##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549





FORM 10-Q







|x | QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------

For the quarterly period ended March 31, 2011



| ̈ | TRANSITION REPORT UNDER 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------

For the transition period from              to

Commission File Number: 000-25227





CAPITOL CITY BANCSHARES, INC.

(Exact name of issuer as specified in its charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Georgia                                                        |  | 58 - 2452995                           
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification Number)

562 Lee Street, S.W., Atlanta,
Georgia 30311

(Address of principal executive office)

(404) 752-6067

(Issuers telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)





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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | þ

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

Indicate
the number of shares outstanding of each of the issuers classes of common stock, as of May 15, 2011; 9,809,056; $1.00 par value.









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##### Table of Contents

INDEX



|                              |  |                                                                                                                        |  |      |         | 
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | 
|                              |  |                                                                                                                        |  | Page |        
|                              | 
|Part I. Financial Information |  |                                                                                                                        |  |     
|                              |  |                                                                                                                       
|                              |  | Item 1. Financial Statements (unaudited)                                                                               |  |      |         | 
|                              |  |                                                                                                                       
|                              |  | Condensed Consolidated Balance Sheetsas of March 31, 2011 and December 31,
2010                                        |  |      | 2       | 
|                              |  |                                                                                                                       
|                              |  | Condensed Consolidated Statements of Income andComprehensive Income for the Three MonthsEnded March 31,
 2011 and 2010 |  |      | 3       | 
|                              |  |                                                                                                                       
|                              |  | Condensed Consolidated Statements of Cash FlowsFor The Three Months Ended March 
31, 2011 and 2010                     |  |      | 4       | 
|                              |  |                                                                                                                       
|                              |  | Notes to Condensed Consolidated Financial Statements                                                                   |  |      | 5 - 27  | 
|                              |  |                                                                                                                       
|                              |  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                          |  |      | 28 - 35 | 
|                              |  |                                                                                                                       
|                              |  | Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                     |  |      | 35      | 
|                              |  |                                                                                                                       
|                              |  | Item 4. Controls and Procedures                                                                                        |  |      | 35      | 
|                              | 
|Part II. Other Information    |  |                                                                                                                        |  |     
|                              |  |                                                                                                                       
|                              |  | Item 1. Legal Proceedings                                                                                              |  |      | 36      | 
|                              |  |                                                                                                                       
|                              |  | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                    |  |      | 36      | 
|                              |  |                                                                                                                       
|                              |  | Item 3. Defaults Upon Senior Securities                                                                                |  |      | 36      | 
|                              |  |                                                                                                                       
|                              |  | Item 4. (Removed and Reserved)                                                                                         |  |      | 36      | 
|                              |  |                                                                                                                       
|                              |  | Item 5. Other Information                                                                                              |  |      | 36      | 
|                              |  |                                                                                                                       
|                              |  | Item 6. Exhibits                                                                                                       |  |      | 36 - 37 | 
|                              |  |                                                                                                                       
|                              |  | Signatures                                                                                                             |  |      | 38      | 
|                              |  |                                                                                                                       
|                              |  | Certifications                                                                                                         |  |      |         | 



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##### Table of Contents

PART I - FINANCIAL INFORMATION

ITEM I.   FINANCIAL STATEMENTS

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2011 (unaudited) and December 31, 2010



|                                                                                                                                   |  |                |             |   |              |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ------------ | - | ----------- | -
|                                                                                                                                   |  | March 31, 2011 |             |   | December 31, |  
|                                                                                                                                   |  | (unaudited)    |             |   | 2010         |  
|Assets                                                                                                                             |  |                |             |   |              |   |             |  
|                                                                                                                                   |  |               
|Cash and due from banks                                                                                                            |  | $              | 6,588,742   |   |              | $ | 5,345,394   |  
|Interest-bearing deposits at other financial institutions                                                                          |  |                | 456,539     |   |              |   | 454,968     |  
|Federal funds sold                                                                                                                 |  |                | 6,315,000   |   |              |   | 730,000     |  
|Securities available for sale                                                                                                      |  |                | 41,099,111  |   |              |   | 37,012,468  |  
|Restricted equity securities, at cost                                                                                              |  |                | 1,025,300   |   |              |   | 1,025,300   |  
|                                                                                                                                   |  |               
|Loans, net of unearned income                                                                                                      |  |                | 233,805,685 |   |              |   | 235,545,772 |  
|Less allowance for loan losses                                                                                                     |  |                | 5,292,037   |   |              |   | 5,223,764   |  
|                                                                                                                                   |  |                |             |   |              |   |             |  
|Loans, net                                                                                                                         |  |                | 228,513,648 |   |              |   | 230,322,008 |  
|                                                                                                                                   |  |                |             |   |              |   |             |  
|                                                                                                                                   |  |               
|Premises and equipment, net                                                                                                        |  |                | 9,366,064   |   |              |   | 9,501,807   |  
|Foreclosed real estate                                                                                                             |  |                | 9,467,763   |   |              |   | 8,917,239   |  
|Other assets                                                                                                                       |  |                | 2,150,372   |   |              |   | 1,999,543   |  
|                                                                                                                                   |  |                |             |   |              |   |             |  
|                                                                                                                                   |  |               
|Total assets                                                                                                                       |  | $              | 304,982,539 |   |              | $ | 295,308,727 |  
|                                                                                                                                   |  |                |             |   |              |   |             |  
|                                                                                                                                   |  |               
|Liabilities and Stockholders Equity                                                                                               |  |                |             |   |              |   |             |  
|                                                                                                                                   |  |               
|Liabilities:                                                                                                                       |  |                |             |   |              |   |             |  
|Deposits:                                                                                                                          |  |                |             |   |              |   |             |  
|Noninterest-bearing                                                                                                                |  | $              | 28,275,102  |   |              | $ | 24,624,361  |  
|Interest-bearing                                                                                                                   |  |                | 256,593,275 |   |              |   | 250,657,934 |  
|                                                                                                                                   |  |                |             |   |              |   |             |  
|Total deposits                                                                                                                     |  |                | 284,868,377 |   |              |   | 275,282,295 |  
|Federal funds purchased                                                                                                            |  |                |            |   |              |   |            |  
|Note payable                                                                                                                       |  |                | 275,250     |   |              |   | 275,250     |  
|Federal Home Loan Bank advances                                                                                                    |  |                | 5,500,000   |   |              |   | 5,500,000   |  
|Securities sold under repurchase agreements                                                                                        |  |                |            |   |              |   |            |  
|Company guaranteed trust preferred securities                                                                                      |  |                | 3,403,000   |   |              |   | 3,403,000   |  
|Other liabilities                                                                                                                  |  |                | 1,525,287   |   |              |   | 1,606,277   |  
|                                                                                                                                   |  |                |             |   |              |   |             |  
|Total liabilities                                                                                                                  |  |                | 295,571,914 |   |              |   | 286,066,822 |  
|                                                                                                                                   |  |                |             |   |              |   |             |  
|                                                                                                                                   |  |               
|Stockholders equity                                                                                                               |  |                |             |   |              |   |             |  
|Series A cumulative, non voting preferred stock, par value $100, 5,000,000 shares authorized; 16,078 shares issued and
outstanding |  |                | 1,607,800   |   |              |   | 1,607,800   |  
|Common stock, par value $1.00; 80,000,000 shares authorized; 9,809,056 and 9,777,656 shares issued and outstanding,
respectively   |  |                | 9,809,056   |   |              |   | 9,777,656   |  
|Surplus                                                                                                                            |  |                | 122,430     |   |              |   | 75,330      |  
|Accumulated deficit                                                                                                                |  |                | (1,750,015  | ) |              |   | (1,785,317  | )
|Accumulated other comprehensive loss                                                                                               |  |                | (378,646    | ) |              |   | (433,564    | )
|                                                                                                                                   |  |                |             |   |              |   |             |  
|Total stockholders equity                                                                                                         |  |                | 9,410,625   |   |              |   | 9,241,905   |  
|                                                                                                                                   |  |                |             |   |              |   |             |  
|                                                                                                                                   |  |               
|Total liabilities and stockholders equity                                                                                         |  | $              | 304,982,539 |   |              | $ | 295,308,727 |  
|                                                                                                                                   |  |                |             |   |              |   |             |  

See Notes to Condensed Consolidated Financial Statements



2



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##### Table of Contents

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Unaudited)



|                                                                                                                  |  |                             |           |  |      |   |           | 
|----------------------------------------------------------------------------------------------------------------- |  | --------------------------- | --------- |  | ---- | - | --------- | 
|                                                                                                                  |  | Three Months EndedMarch 31, |          
|                                                                                                                  |  | 2011                        |           |  | 2010 |  
|Interest income:                                                                                                  |  |                             |           |  |      |   |           | 
|Loans, including fees                                                                                             |  | $                           | 3,452,767 |  |      | $ | 3,955,704 | 
|Deposits in banks                                                                                                 |  |                             | 615       |  |      |   | 3         | 
|Securities                                                                                                        |  |                             | 219,065   |  |      |   | 318,717   | 
|Federal funds sold                                                                                                |  |                             | 1,654     |  |      |   | 46        | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|Total interest income                                                                                             |  |                             | 3,674,101 |  |      |   | 4,274,470 | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|                                                                                                                  |  |                            
|Interest expense:                                                                                                 |  |                             |           |  |      |   |           | 
|Deposits                                                                                                          |  |                             | 1,456,316 |  |      |   | 1,992,311 | 
|Other borrowings                                                                                                  |  |                             | 44,172    |  |      |   | 94,977    | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|Total interest expense                                                                                            |  |                             | 1,500,488 |  |      |   | 2,087,288 | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|                                                                                                                  |  |                            
|Net interest income                                                                                               |  |                             | 2,173,613 |  |      |   | 2,187,182 | 
|Provision for loan losses                                                                                         |  |                             | 205,000   |  |      |   |          | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|Net interest income after provision for loan losses                                                               |  |                             | 1,968,613 |  |      |   | 2,187,182 | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|                                                                                                                  |  |                            
|Other income:                                                                                                     |  |                             |           |  |      |   |           | 
|Service charges on deposit accounts                                                                               |  |                             | 340,740   |  |      |   | 341,629   | 
|Other fees and commissions                                                                                        |  |                             | 23,353    |  |      |   | 19,237    | 
|Gains on sales of foreclosed real estate                                                                          |  |                             |          |  |      |   | 15,319    | 
|Other operating income                                                                                            |  |                             | 118,854   |  |      |   | 106,773   | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|Total other income                                                                                                |  |                             | 482,947   |  |      |   | 482,958   | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|                                                                                                                  |  |                            
|Other expenses:                                                                                                   |  |                             |           |  |      |   |           | 
|Salaries and employee benefits                                                                                    |  |                             | 913,976   |  |      |   | 971,884   | 
|Occupancy and equipment expenses, net                                                                             |  |                             | 322,119   |  |      |   | 290,538   | 
|Other operating expenses                                                                                          |  |                             | 1,130,163 |  |      |   | 1,286,975 | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|Total other expenses                                                                                              |  |                             | 2,366,258 |  |      |   | 2,549,397 | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|                                                                                                                  |  |                            
|Income before income taxes                                                                                        |  |                             | 85,302    |  |      |   | 120,743   | 
|                                                                                                                  |  |                            
|Income tax expense                                                                                                |  |                             |          |  |      |   |          | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|                                                                                                                  |  |                            
|Net income                                                                                                        |  |                             | 85,302    |  |      |   | 120,743   | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|Preferred stock dividends                                                                                         |  |                             | 50,000    |  |      |   |          | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|Net income available to common shareholders                                                                       |  |                             | 35,302    |  |      |   | 120,743   | 
|                                                                                                                  |  |                            
|Other comprehensive income                                                                                        |  |                             |           |  |      |   |           | 
|Unrealized gains on securities available for sale arising during period, net of tax                               |  |                             | 54,918    |  |      |   | 102,527   | 
|                                                                                                                  |  |                            
|Reclassification adjustment for realized gains on securities available for sale arising during period, net of tax |  |                             |          |  |      |   |          | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|                                                                                                                  |  |                            
|Comprehensive income                                                                                              |  | $                           | 90,220    |  |      | $ | 223,270   | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|                                                                                                                  |  |                            
|Basic earnings per common share                                                                                   |  | $                           |          |  |      | $ | 0.01      | 
|                                                                                                                  |  |                             |           |  |      |   |           | 
|                                                                                                                  |  |                            
|Diluted earnings per common share                                                                                 |  | $                           |          |  |      | $ | 0.01      | 
|                                                                                                                  |  |                             |           |  |      |   |           | 

