is measured based on the grant date fair value of the equityinstruments issued.  The stockcompensation accounting guidance requires that compensation cost for all stockawards be calculated and recognized over the employees’ service period, generallydefined as the vesting period.  ABlack-Scholes model is used to estimate the fair value of stock awards.

 

**Statementsof Cash Flows**

 

Forreporting cash flows, cash and cash equivalents include cash on hand,noninterest-bearing amounts due from banks and federal funds sold.  Cash flows from demand deposits, NOWaccounts, savings accounts, loans and certificates of deposit are reported net.

 
| ** **                                                  | ** ** | **2009**   | ** **    | **2008** | ** ** |
|-------------------------------------------------------------|------------|------------|---------------|----------|------------|
|                                                        | ** ** | ** ** |          |     |       |
| Supplementary Cash Flow Information:                        | ** ** | ** ** |          |     |       |
|                                                        | ** ** | ** ** |          |     |       |
| Cash Paid During the Year for:                              | ** ** | ** ** |          |     |       |
| Interest                                                    | ** ** | **$**      | **1,649,150** |     | $          | 1,493,325 |   |
| Income Taxes                                                | ** ** | **$**      | **—**    |     | $          | — |   |
|                                                        | ** ** | ** ** |          |     |       |
| Noncash Investing and Financing Activities:                 | ** ** | ** ** |          |     |       |
|                                                        | ** ** | ** ** |          |     |       |
| Transfer of Loans to Other Real Estate                      | ** ** | **$**      | **653,501**   |     | $          | 98,000 |   |
|                                                        |       |       |          |     |       |
| Change in Unrealized Loss on Securities Available  for Sale | ** ** | **$**      | **183,424**   |     | $          | 75,460 |   |
|                                                             |            |            |               |          |            |  |  |  |  |  |  |  |  |

 

13

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**Changesin Accounting Principles and Effects of New Accounting Pronouncements**

 

EffectiveJuly 1, 2009, the Company adopted a new accounting guidance related toU.S. GAAP (FASB ASC 105, *Generally AcceptedAccounting Principles*).  Thisguidance establishes FASB ASC as the source of authoritative U.S. GAAPrecognized by FASB to be applied by nongovernmental entities.  Rules and interpretive releases of theSEC under authority of federal securities laws are also sources ofauthoritative U.S. GAAP for SEC registrants. FASB ASC supersedes all existing non-SEC accounting and reportingstandards.  All other nongrandfathered,non-SEC accounting literature not included in FASB ASC has become nonauthoritative.  FASB will no longer issue new standards inthe form of Statements, FASB Staff Positions, or Emerging Issues Task ForceAbstracts.  Instead, it will issueAccounting Standards Updates (ASUs), which will serve to update FASB ASC,provide background information about the guidance, and provide the basis forconclusions on the changes to FASB ASC. FASB ASC is not intended to change U.S. GAAP or any requirements of theSEC.  This guidance is effective for theCompany as of December 31, 2009.

 

InDecember 2009, the FASB issued Accounting Standards Update No. 2009-16(“ASU 2009-16”),*Accounting for Transfers ofFinancial Assets.  * ASU No. 2009-16 formallyincorporates into the FASB Codification amendments to primarily 1) eliminatethe concept of a qualifying special-purpose entity, 2) limit the circumstancesunder which a financial asset should be derecognized when the entire financialasset has not been transferred to a non-consolidated entity, 3) requiresadditional disclosures concerning a transferor’s continuing involvement withtransferred financial assets, and 4) requires that all servicing assets andliabilities be initially measured at fair value.  This guidance iseffective as of the start of the first annual reporting period beginning after November 15,2009, for interim periods within the first annual reporting period, and for allsubsequent annual and interim reporting periods.  ASU No. 2009-19is not expected to have a material impact on the Company’s results ofoperations, financial position or disclosures; however, the Company will needto review future loan participation agreements and other transfers of financialassets for compliance with the new standard.

 

InJanuary 2010, the FASB issued Accounting Standards Update No. 2010-06,*Improving Disclosures about Fair Value Measurements*(“ASU No. 2010-06”).  ASU No. 2010-06 amends FASB ASC Topic820-10-50,*Fair Value Measurements andDisclosures,* to require additional information to be disclosedprincipally regarding Level 3 measurements and transfers to and from Level 1and 2.  In addition, enhanced disclosure is required concerninginputs and valuation techniques used to determine Level 2 and Level 3measurements.  This guidance is generally effective for interim andannual reporting periods beginning after December 15, 2009; however,requirements to disclose separately purchases, sales, issuances, andsettlements in the Level 3 reconciliation are effective for fiscal yearsbeginning after December 15, 2010 (and for interim periods within suchyears).  ASU No. 2010-06 is not expected to have a materialimpact on The Company’s results of operations or financial position, and willhave a minimal impact on its disclosures.

 

FASBissued accounting guidance which modifies certain guidance contained in the *Transfers and Servicing* topic of FASB ASC (FASB ASC860).  This standard eliminates theconcept of qualifying special purpose entities, provides guidance as to when aportion of a transferred financial asset can be evaluated for sale accounting,provides additional guidance with regard to accounting for transfers offinancial assets, and requires additional disclosures.  This guidance is effective for the Company asof January 1, 2010, with adoption applied prospectively for transfers thatoccur on or after the effective date.

 

**NOTE 2-   Management’s Plan of Action**

 

Forthe year ended December 31, 2009 the Company is reporting net income of$43,560 as compared to a net loss in 2008 of $3,515,272.  This is the first year since the inception ofthe Company that it has reported net income. As a result of the losses reported prior to 2009 the Company reports anaccumulated deficit of $11,031,585, and total equity of $4,398,909.

 

TheCompany has experienced many changes in the past three years, most notably theinjection of new capital through the issuance of common and preferred stock inthe amount of $7,135,960.  In addition tothe investment of new capital, a new management team was put in place thatbrought significant banking experience to the Company.  The new management team has been successfulin generating a net income; restructuring the operations, allocating resourcestowards initiatives which maximize net income; implementing processes and 

 

14

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proceduresthat through performance and adherence to regulatory requirements resulted inthe lifting of previously existing regulatory orders; and regained stockholdersupport.

 

Inprior years, the Bank operated under various regulator orders issued by its primaryregulator and there were times when their continued existence was unknown.  Management believes that it has turned thecorner and with the strategic plans, cost cutting initiatives, expansion ofbusiness lines that have already proven to be profitable, and the commitment ofsenior management and its board of directors.

 

TheBank currently maintains capital ratios which are considered well capitalizedat 10.82% and 6.22% total risk-based capital and leverage capital,respectively.  However the bankingindustry in the state of Georgia has experienced significant losses in recentyears and there remains pressure on banks to maintain capital levels at timesin excess of required minimums.  Althoughthere currently is no requirement to maintain excess capital, changes inCompany performance and the banking industry may cause regulators to takeaction to protect the depositors.  If anysuch requirement is instituted to maintain additional levels of capital or ifour current capital levels drop below required levels, the Company may onceagain be in the position of raising capital. Failure to maintain required levels of capital could result inregulatory oversight including restrictions or modifications to the Company’scurrent strategic plans.

 

**NOTE 3-   Investment Securities**

 

Investmentsecurities as of December 31, 2009 and 2008 are summarized as follows.

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

 

15

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| ** **                                            | ** ** | **December 31, 2008** | ** ** |
|-------------------------------------------------------|------------|----------------------------|------------|
| ** **                                            | ** ** | **Amortized********Cost**  | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross Unrealized  Losses** | ** ** | **Fair********Value** | ** ** |
| **Securities  Available for Sale**                    | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Obligations of U.S. Government Agencies               |       | $                          | 2,381,588  |   | $ | 57,950 |   | $ | — |   | $ | 2,439,538 |   |
| Mortgage Backed Securities-GNMA                       |       | 3,033,535                  |       | — |   | (11,564 | ) | 3,021,971 |   |
| Mortgage Backed Securities-FNMA and FHLMC             |       | 1,216,275                  |       | 1,963 |   | (196 | ) | 1,218,042 |   |
| Private Label Collateralized Mortgage Securities      |       | 1,788,390                  |       | 7,182 |   | — |   | 1,795,572 |   |
| Private Label Residential Mortgage Backed  Securities |       | 1,889,704                  |       | 18,291 |   | (17,851 | ) | 1,890,144 |   |
| Corporate Debt Securities                             |       | 575,000                    |       | 1,100 |   | (19,500 | ) | 556,600 |   |
| Equity Securities                                     |       | 298,680                    |       | — |   | (120,480 | ) | 178,200 |   |
|                                                  |       | $                          | 11,183,172 |   | $ | 86,486 |   | $ | (169,591 | ) | $ | 11,100,067 |   |
|                                                  |       |                       |       |   |   |   |   |   |   |
| **Securities Held to Maturity**                       |       |                       |       |   |   |   |   |   |   |
| Private Label Residential Mortgage Backed  Securities |       | $                          | 1,770,035  |   | $ | — |   | $ | (5,257 | ) | $ | 1,764,778 |   |
| Private Label Commercial Mortgage Backed Securities   |       | 5,408,005                  |       | — |   | (42,894 | ) | 5,365,111 |   |
|                                                  |       | $                          | 7,178,040  |   | $ | — |   | $ | (48,151 | ) | $ | 7,129,889 |   |

 

Securitieswith a carrying value of $20,150,917 at December 31, 2009 were pledged toinstitutions which the Company has available lines of credit outstanding.  There were no securities required to bepledged to secure public deposits at December 31, 2008.

