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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 1-34534
 ATHENS BANCSHARES CORPORATION
  Tennessee
    
    27-0920126(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)106 Washington Avenue, Athens, Tennessee
    
    37303(Address of principal executive offices)
    
    (Zip Code)
 (423) 745-1111
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $0.01 per share
    
    Nasdaq Stock Market, LLC
 None
 o þ
 o þ
 þ o
 o o
 þ
  Large Accelerated Filer o
Accelerated Filer o
Non-accelerated Filer o(Do not check if a smaller reporting company)
Smaller Reporting Company þ
  o þ
   DOCUMENTS INCORPORATED BY REFERENCE: None




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##### 



INDEX
 PagePart IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    15Item 1B.
    
    Unresolved Staff Comments
    
    
    19Item 2.
    
    Properties
    
    
    20Item 3.
    
    Legal Proceedings
    
    
    21Item 4.
    
    (Removed and
Reserved)
    
    
    21Part IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    22Item 6.
    
    Selected Financial Data
    
    
    23Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    25Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    47Item 8.
    
    Financial Statements and Supplementary Data
    
    
    47Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    47Item 9A(T).
    
    Controls and Procedures
    
    
    47Item 9B.
    
    Other Information
    
    
    48Part IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    48Item 11.
    
    Executive Compensation
    
    
    52Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    56Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    58Item 14.
    
    Principal Accounting Fees and Services
    
    
    59Part IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    60SIGNATURESExhibit 21.0Exhibit 23.0Exhibit 31.1Exhibit 31.2Exhibit 32.0




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This annual report contains forward-looking statements that are based on assumptions and may
describe future plans, strategies and expectations of Athens Bancshares Corporation. These
forward-looking statements are generally identified by use of the words believe, expect,
intend, anticipate, estimate, project or similar expressions. Athens Bancshares
Corporations 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 the operations of
Athens Bancshares Corporation and its subsidiary include, but are not limited to, changes in
interest rates, national and regional economic conditions, legislative and regulatory changes,
monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and
the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in Athens Bancshares
Corporations market area, changes in real estate market values in Athens Bancshares Corporations
market area, changes in relevant accounting principles and guidelines and inability of third party
service providers to perform. Additional factors that may affect our results are discussed in Item
1A to this Annual Report on Form 10-K titled Risk Factors below.
 These risks and uncertainties should be considered in evaluating forward-looking statements
and undue reliance should not be placed on such statements. Except as required by applicable law or
regulation, Athens Bancshares Corporation does not undertake, and specifically disclaims any
obligation, to release publicly the result of any revisions that may be made to any forward-looking
statements to reflect events or circumstances after the date of the statements or to reflect the
occurrence of anticipated or unanticipated events.
 Unless the context indicates otherwise, all references in this annual report to Company,
we, us and our refer to Athens Bancshares Corporation and its subsidiaries.
 
 PART I
 
 Item 1.
    
    BUSINESS
 General
      1




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Market Area
  Competition
    Lending Activities
  One-to Four-Family Residential Loans. Item 1A. Risk Factors  Our concentration in non-owner
occupied real estate loans may expose us to increased credit risk.
   2




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Non-residential Real Estate Loans.
   Construction Loans.
  3




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Land and Land Development Loans.
 Multi-Family Real Estate Loans.
 Consumer Loans.
   4




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Commercial Business Loans.
 Loan Underwriting
 Adjustable-Rate Loans.
 Non-Owner Occupied Residential Real Estate Loans.
 Non-residential and Multi-Family Real Estate Loans.
 Construction, Land and Land Development Loans.
  5




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Consumer Loans.
 Commercial Business Loans.
 Loan Approval Procedures and Authority.
 Loans to One Borrower.
 Loan Commitments.
  6




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Investment Activities
    Deposit Activities and Other Sources of Funds
  Deposit Accounts.
 Borrowings.
 Personnel
   7




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REGULATION AND SUPERVISION
   Regulation of Federal Savings Associations
 Business Activities.
 Branching.
 Capital Requirements.
   8




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Prompt Corrective Regulatory Action.
 Loans to One Borrower.  Lending Activities  Loans to One Borrower.
 Standards for Safety and Soundness.
 Limitation on Capital Distributions.
  9




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Qualified Thrift Lender Test.
  Transactions with Related Parties.
 Item 13. Certain Relationships and Related
Transactions, and Director Independence.
 Enforcement.
  10




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Assessments.
 Insurance of Deposit Accounts.
 1/2
       11




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Federal Home Loan Bank System.
  Community Reinvestment Act.
   Federal Reserve System
   Holding Company Regulation
 General.
  12




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Acquisition of Control.
 Federal Securities Laws
  Sarbanes-Oxley Act of 2002
   13




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Federal Income Taxation
 General.
  Bad Debt Reserves.
 Distributions.
   14




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State Taxation
 Tennessee.
  
 ITEM 1A.
    