See Notes to Condensed Consolidated Financial Statements



3



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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED March 31, 2011 AND 2010

(Unaudited)



|                                                                                            |  |                             |            |   |      |   |            |  
|------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                            |  | Three Months EndedMarch 31, |           
|                                                                                            |  | 2011                        |            |   | 2010 |  
|OPERATING ACTIVITIES                                                                        |  |                             |            |   |      |   |            |  
|Net income                                                                                  |  | $                           | 85,302     |   |      | $ | 120,743    |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                             |            |   |      |   |            |  
|Depreciation, amortization and accretion                                                    |  |                             | 228,062    |   |      |   | 376,732    |  
|Provision for loan losses                                                                   |  |                             | 205,000    |   |      |   |           |  
|Other-than-temporary impairment of securities                                               |  |                             |           |   |      |   | 97,500     |  
|Gain on sale of foreclosed real estate                                                      |  |                             |           |   |      |   | (15,319    | )
|Capitalized costs on foreclosed real estate                                                 |  |                             |           |   |      |   | (3,878     | )
|Writedowns of foreclosed real estate                                                        |  |                             |           |   |      |   | 70,600     |  
|Increase in proceeds receivable from sales of foreclosed real estate                        |  |                             |           |   |      |   | (1,128,016 | )
|Net other operating activities                                                              |  |                             | (281,819   | ) |      |   | (765,007   | )
|                                                                                            |  |                             |            |   |      |   |            |  
|Net cash provided by (used in) operating activities                                         |  |                             | 236,545    |   |      |   | (1,246,645 | )
|                                                                                            |  |                             |            |   |      |   |            |  
|                                                                                            |  |                            
|INVESTING ACTIVITIES                                                                        |  |                             |            |   |      |   |            |  
|Purchases of securities available for sale                                                  |  |                             | (5,147,408 | ) |      |   |           |  
|Proceeds from maturities of securities available for sale                                   |  |                             | 1,023,364  |   |      |   | 4,619,249  |  
|Net increase in interest-bearing deposits                                                   |  |                             | (1,571     | ) |      |   | (25,423    | )
|Net increase in federal funds sold                                                          |  |                             | (5,585,000 | ) |      |   |           |  
|Net (increase) decrease in loans                                                            |  |                             | 1,052,836  |   |      |   | (1,107,876 | )
|Purchase of premises and equipment                                                          |  |                             |           |   |      |   | (8,188     | )
|                                                                                            |  |                             |            |   |      |   |            |  
|Net cash provided by (used in) investing activities                                         |  |                             | (8,657,779 | ) |      |   | 3,477,762  |  
|                                                                                            |  |                             |            |   |      |   |            |  
|                                                                                            |  |                            
|FINANCING ACTIVITIES                                                                        |  |                             |            |   |      |   |            |  
|Net increase in deposits                                                                    |  |                             | 9,586,082  |   |      |   | 1,778,931  |  
|Net decrease in securities sold under repurchase agreements                                 |  |                             |           |   |      |   | (2,439,663 | )
|Net decrease in federal funds purchased                                                     |  |                             |           |   |      |   | (2,795,000 | )
|Proceeds from issuance of common stock                                                      |  |                             | 78,500     |   |      |   | 75,150     |  
|                                                                                            |  |                             |            |   |      |   |            |  
|Net cash provided by (used in) financing activities                                         |  |                             | 9,664,582  |   |      |   | (3,380,582 | )
|                                                                                            |  |                             |            |   |      |   |            |  
|                                                                                            |  |                            
|Net increase (decrease) in cash and due from banks                                          |  |                             | 1,243,348  |   |      |   | (1,149,465 | )
|                                                                                            |  |                            
|Cash and due from banks, beginning of period                                                |  |                             | 5,345,394  |   |      |   | 7,647,982  |  
|                                                                                            |  |                             |            |   |      |   |            |  
|                                                                                            |  |                            
|Cash and due from banks, end of period                                                      |  | $                           | 6,588,742  |   |      | $ | 6,498,517  |  
|                                                                                            |  |                             |            |   |      |   |            |  
|                                                                                            |  |                            
|SUPPLEMENTAL DISCLOSURES                                                                    |  |                             |            |   |      |   |            |  
|Cash paid for:                                                                              |  |                             |            |   |      |   |            |  
|Interest                                                                                    |  | $                           | 1,618,139  |   |      | $ | 2,496,520  |  
|                                                                                            |  |                            
|NONCASH TRANSACTIONS                                                                        |  |                             |            |   |      |   |            |  
|Principal balances of loans transferred to foreclosed real estate                           |  | $                           | 550,524    |   |      | $ | 1,598,197  |  
|Financed sales of foreclosed real estate                                                    |  | $                           |           |   |      | $ | 930,738    |  

See Notes to Condensed
Consolidated Financial Statements



4



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##### Table of Contents

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 1. | BASIS OF PRESENTATION
|------- | ---------------------

The
consolidated financial information included for Capitol City Bancshares, Inc. (the Company), Capitol City Bank & Trust Company (the Bank) and Capitol City Home Loans (the Mortgage Company) herein is
unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods. These statements should be
read in conjunction with the consolidated financial statements and related notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010.

The results of operations for the three month periods ended March 31, 2011 are not necessarily indicative of the results to be
expected for the full year.

Management has evaluated all significant events and transactions that occurred after
March 31, 2011, but prior to May 13, 2011, the date these condensed consolidated financial statements were issued, for potential recognition or disclosure in these condensed consolidated financial statements.



|NOTE 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|------- | ------------------------------------------

Cash, Due From Banks and Cash Flows

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

Allowance for Loan Losses

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

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



5



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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|------- | ------------------------------------------------------

Allowance for Loan Losses (Continued)

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

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

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

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

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

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

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



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|------- | ------------------------------------------------------

Allowance for Loan Losses (Continued)

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

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

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

Income Taxes (Benefits)

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

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

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



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|------- | ------------------------------------------------------

Income Taxes (Benefits) (Continued)

In accordance with ASC 740-10
Income Taxesit is the Banks policy to recognize interest and penalties associated with uncertain tax positions as components of income taxes and to disclose the recognized interest and penalties, if material. Management has evaluated
all tax positions that could have a significant effect on the financial statements and determined the Bank had no uncertain tax positions at March 31, 2011. Further, all years subsequent to 2007 remain subject to evaluation.



|NOTE 3. | REGULATORY MATTERS AND GOING CONCERN CONSIDERATIONS
|------- | ---------------------------------------------------

Regulatory Actions

In January 2010, the Bank received a consent order
(order) from the Federal Deposit Insurance Corporation (FDIC) and the Georgia Department of Banking and Finance (The Department).

The Order is a formal corrective action pursuant to which the Bank has agreed to address specific issues set forth below, through the adoption and implementation of procedures, plan and policies designed
to enhance the safety and soundness of the Bank. Contained in the order were various reporting requirements by management and the Board of Directors. In addition, the order requires that the Bank achieve and maintain the following minimum capital
levels:

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

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

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



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 3. | REGULATORY MATTERS AND GOING CONCERN CONSIDERATIONS (Continued)
|------- | ---------------------------------------------------------------

Going Concern Considerations

The condensed consolidated financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future. The Companys ability to continue as a going
concern is contingent upon its ability to obtain the capital necessary to sustain profitable operations, implementing a management plan to develop a profitable operation, overcoming and satisfying the requirements of the regulatory order described
above, and lowering the level of problem assets to an acceptable level.

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

The continuing level of problem loans as of the quarter ended March 31, 2011 and capital levels continuing to be in the under
capitalized category of the regulatory framework for prompt corrective action as of March 31, 2011 continue to create substantial doubt about the Companys ability to continue as a going concern. There can be no assurance that any
capital raising activities or other measures will allow the Bank to meet the capital levels required in the Order. Non-compliance with the capital requirements of the Order and other provisions of the Order may cause the Bank to be subject to
further enforcement actions by the FDIC or the Department. The events and circumstances described herein create a substantial doubt about the Companys ability to continue as a going concern.