 

Thefollowing outlines the unrealized losses and fair value by investment categoryand length of time that individual securities have been in a continuousunrealized loss position at December 31, 2009 and 2008:

 
| ** **                                            | ** ** | **December 31, 2009** | ** ** |
|-------------------------------------------------------|------------|----------------------------|------------|
| ** **                                            | ** ** | **Less than 12 Months**    | ** ** | **12 Months or Greater** | ** ** | **Total** | ** ** |
| ** **                                            | ** ** | **Fair  Value**            | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Total********Unrealized  Losses** | ** ** |
| **Securities Available for Sale**                     |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Obligations  of States and Political Subdivisions     |       | $                          | 239,162    |   | $ | (87,693 | ) | $ | — |   | $ | — |   | $ | 239,162 |   | $ | (87,693 | ) |
| Mortgage  Backed Securities-FNMA and FHLMC            |       | —                     |       | — |   | 492,889 |   | (1,928 | ) | 492,889 |   | (1,928 | ) |
| Private  Label Residential Mortgage Backed Securities |       | 1,463,016                  |       | (117,778 | ) | 416,654 |   | (170,662 | ) | 1,879,670 |   | (288,440 | ) |
| Corporate  Debt Securities                            |       | 315,510                    |       | (9,490 | ) | — |   | — |   | 315,510 |   | (9,490 | ) |
| Equity  Securities                                    |       | —                     |       | — |   | 285,960 |   | (12,720 | ) | 285,960 |   | (12,720 | ) |
|                                                  |       |                       |       |   |   |   |   |   |   |   |   |   |   |
|                                                  |       | $                          | 2,017,688  |   | $ | (214,961 | ) | $ | 1,195,503 |   | $ | (185,310 | ) | $ | 3,213,191 |   | $ | (400,271 | ) |
|                                                  |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| **Securities Held to Maturity**                       |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Private  Label Commercial Mortgage Backed Securities  |       | $                          | 887,578    |   | $ | (57,627 | ) | $ | — |   | $ | — |   | $ | 887,578 |   | $ | (57,627 | ) |

 

16

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| ** **                                            | ** ** | **December 31, 2008** | ** ** |
|-------------------------------------------------------|------------|----------------------------|------------|
| ** **                                            | ** ** | **Less than 12 Months**    | ** ** | **12 Months or Greater** | ** ** | **Total** | ** ** |
| ** **                                            | ** ** | **Fair  Value**            | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Total********Unrealized  Losses** | ** ** |
| **Securities Available for Sale**                     |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage  Backed Securities-GNMA                      |       | $                          | 346,339    |   | $ | (3,112 | ) | $ | 200,222 |   | $ | (8,452 | ) | $ | 546,561 |   | $ | (11,564 | ) |
| Mortgage  Backed Securities-FNMA and FHLMC            |       | 786,687                    |       | (196 | ) | — |   | — |   | 786,687 |   | (196 | ) |
| Private  Label Residential Mortgage Backed Securities |       | 557,431                    |       | (17,851 | ) | — |   | — |   | 557,431 |   | (17,851 | ) |
| Corporate  Debt Securities                            |       | 305,500                    |       | (19,500 | ) | — |   | — |   | 305,500 |   | (19,500 | ) |
| Equity  Securities                                    |       | 178,200                    |       | (120,480 | ) | — |   | — |   | 178,200 |   | (120,480 | ) |
|                                                  |       |                       |       |   |   |   |   |   |   |   |   |   |   |
|                                                  |       | $                          | 2,174,157  |   | $ | (161,139 | ) | $ | 200,222 |   | $ | (8,452 | ) | $ | 2,374,379 |   | $ | (169,591 | ) |
|                                                  |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| **Securities Held to Maturity**                       |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Private  Label Residential Mortgage Backed Securities |       | $                          | 1,764,778  |   | $ | (5,257 | ) | $ | — |   | $ | — |   | $ | 1,764,778 |   | $ | (5,257 | ) |
| Private  Label Commercial Mortgage Backed Securities  |       | 5,365,111                  |       | (42,894 | ) | — |   | — |   | 5,365,111 |   | (42,894 | ) |
|                                                  |       | $                          | 7,129,889  |   | $ | (48,151 | ) | $ | — |   | $ | — |   | $ | 7,129,889 |   | $ | (48,151 | ) |

 

Managementevaluates investment securities for other-than-temporary impairment on aquarterly basis.

 

AtDecember 31, 2009, 6 of the 14 debt securities available for sale, 1 ofthe 1 equity securities available for sale, and 1 of the 20 debt securitiesheld to maturity contained unrealized losses with an aggregate depreciation of10.04% from the Company’s amortized cost basis.

 

Inanalyzing an issuer’s financial condition, management considers whether thesecurities are issued by the federal government or its agencies, whetherdowngrades by bond rating agencies have occurred, and industry analysts’reports.  Although the issuers may haveshown declines in earnings and a weakened financial condition as a result ofthe weakened economy, no credit issues have been identified that causemanagement to believe the declines in market value are other thantemporary.  As management has the abilityto hold debt securities until maturity, or for the foreseeable future ifclassified as available for sale, no declines are deemed to be other thantemporary.

 

*Government-SponsoredEnterprises (GSE) debt securities*.  The unrealized loss on one investment in GSEswas caused by interest rate increases. The contractual terms of this investment does not permit the issuer tosettle the securities at a price less than the amortized cost bases of theinvestments.  Because the Company doesnot intend to sell the investment and it is not more likely than not that theCompany will be required to sell the investment before recovery of theiramortized cost bases, which may be maturity, the Company does not consider thatinvestment to be other-than-temporarily impaired at December 31, 2009.

 

*Obligationsof States and Political Subdivisions*.  The unrealized loss on the one investment inobligations of states and political subdivisions was caused by interest rate increases.  The contractual terms of this investment doesnot permit the issuer to settle the securities at a price less than theamortized cost bases of the investments. Because the Company does not intend to sell the investment and it is notmore likely than not that the Company will be required to sell the investmentbefore recovery of their amortized cost bases, which may be maturity, theCompany does not consider this investment to be other-than-temporarily impairedat December 31, 2009.

 

17

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*CorporateBonds*.  The Company’s unrealized losson investment in one corporate bond relates to an investment in a companywithin the financial services sector. The unrealized loss is primarily caused by recent decreases inprofitability and profit forecasts by industry analysts resulting from thesub-prime mortgage market and a recent sector downgrade by several industryanalysts.  The contractual terms of thisinvestment does not permit the Company to settle the security at a price lessthan the par value of the investments. The Company currently does not believe it is probable that it will beunable to collect all amounts due according to the contractual terms of theinvestments.  Because the Company doesnot intend to sell the investment and it is not more likely than not that theCompany will be required to sell the investments before recovery of its parvalue, which may be maturity, it does not consider this investment to beother-than-temporarily impaired at December 31, 2009.

 

*GSEResidential Mortgage-backed Securities*.  The unrealized loss on the Company’sinvestment in one GSE mortgage-backed security was caused by interest rateincreases.  The Company purchased thisinvestment at a discount relative to its face amount, and the contractual cashflows of this investment is guaranteed by an agency of the U.S.Government.  Accordingly, it is expectedthat the security would not be settled at a price less than the amortized costbases of the Company’s investment.  Becausethe decline in market value is attributable to changes in interest rates andnot credit quality, and because the Company does not intend to sell theinvestment and it is not more likely than not that the Company will be requiredto sell the investment before recovery of their amortized cost bases, which maybe maturity, the Company does not consider this investment to beother-than-temporarily impaired at December 31, 2009.

 

*PrivateLabel Residential Mortgage-backed Securities*.  The unrealized losses associated with threeprivate label residential mortgage-backed securities are primarily driven byhigher projected collateral losses, wider credit spreads, and changes ininterest rates.  We assess for creditimpairment using a cash flow model. Based upon our assessment of the expected credit losses of the securitygiven the performance of the underlying collateral compared to our creditenhancement, we expect to recover the entire amortized cost basis of thesesecurities.

 

*PrivateLabel Commercial Mortgage-backed Securities*.  The unrealized loss associated with onecommercial mortgage-backed security is primarily driven by higher projectedcollateral losses, wider credit spreads, and changes in interest rates.  We assess for credit impairment using a cashflow model.  Based upon our assessment ofthe expected credit losses of the security given the performance of theunderlying collateral compared to the credit enhancement, the Company expectsto recover the entire amortized cost basis of this security.

 

Gross realized gains on securities totaled $49,176and $3,507 for the years ending December 31, 2009 and 2008,respectively.  Gross realized losses onsecurities totaled $24,192 and $0 for the years ending December 31, 2009and 2008, respectively.