    RISK FACTORS
 Our concentration in non-owner occupied real estate loans may expose us to increased credit risk.
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations  Risk Management.
  15




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Our construction loan and land and land development loan portfolios may expose us to increased
credit risk.
 Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations  Risk
Management.
 Our consumer loan portfolio includes consumer loans secured by rapidly depreciable assets and may
expose us to increased credit risk.
  Significant loan losses could require us to increase our allowance for loan losses through a charge
to earnings.
   16




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A continuation of recent turmoil in the financial markets could have an adverse effect on our
financial position or results of operations.
  The current economic recession could result in increases in our level of non-performing loans
and/or reduce demand for our products and services, which would lead to lower revenue, higher loan
losses and lower earnings.
   17




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Special Federal Deposit Insurance Corporation assessments and increased base assessment rates by
the Federal Deposit Insurance Corporation will decrease our earnings.
  Changing interest rates may decrease our earnings and asset value.
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations Risk Management  Interest Rate Risk Management.
 Strong competition within our primary market area could negatively impact our profits and slow
growth.
 Item 1. Business  Market Area Item 1. Business  Competition
  18




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We operate in a highly regulated environment and we may be adversely affected by changes in laws
and regulations.
 Item 1. Business  Regulation and Supervision.
 Our contribution to the Athens Federal Foundation may not be tax deductible, which could decrease
our profits.
  Establishment of the Athens Federal Foundation will decrease our profits for fiscal 2010.
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
   19




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ITEM 2.
    
    PROPERTIES
  Net Book ValueYear
    
    
    Owned/
    
    
    atLocation
    
    Opened
    
    
    Leased
    
    
    December 31, 2009(In thousands)Main Office:Athens Main Office
106 Washington Avenue 
Athens, Tennessee 37303
    
    
    1962
    
    
    Owned
    
    $
    1,181Branch Offices:Athens Decatur Pike Office 
1103 Decatur Pike
Athens, Tennessee 37303
    
    
    1980
    
    
    Owned
    
    
    192Cleveland Ocoee Street Office 
3855 North Ocoee Street 
Cleveland, Tennessee 37312
    
    
    2007
    
    
    Leased (1)
    
    
    Cleveland 25th Street Office 
950 25th Street 
Cleveland, Tennessee 37311
    
    
    2007
    
    
    Leased (2)
    
    
    Etowah Office 
523 Tennessee Avenue 
Etowah, Tennessee 37331
    
    
    1977
    
    
    Owned
    
    
    698Madisonville Office 
4785 New Highway 68
Madisonville, Tennessee 37875
    
    
    2005
    
    
    Owned
    
    
    900Sweetwater Office 
800 Highway 68
Sweetwater, Tennessee 37874
    
    
    1995
    
    
    Owned
    
    
    225Other Offices:Athens Lending Center 
106 Hornsby Street 
Athens, Tennessee 37303
    
    
    1998
    
    
    Owned
    
    
    515Southland Finance Company 
516 South Congress Parkway 
Athens, Tennessee 37303
    
    
    1996
    
    
    Leased (3)
    
    
    Valley Title Services, LLC 
d/b/a Sweetwater Valley Title 
202 N. White Street
Athens, Tennessee 37303
    
    
    2007
    
    
    Leased (4)
    
    
    Valley Title Services, LLC 
d/b/a Title Company of Monroe County 
New Highway 68
Sweetwater, Tennessee 37874
    
    
    2007
    
    
    Leased (3)
    
    
    Valley Title Services, LLC 
205 Decatur Pike 
Athens, Tennessee 37303
    
    
    2007
    
    
    Owned
    
    
    217
 
 (1)
    
    Lease expires in February 2012.(2)
    
    Lease expires in December 2017.(3)
    
    Property is leased on a month-to-month basis.(4)
    
    Lease expires in December 2010.  20




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Item 3.
    
    LEGAL PROCEEDINGS
  
 Item 4.
    
    (REMOVED AND RESERVED)
   21




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PART II
 
 Item 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 Market for Common Equity and Related Stockholder Matters
 Item
1. Business  Regulation and Supervision  Holding Company Regulation.
  Purchase of Equity Securities
   22




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Item 6.
    
    SELECTED FINANCIAL DATA
  At December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Total assets
    
    $
    276,458
    
    
    $
    251,000
    
    
    $
    230,505
    
    
    $
    212,383
    
    
    $
    190,505Cash and cash equivalents
    
    
    40,707
    
    
    
    4,547
    
    
    
    9,284
    
    
    
    8,989
    
    
    
    4,554Securities available-for-sale
    
    
    23,585
    
    
    
    30,509
    
    
    
    22,967
    
    
    
    21,440
    
    
    
    27,695Securities held-to-maturity
    
    
    
    
    
    
    5
    
    
    
    14
    
    
    
    25
    
    
    
    63Investments, at cost
    
    
    2,899
    
    
    
    2,899
    
    
    
    4,746
    
    
    
    6,076
    
    
    
    7,235Loans receivable, net
    
    
    191,404
    
    
    
    196,520
    
    
    
    178,603
    
    
    
    157,013
    
    
    
    138,570Deposits
    
    
    236,064
    
    
    
    206,493
    
    
    
    197,344
    
    
    
    171,214
    
    
    
    153,190Securities sold under agreements to
repurchase
    
    
    899
    
    
    