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



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 4. | SECURITIES
|------- | ----------

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



|                                             |  |               |            |  |                      |   |        |                       |  |   |           |   |  |   |            | 
|-------------------------------------------- |  | ------------- | ---------- |  | -------------------- | - | ------ | --------------------- |  | - | --------- | - |  | - | ---------- | 
|                                             |  | AmortizedCost |            |  | GrossUnrealizedGains |   |        | GrossUnrealizedLosses |  |   | FairValue |  
|March 31, 2011                               |  |               |            |  |                      |   |        |                       |  |   |           |   |  |   |            | 
|U.S. Government sponsored enterprises (GSEs) |  | $             | 554,608    |  |                      | $ | 2,495  |                       |  | $ |          |   |  | $ | 557,103    | 
|State, county, and municipal securities      |  |               | 2,352,450  |  |                      |   |       |                       |  |   | (119,434  | ) |  |   | 2,233,016  | 
|Mortgage-backed securities GSE residential   |  |               | 37,892,824 |  |                      |   | 92,465 |                       |  |   | (354,172  | ) |  |   | 37,631,117 | 
|Trust preferred securities                   |  |               | 627,875    |  |                      |   |       |                       |  |   |          |   |  |   | 627,875    | 
|                                             |  |               |            |  |                      |   |        |                       |  |   |           |   |  |   |            | 
|Total debt securities                        |  |               | 41,427,757 |  |                      |   | 94,960 |                       |  |   | (473,606  | ) |  |   | 41,049,111 | 
|Equity securities                            |  |               | 50,000     |  |                      |   |       |                       |  |   |          |   |  |   | 50,000     | 
|                                             |  |               |            |  |                      |   |        |                       |  |   |           |   |  |   |            | 
|Total securities                             |  | $             | 41,477,757 |  |                      | $ | 94,960 |                       |  | $ | (473,606  | ) |  | $ | 41,099,111 | 
|                                             |  |               |            |  |                      |   |        |                       |  |   |           |   |  |   |            | 
|                                             |  |               |            | 
|                                             |  | AmortizedCost |            |  | GrossUnrealizedGains |   |        | GrossUnrealizedLosses |  |   | FairValue |  
|December 31, 2010:                           |  |               |            |  |                      |   |        |                       |  |   |           |   |  |   |            | 
|U.S. Government sponsored enterprises (GSEs) |  | $             | 582,112    |  |                      | $ | 1,579  |                       |  | $ |          |   |  | $ | 583,691    | 
|State, county, and municipal securities      |  |               | 2,353,058  |  |                      |   |       |                       |  |   | (145,326  | ) |  |   | 2,207,732  | 
|Mortgage-backed securities GSE residential   |  |               | 33,832,986 |  |                      |   | 88,554 |                       |  |   | (378,370  | ) |  |   | 33,543,170 | 
|Trust preferred securities                   |  |               | 627,875    |  |                      |   |       |                       |  |   |          |   |  |   | 627,875    | 
|                                             |  |               |            |  |                      |   |        |                       |  |   |           |   |  |   |            | 
|Total debt securities                        |  |               | 37,396,031 |  |                      |   | 90,133 |                       |  |   | (523,696  | ) |  |   | 36,962,468 | 
|Equity securities                            |  |               | 50,000     |  |                      |   |       |                       |  |   |          |   |  |   | 50,000     | 
|                                             |  |               |            |  |                      |   |        |                       |  |   |           |   |  |   |            | 
|Total securities                             |  | $             | 37,446,031 |  |                      | $ | 90,133 |                       |  | $ | (523,696  | ) |  | $ | 37,012,468 | 
|                                             |  |               |            |  |                      |   |        |                       |  |   |           |   |  |   |            | 

The amortized cost and fair value of debt securities as of March 31, 2011 by contractual maturity are
shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.



|                           |  |               |            |  |           |   |            | 
|-------------------------- |  | ------------- | ---------- |  | --------- | - | ---------- | 
|                           |  | AmortizedCost |            |  | FairValue |  
|Due from five to ten years |  | $             | 1,552,133  |  |           | $ | 1,509,857  | 
|Due after ten years        |  |               | 1,982,800  |  |           |   | 1,908,137  | 
|Mortgage-backed securities |  |               | 37,892,824 |  |           |   | 37,631,117 | 
|                           |  |               |            |  |           |   |            | 
|                           |  | $             | 41,427,757 |  |           | $ | 41,049,111 | 
|                           |  |               |            |  |           |   |            | 



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 4. | SECURITIES (Continued)
|------- | ----------------------

Securities with a carrying value of $16,885,063 and $18,790,667 at March 31, 2011 and December 31, 2010, respectively, were
pledged to secure public deposits and for other purposes required or permitted by law.

Temporarily Impaired Securities

The following table shows the gross unrealized losses and fair value of securities with unrealized losses that are not deemed
to be other-than-temporarily impaired, aggregated by investment category and length of time that securities have been in a continuous unrealized loss position at March 31, 2011 and December 31, 2010.



|                                |  |                         |            |  |                       |   |          |                       |  |   |                  |  |  |   |   |  |  |   |          |  
|------------------------------- |  | ----------------------- | ---------- |  | --------------------- | - | -------- | --------------------- |  | - | ---------------- |  |  | - | - |  |  | - | -------- | -
|                                |  | Less Than Twelve Months |            |  | Twelve Months or More |   |          | TotalUnrealizedLosses | 
|                                |  | FairValue               |            |  | UnrealizedLosses      |   |          | FairValue             |  |   | UnrealizedLosses |  | 
|March 31, 2011:                 |  |                         |            |  |                       |   |          |                       |  |   |                  |  |  |   |   |  |  |   |          |  
|Mortgage-backed GSE residential |  | $                       | 25,437,021 |  |                       | $ | (354,172 | )                     |  | $ |                 |  |  | $ |  |  |  | $ | (354,172 | )
|State and municipal             |  |                         | 2,233,016  |  |                       |   | (119,434 | )                     |  |   |                 |  |  |   |  |  |  |   | (119,434 | )
|                                |  |                         |            |  |                       |   |          |                       |  |   |                  |  |  |   |   |  |  |   |          |  
|                                |  | $                       | 27,670,037 |  |                       | $ | (473,606 | )                     |  | $ |                 |  |  | $ |  |  |  | $ | (473,606 | )
|                                |  |                         |            |  |                       |   |          |                       |  |   |                  |  |  |   |   |  |  |   |          |  
|December 31, 2010:              |  |                         |            |  |                       |   |          |                       |  |   |                  |  |  |   |   |  |  |   |          |  
|Mortgage-backed GSE residential |  | $                       | 24,689,777 |  |                       | $ | (378,370 | )                     |  | $ |                 |  |  | $ |  |  |  | $ | (378,370 | )
|State and municipal             |  |                         | 2,207,732  |  |                       |   | (145,326 | )                     |  |   |                 |  |  |   |  |  |  |   | (145,326 | )
|                                |  |                         |            |  |                       |   |          |                       |  |   |                  |  |  |   |   |  |  |   |          |  
|                                |  | $                       | 26,897,509 |  |                       | $ | (523,696 | )                     |  | $ |                 |  |  | $ |  |  |  | $ | (523,696 | )
|                                |  |                         |            |  |                       |   |          |                       |  |   |                  |  |  |   |   |  |  |   |          |  

GSE residential mortgage-backed securities. There were unrealized losses on sixteen GSE
mortgage-backed securities resulting from temporary changes in the interest rate market. The Company purchased those investments at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by an
agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Companys investments. Because the decline in market value is attributable to changes in
interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which
may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2011.

State and municipal securities. There were unrealized losses on five state and municipal securities resulting from temporary
changes in the interest rate market. Because the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost bases, which may be
maturity, the Company does not consider those investment to be other-than-temporarily impaired at March 31, 2011.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 4. | SECURITIES (Continued)
|------- | ----------------------

Other-Than-Temporary Impairment

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

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



|NOTE 5. | LOANS
|------- | -----

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

Unsecured

Loans in this segment are any loans, whether guaranteed, endorsed or co-made, that are not fully collateralized. Unsecured loans are subject to the lending policies and procedures described in Note 2.
Total unsecured loans as of March 31, 2011 were 0.4% of the total loan portfolio.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 5. | LOANS (Continued)
|------- | -----------------

Cash
Value

These are loans fully secured by cash or cash equivalents. Cash value loans are subject to the lending policies and
procedures described in Note 2. Total cash value loans as of March 31, 2011 were 2.2% of the total loan portfolio.

Residential Real Estate

These loans include all mortgages and other liens on residential real estate, as well as vacant land designated as residential real estate. Residential real estate loans are subject to the lending
policies and procedures described in Note 2. Total residential real estate loans as of March 31, 2011 were 17% of the total loan portfolio.

Commercial Real Estate

The commercial real estate portfolio represents
the largest category of the Companys loan portfolio. These loans include all mortgages and other liens on commercial real estate. Commercial real estate loans are subject to the lending policies and procedures described in Note 2. Total
commercial real estate loans as of March 31, 2011 were 77.9% of the total loan portfolio.

Business Assets

Loans in this segment are made to businesses and are generally secured by business assets, equipment, inventory, and
accounts receivable. Business assets loans are subject to the lending policies and procedures described in Note 2. Total business assets loans as of March 31, 2011 were 1.4% of the total loan portfolio.

Vehicles

Loans in this segment are secured by motor vehicles. Vehicle loans are subject to the lending policies and procedures described in Note
2. Total vehicle loans as of March 31, 2011 were 1% of the total loan portfolio.

Other

Loans in this segment are generally secured by consumer loans, but include all loans that do not belong in one of the other segments.
Other loans are subject to the lending policies and procedures described in Note 2. Total other loans as of March 31, 2011 were less than 0.1% of the total loan portfolio.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 5. | LOANS (Continued)
|------- | -----------------

The
allowance for loan losses for the three months ended March 31, 2011, by portfolio segment, is as follows:



|                                                       |  |           |         |   |           |   |           |                        |  |   |                       |   |  |                |             |   |          |   |           |       |  |   |             |   |  |       |         |  |  |   |          |   |  |   |             |  
|------------------------------------------------------ |  | --------- | ------- | - | --------- | - | --------- | ---------------------- |  | - | --------------------- | - |  | -------------- | ----------- | - | -------- | - | --------- | ----- |  | - | ----------- | - |  | ----- | ------- |  |  | - | -------- | - |  | - | ----------- | -
|                                                       |  | Unsecured |         |   | CashValue |   |           | ResidentialReal Estate |  |   | CommercialReal Estate |   |  | BusinessAssets |             |   | Vehicles |   |           | Other |  |   | Unallocated |   |  | Total |        
|Allowance for loan losses:                             |  |           |         |   |           |   |           |                        |  |   |                       |   |  |                |             |   |          |   |           |       |  |   |             |   |  |       |         |  |  |   |          |   |  |   |             |  
|Beginning balance                                      |  | $         | 63,020  |   |           | $ | 5,210     |                        |  | $ | 2,258,833             |   |  | $              | 2,234,925   |   |          | $ | 316,844   |       |  | $ | 141,759     |   |  | $     | 5       |  |  | $ | 203,168  |   |  | $ | 5,223,764   |  
|Charge-offs                                            |  |           | (14,872 | ) |           |   |          |                        |  |   | (32,498               | ) |  |                | (92,438     | ) |          |   |          |       |  |   | (8,056      | ) |  |       |        |  |  |   |         |   |  |   | (147,864    | )
|Recoveries                                             |  |           | 3,986   |   |           |   |          |                        |  |   |                      |   |  |                | 5,976       |   |          |   | 1,175     |       |  |   |            |   |  |       |        |  |  |   |         |   |  |   | 11,137      |  
|Provision                                              |  |           | 53,887  |   |           |   | 9,052     |                        |  |   | (396,368              | ) |  |                | 662,175     |   |          |   | 10,766    |       |  |   | (1,542      | ) |  |       |        |  |  |   | (132,970 | ) |  |   | 205,000     |  
|                                                       |  |           |         |   |           |   |           |                        |  |   |                       |   |  |                |             |   |          |   |           |       |  |   |             |   |  |       |         |  |  |   |          |   |  |   |             |  
|Ending balance                                         |  | $         | 106,021 |   |           | $ | 14,262    |                        |  | $ | 1,829,967             |   |  | $              | 2,810,638   |   |          | $ | 328,785   |       |  | $ | 132,161     |   |  | $     | 5       |  |  | $ | 70,198   |   |  | $ | 5,292,037   |  
|                                                       |  |           |         |   |           |   |           |                        |  |   |                       |   |  |                |             |   |          |   |           |       |  |   |             |   |  |       |         |  |  |   |          |   |  |   |             |  
|Ending balance - individually evaluated for impairment |  | $         | 49,867  |   |           | $ |          |                        |  | $ | 329,197               |   |  | $              | 791,528     |   |          | $ | 200,015   |       |  | $ | 79,612      |   |  | $     |        |  |  | $ |         |   |  | $ | 1,450,219   |  
|                                                       |  |           |         |   |           |   |           |                        |  |   |                       |   |  |                |             |   |          |   |           |       |  |   |             |   |  |       |         |  |  |   |          |   |  |   |             |  
|Loans:                                                 |  |           |         |   |           |   |           |                        |  |   |                       |   |  |                |             |   |          |   |           |       |  |   |             |   |  |       |         |  |  |   |          |   |  |   |             |  
|Ending balance (1)                                     |  | $         | 926,926 |   |           | $ | 5,080,850 |                        |  | $ | 39,994,058            |   |  | $              | 182,718,582 |   |          | $ | 3,474,344 |       |  | $ | 2,363,273   |   |  | $     | 106,066 |  |  | $ |         |   |  | $ | 234,664,099 |  
|                                                       |  |           |         |   |           |   |           |                        |  |   |                       |   |  |                |             |   |          |   |           |       |  |   |             |   |  |       |         |  |  |   |          |   |  |   |             |  
|Ending balance - individually evaluated for impairment |  | $         | 83,744  |   |           | $ | 622,851   |                        |  | $ | 17,564,036            |   |  | $              | 32,929,702  |   |          | $ | 2,151,222 |       |  | $ | 101,624     |   |  | $     |        |  |  | $ |         |   |  | $ | 53,453,179  |  
|                                                       |  |           |         |   |           |   |           |                        |  |   |                       |   |  |                |             |   |          |   |           |       |  |   |             |   |  |       |         |  |  |   |          |   |  |   |             |  