 

Otherinvestments on the balance sheet at December 31, 2009 and December 31,2008, respectively include restricted securities consisting of Federal ReserveBank stock of $137,300 and $107,250, Federal Home Loan Bank stock of $263,500and $257,500, and Silverton Bank stock of $0 and $62,420.  These securities are carried at cost sincethey do not have readily determinable fair values due to their restrictednature and the Bank does not exercise significant influence.

 

OnMay 1, 2009, Silverton Bank, a correspondent bank based in Atlanta,Georgia, was closed by the Office of the Comptroller of the Currency and theFDIC was named Receiver.  As a result ofthis development, we believed that it was highly unlikely that we would recoverany portion of our investment in the restricted stock of Silverton Bank’sholding company, Silverton Financial Services, Inc.  Accordingly, in the second quarter of 2009,we recorded an other-than-temporary impairment charge of $62,420 with respectto this restricted security, reducing the carrying value of our investment to$0.

 

18

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The amortized cost, estimated fair value, andweighted average yield of investment securities at December 31, 2009, bycontractual maturity, are shown below. Expected maturities will differ from contractual maturities becauseborrowers have the right to call or prepay obligations with or without call orprepayment penalties.

** **
| ** **                                        | ** ** | **Available for Sale** | ** ** | **Held to Maturity** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                        | ** ** | **Amortized  Cost**    | ** ** | **Fair  Value**      | ** ** | **Weighted  Average  Yield** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Weighted  Average  Yield** | ** ** |
| Obligations of U.S. Government Agencies           |       |                   |       |                 |       |   |   |   |   |   |   |   |   |
| 5 to 10 Years                                     |       | $                      | 983,146    |                 | $          | 1,012,034 |   | 5.25 | % | $ | — |   | $ | — |   | — |   |
| Obligations of States and Political  Subdivisions |       |                   |       |                 |       |   |   |   |   |   |   |   |   |
| 1 to 5 Years                                      |       | 326,855                |       | 239,162              |       | 8.71 | % | — |   | — |   | — |   |
| Corporate Debt Securities                         |       |                   |       |                 |       |   |   |   |   |   |   |   |   |
| 1 to 5 Years                                      |       | 575,000                |       | 572,210              |       | 7.88 | % | — |   | — |   | — |   |
| Equity Securities                                 |       |                   |       |                 |       |   |   |   |   |   |   |   |   |
| 1 to 5 Years                                      |       | 298,680                |       | 285,960              |       | 7.91 | % | — |   | — |   | — |   |
| Mortgage Backed Securities                        |       |                   |       |                 |       |   |   |   |   |   |   |   |   |
| Less than 1 Year                                  |       | 2,020,103              |       | 2,086,176            |       | 6.66 | % | 538,587 |   | 548,882 |   | 10.62 | % |
| 1 to 5 Years                                      |       | 3,194,215              |       | 2,927,749            |       | 9.25 | % | 14,509,031 |   | 15,540,677 |   | 10.40 | % |
| 5 to 10 Years                                     |       | 462,955                |       | 471,134              |       | 2.95 | % | 1,746,745 |   | 1,958,800 |   | 9.31 | % |
|                                              |       |                   |       |                 |       |   |   |   |   |   |   |   |   |
|                                              |       | $                      | 7,860,954  |                 | $          | 7,594,425 |   | 7.62 | % | $ | 16,794,363 |   | $ | 18,048,359 |   | 10.28 | % |

 

**NOTE 4-  Loans**

 

Thecomposition of loans as of December 31 are:

 
| ** **                             | ** ** | **2009**       | ** **     | **2008**   | ** ** |
|----------------------------------------|------------|----------------|----------------|------------|------------|
|                                   | ** ** | ** **     |           |       |       |
| Commercial, Financial and Agricultural | ** ** | **$**          | **3,698,597**  |       | $          | 4,495,355 |   |
| Real Estate-Mortgage                   | ** ** | **26,564,533** |           | 26,411,116 |       |
| Real Estate-Construction               | ** ** | **4,744,401**  |           | 5,236,464  |       |
| Consumer                               | ** ** | **1,526,295**  |           | 1,800,667  |       |
| Unearned fees                          | ** ** | **96,761**     |           | 157,468    |       |
|                                   | ** ** | ** **     |           |       |       |
|                                   | ** ** | **$**          | **36,630,587** |       | $          | 38,101,070 |   |

 

TheBank grants loans and extensions of credit to individuals and a variety ofbusinesses and corporations located primarily in its general trade area of HallCounty and Clarke County, Georgia. Although the Bank has a diversified loanportfolio, a substantial portion of the loan portfolio is collateralized byimproved and unimproved real estate and is dependent upon the real estatemarket.

 

Included in loans above are $9,924,000and $11,690,000 of interest only loans at December 31, 2009 and 2008.  These loans present greater risk to theCompany, especially considering the current decline in the real estate marketsin and around the Metro Atlanta area.

 

19

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**NOTE 5 -  Allowance for Loan Losses**

 

Transactionsin the allowance for loan losses are summarized for the years ended December 31as follows:

 
| ** **                              | ** ** | **2009**     | ** **  | **2008** | ** ** |
|-----------------------------------------|------------|--------------|-------------|----------|------------|
|                                    | ** ** | ** **   |        |     |       |
| **Balance, Beginning**                  | ** ** | **$**        | **838,234** |     | $          | 275,920 |   |
| Provision Charged to Operating Expenses | ** ** | **333,673**  |        | 639,760  |       |
| Loans Charged Off                       | ** ** | **(780,090** | **)**       | (127,311 | )          |
| Loan Recoveries                         | ** ** | **22,853**   |        | 49,865   |       |
|                                    | ** ** | ** **   |        |     |       |
| **Balance, Ending**                     | ** ** | **$**        | **414,670** |     | $          | 838,234 |   |

 

The following is a summary of informationpertaining to impaired loans, nonaccrual loans, and loans past due ninety daysor more.  This summary excludes purchasedimpaired loans and performing troubled debt restructurings.

 
| ** **                                                    | ** ** | **As of and for the Years  Ended December 31,** | ** **  |
|---------------------------------------------------------------|------------|------------------------------------------------------|-------------|
|                                                          |       | **2009**                                             | ** **  | **2008** |   |
| Impaired loans with a valuation allowance                     | ** ** | **$**                                                | **608,000** |   | $ | 1,033,000 |   |
| Impaired loans without a valuation allowance                  | ** ** | **352,000**                                          |        | 598,000 |   |
| Total impaired loans                                          | ** ** | **$**                                                | **960,000** |   | $ | 1,631,000 |   |
| Valuation allowance related to impaired loans                 | ** ** | **$**                                                | **24,000**  |   | $ | 489,000 |   |
| Total nonaccrual loans                                        | ** ** | **122,000**                                          |        | 957,000 |   |
| Total loans past due ninety days or more and still  accruing  | ** ** | **3,200**                                            |        | 662,000 |   |
| Average investment in impaired loans                          | ** ** | **776,000**                                          |        | 940,000 |   |
| Interest income recognized on impaired loans                  | ** ** | **37,474**                                           |        | 15,900 |   |
| Interest income recognized on a cash basis on  impaired loans | ** ** | **34,618**                                           |        | — |   |

 

Impaired loans include loans modified introubled debt restructuring where concessions have been granted to borrowersexperiencing financial difficulties. These concessions could include a reduction in the interest rate on theloan, payment extensions, forgiveness of principal, forbearance or otheractions intended to maximize collection.

 

For the years ended December 31,2009 and 2008 troubled debt restructurings were $141,000 and $0.  At December 31, 2009 and 2008, theCompany had loans totaling $118,000 and $0 that were modified in troubled debt restructuringand impaired.  In addition to theseamounts, the Company had troubled debt restructurings that were performing inaccordance with their modified terms of $23,000 and $0 at December 31,2009 and 2008.  In years subsequent to amodification, loans that are performing in accordance with their modified termsare not reported as impaired loans.

 

20

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**NOTE 6- Premises and Equipment**

 

Premisesand equipment are comprised of the following as of December 31:

 
| ** **                 | ** ** | **2009**       | ** **    | **2008**  | ** ** |
|----------------------------|------------|----------------|---------------|-----------|------------|
|                       | ** ** | ** **     |          |      |       |
| Land and Land Improvements | ** ** | **$**          | **409,442**   |      | $          | 409,442 |   |
| Building                   | ** ** | **1,693,776**  |          | 1,693,776 |       |
| Leasehold Improvements     | ** ** | **18,820**     |          | 18,820    |       |
| Furniture and Equipment    | ** ** | **1,252,296**  |          | 1,212,604 |       |
| Bank Vehicles              | ** ** | **88,904**     |          | 88,904    |       |
|                       | ** ** | ** **     |          |      |       |
|                       | ** ** | **3,463,238**  |          | 3,423,546 |       |
|                       | ** ** | ** **     |          |      |       |
| Accumulated Depreciation   | ** ** | **(1,186,557** | **)**         | (997,978  | )          |
|                       | ** ** | ** **     |          |      |       |
|                       | ** ** | **$**          | **2,276,681** |      | $          | 2,425,568 |   |

 

Depreciationcharged to operations totaled $201,255 and $190,280 for the years ended December 31,2009 and 2008, respectively.