    912
    
    
    
    1,151
    
    
    
    1,681
    
    
    
    1,421Advances from Federal Home Loan Bank
    
    
    10,324
    
    
    
    16,310
    
    
    
    5,532
    
    
    
    15,630
    
    
    
    13,600Total equity
    
    
    25,722
    
    
    
    24,212
    
    
    
    23,271
    
    
    
    21,879
    
    
    
    20,800
 For the Year Ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Operating Data:Interest income
    
    $
    14,668
    
    
    $
    15,580
    
    
    $
    15,457
    
    
    $
    12,775
    
    
    $
    10,519Interest expense
    
    
    5,657
    
    
    
    7,133
    
    
    
    7,101
    
    
    
    5,277
    
    
    
    3,986Net interest income
    
    
    9,011
    
    
    
    8,447
    
    
    
    8,356
    
    
    
    7,498
    
    
    
    6,533Provision for loan losses
    
    
    1,024
    
    
    
    761
    
    
    
    443
    
    
    
    704
    
    
    
    341Net interest income after provision for loan
losses
    
    
    7,987
    
    
    
    7,686
    
    
    
    7,913
    
    
    
    6,794
    
    
    
    6,192Non-interest income
    
    
    4,670
    
    
    
    4,161
    
    
    
    4,030
    
    
    
    2,682
    
    
    
    2,563Non-interest expense
    
    
    10,668
    
    
    
    10,251
    
    
    
    10,431
    
    
    
    8,244
    
    
    
    6,987Income before income taxes
    
    
    1,989
    
    
    
    1,596
    
    
    
    1,512
    
    
    
    1,232
    
    
    
    1,768Income taxes
    
    
    644
    
    
    
    487
    
    
    
    392
    
    
    
    348
    
    
    
    568Net income
    
    $
    1,345
    
    
    $
    1,109
    
    
    $
    1,120
    
    
    $
    884
    
    
    $
    1,200
  23




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At or for the Year Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Performance Ratios (1):Return on average assets
    
    
    0.54
    %
    
    
    0.45
    %
    
    
    0.50
    %
    
    
    0.44
    %
    
    
    0.65
    %Return on average equity
    
    
    5.29
    
    
    
    4.72
    
    
    
    5.02
    
    
    
    4.07
    
    
    
    5.84Interest rate spread (1)
    
    
    3.67
    
    
    
    3.51
    
    
    
    3.79
    
    
    
    3.79
    
    
    
    3.60Net interest margin (2)
    
    
    3.89
    
    
    
    3.74
    
    
    
    4.05
    
    
    
    4.07
    
    
    
    3.81Other expenses to average assets
    
    
    4.28
    
    
    
    4.18
    
    
    
    4.64
    
    
    
    4.13
    
    
    
    3.77Efficiency ratio (3)
    
    
    77.98
    
    
    
    81.30
    
    
    
    84.22
    
    
    
    80.98
    
    
    
    76.81Average interest-earning assets to
average interest-bearing liabilities
    
    
    109.18
    
    
    
    107.20
    
    
    
    107.67
    
    
    
    109.99
    
    
    
    109.06Average equity to average assets
    
    
    10.20
    
    
    
    9.58
    
    
    
    9.92
    
    
    
    10.87
    
    
    
    11.07Capital Ratios:Total capital (to risk-weighted assets)
    
    
    15.3
    %
    
    
    14.0
    %
    
    
    14.8
    %
    
    
    15.6
    %
    
    
    16.8
    %Tier 1 capital (to risk-weighted assets)
    
    
    14.1
    
    
    
    12.8
    
    
    
    13.5
    
    
    
    14.4
    
    
    
    15.6Tier 1 capital (to adjusted total assets)
    
    
    9.1
    
    
    
    9.4
    
    
    
    9.8
    
    
    
    10.3
    
    
    
    10.9Tangible equity (to adjusted total assets)
    
    
    9.1
    
    
    
    9.4
    
    
    
    9.8
    
    
    
    10.3
    
    
    
    10.9Asset Quality Ratios:Allowance for loan losses as a percent of
total loans
    
    
    1.75
    %
    
    
    1.52
    %
    
    
    1.37
    %
    
    
    1.58
    %
    
    
    1.44
    %Allowance for loan losses as a percent of
non-performing loans
    
    
    169.54
    
    
    
    73.87
    
    
    
    704.52
    
    
    
    1,457.43
    
    
    
    326.81Net charge-offs to average outstanding
loans during the period
    
    
    0.36
    
    
    
    0.12
    
    
    
    0.29
    
    
    
    0.13
    
    
    
    0.14Non-performing loans as a percent
of total loans
    
    
    1.03
    
    
    
    2.08
    
    
    
    0.20
    
    
    
    0.11
    
    
    
    0.45Non-performing assets as a percent
of total assets
    
    
    1.01
    
    
    
    1.76
    
    
    
    0.17
    
    
    
    0.11
    
    
    
    0.48Total non-performing assets and troubled
debt restructurings as a percent of total
assets
    
    
    2.28
    
    
    
    1.87
    
    
    