|(1) | Loans balances presented are gross of unearned loan fees of $858,414.
|--- | ---------------------------------------------------------------------

Impaired loans as of March 31, 2011, by portfolio segment, are as follows:



|                                    |  |                    |            |  |                        |   |            |                  |  |   |                           |  |  |   |            | 
|----------------------------------- |  | ------------------ | ---------- |  | ---------------------- | - | ---------- | ---------------- |  | - | ------------------------- |  |  | - | ---------- | 
|                                    |  | RecordedInvestment |            |  | UnpaidPrincipalBalance |   |            | RelatedAllowance |  |   | AverageRecordedInvestment | 
|With no related allowance recorded: |  |                    |            |  |                        |   |            |                  |  |   |                           |  |  |   |            | 
|Unsecured                           |  | $                  | 28,402     |  |                        | $ | 28,402     |                  |  | $ |                          |  |  | $ | 52,424     | 
|Cash value                          |  |                    | 622,851    |  |                        |   | 622,851    |                  |  |   |                          |  |  |   | 311,426    | 
|Residential real estate             |  |                    | 15,086,878 |  |                        |   | 15,086,878 |                  |  |   |                          |  |  |   | 16,237,434 | 
|Commercial real estate              |  |                    | 27,938,692 |  |                        |   | 27,938,692 |                  |  |   |                          |  |  |   | 25,000,384 | 
|Business assets                     |  |                    | 1,732,972  |  |                        |   | 1,732,972  |                  |  |   |                          |  |  |   | 1,703,152  | 
|Vehicles                            |  |                    | 13,012     |  |                        |   | 13,012     |                  |  |   |                          |  |  |   | 46,855     | 
|Other                               |  |                    |           |  |                        |   |           |                  |  |   |                          |  |  |   |           | 
|With a related allowance recorded:  |  |                    |            |  |                        |   |            |                  |  |   |                           |  |  |   |            | 
|Unsecured                           |  |                    | 55,342     |  |                        |   | 55,342     |                  |  |   | 49,867                    |  |  |   | 31,349     | 
|Cash value                          |  |                    |           |  |                        |   |           |                  |  |   |                          |  |  |   |           | 
|Residential real estate             |  |                    | 2,477,158  |  |                        |   | 2,477,158  |                  |  |   | 329,197                   |  |  |   | 1,898,518  | 
|Commercial real estate              |  |                    | 4,991,010  |  |                        |   | 4,991,010  |                  |  |   | 791,528                   |  |  |   | 6,179,760  | 
|Business assets                     |  |                    | 418,250    |  |                        |   | 418,250    |                  |  |   | 200,015                   |  |  |   | 342,626    | 
|Vehicles                            |  |                    | 88,612     |  |                        |   | 88,612     |                  |  |   | 79,612                    |  |  |   | 123,430    | 
|Other                               |  |                    |           |  |                        |   |           |                  |  |   |                          |  |  |   |           | 
|Total:                              |  |                    |            |  |                        |   |            |                  |  |   |                           |  |  |   |            | 
|Unsecured                           |  |                    | 83,744     |  |                        |   | 83,744     |                  |  |   | 49,867                    |  |  |   | 83,772     | 
|Cash value                          |  |                    | 622,851    |  |                        |   | 622,851    |                  |  |   |                          |  |  |   | 311,426    | 
|Residential real estate             |  |                    | 17,564,036 |  |                        |   | 17,564,036 |                  |  |   | 329,197                   |  |  |   | 18,135,952 | 
|Commercial real estate              |  |                    | 32,929,702 |  |                        |   | 32,929,702 |                  |  |   | 791,528                   |  |  |   | 31,180,145 | 
|Business assets                     |  |                    | 2,151,222  |  |                        |   | 2,151,222  |                  |  |   | 200,015                   |  |  |   | 2,045,778  | 
|Vehicles                            |  |                    | 101,624    |  |                        |   | 101,624    |                  |  |   | 79,612                    |  |  |   | 170,285    | 
|Other                               |  |                    |           |  |                        |   |           |                  |  |   |                          |  |  |   |           | 



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(Unaudited)



|NOTE 5. | LOANS (Continued)
|------- | -----------------



A primary credit quality indicator for financial institutions is delinquent balances.
Following are the delinquent amounts, by portfolio segment, as of March 31, 2011:



|                        |  |         |             |  |            |   |            |                    |  |   |                        |  |  |             |            |  |                            |   |            |  |  |   |             | 
|----------------------- |  | ------- | ----------- |  | ---------- | - | ---------- | ------------------ |  | - | ---------------------- |  |  | ----------- | ---------- |  | -------------------------- | - | ---------- |  |  | - | ----------- | 
|                        |  | Current |             |  | 30-89 Days |   |            | GreaterThan90 Days |  |   | Total AccruingPast Due |  |  | Non-Accrual |            |  | Total FinancingReceivables |  
|                        |  |         |             |  |            |  
|Unsecured               |  | $       | 785,373     |  |            | $ | 28,561     |                    |  | $ | 5,511                  |  |  | $           | 34,072     |  |                            | $ | 107,481    |  |  | $ | 926,926     | 
|Cash value              |  |         | 5,078,178   |  |            |   |           |                    |  |   |                       |  |  |             |           |  |                            |   | 2,672      |  |  |   | 5,080,850   | 
|Residential real estate |  |         | 28,414,570  |  |            |   | 1,263,761  |                    |  |   |                       |  |  |             | 1,263,761  |  |                            |   | 10,315,727 |  |  |   | 39,994,058  | 
|Commercial real estate  |  |         | 154,060,908 |  |            |   | 10,018,293 |                    |  |   |                       |  |  |             | 10,018,293 |  |                            |   | 18,639,381 |  |  |   | 182,718,582 | 
|Business assets         |  |         | 2,265,156   |  |            |   | 322,202    |                    |  |   | 83,486                 |  |  |             | 405,688    |  |                            |   | 803,500    |  |  |   | 3,474,344   | 
|Vehicles                |  |         | 1,855,862   |  |            |   | 230,647    |                    |  |   |                       |  |  |             | 230,647    |  |                            |   | 276,764    |  |  |   | 2,363,273   | 
|Other                   |  |         | 106,066     |  |            |   |           |                    |  |   |                       |  |  |             |           |  |                            |   |           |  |  |   | 106,066     | 
|                        |  |         |             |  |            |   |            |                    |  |   |                        |  |  |             |            |  |                            |   |            |  |  |   |             | 
|                        |  | $       | 192,566,113 |  |            | $ | 11,863,464 |                    |  | $ | 88,997                 |  |  | $           | 11,952,461 |  |                            | $ | 30,145,525 |  |  | $ | 234,664,099 | 
|                        |  |         |             |  |            |   |            |                    |  |   |                        |  |  |             |            |  |                            |   |            |  |  |   |             | 

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

Grade 1 - Prime (Excellent)

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

Grade 2 - Good (Superior)

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

Grade 3 - Acceptable (Average)

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



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|NOTE 5. | LOANS (Continued)
|------- | -----------------



Grade 4 - Fair (Watch)

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

Grade 5 - Special Mention

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

Grade 6 - Substandard

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

Grade 7 - Doubtful

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

Grade 8 - Loss

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



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(Unaudited)



|NOTE 5. | LOANS (Continued)
|------- | -----------------



The following table presents the Companys loans by risk rating, before unearned
loan fees, at March 31, 2011:



|                             |  |           |         |  |           |   |           |                        |  |   |                       |  |  |                |             |  |          |   |           |       |  |   |           |  |  |   |         |  |  |   |             | 
|---------------------------- |  | --------- | ------- |  | --------- | - | --------- | ---------------------- |  | - | --------------------- |  |  | -------------- | ----------- |  | -------- | - | --------- | ----- |  | - | --------- |  |  | - | ------- |  |  | - | ----------- | 
|Rating:                      |  | Unsecured |         |  | CashValue |   |           | ResidentialReal Estate |  |   | CommercialReal Estate |  |  | BusinessAssets |             |  | Vehicles |   |           | Other |  |   | Total     | 
|Grade 1 (Prime)              |  | $         |        |  |           | $ | 42,794    |                        |  | $ |                      |  |  | $              |            |  |          | $ |          |       |  | $ |          |  |  | $ |        |  |  | $ | 42,794      | 
|Grade 2 (Superior)           |  |           | 20,669  |  |           |   | 70,287    |                        |  |   |                      |  |  |                | 368,205     |  |          |   |          |       |  |   | 29,193    |  |  |   |        |  |  |   | 488,354     | 
|Grade 3 (Acceptable-Average) |  |           | 564,042 |  |           |   | 4,072,946 |                        |  |   | 14,075,976            |  |  |                | 130,339,334 |  |          |   | 849,841   |       |  |   | 1,583,598 |  |  |   |        |  |  |   | 151,485,737 | 
|Grade 4 - Fair (Watch)       |  |           | 34,410  |  |           |   | 82,834    |                        |  |   | 2,306,180             |  |  |                | 9,125,637   |  |          |   | 369,641   |       |  |   | 343,708   |  |  |   | 106,066 |  |  |   | 12,368,476  | 
|Grade 5 - (Special Mention)  |  |           | 24,720  |  |           |   | 191,137   |                        |  |   | 2,558,209             |  |  |                | 6,203,039   |  |          |   |          |       |  |   | 36,202    |  |  |   |        |  |  |   | 9,013,307   | 
|Grade 6 (Substandard)        |  |           | 283,085 |  |           |   | 620,852   |                        |  |   | 20,474,209            |  |  |                | 36,519,276  |  |          |   | 2,254,862 |       |  |   | 365,102   |  |  |   |        |  |  |   | 60,517,386  | 
|Grade 7 (Doubtful)           |  |           |        |  |           |   |          |                        |  |   | 579,484               |  |  |                |            |  |          |   |          |       |  |   | 5,470     |  |  |   |        |  |  |   | 584,954     | 
|Grade 8 (Loss)               |  |           |        |  |           |   |          |                        |  |   |                      |  |  |                | 163,091     |  |          |   |          |       |  |   |          |  |  |   |        |  |  |   | 163,091     | 
|                             |  |           |         |  |           |   |           |                        |  |   |                       |  |  |                |             |  |          |   |           |       |  |   |           |  |  |   |         |  |  |   |             | 
|                             |  | $         | 926,926 |  |           | $ | 5,080,850 |                        |  | $ | 39,994,058            |  |  | $              | 182,718,582 |  |          | $ | 3,474,344 |       |  | $ | 2,363,273 |  |  | $ | 106,066 |  |  | $ | 234,664,099 | 
|                             |  |           |         |  |           |   |           |                        |  |   |                       |  |  |                |             |  |          |   |           |       |  |   |           |  |  |   |         |  |  |   |             | 



|NOTE 6. | EARNINGS PER COMMON SHARE
|------- | -------------------------

Presented below is a summary of the components used to calculate basic and diluted earnings per common share for the three months ended
March 31, 2011 and 2010.



|                                                                                                                                     |  |                             |           |  |      |   |           | 
|------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | --------- |  | ---- | - | --------- | 
|                                                                                                                                     |  | Three Months
EndedMarch 31, |          
|                                                                                                                                     |  | 2011                        |           |  | 2010 |  
|                                                                                                                                     |  |                            
|Net income available to common shareholders                                                                                          |  | $                           | 35,302    |  |      | $ | 120,743   | 
|                                                                                                                                     |  |                             |           |  |      |   |           | 
|                                                                                                                                     |  |                            
|Weighted average common shares outstanding                                                                                           |  |                             | 9,794,472 |  |      |   | 9,685,572 | 
|Net effect of the assumed exercise of stock options based on the treasury stock method using the average market price for the
period |  |                             | 111,482   |  |      |   | 46,467    | 
|                                                                                                                                     |  |                             |           |  |      |   |           | 
|                                                                                                                                     |  |                            
|Total weighted average common shares and common stock equivalents outstanding                                                        |  |                             | 9,905,954 |  |      |   | 9,732,039 | 
|                                                                                                                                     |  |                             |           |  |      |   |           | 



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(Unaudited)



|NOTE 6. | EARNINGS PER COMMON SHARE (Continued)
|------- | -------------------------------------



Weighted average shares outstanding for the three months ended March 31, 2010 have
been adjusted for a four for one stock split in the form of a 100% stock dividend declared and paid on June 22, 2010.



|NOTE 7. | STOCK BASED COMPENSATION
|------- | ------------------------

The
Company has a stock option plan in which the Company can grant to directors, emeritus directors, and employees options for an aggregate of 2,553,600 shares of the Companys stock. For incentive stock options, the option price shall be not less
than the fair market value of such shares on the date the option is granted. If the optionee owns shares of the Company representing more than 10% of the total combined voting power, then the price shall not be less than 110% of the fair market
value of such shares on the date the option is granted. With respect to nonqualified stock options, the option price shall be set at the Boards sole and absolute discretion. The option period for all grants will not exceed ten years from the
date of grant.

At December 31, 2010, all outstanding options were fully vested and there were no options granted during
the three months ended March 31, 2011. Therefore, there was no compensation cost related to share-based payments for three months ended March 31, 2011.

The following table represents stock option activity for the three months ended March 31, 2011:



|                                        |  |                                  |         |  |                              |   |      |                                      |  |  |         | 
|--------------------------------------- |  | -------------------------------- | ------- |  | ---------------------------- | - | ---- | ------------------------------------ |  |  | ------- | 
|                                        |  | Three Months EndedMarch 31,
2011 |        
|                                        |  | Numberof Shares                  |         |  | WeightedAverageExercisePrice |   |      | WeightedAverageRemainingContractLife | 
|                                        |  |                                  |        
|Options outstanding beginning of period |  |                                  | 178,656 |  |                              | $ | 0.94 |                                      |  |  |         | 
|Options exercised                       |  |                                  |        |  |                              |   |     |                                      |  |  |         | 
|Options forfeited                       |  |                                  |        |  |                              |   |     |                                      |  |  |         | 
|                                        |  |                                  |         |  |                              |   |      |                                      |  |  |         | 
|Options outstanding end of period       |  |                                  | 178,656 |  |                              |   | 0.94 |                                      |  |  | 1.7 Yrs | 
|                                        |  |                                  |         |  |                              |   |      |                                      |  |  |         | 
|Outstanding exercisable end of period   |  |                                  | 178,656 |  |                              |   | 0.94 |                                      |  |  | 1.7 Yrs | 
|                                        |  |                                  |         |  |                              |   |      |                                      |  |  |         | 

The option price for all options outstanding and exercisable at March 31, 2011 was $0.94.



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|NOTE 7. | STOCK BASED COMPENSATION (Continued)
|------- | ------------------------------------



Shares available for future stock options grants to employees and directors under
existing plans were 633,600 at March 31, 2011. At March 31, 2011, the aggregate intrinsic value of options outstanding and exercisable was $279,150.



|NOTE 8. | CONTINGENCIES
|------- | -------------

In the normal
course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material effect on the Companys consolidated financial statements.



|NOTE 9. | FAIR VALUE OF ASSETS AND LIABILITIES
|------- | ------------------------------------

Determination of Fair Value

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

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



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|NOTE 9. | FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
|------- | ------------------------------------------------



Fair Value Hierarchy

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

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

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

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

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

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

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

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



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|NOTE 9. | FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
|------- | ------------------------------------------------



Fair Value Hierarchy (Continued)

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

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

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

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

Federal Home Loan Bank (FHLB) advances and other
borrowings: Fair values of fixed rate FHLB advances and other borrowings are estimated using discounted cash flow analyses based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. The carrying
values of variable rate FHLB advances and other borrowings approximate fair value.

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

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



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|NOTE 9. | FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
|------- | ------------------------------------------------



Fair Value Hierarchy (Continued)

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

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



|                              |  |                                                            |   |  |                                           |   |            |                                        |  |   |                    |  |  |   |            | 
|----------------------------- |  | ---------------------------------------------------------- | - |  | ----------------------------------------- | - | ---------- | -------------------------------------- |  | - | ------------------ |  |  | - | ---------- | 
|                              |  | Fair Value Measurements at March 31, 2011 Using            |   |  |                                           |  
|                              |  | Quoted PricesIn ActiveMarkets forIdentical Assets(Level 1) |   |  | SignificantOtherObservableInputs(Level 2) |   |            | SignificantUnobservableInputs(Level 3) |  |   | TotalCarryingValue | 
|                              |  |                                                            |   | 
|Securities available for sale |  | $                                                          |  |  |                                           | $ | 41,099,111 |                                        |  | $ |                   |  |  | $ | 41,099,111 | 
|                              |  |                                                            |   |  |                                           |   |            |                                        |  |   |                    |  |  |   |            | 
|Total assets at fair value    |  | $                                                          |  |  |                                           | $ | 41,099,111 |                                        |  | $ |                   |  |  | $ | 41,099,111 | 
|                              |  |                                                            |   |  |                                           |   |            |                                        |  |   |                    |  |  |   |            | 



|                              |  |                                                            |   |  |                                           |   |            |                                        |  |   |                    |  |  |   |            | 
|----------------------------- |  | ---------------------------------------------------------- | - |  | ----------------------------------------- | - | ---------- | -------------------------------------- |  | - | ------------------ |  |  | - | ---------- | 
|                              |  | Fair Value Measurements at December 31, 2010 Using         |   |  |                                           |  
|                              |  | Quoted PricesIn ActiveMarkets forIdentical Assets(Level 1) |   |  | SignificantOtherObservableInputs(Level 2) |   |            | SignificantUnobservableInputs(Level 3) |  |   | TotalCarryingValue | 
|                              |  |                                                            |   | 
|Securities available for sale |  | $                                                          |  |  |                                           | $ | 37,012,468 |                                        |  | $ |                   |  |  | $ | 37,012,468 | 
|                              |  |                                                            |   |  |                                           |   |            |                                        |  |   |                    |  |  |   |            | 
|Total assets at fair value    |  | $                                                          |  |  |                                           | $ | 37,012,468 |                                        |  | $ |                   |  |  | $ | 37,012,468 | 
|                              |  |                                                            |   |  |                                           |   |            |                                        |  |   |                    |  |  |   |            | 



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(Unaudited)



|NOTE 9. | FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
|------- | ------------------------------------------------



Fair Value Hierarchy (Continued)

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



|                       |  |                                                           |   |  |                                           |   |   |                                         |  |   |                     |  |  |   |            |  
|---------------------- |  | --------------------------------------------------------- | - |  | ----------------------------------------- | - | - | --------------------------------------- |  | - | ------------------- |  |  | - | ---------- | -
|                       |  | Fair Value Measurements
atMarch 31, 2011 Using            |   |  |                                           |  
|                       |  | Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) |   |  | SignificantOtherObservableInputs(Level 2) |   |   | SignificantUnobservableInputs(Level
 3) |  |   | Total Gains(Losses) | 
|                       |  |                                                           |   | 
|Impaired loans         |  | $                                                         |  |  |                                           | $ |  |                                         |  | $ | 7,447,289           |  |  | $ | (1,444,174 | )
|Foreclosed real estate |  |                                                           |  |  |                                           |   |  |                                         |  |   |                    |  |  |   |           |  
|                       |  |                                                           |   |  |                                           |   |   |                                         |  |   |                     |  |  |   |            |  
|Total                  |  | $                                                         |  |  |                                           | $ |  |                                         |  | $ | 7,447,289           |  |  | $ | (1,444,174 | )
|                       |  |                                                           |   |  |                                           |   |   |                                         |  |   |                     |  |  |   |            |  



|                       |  |                                                           |   |  |                                           |   |   |                                        |  |   |                     |  |  |   |            |  
|---------------------- |  | --------------------------------------------------------- | - |  | ----------------------------------------- | - | - | -------------------------------------- |  | - | ------------------- |  |  | - | ---------- | -
|                       |  | Fair Value Measurements atDecember 31, 2010
Using         |   |  |                                           |  
|                       |  | Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) |   |  | SignificantOtherObservableInputs(Level 2) |   |   | SignificantUnobservableInputs(Level
3) |  |   | Total Gains(Losses) | 
|                       |  |                                                           |   | 
|Impaired loans         |  | $                                                         |  |  |                                           | $ |  |                                        |  | $ | 19,201,393          |  |  | $ | (6,424,524 | )
|Foreclosed real estate |  |                                                           |  |  |                                           |   |  |                                        |  |   | 1,175,349           |  |  |   | (271,788   | )
|                       |  |                                                           |   |  |                                           |   |   |                                        |  |   |                     |  |  |   |            |  
|Total                  |  | $                                                         |  |  |                                           | $ |  |                                        |  | $ | 20,376,742          |  |  | $ | (6,696,312 | )
|                       |  |                                                           |   |  |                                           |   |   |                                        |  |   |                     |  |  |   |            |  

At March 31, 2011, in accordance with the provisions of the loan impairment guidance, individual loans
with a carrying value of $8,891,463 were written down to fair value of $7,447,289, resulting in an impairment charge of $1,444,174. Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair
value. Fair value is measured based on the value of the collateral securing these loans and is classified at a Level 3 in the fair value hierarchy. Collateral may include real estate, or business assets including equipment, inventory and accounts
receivable. Write downs of impaired loans are estimated using the present value of the expected cash flows or the appraised value of the underlying collateral discounted as necessary due to managements estimates of changes in economic
conditions.