 

Certainbank facilities are leased under various short-term operating leases.  Lease expense was $109,186 and $82,532 forthe years ended December 31, 2009 and 2009, respectively.

 

21

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**NOTE 7- Deposits**

 

Componentsof interest-bearing deposits as of December 31 are as follows:

 
| ** **              | ** ** | **2009**       | ** **     | **2008**   | ** ** |
|-------------------------|------------|----------------|----------------|------------|------------|
|                    | ** ** | ** **     |           |       |       |
| Interest-Bearing Demand | ** ** | **$**          | **8,443,141**  |       | $          | 1,081,609 |   |
| MMDA and Savings        | ** ** | **11,950,003** |           | 5,644,624  |       |
| Time, $100,000 and Over | ** ** | **18,025,985** |           | 11,414,255 |       |
| Other Time              | ** ** | **28,071,327** |           | 35,944,029 |       |
|                    | ** ** | ** **     |           |       |       |
|                    | ** ** | **$**          | **66,490,456** |       | $          | 54,084,517 |   |

 

Theaggregate amount of certificates of deposit, each with a minimum denominationof $100,000, was $18,025,985 and $11,414,255 as of December 31, 2009 and2008, respectively.

 

Theaggregate amount of overdrawn deposit accounts reclassified as loan balancestotaled $1,427 and $4,323 as of December 31, 2009 and 2008, respectively.

 

Asof December 31, 2009, the scheduled maturities of certificates of depositare as follows:

 
| **Year** | ** ** | **Amount** | ** ** |
|----------|------------|------------|------------|
|     |       |       |       |
| 2010     |       | $          | 44,777,328 |   |
| 2011     |       | 1,039,524  |       |
| 2012     |       | 255,418    |       |
| 2014     |       | 25,042     |       |
|     |       |       |       |
|     |       | $          | 46,097,312 |   |

 

Brokereddeposits are third-party deposits placed by or through the assistance of adeposit broker.  As of December 31,2009 and 2008, the Bank had $1,357,000 and $18,446,000, respectively, in brokereddeposits.

 

22

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**NOTE 8- Income Taxes**

 

Thecomponents of the income tax expense for the years ended December 31 areas follows:

 
| ** **                    | ** ** | **2009**    | ** ** | **2008**  | ** ** |
|-------------------------------|------------|-------------|------------|-----------|------------|
|                          | ** ** | ** **  |       |      |       |
| Deferred Expense              | ** ** | **$**       | **42,245** |      | $          | (1,194,044 | ) |
| Change in Valuation Allowance | ** ** | **(42,245** | **)**      | 1,194,044 | )          |
|                          | ** ** | ** **  |       |      |       |
|                          | ** ** | **$**       | **—** |      | $          | — |   |

 

TheCompany’s income tax expense differs from the amounts computed by applying thefederal income tax statutory rates to income/(loss) before income taxes.  A reconciliation of the differences is asfollows:

 
| ** **                              | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------------------|------------|
| ** **                              | ** ** | **2009**                          | ** ** | **2008** | ** ** |
| Tax provision at federal statutory rate |       | **$**                             | **14,810** |   | $ | (1,195,192 | ) |
| Stock Compensation                      | ** ** | **17,866**                        |       | 17,866 |   |
| Other items, net                        | ** ** | **9,569**                         |       | (16,718 | ) |
| Valuation Allowance                     | ** ** | **(42,245**                       | **)**      | 1,194,044 |   |
|                                    | ** ** | ** **                        |       |   |   |
| Income Tax Expense                      |       | $                                 | **—** |   | $ | — |   |

 

Thefollowing summarizes the components of deferred taxes at December 31:

 
| ** **                     | ** ** | **2009**       | ** ** | **2008**   | ** ** |
|--------------------------------|------------|----------------|------------|------------|------------|
| **Deferred Income Tax Assets** | ** ** | ** **     | ** ** | ** ** | ** ** |
| Allowance for Loan Losses      | ** ** | **$**          | **—** |       | $          | 44,876 |   |
| Operating Loss Carryforwards   | ** ** | **3,957,990**  |       | 3,889,749  |       |
| Stock Compensation             | ** ** | **27,219**     |       | 27,219     |       |
| Capital Loss                   | ** ** | **21,433**     |       | —     |       |
| Other                          | ** ** | **7,202**      |       | —     |       |
|                           | ** ** | ** **     |       |       |       |
|                           | ** ** | **4,013,844**  |       | 3,961,844  |       |
| **Deferred Tax Liabilities**   | ** ** | ** **     |       |       |       |
| Premises and Equipment         | ** ** | **26,979**     |       | 12,079     |       |
| Allowance for Loan Losses      | ** ** | **83,963**     |       | —     |       |
| Other                          | ** ** | **—**     |       | 4,618      |       |
|                           | ** ** | ** **     |       |       |       |
|                           | ** ** | **110,942**    |       | 16,697     |       |
|                           | ** ** | ** **     |       |       |       |
|                           | ** ** | **3,876,881**  |       | 3,945,147  |       |
| Less Valuation Allowance       | ** ** | **(3,902,902** | **)**      | (3,945,147 | )          |
|                           | ** ** | ** **     |       |       |       |
| **Net Deferred Tax Asset**     | ** ** | **$**          | **—** |       | $          | — |   |

 

Thefuture tax consequences of the differences between the financial reporting andtax bases of the Company’s assets and liabilities resulted in a net deferredtax asset. The ultimate realization of deferred tax assets is dependent uponthe generation of future taxable income during the periods in which thosetemporary differences become deductible.

 

23

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AtDecember 31, 2009, the Company had federal and state net operating losscarryforwards for tax purposes of approximately $11,527,000 and $11,310,000,respectively, which will expire beginning in 2022 if not previously utilized. Theutilization of the net operating loss carryforward has been limited as to itsuse pursuant to the Internal Revenue Code Section 382 due to the recentchange in ownership of the Company.

 

TheCompany has analyzed the tax positions taken or expected to be taken in its taxreturns and concluded it has no liability related to uncertain tax positions inaccordance with FASB Interpretation No. 48, *Accountingfor Uncertain Tax Positions*. The Company is no longer subject to U.S. federal, state and local incometax examinations by tax authorities for years prior to 2006.

 

**NOTE 9-  Borrowings**

 

TheBank has a line of credit totaling $14,170,000, representing 20% of the Bank’stotal assets at September 30, 2009 with the Federal Home Loan Bank.  At December 31, 2009, and 2008, the Bankhas one advance from the Federal Home Loan Bank of Atlanta (FHLB) in the amountof $2,000,000.  The advance bearsinterest at a fixed interest rate of 2.497 percent and matures on May 1,2013.  The Bank has pledged as collateralinvestment securities with a carrying amount of $4,342,083, and eligibleresidential and commercial real estate loans with a carrying amount of$12,349,267 at December 31, 2009.

 

TheBank has a line of credit available with a correspondent bank which represents availablecredit for overnight borrowing from this financial institution.  As of December 31, 2009 this was anunsecured line of credit for $1,000,000, of which no balance was outstanding.

 

TheBank is approved to borrow from the Federal Reserve Bank discount windowprogram.  As of December 31, 2009the Bank’s primary borrowing capacity was $20,530,000, based on pledgedinvestment securities with a carrying amount of $15,808,834, and eligiblecommercial real estate loans with a carrying amount of $8,309,788 at December 31,2009.  There were $0 advances outstandingat December 31, 2009 and 2008.

 

**NOTE 10- Contingencies and Commitments**

 

**FinancialInstruments with Off-Balance Sheet Risk**

 

TheBank is a party to financial instruments with off-balance sheet risk in thenormal course of business to meet the financing needs of its customers.  These financial instruments includecommitments to extend credit and standby letters of credit.  Those instruments involve, to varyingdegrees, elements of credit risk in excess of the amount recognized on theconsolidated balance sheets.  Thecontractual amounts of those instruments reflect the extent of involvement theBank has in particular classes of financial instruments.

 

TheBank’s exposure to credit loss in the event of nonperformance by the otherparty to the financial instrument for commitments to extend credit and standbyletters of credit is represented by the contractual amount of thoseinstruments.  The Bank uses the same creditpolicies in making commitments and conditional obligations as it does foron-balance sheet instruments.  In mostcases, the Bank requires collateral to support financial instruments withcredit risk.

 

24

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Thefollowing summarizes commitments as of December 31:

 
| ** **                                                          | ** ** | **Approximate********Contract Amount** | ** **    |
|---------------------------------------------------------------------|------------|----------------------------------------|---------------|
| ** **                                                          | ** ** | **2009**                               | ** **    | **2008** | ** ** |
| Financial Instruments Whose Contract Amounts  Represent Credit Risk |       |                                   |          |   |   |
| Commitments to Extend Credit                                        | ** ** | **$**                                  | **3,238,000** |   | $ | 3,093,000 |   |
| Standby Letters of Credit                                           | ** ** | **276,000**                            |          | 261,000 |   |
|                                                                     |            |                                        |               |  |  |  |  |

 

Commitmentsto extend credit are agreements to lend to a customer as long as there is noviolation of any condition established in the contract.  Commitments generally have fixed expirationdates or other termination clauses and may require payment of a fee.  Since many of the commitments may expirewithout being drawn upon, the total commitment amounts do not necessarilyrepresent future cash requirements.  TheBank evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemednecessary by the Bank, upon extension of credit is based on management’s creditevaluation.  Collateral held varies butmay include unimproved and improved real estate, certificates of deposit orpersonal property.