    0.27
    
    
    
    0.21
    
    
    
    0.59Other Data:Number of offices
    
    
    7
    
    
    
    7
    
    
    
    7
    
    
    
    5
    
    
    
    5Number of deposit accounts
    
    
    15,837
    
    
    
    15,296
    
    
    
    14,769
    
    
    
    13,482
    
    
    
    12,726Number of loans
    
    
    3,696
    
    
    
    3,297
    
    
    
    3,442
    
    
    
    3,292
    
    
    
    3,244
 (1)
    
    Represents the difference between the weighted average yield on average interest-earning
assets and the weighted average cost on average interest-bearing liabilities. Tax exempt
income is reported on a tax equivalent basis using a federal marginal
tax rate of 34.0%.(2)
    
    Represents net interest income as a percent of average interest-earning assets. Tax exempt
income is reported on a tax equivalent basis using a federal marginal tax rate of 34.0%.(3)
    
    Represents other expenses divided by the sum of net interest income and other income.  24




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Item 7.
    
    MANAGEMENTS
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
 Operating Strategy
  
    
    remaining a
community-oriented financial institution;
 
    
    continuing our historical
focus on residential mortgage lending;
 
    
    expanding our commercial
real estate and multi-family lending activities;
 
    
    emphasizing lower cost core
deposits to maintain low funding costs; and
 
    
    expanding our market share within our primary market area.
 Overview
 Income.
 Allowance for Loan Losses.
 Expenses.
 Critical Accounting Policies
  Allowance for Loan Losses.
  25




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Fair Value of Investments.
 Deferred Compensation and Executive Benefit Plans.
 Balance Sheet Analysis
 Assets.
 Loans.
    26




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At December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(Dollars in thousands)
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentReal estate mortgage:Residential one- to four-family
    
    $
    79,573
    
    
    
    40.75
    %
    
    $
    75,297
    
    
    
    37.62
    %
    
    $
    71,629
    
    
    
    39.38
    %
    
    $
    65,586
    
    
    
    40.89
    %
    
    $
    63,663
    
    
    
    45.04
    %Non-residential
    
    
    37,905
    
    
    
    19.41
    
    
    
    32,295
    
    
    
    16.14
    
    
    
    33,710
    
    
    
    18.53
    
    
    
    30,699
    
    
    
    19.14
    
    
    
    28,760
    
    
    
    20.35Multi-family
    
    
    14,625
    
    
    
    7.49
    
    
    
    11,255
    
    
    
    5.62
    
    
    
    6,841
    
    
    
    3.76
    
    
    
    3,925
    
    
    
    2.45
    
    
    
    2,905
    
    
    
    2.05Residential construction
    
    
    5,489
    
    
    
    2.81
    
    
    
    13,059
    
    
    
    6.52
    
    
    
    10,296
    
    
    
    5.66
    
    
    
    8,262
    
    
    
    5.15
    
    
    
    6,290
    
    
    
    4.45Multi-family construction
    
    
    624
    
    
    
    0.32
    
    
    
    3,865
    
    
    
    1.93
    
    
    
    1,252
    
    
    
    0.69
    
    
    
    
    
    
    
    
    
    
    
    571
    
    
    
    0.40Non-residential construction
    
    
    2,709
    
    
    
    1.39
    
    
    
    11,390
    
    
    
    5.69
    
    
    
    8,011
    
    
    
    4.40
    
    
    
    6,077
    
    
    
    3.79
    
    
    
    2,270
    
    
    
    1.61Land
    
    
    14,690
    
    
    
    7.52
    
    
    
    10,893
    
    
    
    5.44
    
    
    
    12,095
    
    
    
    6.65
    
    
    
    8,559
    
    
    
    5.34
    
    
    
    7,079
    
    
    
    5.01Total
    
    
    155,615
    
    
    
    79.69
    
    
    
    158,054
    
    
    
    78.96
    
    
    
    143,834
    
    
    
    79.07
    
    
    
    123,108
    
    
    
    76.76
    
    
    
    111,538
    
    
    
    78.91Commercial business
    
    
    12,001
    
    
    
    6.15
    
    
    
    14,565
    
    
    
    7.28
    
    
    
    9,940
    
    
    
    5.46
    
    
    
    14,027
    
    
    
    8.75
    
    
    
    7,488
    
    
    
    5.30Consumer:Home equity loans and lines
of credit
    
    
    16,552
    
    
    
    8.48
    
    
    
    14,671
    
    
    
    7.33
    
    
    
    13,130
    
    
    
    7.22
    
    
    
    10,227
    
    
    
    6.38
    
    
    
    9,418
    
    
    
    6.66Auto loans
    
    
    4,725
    
    
    
    2.42
    
    
    
    4,905
    
    
    
    2.45
    
    
    
    5,133
    
    
    
    2.82
    
    
    
    4,710
    
    
    
    2.94
    
    
    
    5,315
    
    
    
    3.76Loans secured by deposits
    
    
    1,367
    
    
    
    0.70
    
    
    
    1,546
    
    
    
    0.77
    
    
    
    2,331
    
    
    
    1.28
    
    
    