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##### Table of Contents

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 9. | FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
|------- | ------------------------------------------------



Fair Value Hierarchy (Continued)

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

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



|                                                                                                        |  |                |             |  |                   |   |             |                |  |   |             |  |  |   |             | 
|------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- |  | ----------------- | - | ----------- | -------------- |  | - | ----------- |  |  | - | ----------- | 
|                                                                                                        |  | March 31, 2011 |             |  | December 31, 2010 |  
|                                                                                                        |  | CarryingAmount |             |  | FairValue         |   |             | CarryingAmount |  |   | FairValue   | 
|Financial assets:                                                                                       |  |                |             |  |                   |   |             |                |  |   |             |  |  |   |             | 
|Cash, due from banks, interest-bearing deposits at other financial institutions, and federal funds sold |  | $              | 13,360,281  |  |                   | $ | 13,360,281  |                |  | $ | 6,530,362   |  |  | $ | 6,530,362   | 
|Securities                                                                                              |  |                | 42,124,411  |  |                   |   | 42,124,411  |                |  |   | 38,037,768  |  |  |   | 38,037,768  | 
|Loans, net                                                                                              |  |                | 228,513,648 |  |                   |   | 228,466,648 |                |  |   | 230,322,008 |  |  |   | 233,696,460 | 
|Accrued interest receivable                                                                             |  |                | 1,153,458   |  |                   |   | 1,153,458   |                |  |   | 1,124,611   |  |  |   | 1,124,611   | 
|                                                                                                        |  |                |             | 
|Financial liabilities:                                                                                  |  |                |             |  |                   |   |             |                |  |   |             |  |  |   |             | 
|Deposits                                                                                                |  |                | 284,868,377 |  |                   |   | 288,272,377 |                |  |   | 275,282,295 |  |  |   | 277,390,698 | 
|Note payable                                                                                            |  |                | 275,250     |  |                   |   | 275,250     |                |  |   | 275,250     |  |  |   | 275,250     | 
|Federal Home Loan Bank advances                                                                         |  |                | 5,500,000   |  |                   |   | 5,486,000   |                |  |   | 5,500,000   |  |  |   | 5,521,875   | 
|Company guaranteed trust preferred securities                                                           |  |                | 3,403,000   |  |                   |   | 3,403,000   |                |  |   | 3,403,000   |  |  |   | 3,403,000   | 
|Accrued interest payable                                                                                |  |                | 881,717     |  |                   |   | 881,717     |                |  |   | 999,367     |  |  |   | 999,367     | 



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##### Table of Contents

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 10. | RECENT ACCOUNTING PRONOUNCEMENTS
|-------- | --------------------------------

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

In April 2011, the FASB issued Accounting Standards Update No. 2011-02, A Creditors
Determination of Whether a Restructuring is a Troubled Debt Restructuring (ASU No. 2011-02). ASU 2011-02 provides additional clarification for creditors in evaluating whether or not a debt restructuring involves a concession and
whether a debtor is experiencing financial difficulties, both of which are the basis for determining whether a restructuring constitutes a troubled debt restructuring. The amendments will be effective for the first interim or annual period beginning
on or after June 15, 2011. ASU 2011-02 also requires disclosure of those items deferred in ASU 2011-01 for interim and annual periods beginning on or after June 15, 2011. ASU No. 2011-02 will have an impact on the Companys
disclosures, but not its financial position or results of operations.



|NOTE 11. | SECONDARY STOCK OFFERING
|-------- | ------------------------

On
May 8, 2008, the Company filed an S-1 registration statement for a stock offering of up to 1,500,000 shares of the Companys common stock at a price of $10 per share. The offering will terminate on May 8, 2011 or when all 1,500,000
shares of common stock are sold, whichever occurs first. The Company has sold 235,437 shares through the secondary stock offering.

On May 27, 2009, the Company filed Prospectus Supplement No. 1 to the prospectus dated May 8, 2008 discussed above. This filing is necessary as part of the ongoing offering.

On August 17, 2009, the Company filed Prospectus Supplement No. 2 to the prospectus dated May 8, 2008 discussed above.
This filing is necessary as part of the ongoing offering.

On November 17, 2009, the Company filed Prospectus Supplement
No. 3 to the prospectus dated May 8, 2008 discussed above. This filing is necessary as part of the ongoing offering.



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##### Table of Contents

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 11. | SECONDARY STOCK OFFERING (Continued)
|-------- | ------------------------------------

On April 10, 2010, the Company filed Prospectus Supplement No. 4 to the prospectus dated May 8, 2008 discussed above. This filing is necessary as part of the ongoing offering.

On May 25, 2010, the Company filed Prospectus Supplement No. 5 to the prospectus dated May 8, 2008 discussed above. This
filing is necessary as part of the ongoing offering.

On August 23, 2010, the Company filed Prospectus Supplement
No. 6 to the prospectus dated May 8, 2008 discussed above. This filing is necessary as part of the ongoing offering.

On November 17, 2010, The Company filed Prospectus Supplement No. 7 to the prospectus dated May 8, 2008 discussed above.
This filing is necessary as part of the ongoing offering.



|NOTE 12. | FEDERAL HOME LOAN BANK ADVANCES
|-------- | -------------------------------

During the first quarter of 2011, the Company had outstanding Federal Home Loan Bank (FHLB) advances of $5,500,000. These advances are
variable rate and mature on various dates between April 1, 2011 and August 3, 2011.

On May 10, 2010, the
Company was notified by the FHLB that, based on the current financial and operating condition of the Company, all credit availability of the Company with the FHLB had been rescinded. Additionally, the Company is also now required to provide all
collateral underlying existing advances outstanding for safekeeping at the FHLB. On March 23, 2011, the Company was notified that its credit availability had been reinstated, for a maximum of 4% of the total assets of the Bank.



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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|NOTE 13. | STOCK SPLIT
|-------- | -----------

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



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following is managements discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying
condensed consolidated financial statements.

FORWARD-LOOKING STATEMENTS

This quarterly report contains certain forward-looking statements which are based on certain assumptions and describe future plans, strategies, and our expectations. These forward-looking statements are
generally identified by use of the words believe, expect, intend, anticipate, estimate, project, or similar expressions. Our ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations include, but are not limited to, changes in interest rates, general economic conditions, legislation and regulation, monetary
and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of our loan or investment portfolios, demand for loan products, deposit flows, competition, demand for
financial services in our market area, and accounting principles and guidelines. You should consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on such statements. We will not publicly
release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

CRITICAL ACCOUNTING POLICIES

We have
established policies to govern the application of accounting principles in the preparation of our financial statements. Certain accounting policies involve assumptions and decisions by management which may have a material impact on the carrying
value of certain assets and liabilities, and the results of our operations. We consider these accounting policies to be our critical accounting policies. The assumptions and decisions used by management are based on historical data and other factors
which are believed to be reasonable considering the circumstances. Management believes that the allowance for loan losses and the accounting for deferred income taxes are the most critical accounting policies upon which the Companys financial
condition depends. The allowance for loan losses and the recognition of deferred taxes involve the most complex and subjective decisions and assessments that management must make.

Allowance for loan losses. We believe that the determination of the allowance for loan losses is the critical accounting policy that requires the most significant judgments and estimates used in
preparation of our financial statements. Refer to the section Allowance for loan losses for a more detailed description of the methodology.

Deferred income taxes.Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is
determined based on the tax effects of the differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.



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##### Table of Contents

Management exercises judgment in evaluating the amount and timing of recognition of resulting tax
liabilities and assets. These judgments and estimates are reevaluated on a continual basis as regulatory and business factors change.

A
valuation allowance for deferred tax assets is required when it is more likely than not that some portion or all of the deferred tax asset will not be realized. In assessing the realization of the deferred tax assets, management considers the
scheduled reversals of deferred tax liabilities, projected future taxable income (in the near-term based on current projections), and tax planning strategies. As of March 31, 2011, there were no deferred income taxes as all had been written off
as of December 31, 2010 due to losses sustained and none have been recorded during 2011.

FINANCIAL CONDITION

Total assets increased during the first three months of 2011 by $9.7 million from $295.3 million to $305 million, or 3.28%. The increase was largely due
to an increase in securities of $4.1 million, a net increase in cash of $1.2 million, net decreases in loans of $1.7 million, net increases in other assets of $151,000, net increases in other real estate owned of $551,000 and increases in federal
funds sold of $5.6 million. The loan to deposit ratio at March 31, 2011 was 82% compared to 86% at December 31, 2010.

Stockholders equity increased by $169,000 for the three months ended March 31, 2011. This net increase consisted of net income of $85,000,
proceeds from issuance of common stock of $78,500, dividends declared on preferred stock of $50,000, and net increases in accumulated other comprehensive income of $55,000.

The total amount of nonperforming assets, which includes nonaccruing loans, other real estate owned, repossessed collateral, and loans for which payments are more than 90 days past due was $39,702,000 at
March 31, 2011, representing an increase of $618,000 (1.6%) from December 31, 2010. This increase is attributable to increases of $598,000 in nonaccrual loans, and $551,000 in foreclosed real estate, offset by a decrease of $531,000
in accruing loans past due over 90 days. Total nonperforming assets were 16.98% of total loans at March 31, 2011, compared to 16.59% at December 31, 2010. Nonperforming assets represented 13.02% of total assets at March 31, 2011,
compared to 13.23% of total assets at December 31, 2010. Nonaccrual loans represented 12.89% of total loans outstanding at March 31, 2011, compared to 12.54% of total loans outstanding at December 31, 2010. There were no related party
loans which were considered to be nonperforming at March 31, 2011.