 

Standbyletters of credit are conditional commitments issued by the Bank to guaranteethe performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially thesame as that involved in extending loan facilities to customers.

 

**Contingencies**

 

In the normal course of business, theCompany is involved in various legal proceedings.  In the opinion of management, any liabilityresulting from such proceedings would not have a material effect on the Company’sfinancial statements.

 

**NOTE 11- Stockholders’ Equity**

 

Sharesof preferred stock may be issued from time to time in one or more series asestablished by resolution of the board of directors of the Company, up to amaximum of 10,000,000 shares.  Eachresolution shall include the number of shares issued, preferences, specialrights and limitations as determined by the board.

 

FirstCentury has outstanding 75,000 shares of Series B Preferred Stock, no parvalue (the Series B Preferred Stock), issued at $10.00 per share.  The Series B Preferred Stock iscumulative perpetual preferred stock and will be treated as Tier 1 capitalunder existing Federal Reserve regulations. The Series B Preferred Stock is generally nonvoting and cannot beconverted into common stock of First Century. First Century has the right, subject to Federal Reserve approval, toredeem the shares for their purchase price plus accrued dividends, if any.  Dividends accrue on the Series BPreferred Stock at a rate per annum initially equal to the prime rate in effecton the date of issuance, adjusted semi-annually on the first date of January andthe first day of July each year to be equal to the prime rate in effect onsuch date.  The investors also received awarrant to acquire one share of common stock for each share of Series BPreferred Stock purchased in the offering at an exercise price of $1.50 pershare, which was the fair market value of the common stock on the date of theissuance of the warrants.  The warrantshave no expiration date.  Cumulativedividends in arrears at December 31, 2009 and 2008 were $70,266 and$45,891, respectively.

 

25

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In July 2008, the Company commenceda private offering of shares of its common stock to a limited number ofaccredited investors.  The privateoffering closed on May 14, 2009. The Company received aggregate net proceeds of $4,553,003 from the saleof 3,266,362 shares in the offering.  TheCompany is using the net proceeds from the private offering for working capitalpurposes.  The common stock that was soldin the offering has not been registered under the Securities Act of 1933 andmay not be offered or sold in the United States absent registration or anapplicable exemption from registration requirements.

 

Dividendspaid by the Bank are the primary source of funds available to the Company.  Banking regulations limit the amount ofdividends that may be paid without prior approval of the regulatoryauthorities.  These restrictions arebased on the level of regulatory classified assets, the prior years’ netearnings and the ratio of equity capital to total assets.  As of December 31, 2009, the Bank wasprohibited from paying any dividends without prior approval from itsregulators.

 

**NOTE 12- Related Party Transactions**

 

Itis the Bank’s policy to make loans to directors and officers, includingcompanies in which they have a beneficial interest, in the normal course ofbusiness.  It is also the Bank’s policyto comply with federal regulations that require that loan and deposittransactions with directors and executive officers be made on substantially thesame terms as those prevailing at the time made for comparable loans anddeposits to other persons.

 

Thefollowing summary reflects activities for related party loans for the yearended December 31:

 
| ** **             | ** ** | **2009**     | ** **  | **2008** | ** ** |
|------------------------|------------|--------------|-------------|----------|------------|
|                   | ** ** | ** **   |        |     |       |
| **Balance, Beginning** | ** ** | **$**        | **321,340** |     | $          | 547,427 |   |
| New Loans              | ** ** | **110,006**  |        | 124,050  |       |
| Principal Repayments   | ** ** | **(312,845** | **)**       | (350,137 | )          |
|                   | ** ** | ** **   |        |     |       |
| **Balance, Ending**    | ** ** | **$**        | **118,501** |     | $          | 321,340 |   |

 

Asof December 31, 2009 and 2008, deposit accounts for related partiestotaled approximately $1,937,000 and $1,170,000, respectively.

 

InSeptember 2008, the Bank entered into a master service agreement and dataprocessing agreement to move its processing from Fidelity Information Systemsto Providence, the internal data processing system provided by First CovenantBank, an entity in which William R. Blanton, a director and Chief ExecutiveOfficer of the Company, is a principal owner. For the year ended December 31, 2009 and 2008 the total billed fordata processing services was $186,145 and $38,865, respectively.  For the year ended December 31, 2009 and2008 the total billed under the master services agreement was $228,150 and$39,579, respectively.

 

TheBank is affiliated with CINC Systems (“CINC”), a software servicescompany.  The Bank and CINC areaffiliated through common management. The Bank has contracted with CINC to provide them with web and serverhosting facilities.  For the years ended December 31,2009 and 2008 the total expense incurred for these services was $19,200 and$10,000, respectively.

 

TheBank has certain mortgage loans with a carrying amount of $2,268,983 and$2,742,062 as of December 31, 2009 and 2008, respectively, which werepurchased from United Americas Bank, an entity in which William R. Blanton is aprincipal owner.

 

26

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TheBank has certain loans with a carrying amount of $842,072 and $1,741,760 as of December 31,2009 and 2008, respectively, which were purchased from First Covenant Bank, anentity in which William R. Blanton is a principal owner.

 

TheBank sold certain loans with a carrying amount of $7,324,121 and $10,113,232during the years ended December 31, 2009 and 2008, respectively, to FirstCovenant Bank, an entity in which William R. Blanton is a principal owner.

 

**NOTE 13- Employee Benefit Plan**

 

TheCompany has a qualified retirement plan pursuant to Internal Revenue Code Section 401(K) coveringsubstantially all employees subject to minimum age and servicerequirements.  Contribution to the planby employees is voluntary.  The Companymade no contributions to the plan in 2009 or 2008.

 

**NOTE 14- Stock Options**

 

TheCompany has a stock option plan (the Option Plan) whereby the Company may grantoptions to acquire shares of common stock of the Company at the then fairvalue.  A total of 125,000 shares ofcommon stock were reserved for possible issuance under this plan.  At the 2008 Annual Meeting of shareholders,the shareholders approved an amendment to increase the number of shares of ourcommon stock authorized to be reserved for issuance under the Option Plan from125,000 to 750,000.  Vesting periods areestablished by the board at the date of grant and expire on the tenthanniversary of the grant date.

 

TheCompany also granted a consultant a non-qualified stock option to purchase100,000 shares of common stock at an exercise price of $5.00.

 

Asummary of activity related to the stock options, for the years ended December 31,2009 and 2008 is presented below:

 
| ** **                                           | ** ** | **Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|------------------------------------------------------|------------|------------|------------|--------------------------------------|------------|
|                                                 |       |       |       |                                 |       |
| **Outstanding, December 31, 2007**              |       | 123,834    |       | $                                    | 5.77       |   |
|                                                 |       |       |       |                                 |       |
| Granted                                              |       | 421,000    |       | $                                    | 2.00       |   |
| Exercised                                            |       | —     |       | —                               |       |
| Forfeited                                            |       | (6,500     | )          | $                                    | 5.00       |   |
|                                                 |       |       |       |                                 |       |
| **Outstanding, December 31, 2008**              |       | 538,334    |       | $                                    | 2.78       |   |
|                                                 |       |       |       |                                 |       |
| Granted                                              |       | 30,000     |       | $                                    | 1.50       |   |
| Exercised                                            |       | —     |       | —                               |       |
| Forfeited                                            |       | (118,500   | )          | $                                    | 1.60       |   |
|                                                 |       |       |       |                                 |       |
| **Outstanding, December 31, 2009**              |       | 449,834    |       | $                                    | 2.53       |   |
|                                                 |       |       |       |                                 |       |
| **Eligible to be Exercised, December 31, 2009** |       | 113,834    |       | $                                    | 5.59       |   |

 

TheCompany recognized stock-based compensation expense of $52,547 and $31,272 forthe years ended December 31, 2009 and 2008, respectively.  There were no options exercised during theyears ended December 31, 2009 and 2008. The total fair value of shares vested during the years ended December 31,2009 and 2008 was $170,751 and $175,501, respectively.  There were no income tax benefits recognizedfor the years ended December 31, 2009 and 2008.

 

27

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Duringthe year ended December 31, 2009, the Company modified 421,000 outstandingoptions with an exercise price of $2.00 per option by lowering the exerciseprice to $1.50 per option.  The totalincremental cost related to the modifications was $17,252 and will berecognized as compensation expense over the remaining service period of theindividual grants.

 

Theoptions outstanding and exercisable at December 31, 2009 had no aggregateintrinsic value.  At December 31,2009, there was $186,604 of total unrecognized compensation expense related tonon-vested share-based compensation arrangements.  The cost is expected to be recognized over aweighted average period of 3.6 years.