    1,203
    
    
    
    0.75
    
    
    
    1,125
    
    
    
    0.79Consumer finance loans
    
    
    1,970
    
    
    
    1.01
    
    
    
    2,600
    
    
    
    1.30
    
    
    
    3,367
    
    
    
    1.85
    
    
    
    3,505
    
    
    
    2.19
    
    
    
    3,260
    
    
    
    2.31Other
    
    
    3,023
    
    
    
    1.55
    
    
    
    3,815
    
    
    
    1.91
    
    
    
    4,179
    
    
    
    2.30
    
    
    
    3,593
    
    
    
    2.23
    
    
    
    3,209
    
    
    
    2.27Total
    
    
    27,637
    
    
    
    14.16
    
    
    
    27,537
    
    
    
    13.76
    
    
    
    28,140
    
    
    
    15.47
    
    
    
    23,238
    
    
    
    14.49
    
    
    
    22,327
    
    
    
    15.79Total loans
    
    
    195,253
    
    
    
    100
    %
    
    
    200,156
    
    
    
    100.00
    %
    
    
    181,914
    
    
    
    100
    %
    
    
    160,373
    
    
    
    100.00
    %
    
    
    141,353
    
    
    
    100.00
    %Less: unearned interest and fees
    
    
    (271
    )
    
    
    
    
    
    
    (361
    )
    
    
    
    
    
    
    (544
    )
    
    
    
    
    
    
    (588
    )
    
    
    
    
    
    
    (534
    )Less: net deferred loan origination
fees
    
    
    (165
    )
    
    
    
    
    
    
    (192
    )
    
    
    
    
    
    
    (231
    )
    
    
    
    
    
    
    (198
    )
    
    
    
    
    
    
    (190
    )Less: allowance for loan losses
    
    
    (3,413
    )
    
    
    
    
    
    
    (3,083
    )
    
    
    
    
    
    
    (2,536
    )
    
    
    
    
    
    
    (2,574
    )
    
    
    
    
    
    
    (2,059
    )Loans receivable, net
    
    $
    191,404
    
    
    
    
    
    
    $
    196,520
    
    
    
    
    
    
    $
    178,603
    
    
    
    
    
    
    $
    157,013
    
    
    
    
    
    
    $
    138,570
  28




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##### Table of Contents



Loan Maturity
  At December 31, 2009Residential
    
    
    Non-residential
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    Total(Dollars in thousands)
    
    Real Estate
    
    
    Real Estate (1)
    
    
    Construction (2)
    
    
    Land
    
    
    Business
    
    
    Consumer
    
    
    LoansAmounts due in:One year or less
    
    $
    6,913
    
    
    $
    15,301
    
    
    $
    6,134
    
    
    $
    6,360
    
    
    $
    8,405
    
    
    $
    5,060
    
    
    $
    48,173More than one year
through two years
    
    
    4,191
    
    
    
    8,284
    
    
    
    
    
    
    
    437
    
    
    
    530
    
    
    
    2,678
    
    
    
    16,120More than two years
through three years
    
    
    2,249
    
    
    
    11,689
    
    
    
    
    
    
    
    2,097
    
    
    
    745
    
    
    
    4,216
    
    
    
    20,996More than three years
through five years
    
    
    13,301
    
    
    
    8,591
    
    
    
    
    
    
    
    2,930
    
    
    
    1,934
    
    
    
    3,370
    
    
    
    30,126More than five years
through ten years
    
    
    7,406
    
    
    
    2,414
    
    
    
    
    
    
    
    525
    
    
    
    387
    
    
    
    2,440
    
    
    
    13,172More than ten years
through fifteen years
    
    
    6,032
    
    
    
    3,670
    
    
    
    
    
    
    
    626
    
    
    
    
    
    
    
    9,546
    
    
    
    19,874More than fifteen years
    
    
    39,481
    
    
    
    2,581
    
    
    
    2,688
    
    
    
    1,715
    
    
    
    
    
    
    
    327
    
    
    
    46,792Total
    
    $
    79,573
    
    
    $
    52,530
    
    
    $
    8,822
    
    
    $
    14,690
    
    
    $
    12,001
    
    
    $
    27,637
    
    
    $
    195,253
 (1)
    
    Includes multi-family real estate loans.(2)
    
    Includes residential real estate construction loans, non-residential real estate
construction loans and multi-family real estate construction loans. Fixed vs. Adjustable Rate Loans
  Floating or(In thousands)
    
    Fixed Rates
    
    
    Adjustable Rates
    
    
    TotalResidential real estate
    
    $
    17,089
    
    
    $
    55,571
    
    
    $
    72,660Non-residential real estate
    
    
    19,955
    
    
    
    17,274
    
    
    
    37,229Construction
    
    
    
    
    
    
    2,688
    
    
    
    2,688Land
    
    
    2,007
    
    
    
    6,323
    
    
    
    8,330Commercial business
    
    
    2,924
    
    
    
    672
    
    
    
    3,596Consumer
    
    
    8,370
    
    
    
    14,207
    
    
    