At March 31, 2011, the Company had loan concentrations in real
estate totaling $222,713,000 or 94.9% of total loans, excluding loan fees. Commercial and industrial loans of $9,264,000 made up 3.9% of total loans. The remaining $2,687,000, or 1.2%, of total loans, excluding loan fees, consisted of consumer and
other loans.

LIQUIDITY

Liquidity management involves the matching of the cash flow requirements of customer withdrawals of funds and the funding of loan originations, and the
ability of our subsidiary bank to meet those requirements. Management monitors and maintains appropriate levels of liquidity so that maturities of assets and deposit growth are such that adequate funds are provided to meet estimated customer
withdrawals and loan requests.



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##### Table of Contents

At March 31, 2011, the Banks liquidity ratio of 11.47% was considered satisfactory in relation to
regulatory guidelines, although it was below internal targets. During the second quarter of 2010 the Companys credit availability with the FHLB was rescinded. On March 23, 2011, the Company was notified that its credit availability had
been reinstated for a maximum of 4% of total assets of the Bank. Also, at March 31, 2011, the Company had the ability to borrow up to $5.0 million in federal funds from correspondent banks. It also had an available repurchase line with a
correspondent bank of $10.0 million and borrowing capacity through the Federal Reserve Discount Window of $2.6 million.

REGULATORY CAPITAL
REQUIREMENTS

Banking regulations require us to maintain minimum capital levels in relation to assets. Capital amounts and classification
are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by the
regulators, that, if undertaken, could have a direct material effect on the consolidated financial statements. At March 31, 2011, the Bank was considered under capitalized based on an agreement with its primary regulatory agency. The minimum
capital requirements and the actual capital ratios for the Company and Bank at March 31, 2011 are as follows:



|                          |  |         |      |   |      |  |      |                              |  |  |      |  
|------------------------- |  | ------- | ---- | - | ---- |  | ---- | ---------------------------- |  |  | ---- | -
|                          |  | Company |      |   | Bank |  |      | RegulatoryMinimumRequirement | 
|Leverage Capital Ratio    |  |         | 4.31 | % |      |  | 4.48 | %                            |  |  | 4.00 | %
|Risk-Based Capital Ratios |  |         |      |   |      |  |      |                              |  |  |      |  
|Core Capital              |  |         | 5.04 | % |      |  | 5.23 | %                            |  |  | 4.00 | %
|Total Capital             |  |         | 6.30 | % |      |  | 6.49 | %                            |  |  | 8.00 | %

We are not aware of any other
recommendations by the regulatory authorities, events or trends, which, if they were to be implemented, would have a material effect on our liquidity, capital resources, or operations.

OFF BALANCE SHEET ARRANGEMENTS

Our financial statements do not reflect various commitments
and contingent liabilities that arise in the normal course of business. These off-balance sheet financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are included in the financial
statements when funds are distributed or the instruments become payable. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments. Although these amounts do not necessarily represent future cash requirements, a summary of
our commitments as of March 31, 2011 are as follows:



|                                    |  |               |           | 
|----------------------------------- |  | ------------- | --------- | 
|                                    |  | March 31,2011 |          
|Commitments to extend credit        |  | $             | 3,966,000 | 
|Financial standby letters of credit |  |               | 650,000   | 
|Other standby letters of credit     |  |               | 400,000   | 
|                                    |  |               |           | 
|                                    |  | $             | 5,016,000 | 
|                                    |  |               |           | 



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RESULTS OF OPERATIONS

Three Months Ended March 31, 2011 and 2010

Net Interest Income. Net interest
income decreased by $14,000 for the three month period ended March 31, 2011, compared to the same period in 2010. The overall decrease in net interest income for the three month period is primarily attributable to increased nonaccrual loans and
the corresponding reduction in interest income. The rate paid on interest-bearing liabilities decreased from 3.06% to 2.30%, or 76 basis points, for the same period. The decrease in the rate paid on interest-bearing liabilities is due primarily to
the repricing of deposits as they mature to the current lower rates. The net yield on interest-earning assets increased to 3.52% at March 31, 2011 as compared to 3.16% at March 31, 2010 and 3.02% for the entire year ended December 31,
2010.

The yield on interest-earning assets decreased from 6.18% to 5.95%, or 23 basis points, from March 31, 2010 to March 31,
2011.



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##### Table of Contents

Interest Income and Interest Expense

The following table sets forth the amount of our interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total
interest-earning assets and total interest-bearing liabilities, net interest spread and net yield on average interest-earning assets.



|                                        |  |                                          |         |  |                                          |   |       |                 |  |  |                |   |  |                |         |  |                 |   |       |  |  |  |      |  
|--------------------------------------- |  | ---------------------------------------- | ------- |  | ---------------------------------------- | - | ----- | --------------- |  |  | -------------- | - |  | -------------- | ------- |  | --------------- | - | ----- |  |  |  | ---- | -
|                                        |  | For the Three Months
EndedMarch 31, 2011 |         |  | For the Three Months
EndedMarch 31, 2010 |  
|                                        |  | AverageBalance                           |         |  | Income/Expense                           |   |       | Yields/Rates(2) |  |  | AverageBalance |   |  | Income/Expense |         |  | Yields/Rates(2) |  
|                                        |  | (Dollars in thousands)                   |        
|Earning assets:                         |  |                                          |         |  |                                          |   |       |                 |  |  |                |   |  |                |         |  |                 |   |       |  |  |  |      |  
|Loans, net of unearned income(4)        |  | $                                        | 204,954 |  |                                          | $ | 3,453 |                 |  |  | 6.83           | % |  | $              | 230,044 |  |                 | $ | 3,956 |  |  |  | 6.97 | %
|Securities                              |  |                                          | 38,890  |  |                                          |   | 219   |                 |  |  | 2.28           |   |  |                | 50,241  |  |                 |   | 318   |  |  |  | 2.57 |  
|Interest-bearing deposits               |  |                                          | 455     |  |                                          |   | 1     |                 |  |  | 0.55           |   |  |                | 18      |  |                 |   |      |  |  |  | 0.07 |  
|Federal funds sold(3)                   |  |                                          | 6,152   |  |                                          |   | 2     |                 |  |  | 0.11           |   |  |                | 4       |  |                 |   |      |  |  |  | 4.48 |  
|                                        |  |                                          |         |  |                                          |   |       |                 |  |  |                |   |  |                |         |  |                 |   |       |  |  |  |      |  
|Total interest-earning assets(1)        |  | $                                        | 250,451 |  |                                          | $ | 3,675 |                 |  |  | 5.95           |   |  | $              | 280,307 |  |                 | $ | 4,274 |  |  |  | 6.18 |  
|                                        |  |                                          |         |  |                                          |   |       |                 |  |  |                |   |  |                |         |  |                 |   |       |  |  |  |      |  
|                                        |  |                                          |         |  |                                          |  
|Interest-bearing liabilities:           |  |                                          |         |  |                                          |   |       |                 |  |  |                |   |  |                |         |  |                 |   |       |  |  |  |      |  
|Demand and savings deposits             |  | $                                        | 34,621  |  |                                          | $ | 83    |                 |  |  | 0.97           |   |  | $              | 36,124  |  |                 | $ | 106   |  |  |  | 1.19 |  
|Time deposits                           |  |                                          | 220,265 |  |                                          |   | 1,374 |                 |  |  | 2.53           |   |  |                | 219,221 |  |                 |   | 1,886 |  |  |  | 3.49 |  
|                                        |  |                                          |         |  |                                          |   |       |                 |  |  |                |   |  |                |         |  |                 |   |       |  |  |  |      |  
|                                        |  |                                          |         |  |                                          |  
|Total deposits                          |  |                                          | 254,886 |  |                                          |   | 1,457 |                 |  |  | 2.32           |   |  |                | 255,345 |  |                 |   | 1,992 |  |  |  | 3.16 |  
|                                        |  |                                          |         |  |                                          |  
|Other short-term borrowings             |  |                                          | 5,775   |  |                                          |   | 12    |                 |  |  | 0.87           |   |  |                | 17,482  |  |                 |   | 65    |  |  |  | 1.51 |  
|Long-term debt                          |  |                                          | 3,403   |  |                                          |   | 32    |                 |  |  | 3.79           |   |  |                | 3,403   |  |                 |   | 30    |  |  |  | 3.58 |  
|                                        |  |                                          |         |  |                                          |   |       |                 |  |  |                |   |  |                |         |  |                 |   |       |  |  |  |      |  
|Total interest-bearing liabilities      |  | $                                        | 264,064 |  |                                          |   | 1,501 |                 |  |  | 2.30           |   |  | $              | 276,230 |  |                 |   | 2,087 |  |  |  | 3.06 |  
|                                        |  |                                          |         |  |                                          |   |       |                 |  |  |                |   |  |                |         |  |                 |   |       |  |  |  |      |  
|                                        |  |                                          |         |  |                                          |  
|Net interest income/net interest spread |  |                                          |         |  |                                          | $ | 2,174 |                 |  |  | 3.65           | % |  |                |         |  |                 | $ | 2,187 |  |  |  | 3.12 | %
|                                        |  |                                          |         |  |                                          |   |       |                 |  |  |                |   |  |                |         |  |                 |   |       |  |  |  |      |  
|Net yield on earning assets             |  |                                          |         |  |                                          |   |       |                 |  |  | 3.52           | % |  |                |         |  |                 |   |       |  |  |  | 3.16 | %
|                                        |  |                                          |         |  |                                          |   |       |                 |  |  |                |   |  |                |         |  |                 |   |       |  |  |  |      |  



|(1) | Average securities exclude average unrealized gains (losses) of $(491,000) and $688,000 for the three months ended March 31, 2011 and 2010, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Annualized.
|--- | -----------

|(3) | The March 31, 2010 yield is skewed due to the fact that the Bank had lower federal funds sold balances for only a short period in 2010.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

|(4) | Average loans exclude average nonaccrual loans of $30,776,000 and $13,626,000 for the three months ended March 31, 2011 and 2010, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------



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Provision for Loan Losses. The provision for loan losses is based on managements evaluation of
the economic environment, the history of charged off loans and recoveries, size and composition of the loan portfolio, nonperforming and past due loans, and other aspects of the loan portfolio. We review the allowance for loan loss on a quarterly
basis and make provisions as necessary. A provision of $205,000 was made during the three month period ending March 31, 2011 as compared to a provision of $0 made during the three month period ending March 31, 2010. The allowance for loan
loss as a percentage of total loans was 2.26%, 2.22%, and 2.71% at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. Total nonaccrual loans increased by $9,951,000, net charge-offs increased by $19,000, loans
past due ninety days or more and still accruing decreased by $2,402,000, and restructured loans increased by $4,344,000 for the three months ended March 31, 2011 as compared to the same periods in 2010. Due to collateral values of the
underlying collateral and losses already recognized, we do not anticipate significant additional losses related to identified impaired loans. Management believes the allowance for loan loss at March 31, 2011 is adequate to absorb any
foreseeable losses in the loan portfolio.