 

Informationpertaining to options outstanding at December 31, 2009 is as follows:

 

**2009**

 
| **Exercise  Prices** | ** ** | **Number  Outstanding** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** | **Number  Exercisable** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** |
|----------------------|------------|-------------------------|------------|---------------------------------------------------|------------|-------------------------|------------|---------------------------------------------------|------------|
|                 |       |                    |       |                                              |       |                    |       |                                              |       |
| $                    | 10.00      |                    | 13,334     |                                              | 3.4        |                    | 13,334     |                                              | 3.4        |   |
| 5.00                 |       | 100,500                 |       | 5.8                                               |       | 100,500                 |       | 5.8                                               |       |
| 1.50                 |       | 336,000                 |       | 8.4                                               |       | —                  |       | —                                            |       |
|                 |       |                    |       |                                              |       |                    |       |                                              |       |
|                 |       | 449,834                 |       | 7.6                                               |       | 113,834                 |       | 5.5                                               |       |
|                      |            |                         |            |                                                   |            |                         |            |                                                   |            |  |

 

Thefair value of each option grant was estimated on the date of the grant usingthe Black-Scholes option valuation model that uses the assumptions noted in thefollowing table for the years ended December 31, 2009 and 2008..

 
| ** **                                     | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
|                                           |       |     |       |     |       |
| Dividend Yield                                 | ** ** | **0.00** | **%**      | 0.00     | %          |
| Risk Free Interest Rate                        | ** ** | **1.89** | **%**      | 3.98     | %          |
| Expected Life (in Years)                       | ** ** | **6.5**  |       | 6.5      |       |
| Expected Volatility                            | ** ** | **92**   | **%**      | 29       | %          |
| Weighted average fair value per option granted | ** ** | **$**    | **1.16**   |     | $          | 0.77 |   |
|                                                |            |          |            |          |            |  |  |

 

The risk-free interest rates for periods within thecontractual life of the awards are based on the U.S. Treasury yield curve ineffect at the time of grant.  Theexpected life of options represents the period of time that options granted areexpected to be outstanding.  The dividendyield assumption is based on the Company’s history and expectation of dividendpayouts.

 

28

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**NOTE 15- Stock Warrants**

 

OnMarch 25, 2002, the Company issued warrants to directors to purchase anaggregate of 199,736 shares of the Company’s common stock at an exercise priceof $10.00 per share.  The warrants becomeexercisable in one-third annual increments beginning on the first anniversaryof the issuance date, provided that throughout the period beginning on the dateof the initial issuance of the warrants and ending on the particularanniversary, the warrant holder has served continuously as a director of theCompany and the Bank and has attended at least 75% of the meetings of therelevant boards of directors.  Warrantswhich fail to vest as provided in the previous sentence will expire and nolonger be exercisable.  Exercisablewarrants will generally remain exercisable for the 10-year period following thedate of issuance.  The exercise price ofeach warrant is subject to adjustment for stock splits, recapitalizations orother similar events.  As of December 31,2009, 153,393 of these warrants remained outstanding of which all wereexercisable.

 

InApril 2007, Mr. Blanton purchased 738,008 shares of the Company’scommon stock in a private placement at $2.71 per share.  The Company also issued Mr. Blanton awarrant (the “Original Warrant”) to purchase up to 738,008 shares at $2.71 pershare. The Original Warrant has no expiration date and contains provisionswhich provide for automatic adjustments in price and shares purchasable underthe Original Warrants in the event additional securities are issued below orhave a conversion or exercise price below the current Original Warrant exerciseprice.

 

InSeptember 2007, Mr. Blanton transferred a portion of the OriginalWarrant to purchase 184,502 shares to Silver Hill Enterprises, LP, an entitycontrolled by William Evans, one of the Company’s directors.

 

InDecember 2007, the Company completed a private placement of Series BPreferred Stock, no par value, for $10.00 per share, selling a total of$750,000 worth of shares.  The investorsin that offering also received warrants (the “B Warrants”) to acquire 75,000shares of common stock at an exercise price of $1.50 per share, which webelieve was the fair market value of the common stock on the date of issuanceof the B Warrants.  As with the OriginalWarrant, the B Warrants have no expiration date and contain provisions whichprovide for automatic adjustments in price and shares purchasable under thewarrants in the event additional shares or warrants are issued below thecurrent warrant exercise price.

 

Asa result of the issuance of the B Warrants with an exercise price below the$2.71 exercise price, the exercise price and number of shares of common stockpurchasable under the Original Warrant adjusted as follows: (a) withrespect to Mr. Blanton, from 553,506 shares at $2.71 per share to1,000,001 shares at $1.50 per share; and (b) with respect to Silver HillEnterprises, LP, from 184,502 shares at $2.71 per share to 333,333 shares at$1.50 per share.

 

InJune 2008, Mr. Blanton and Silver Hill Enterprises, LP transferred aportion of the Original Warrant to purchase shares to John Allen Nivens, Jr.and Richard Kramer Whitehead, III, each a director of the Company and toHomestead Investment, LLC, which is controlled by the father of Companydirector, William A. Bagwell, Jr.

 

Followingthe transfers and the adjustments to the Original Warrant, the followingpersons hold rights to purchase shares of common stock at the exercise price of$1.50 under the Original Warrant and the B Warrants:  (i) Mr. Blanton holds rights topurchase 850,254 shares; (ii) Silver Hill Enterprises, LP holds rights topurchase 283,418 shares; (iii) Mr. Nivens holds rights to purchase69,165 shares; (iv) Mr. Whitehead holds rights to purchase 69,165shares; and (v) Homestead Investment, LLC and Mr. Bagwellcollectively hold rights to purchase 136,332 shares.

 

29

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**NOTE 16- Fair Value**

 

**FairValue of Financial Instruments**

 

ASCTopic 825, Disclosures about Fair Value of Financial Instruments, requiresdisclosure of fair value information about financial instruments, whether ornot recognized on the face of the balance sheet, for which it is practicable toestimate that value.  The assumptionsused in the estimation of the fair value of the Company’s financial instrumentsare detailed below.  Where quoted pricesare not available, fair values are based on estimates using discounted cashflows and other valuation techniques. The use of discounted cash flows can be significantly affected by theassumptions used, including the discount rate and estimates of future cashflows.  The following disclosures shouldnot be considered a surrogate of the liquidation value of the Company, butrather a good-faith estimate of the increase or decrease in value of financialinstruments held by the Company since purchase, origination or issuance.

 

**Cashand Short-Term Investments**- For cash, due from banksand federal funds sold, the carrying amount is a reasonable estimate of fairvalue.

 

**InvestmentSecurities** - Fair values for investment securities are basedon quoted market prices.

 

**OtherInvestments** - The fair value of other investments approximatescarrying value.

 

**LoansHeld for Sale** - The fair value of loans held for sale are basedon third party quotes.

 

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

 

**DepositLiabilities** - The fair value of demand deposits, savingsaccounts and certain money market deposits is the amount payable on demand atthe reporting date.  The fair value offixed maturity certificates of deposit is estimated by discounting the futurecash flows using the rates currently offered for deposits of similar remainingmaturities.

 

**Borrowings** - Due to theirshort-term nature, the fair value FRB advances approximates carryingamount.  The fair value of FHLB advancesare provided by the FHLB and approximate fair value derived from theirproprietary models.

 

**AccruedInterest** - The carrying amounts of accrued interestapproximate fair value.

 

**StandbyLetters of Credit and Unfulfilled Loan Commitments** - Fair valuesare based on fees currently charged to enter into similar agreements takinginto account the remaining terms of the agreements and the counterparties’credit standing.  The fees associatedwith these instruments are not considered material.

 

30

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Thecarrying amount and estimated fair values of the Company’s financial instrumentsas of December 31 2009 and 2008 are presented hereafter:

 
| ** **                                | ** ** | **2009**           | ** ** | **2008**       | ** ** |
|-------------------------------------------|------------|--------------------|------------|----------------|------------|
| ** **                                | ** ** | **Carrying**       | ** ** | **Estimated**  | ** ** | **Carrying** | ** ** | **Estimated** | ** ** |
| ** **                                | ** ** | **Amount**         | ** ** | **Fair Value** | ** ** | **Amount** | ** ** | **Fair Value** | ** ** |
| ** **                                | ** ** | **(in Thousands)** | ** ** |
| **Assets**                                |       |               |       |           |       |   |   |   |   |
| Cash  and Short-Term Investments          | ** ** | **$**              | **2,531**  | ** **     | **$**      | **2,531** | ** ** | $ | 2,225 |   | $ | 2,225 | ** ** |
| Investment  Securities Available for Sale | ** ** | **7,594**          | ** ** | **7,594**      | ** ** | 11,100 |   | 11,100 | ** ** |
| Investment  Securities Held to Maturity   | ** ** | **16,794**         | ** ** | **18,048**     | ** ** | 7,178 |   | 7,130 | ** ** |
| Other  Investments                        | ** ** | **401**            | ** ** | **401**        | ** ** | 427 |   | 427 | ** ** |
| Loans  Held for Sale                      | ** ** | **9,637**          | ** ** | **9,637**      | ** ** | 1,864 |   | 1,864 | ** ** |
| Loans                                     | ** ** | **36,215**         | ** ** | **36,572**     | ** ** | 37,263 |   | 38,437 | ** ** |
| Accrued  Interest Receivable              | ** ** | **279**            | ** ** | **279**        | ** ** | 249 |   | 249 | ** ** |
|                                      | ** ** | ** **         | ** ** | ** **     |       |   |   |   |   |
| **Liabilities**                           | ** ** | ** **         | ** ** | ** **     |       |   |   |   |   |
| Deposits                                  | ** ** | **69,567**         | ** ** | **69,596**     | ** ** | 57,121 |   | 57,008 | ** ** |
| Borrowings                                | ** ** | **2,000**          | ** ** | **2,062**      | ** ** | 2,000 |   | 2,071 | ** ** |
| Accrued  Interest Payable                 | ** ** | **279**            | ** ** | **279**        | ** ** | 213 |   | 213 | ** ** |
|                                           |            |                    |            |                |            |  |  |  |  |  |  |  |  |

 

Fairvalue estimates are made at a specific point in time, based on relevant marketinformation and information about the financial instrument.  These estimates do not reflect any premium ordiscount that could result from offering for sale at one time the entire holdingsof a particular financial instrument. Because no market exists for a significant portion of the Company’sfinancial instruments, fair value estimates are based on many judgments.  These estimates are subjective in nature andinvolve uncertainties and matters of significant judgment and therefore cannotbe determined with precision.  Changes inassumptions could significantly affect the estimates.