    22,577Total
    
    $
    50,345
    
    
    $
    96,735
    
    
    $
    147,080
   29




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##### Table of Contents



Loan Activity
  Year Ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Total loans at beginning of period
    
    $
    199,603
    
    
    $
    181,139
    
    
    $
    159,587Loans originated:Residential real estate
    
    
    66,650
    
    
    
    30,813
    
    
    
    34,526Non-residential real estate
    
    
    12,281
    
    
    
    10,163
    
    
    
    7,959Land
    
    
    6,529
    
    
    
    4,046
    
    
    
    8,109Construction
    
    
    10,286
    
    
    
    23,562
    
    
    
    23,180Commercial business
    
    
    5,834
    
    
    
    14,087
    
    
    
    15,084Consumer
    
    
    18,782
    
    
    
    22,650
    
    
    
    18,807Total loans originated
    
    
    120,362
    
    
    
    105,321
    
    
    
    107,665Loans purchased:Residential real estate
    
    
    
    
    
    
    
    
    
    
    1,993Non-residential real estate
    
    
    
    
    
    
    1,009
    
    
    
    2,655Construction
    
    
    
    
    
    
    
    
    
    
    Commercial business
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    
    
    
    
    Total loans purchased
    
    
    
    
    
    
    1,009
    
    
    
    4,648Deduct:Loan principal repayments
    
    
    77,574
    
    
    
    77,131
    
    
    
    84,640Loan sales
    
    
    47,574
    
    
    
    10,735
    
    
    
    6,121Total repayments and sales
    
    
    125,148
    
    
    
    87,866
    
    
    
    90,761Net loan activity
    
    
    (4,786
    )
    
    
    18,464
    
    
    
    21,552Total loans at end of period
    
    $
    194,817
    
    
    $
    199,603
    
    
    $
    181,139
  Securities
     30




---



##### Table of Contents



At December 31,2009
    
    
    2008
    
    
    2007Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair(In thousands)
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    ValueU.S. government agencies
and corporations
    
    $
    8,612
    
    
    $
    8,603
    
    
    $
    10,545
    
    
    $
    10,649
    
    
    $
    6,743
    
    
    $
    6,676States and political subdivisions
    
    
    4,532
    
    
    
    4,449
    
    
    
    5,544
    
    
    
    5,276
    
    
    
    3,718
    
    
    
    3,684Mortgage-backed
and related securities
    
    
    10,080
    
    
    
    10,533
    
    
    
    14,332
    
    
    
    14,589
    
    
    
    12,532
    
    
    
    12,621Other investment securities
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total securities available for sale
and held to maturity
    
    
    23,224
    
    
    
    23,585
    
    
    
    30,421
    
    
    
    30,514
    
    
    
    22,993
    
    
    
    22,981Federal Home Loan Bank of
Cincinnati common stock
    
    
    2,899
    
    
    
    2,899
    
    
    
    2,899
    
    
    
    2,899
    
    
    
    2,786
    
    
    
    2,786Other investment securities held at
cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,960
    
    
    
    1,960Total investments, at cost
    
    
    2,899
    
    
    
    2,899
    
    
    
    2,899
    
    
    
    2,899
    
    
    
    4,746
    
    
    
    4,746Total
    
    $
    26,123
    
    
    $
    26,484
    
    
    $
    33,320
    
    
    $
    33,413
    
    
    $
    27,739
    
    
    $
    27,727
  Year EndedDecember 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Mortgage-backed and related securities:Mortgage-backed and related securities,
beginning of period (1)
    
    $
    14,589
    
    
    $
    12,621
    
    
    $
    8,501Purchases
    
    
    
    
    
    
    4,527
    
    
    
    5,984Sales
    
    
    
    
    
    
    
    
    
    
    Repayments and prepayments
    
    
    (4,203
    )
    
    
    (2,727
    )
    
    
    (2,035
    )Increase (decrease) in net unrealized gain
    
    
    148
    
    
    
    168
    
    
    
    171Net increase (decrease) in mortgage-backed
securities
    
    
    (4,055
    )
    
    
    1,968
    
    
    
    4,120Mortgage-backed and related securities,
end of period (1)
    
    
    10,534
    
    
    $
    14,589
    
    
    $
    12,621Investment securities:Investment securities, beginning of period (1)
    
    
    15,925
    
    
    $
    12,320
    
    
    $
    16,254Purchases
    
    
    5,000
    
    
    
    12,051
    
    
    
    6,355Sales
    
    
    
    
    
    
    (2,160
    )
    
    
    (3,600
    )Maturities
    
    
    (8,039
    )
    
    
    (6,254
    )
    
    
    (6,850
    )Increase (decrease) in net unrealized gain
    
    
    165
    
    
    
    (32
    )
    
    
    161Net increase (decrease) in investment securities
    
    
    (2,874
    )
    
    
    3,605
    
    
    
    (3,934
    )Investment securities, end of period (1)
    
    $
    13,051
    
    
    $
    15,925
    
    
    $
    12,320
 (1)
    