At March 31, 2011 and 2010, nonaccrual, past due and restructured loans were as follows:



|                                                                                                         |  |                        |        |  |      |   |        | 
|-------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | 
|                                                                                                         |  | March 31,              |       
|                                                                                                         |  | 2011                   |        |  | 2010 |  
|                                                                                                         |  | (Dollars in thousands) |       
|                                                                                                         |  |                       
|Total nonaccruing loans                                                                                  |  | $                      | 30,145 |  |      | $ | 20,194 | 
|Loans contractually past due ninety days or more as to interest or principal payments and still accruing |  |                        | 89     |  |      |   | 2,491  | 
|Restructured loans                                                                                       |  |                        | 20,213 |  |      |   | 15,869 | 

It is our policy to discontinue the
accrual of interest income when, in the opinion of management, collection of such interest becomes doubtful. This status is accorded such interest when (1) there is a significant deterioration in the financial condition of the borrower and full
repayment of principal and interest is not expected and (2) the principal or interest is more than ninety days past due, unless the loan is both well-secured and in the process of collection. Accrual of interest on such loans is resumed when,
in managements judgment, the collection of interest and principal becomes probable.



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The following is a category detail of our allowance percentage and reserve balance by loan type at
March 31, 2011 and December 31, 2010:



|                              |  |                                   |           |  |                         |  |       |                                     |  |   |                            |  |  |  |      |  
|----------------------------- |  | --------------------------------- | --------- |  | ----------------------- |  | ----- | ----------------------------------- |  | - | -------------------------- |  |  |  | ---- | -
|Loan Group Description        |  | March 31, 
2011CalculatedReserves |           |  | March 31, 2011Reserve % |  |       | December 31, 2010CalculatedReserves |  |   | December 31, 2010Reserve % | 
|Unsecured                     |  | $                                 | 106,021   |  |                         |  | 11.44 | %                                   |  | $ | 63,020                     |  |  |  | 7.14 | %
|Cash Value                    |  |                                   | 14,262    |  |                         |  | 0.28  | %                                   |  |   | 5,210                      |  |  |  | 0.11 | %
|Residential real estate       |  |                                   | 1,829,967 |  |                         |  | 4.58  | %                                   |  |   | 2,258,833                  |  |  |  | 5.88 | %
|Commercial real estate        |  |                                   | 2,810,638 |  |                         |  | 1.54  | %                                   |  |   | 2,234,925                  |  |  |  | 1.20 | %
|Business assets               |  |                                   | 328,785   |  |                         |  | 9.46  | %                                   |  |   | 316,844                    |  |  |  | 9.36 | %
|Vehicles                      |  |                                   | 132,161   |  |                         |  | 5.59  | %                                   |  |   | 141,759                    |  |  |  | 5.48 | %
|Other                         |  |                                   | 5         |  |                         |  | 0.01  | %                                   |  |   | 5                          |  |  |  | 0.00 | %
|Unallocated                   |  |                                   | 70,198    |  |                         |  |       |                                     |  |   | 203,168                    |  |  |  |      |  
|                              |  |                                   |           |  |                         |  |       |                                     |  |   |                            |  |  |  |      |  
|Total Allowance for Loan Loss |  | $                                 | 5,292,037 |  |                         |  | 2.26  | %                                   |  | $ | 5,223,764                  |  |  |  | 2.21 | %
|                              |  |                                   |           |  |                         |  |       |                                     |  |   |                            |  |  |  |      |  

Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been
included in the table above do not represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources. These classified loans do not represent
material credits about which management is aware of any information which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms.

Information regarding certain loans and allowance for loan loss data for the three months ended March 31, 2011 and 2010 is as follows:



|                                                                              |  |                             |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                              |  | Three Months
EndedMarch 31, |        
|                                                                              |  | 2010                        |         |   | 2010 |  
|                                                                              |  | (Dollars in thousands)      |        
|Average amount of loans outstanding                                           |  | $                           | 229,279 |   |      | $ | 243,670 |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Balance of allowance for loan losses at beginning of period                   |  | $                           | 5,224   |   |      | $ | 6,649   |  
|                                                                              |  |                             |         |   |      |   |         |  
|Loans charged off                                                             |  |                             |         |   |      |   |         |  
|Commercial                                                                    |  |                             | (3      | ) |      |   | (7      | )
|Real estate                                                                   |  |                             | (113    | ) |      |   | (123    | )
|Installment                                                                   |  |                             | (32     | ) |      |   | (14     | )
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                             | (148    | ) |      |   | (144    | )
|                                                                              |  |                             |         |   |      |   |         |  
|Loans recovered                                                               |  |                             |         |   |      |   |         |  
|Commercial                                                                    |  |                             | 1       |   |      |   | 8       |  
|Real estate                                                                   |  |                             | 5       |   |      |   | 15      |  
|Installment                                                                   |  |                             | 5       |   |      |   | 3       |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                             | 11      |   |      |   | 26      |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Net charge-offs                                                               |  |                             | (137    | ) |      |   | (118    | )
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Additions to allowance charged to operating expense during period             |  |                             | 205     |   |      |   |        |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Balance of allowance for loan losses at end of period                         |  | $                           | 5,292   |   |      | $ | 6,531   |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Ratio of net loans charged-off during the period to average loans outstanding |  |                             | 0.06    | % |      |   | 0.05    | %
|                                                                              |  |                             |         |   |      |   |         |  



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Other Income. Other income decreased by $11 for the three months ended March 31, 2011,
respectively, compared to the same period in 2010. The most significant component of other income is service charges on deposit accounts which accounts for 70.6% and 70.7% of total other income for March 31, 2011 and 2010, respectively. Service
charges on deposit accounts include monthly service charges, non-sufficient funds (NSF) charges, and other miscellaneous maintenance fees. The amount of service charges fluctuates with the volume of transaction accounts and the volume of
NSF activity.

Other Expenses. Other expenses decreased by $183,000 for the three months ended March 31, 2011, as compared to the
same period in 2010. The decrease for the three month period mainly consists of decreases in salaries and employee benefits of $58,000 and other expenses of $157,000, offset by increases in occupancy and equipment expense of $32,000. The decrease in
other operating expenses was largely due to decreases in expenses related to foreclosed real estate. At March 31, 2011, the number of full-time equivalent employees was 77 compared to 73 at March 31, 2010.

Income Tax Benefits. As of March 31, 2011, the Company has no more income taxes that it could recover from prior periods. Because of this tax
situation, and the uncertainty of the realizability of deferred income taxes, no tax benefit has been recorded for the three months ended March 31, 2011.

Net Income. Net income decreased by $35,000 for the three months ended March 31, 2011, as compared to the same period in 2010. This decrease is largely the result of the increased provision
for loan losses and decreased net interest income since the prior year.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Not applicable as the registrant is a smaller reporting company.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

As of the end of
the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and the Principal Financial and Accounting Officer, of the design and operation of the
Companys disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and the Principal Financial and Accounting Officer concluded that the Companys disclosure controls and procedures are effective.

There have been no changes in the Companys internal control over financial reporting in the period covered by this report that have
materially affected, or are reasonably likely to materially affect, the Companys internal controls over financial reporting.



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##### Table of Contents

PART II - Other Information



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

There
have been no material developments in the legal proceedings previously reported in the Companys Annual Report on Form 10-K (filed with the Commission on April 15, 2011) nor have any new reportable legal proceedings involving the Company
been instituted.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

None.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|ITEM 4. | (REMOVED AND RESERVED)
|------- | ----------------------



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.



|ITEM 6. | EXHIBITS
|------- | --------



| | 2.1 | Plan of Reorganization and Agreement of Merger, dated April 14, 1998, by and between Capitol City Bancshares, Inc., Capitol City Bank and Trust, and Capitol City
Interim, Inc., which Agreement is included as Appendix A to the Proxy Statement included in this Registration Statement filed by Registrant on Form S-4 on March 31, 1998, Registration No. 333-64789 (incorporated by reference as Exhibit 2.1
to the Registrants 10-KSB filed on March 31, 1999).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3.1 | Articles of Incorporation of Registrant (incorporated by reference as Exhibit 3.1 to the Registrants 10-KSB filed on March 31, 1999).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



| | 3.1(A) | Amendment to the Articles of Incorporation of Registrant (incorporated by reference as Exhibit 3.1(A) to the Registrants Annual Report on Form 10-KSB filed on
March 31, 2005).
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3.1(B) | Articles of Amendment to the Articles of Incorporation of the Registrant filed February 9, 2007 (incorporated by reference as Exhibit 3.1(B) to the
Registrants Current Report on Form 8-K filed on February 15, 2007).
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3.1(C) | Articles of Amendment to the Articles of Incorporation of the Registrant filed February 12, 2007 (incorporated by reference as Exhibit 3.1(C) to the
Registrants Current Report on Form 8-K filed on February 15, 2007).
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | 3.1(D) | Articles of Amendment to the Articles of Incorporation of the Registrant filed February 15, 2007 (incorporated by reference as Exhibit 3.1(D) to the
Registrants Current Report on Form 8-K filed on February 15, 2007).
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3.1(E) | Articles of Amendment to the Articles of Incorporation of the Registrant filed October 14, 2009 (incorporated by reference as Exhibit 3.1(E) to the
Registrants Quarterly Report on Form 10-Q filed on November 13, 2009).
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3.1(F) | Articles of Amendment to the Articles of Incorporation of the Registrant filed July 13, 2010 (incorporated by reference as Exhibit 3.9 to the Registrants
Current Report on Form 8-K filed on July 16, 2010).
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3.2 | Bylaws of Registrant (incorporated by reference as Exhibit 3.2 to the Registrants 10-KSB filed on March 31, 1999).
| | --- | -------------------------------------------------------------------------------------------------------------------



| | 31.1 | Section 302 Certification of Principal Executive Officer
| | ---- | --------------------------------------------------------



| | 31.2 | Section 302 Certification of Principal Financial and Accounting Officer
| | ---- | -----------------------------------------------------------------------



| | 32.1 | Section 906 Certification of Principal Executive Officer
| | ---- | --------------------------------------------------------



| | 32.2 | Section 906 Certification of Principal Financial and Accounting Officer
| | ---- | -----------------------------------------------------------------------



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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.



|                   |  |  |  |  |  |                                                                 
|------------------ |  |  |  |  |  | ----------------------------------------------------------------
|                   |  |  |  |  |  | CAPITOL CITY BANCSHARES, INC.                                   
|Date: May 16, 2011 |  |  |  |  |  | /s/ George G. Andrews                                           
|                   |  |  |  |  |  | George G. Andrews                                               
|                   |  |  |  |  |  | CEO, President and Director                                     
|                   |  |  |  |  |  |                                                                 
|Date: May 16, 2011 |  |  |  |  |  | /s/ Tatina Brooks                                               
|                   |  |  |  |  |  | Tatina Brooks                                                   
|                   |  |  |  |  |  | Senior Vice President of Accounting and                         
|                   |  |  |  |  |  | Financial Reporting (Principal Financial and Accounting Officer)



38