 

Fairvalue estimates are based on existing on-and off-balance sheet financialinstruments without attempting to estimate the value of anticipated futurebusiness and the value of assets and liabilities that are not consideredfinancial instruments.  Significantassets and liabilities that are not considered financial instruments includethe deferred income taxes, other real estate, and premises and equipment.  In addition, the tax ramifications related tothe realization of the unrealized gains and losses can have a significanteffect on fair value estimates and have not been considered in the estimates.

 

**Determinationof Fair Value**

 

TheCompany uses fair value measurements to record fair value adjustments tocertain assets and liabilities and to determine fair value disclosures.  In accordance with the *Fair ValueMeasurements and Disclosures* topic (FASB ASC 820), the fair value ofa financial instrument is the price that would be received to sell an asset orpaid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. Fair value is best determined based upon quoted market prices.  However, in many instances, there are noquoted market prices for the Company’s various financial instruments.  In cases where quoted market prices are notavailable, fair values are based on estimates using present value or othervaluation techniques.  Those techniquesare significantly affected by the assumptions used, including the discount rateand estimates of future cash flows. Accordingly, the fair value estimates may not be realized in animmediate settlement of the instrument.

 

31

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

 

**FairValue Hierarchy**

 

ASC Topic 820, *Fair Value Measurementsand Disclosures,*defines fair value, establishes a framework formeasuring fair value, establishes a three-level valuation hierarchy fordisclosure of fair value measurement and enhances disclosure requirements forfair value measurements.  The valuationhierarchy is based upon the transparency of inputs to the valuation of an assetor liability as of the measurement date. The three levels are defined as follows:

 

Level1 - Valuation is based on quoted prices in active markets for identical assetsor liabilities that the reporting entity has the ability to access at the measurementdate.  Level 1 assets and liabilitiesgenerally include debt and equity securities that are traded in an activeexchange market.  Valuations are obtainedfrom readily available pricing sources for market transactions involvingidentical assets or liabilities.

 

Level2 - Valuation is based on inputs other than quoted prices included within level1 that are observable for the asset or liability, either directly orindirectly.  The valuation may be basedon quoted prices for similar assets or liabilities; quoted prices in marketsthat are not active; or other inputs that are observable or can be corroboratedby observable market data for substantially the full term of the asset orliability.

 

Level3 - Valuation is based on unobservable inputs that are supported by little orno market activity and that are significant to the fair value of the assets orliabilities.  Level 3 assets andliabilities include financial instruments whose value is determined usingpricing models, discounted cash flow methodologies, or similar techniques, aswell as instruments for which determination of fair value requires significantmanagement judgment or estimation.

 

Afinancial instrument’s categorization within the valuation hierarchy is basedupon the lowest level of input that is significant to the fair valuemeasurement.

 

Followingis a description of the valuation methodologies used for instruments measuredat fair value on a recurring basis and recognized in the accompanying balancesheets, as well as the general classification of such instruments pursuant tothe valuation hierarchy:

 

*InvestmentSecurities Available for Sale*

 

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

 

32

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*LoansHeld for Sale*

 

Loansheld for sale are reported at the lower of cost or fair value.  Fair Value is determined based on theexpected proceeds based on sales contracts and commitments and are consideredLevel 2 inputs.

 

Followingis a description of the valuation methodologies used for instruments measuredat fair value on a non-recurring basis and recognized in the accompanyingbalance sheets, as well as the general classification of such instrumentspursuant to the valuation hierarchy:

 

*Impairedloans*

 

ASCTopic 820 applies to loans measured for impairment using the practicalexpedients permitted by ASC Section 310-30-30,**includingimpaired loans measured at an observable market price (if available), or at thefair value of the loan’s collateral (if the loan is collateral dependent).  Fair value of the loan’s collateral, when theloan is dependent on collateral, is determined by appraisals or independentvaluation which is then adjusted for the cost related to liquidation of thecollateral.

 

*OtherReal Estate*

 

Otherreal estate is reported at fair value less selling costs.  Fair value is based on third party orinternally developed appraisals considering the assumptions in the valuationand is considered Level 2 or Level 3 inputs.

 

*Assetsand Liabilities Measured at Fair Value on a Recurring Basis as of December 31,2009 and 2008*

 
| ** **                                    | ** ** | ** **    | ** **    | **Fair Value Measurements at********December 31, 2009 Using** | ** ** |
|-----------------------------------------------|------------|---------------|---------------|--------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **Total**     | ** **    | **Level 1**                                                        | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| ** **                                    | ** ** | ** **    | ** **    | ** **                                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Investment Securities Available  for Sale** | ** ** | **$**         | **7,594,425** | ** **                                                         | **—** | ** ** | **$** | **7,594,425** | ** ** | **—** | ** ** |
| **Loans Held for Sale**                       | ** ** | **9,637,123** | ** **    | **—**                                                         | ** ** | **9,637,123** | ** ** | **—** | ** ** |
|                                               |            |               |               |                                                                    |            |  |  |  |  |  |  |

 
| ** **                               | ** ** | ** ** | ** ** | **Fair Value Measurements at********December 31, 2008 Using** | ** ** |
|------------------------------------------|------------|------------|------------|--------------------------------------------------------------------|------------|
| ** **                               | ** ** | **Total**  | ** ** | **Level 1**                                                        | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|                                     |       |       |       |                                                               |       |   |   |   |   |
| Investment Securities Available for Sale |       | 11,100,067 |       | —                                                             |       | 11,100,067 |   | — |   |
| Loans Held for Sale                      |       | 1,863,750  |       | —                                                             |       | 1,863,750 |   | — |   |

 

33

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Thefollowing table presents the financial instruments carried on the consolidatedbalance sheets by caption and by level in the fair value hierarchy at December 31,2009 and 2008, for which a nonrecurring change in fair value has been recorded:

 

*Assetsand Liabilities Measured at Fair Value on a Nonrecurring Basis as of December 31,2009 and 2008*

 
| ** **         | ** ** | **Fair Value Measurements at**   | ** ** | **Total**   | ** ** |
|--------------------|------------|----------------------------------|------------|-------------|------------|
| ** **         | ** ** | **December 31, 2009 Using** | ** ** | **Gains**   | ** ** |
| ** **         | ** ** | **Level 1**                      | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **(Losses)** | ** ** |
| ** **         | ** ** | ** **                       | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Impaired Loans** | ** ** | **—**                       | ** ** | **—**  | ** ** | **$** | **935,284** | ** ** | **$** | **(299,427** | **)** |
|                    |            |                                  |            |             |            |  |  |  |  |  |  |

 
| ** **     | ** ** | **Fair Value Measurements at**   | ** ** | **Total**   | ** ** |
|----------------|------------|----------------------------------|------------|-------------|------------|
| ** **     | ** ** | **December 31, 2008 Using** | ** ** | **Gains**   | ** ** |
| ** **     | ** ** | **Level 1**                      | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **(Losses)** | ** ** |
|           |       |                             |       |        |       |   |   |   |   |
| Impaired Loans |       | —                           |       | —      |       | $ | 1,142,558 |   | $ | (488,631 | ) |
|                |            |                                  |            |             |            |  |  |  |  |  |  |

 

**NOTE 17- Regulatory Matters**

 

TheCompany and the Bank are subject to various regulatory capital requirementsadministered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certainmandatory and possibly additional discretionary actions by regulators that, ifundertaken, could have a direct material effect on the consolidated financialstatements.  Under certain adequacyguidelines and the regulatory framework for prompt corrective action, specificcapital guidelines that involve quantitative measures of the assets, liabilitiesand certain off-balance sheet items, as calculated under regulatory accountingpractices, must be met.  The capitalamounts and classification are also subject to qualitative judgments by theregulators about components, risk weightings and other factors.

 

Quantitativemeasures established by regulation to ensure capital adequacy require theCompany and the Bank to maintain minimum amounts and ratios (set forth in thefollowing table) of Total and Tier 1 Capital to risk-weighted assets and ofTier 1 Capital to average assets.