    At fair value.  31




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##### Table of Contents



More than
    
    
    More thanOne Year
    
    
    One Year to
    
    
    Five Years to
    
    
    More thanor Less
    
    
    Five Years
    
    
    Ten Years
    
    
    Ten Years
    
    
    TotalWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedCarrying
    
    
    Average
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    Average(Dollars in thousands)
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    YieldU.S. government agencies
and corporations
    
    $
    
    
    
    
    
    
    
    $
    4,579
    
    
    
    4.97
    %
    
    $
    2,054
    
    
    
    5.00
    %
    
    $
    1,970
    
    
    
    5.11
    %
    
    
    8,603
    
    
    
    5.01
    %States and political subdivisions
    
    
    
    
    
    
    
    
    
    
    767
    
    
    
    5.53
    
    
    
    621
    
    
    
    5.50
    
    
    
    3,061
    
    
    
    5.65
    
    
    
    4,449
    
    
    
    5.61Mortgage-backed and related securities
    
    
    3,361
    
    
    
    4.65
    %
    
    
    4,956
    
    
    
    5.21
    
    
    
    1,679
    
    
    
    5.22
    
    
    
    537
    
    
    
    5.25
    
    
    
    10,533
    
    
    
    5.04Federal Home Loan Bank of Cincinnati
common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,899
    
    
    
    4.50
    
    
    
    2,899
    
    
    
    4.50Total
    
    $
    3,361
    
    
    
    4.65
    %
    
    $
    10,302
    
    
    
    5.13
    %
    
    $
    4,354
    
    
    
    5.16
    %
    
    $
    8,467
    
    
    
    5.11
    %
    
    $
    26,484
    
    
    
    5.10
    %
  32




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##### Table of Contents



Bank Owned Life Insurance.
 Deposits.
  At December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Non-interest-bearing accounts
    
    $
    7,320
    
    
    $
    7,289
    
    
    $
    7,807Demand and NOW accounts
    
    
    72,539
    
    
    
    38,408
    
    
    
    35,413Money market accounts
    
    
    41,715
    
    
    
    22,130
    
    
    
    16,402Passbook savings accounts
    
    
    11,002
    
    
    
    10,505
    
    
    
    11,372Certificates of deposit
    
    
    103,488
    
    
    
    128,161
    
    
    
    126,350Total
    
    $
    236,064
    
    
    $
    206,493
    
    
    $
    197,344
     Maturity Period
    
    Amount(In thousands)Three months or less
    
    $
    7,771Over three through six months
    
    
    5,394Over six through twelve months
    
    
    9,907Over twelve months
    
    
    17,202Total
    
    $
    40,274
  33




---



##### Table of Contents



At December 31,(Dollars in thousands)
    
    2009
    
    
    2008
    
    
    20070.00 - 1.00%
    
    $
    2,157
    
    
    $
    548
    
    
    $
    2031.01 - 2.00%
    
    
    34,667
    
    
    
    9,109
    
    
    
    1,8752.01 - 3.00%
    
    
    16,806
    
    
    
    13,122
    
    
    
    1,7633.01 - 4.00%
    
    
    11,402
    
    
    
    37,146
    
    
    
    19,0154.01 - 5.00%
    
    
    20,332
    
    
    
    41,344
    
    
    
    45,7055.01 - 6.00%
    
    
    18,049
    
    
    
    26,762
    
    
    
    57,4036.01 - 7.00%
    
    
    
    
    
    
    55
    
    
    
    7.01 - 8.00%
    
    
    75
    
    
    
    75
    
    
    
    386Total
    
    $
    103,488
    
    
    $
    128,161
    
    
    $
    126,350
  Amount Due
    
    
    
    
    
    
    Percent ofMore Than
    
    
    More Than
    
    
    
    
    
    
    
    
    
    
    Total TimeLess Than
    
    
    One Year to
    
    
    Two Years to
    
    
    More Than
    
    
    
    
    
    
    Deposit(Dollars in thousands)
    
    One Year
    
    
    Two Years
    
    
    Three Years
    
    
    Three Years
    
    
    Total
    
    
    Accounts0.00 - 1.00%
    
    $
    2,157
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,157
    
    
    
    2.08
    %1.01 - 2.00%
    
    
    30,753
    
    
    
    2,870
    
    
    
    1,009
    
    
    
    35
    
    
    
    34,667
    
    
    
    33.502.01 - 3.00%
    
    
    10,368
    
    
    
    2,559
    
    
    
    2,761
    
    
    
    1,118
    
    
    
    16,806
    
    
    
    16.243.01 - 4.00%
    
    
    4,756
    
    
    
    2,113
    
    
    
    446
    
    
    
    4,087
    
    
    
    11,402
    
    
    
    11.024.01 - 5.00%
    
    
    10,355
    
    
    
    5,112
    
    
    
    2,774
    
    
    
    2,091
    
    
    
    20,332
    
    
    
    19.655.01 - 6.00%
    
    
    5,832
    
    
    
    5,546
    
    
    
    6,359
    
    
    
    312
    
    
    
    18,049
    
    
    
    17.446.01 - 7.00%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.01 - 8.00%
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    0.07Total
    
    $
    64,221
    
    
    $
    18,275
    
    
    $
    13,349
    
    
    $
    7,643
    
    
    $
    103,488
    
    
    