 

34

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Asof December 31, 2009, the most recent notification from the FederalDeposit Insurance Corporation categorized the Bank as well capitalized underthe regulatory framework for prompt corrective action.  To be categorized as well capitalized, theBank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1leverage ratios as set forth in the following table and also must not besubject to any written agreement, order, capital directive, or prompt correctiveaction directive issued by federal banking regulators.  The actual capital amounts and ratios for theBank are also presented in the following table. In the opinion of management, there are no conditions or events sinceprior notification of capital adequacy from the regulators that have changedthe Bank’s classification.  Disclosuresrelated to the Company have been excluded as they did not significantly deviatefrom the disclosure herein.

 
| ** **                             | ** ** | ** **         | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** | **To Be Well**        | ** ** |
|----------------------------------------|------------|--------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                             | ** ** | ** **         | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** | **Capitalized Under** | ** ** |
| ** **                             | ** ** | ** **         | ** ** | ** **            | ** ** | **For Capital**       | ** ** | **Prompt Corrective** | ** ** |
| ** **                             | ** ** | **Actual**         | ** ** | **Adequacy Purposes** | ** ** | **Action Provisions** | ** ** |
| ** **                             | ** ** | **Amount**         | ** ** | **Ratio**             | ** ** | **Amount**            | ** ** | **Ratio**             | ** ** | **Amount**            | ** ** | **Ratio** | ** ** |
| ** **                             | ** ** | **(In Thousands)** | ** ** |
| **December 31, 2009**             |       |               |       |                  |       |                  |       |                  |       |                  |       |   |   |
|                                   |       |               |       |                  |       |                  |       |                  |       |                  |       |   |   |
| Total Capital to Risk-Weighted Assets  | ** ** | **$**              | **5,062**  | ** **            | **10.82**  | **%**                 | **$**      | **3,748**             | ** ** | **8.00**              | **%**      | **$** | **4,685** | ** ** | **10.00** | **%** |
| Tier I Capital to Risk-Weighted Assets | ** ** | **4,647**          | ** ** | **9.94**              | ** ** | **1,874**             |       | **4.00**              | ** ** | **2,811**             |       | **6.00** | ** ** |
| Tier I Capital to Average Assets       | ** ** | **4,647**          | ** ** | **6.22**              | ** ** | **2,991**             |       | **4.00**              | ** ** | **3,739**             |       | **5.00** | ** ** |
|                                   |       |               |       |                  |       |                  |       |                  |       |                  |       |   |   |
| December 31, 2008                 |       |               |       |                  |       |                  |       |                  |       |                  |       |   |   |
|                                   |       |               |       |                  |       |                  |       |                  |       |                  |       |   |   |
| Total Capital to Risk-Weighted Assets  |       | $                  | 3,793      |                  | 9.29       | %                     | $          | 3,265                 |       | 8.00                  | %          | $ | 4,081 |   | 10.00 | % |
| Tier I Capital to Risk-Weighted Assets |       | 3,279              |       | 8.04                  |       | 1,632                 |       | 4.00                  |       | 2,449                 |       | 6.00 |   |
| Tier I Capital to Average Assets       |       | 3,279              |       | 6.07                  |       | 2,160                 |       | 4.00                  |       | 2,701                 |       | 5.00 |   |

 

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**NOTE 18-  Financial Information of First CenturyBancorp. (Parent Only)**

 

**FIRST CENTURY BANCORP. (PARENT ONLY)**

**CONDENSED BALANCE SHEETS**

**DECEMBER 31, 2009 AND 2008**

 
| ** **                                           | ** ** | **2009**      | ** **    | **2008**  | ** ** |
|------------------------------------------------------|------------|---------------|---------------|-----------|------------|
|                                                 | ** ** | ** **    |          |      |       |
| **ASSETS**                                           |       |
| Cash and Interest-Bearing Deposits                   | ** ** | **$**         | **25,907**    |      | $          | 33,010 |   |
| Investment in Subsidiary                             | ** ** | **4,393,532** |          | 3,316,508 |       |
| Other Assets                                         | ** ** | **937**       |          | 2,829     |       |
|                                                 | ** ** | ** **    |          |      |       |
| **Total Assets**                                     | ** ** | **$**         | **4,420,376** |      | $          | 3,352,347 |   |
| ** **                                           | ** ** | ** **    |          |      |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**        |       |
| ** **                                           | ** ** | ** **    |          |      |       |
| **Other Liabilities**                                | ** ** | **$**         | **21,467**    |      | $          | 188,446 |   |
| ** **                                           | ** ** | ** **    |          |      |       |
| **Stockholders’ Equity**                        | ** ** | **4,398,909** |          | 3,163,901 |       |
| ** **                                           | ** ** | ** **    |          |      |       |
| **Total Liabilities and  Stockholders’ Equity** | ** ** | **$**         | **4,420,376** |      | $          | 3,352,347 |   |

 

**FIRST CENTURY BANCORP. (PARENT ONLY)**

**CONDENSED STATEMENTS OF OPERATIONS**

**FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008**

 
| ** **                                                               | ** ** | **2009**     | ** ** | **2008**   | ** ** |
|--------------------------------------------------------------------------|------------|--------------|------------|------------|------------|
|                                                                     | ** ** | ** **   |       |       |       |
| **Interest Income**                                                      | ** ** | **$**        | **—** |       | $          | 347 |   |
|                                                                     | ** ** | ** **   |       |       |       |
| **Expenses**                                                             | ** ** | ** **   |       |       |       |
| Professional Fees                                                        | ** ** | **94,939**   |       | 165,698    |       |
| Other                                                                    | ** ** | **19,402**   |       | 30,373     |       |
|                                                                     | ** ** | ** **   |       |       |       |
|                                                                     | ** ** | **114,341**  |       | 196,071    |       |
|                                                                     | ** ** | ** **   |       |       |       |
| **Loss Before Equity in****Undistributed Earnings (Loss) of Subsidiary** | ** ** | **(114,341** | **)**      | (195,724   | )          |
| ** **                                                               |       |         |       |       |       |
| **Equity in Undistributed Earnings  (Loss) of Subsidiary**               | ** ** | **157,901**  |       | (3,319,548 | )          |
| ** **                                                               |       |         |       |       |       |
| **Net Income (Loss)**                                                    | ** ** | **$**        | **43,560** |       | $          | (3,515,272 | ) |

 

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**FIRST CENTURY BANCORP. (PARENT ONLY)**

**CONDENSED STATEMENTS OF CASH FLOWS**

**FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008**

 
| ** **                                                                           | ** ** | **2009**       | ** ** | **2008**   | ** ** |
|--------------------------------------------------------------------------------------|------------|----------------|------------|------------|------------|
|                                                                                 | ** ** | ** **     |       |       |       |
| **Cash Flows from Operating  Activities**                                            | ** ** | ** **     |       |       |       |
| Net Income (Loss)                                                                    | ** ** | **$**          | **43,560** |       | $          | (3,515,272 | ) |
| Adjustments to Reconcile Net Income (Loss) to Net Cash  Used by Operating Activities | ** ** | ** **     |       |       |       |
| Equity in Undistributed (Earnings) Loss of  Subsidiary                               | ** ** | **(157,901**   | **)**      | 3,319,548  |       |
| **Change In**                                                                        | ** ** | ** **     |       |       |       |
| Other Assets                                                                         | ** ** | **1,892**      |       | 581        |       |
| Other Liabilities                                                                    | ** ** | **(166,979**   | **)**      | 172,966    |       |
|                                                                                 | ** ** | ** **     |       |       |       |
|                                                                                 | ** ** | **(279,428**   | **)**      | (22,177    | )          |
|                                                                                 | ** ** | ** **     |       |       |       |
| **Cash Flows from Investing  Activities**                                            | ** ** | ** **     |       |       |       |
| Capital Infusion in  Subsidiary                                                      | ** ** | **(1,050,000** | **)**      | (3,200,002 | )          |
| ** **                                                                           | ** ** | ** **     |       |       |       |
| **Cash Flows from Financing  Activities**                                            | ** ** | ** **     |       |       |       |
| Purchase of Treasury Stock                                                           | ** ** | **(1,005**     | **)**      | —     |       |
| Proceeds from Issuance of Common Stock                                               | ** ** | **1,529,541**  |       | 3,370,006  |       |
| Payments of Stock Issuance Costs                                                     | ** ** | **(206,211**   | **)**      | (140,333   | )          |
|                                                                                 | ** ** | ** **     |       |       |       |
|                                                                                 | ** ** | **1,322,325**  |       | 3,229,673  |       |
|                                                                                 | ** ** | ** **     |       |       |       |
| **Net Increase (Decrease) in Cash**                                                  | ** ** | **(7,103**     | **)**      | 7,494      |       |
| ** **                                                                           | ** ** | ** **     |       |       |       |
| **Cash and Interest-Bearing  Deposits, Beginning**                                   | ** ** | **33,010**     |       | 25,516     |       |
| ** **                                                                           | ** ** | ** **     |       |       |       |
| **Cash and Interest-Bearing Deposits,  Ending**                                      | ** ** | **$**          | **25,907** |       | $          | 33,010 |   |

 

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