    100.00
    %
  Year Ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Beginning balance
    
    $
    206,493
    
    
    $
    197,344
    
    
    $
    171,214Increase (decrease) before interest credited
    
    
    28,479
    
    
    
    4,161
    
    
    
    20,424Interest credited
    
    
    1,092
    
    
    
    4,988
    
    
    
    5,706Net increase (decrease) in deposits
    
    
    29,571
    
    
    
    9,149
    
    
    
    26,130Ending balance
    
    $
    236,064
    
    
    $
    206,493
    
    
    $
    197,344
  34




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##### Table of Contents



Borrowings.
 Year Ended December 31,(Dollars in thousands)
    
    2009
    
    
    2008
    
    
    2007Maximum balance outstanding at any month-end
during period:Federal Home Loan Bank advances
    
    $
    14,422
    
    
    $
    16,310
    
    
    $
    15,622Securities sold under agreements to repurchase
    
    
    1,292
    
    
    
    2,098
    
    
    
    1,927Average balance outstanding during period:Federal Home Loan bank advances
    
    $
    10,955
    
    
    $
    9,690
    
    
    $
    11,035Securities sold under agreements to repurchase
    
    
    1,052
    
    
    
    1,400
    
    
    
    1,692Weighted average interest rate during period:Federal Home Loan bank advances
    
    
    3.89
    %
    
    
    3.78
    %
    
    
    4.13
    %Securities sold under agreements to repurchase
    
    
    0.76
    %
    
    
    1.62
    %
    
    
    2.14
    %Balance outstanding at end of period:Federal Home Loan bank advances
    
    $
    10,324
    
    
    $
    16,310
    
    
    $
    5,532Securities sold under agreements to repurchase
    
    
    899
    
    
    
    912
    
    
    
    1,151Weighted average interest rate at end of period:Federal Home Loan bank advances
    
    
    4.06
    %
    
    
    3.25
    %
    
    
    4.42
    %Securities sold under agreements to repurchase
    
    
    0.49
    %
    
    
    0.99
    %
    
    
    2.15
    %
 Results of Operations for the Years Ended December 31, 2009 and 2008
 Overview.
 Net Interest Income.
 Provision for Loan Losses.
  35




---



##### Table of Contents



36




---



##### Table of Contents



Average Balances and Yields
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Interest
    
    
    
    
    
    
    
    
    
    
    Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    and
    
    
    Yield/
    
    
    Average
    
    
    and
    
    
    Yield/
    
    
    Average
    
    
    and
    
    
    Yield/(Dollars in thousands)
    
    Balance
    
    
    Dividends
    
    
    Cost
    
    
    Balance
    
    
    Dividends
    
    
    Cost
    
    
    Balance
    
    
    Dividends
    
    
    CostAssets:Interest-bearing deposits at other
financial institutions
    
    $
    7,705
    
    
    $
    49
    
    
    
    0.64
    %
    
    $
    5,125
    
    
    $
    133
    
    
    
    2.60
    %
    
    $
    7,341
    
    
    $
    357
    
    
    
    4.87
    %Loans
    
    
    192,804
    
    
    
    13,369
    
    
    
    6.93
    
    
    
    185,292
    
    
    
    13,824
    
    
    
    7.46
    
    
    
    164,065
    
    
    
    13,421
    
    
    
    8.18Investment securities
    
    
    15,035
    
    
    
    625
    
    
    
    4.16
    
    
    
    18,667
    
    
    
    832
    
    
    
    4.46
    
    
    
    20,369
    
    
    
    976
    
    
    
    4.79Mortgage-backed and related securities
    
    
    11,919
    
    
    
    615
    
    
    
    5.16
    
    
    
    14,382
    
    
    
    725
    
    
    
    5.04
    
    
    
    9,810
    
    
    
    473
    
    
    
    4.82Other interest-earning assets
    
    
    3,897
    
    
    
    10
    
    
    
    0.26
    
    
    
    2,662
    
    
    
    66
    
    
    
    2.47
    
    
    
    4,493
    
    
    
    230
    
    
    
    5.12Total interest-earning assets
    
    
    231,360
    
    
    
    14,668
    
    
    
    6.34
    
    
    
    226,128
    
    
    
    15,580
    
    
    
    6.89
    
    
    
    206,078
    
    
    
    15,457
    
    
    
    7.50Non-interest-earning assets
    
    
    17,843
    
    
    
    
    
    
    
    
    
    
    
    19,377
    
    
    
    
    
    
    
    
    
    
    
    18,720Total assets
    
    $
    249,203
    
    
    
    
    
    
    
    
    
    
    $
    245,505
    
    
    
    
    
    
    
    
    
    
    $
    224,798Liabilities and equity:Demand and NOW accounts
    
    $
    43,469
    
    
    $
    362
    
    
    
    0.83
    %
    
    $
    40,821
    
    
    $
    517
    
    
    
    1.27
    %
    
    $
    35,450
    
    
    $
    527
    
    
    
    1.49
    %Money market accounts
    
    
    29,456
    
    
    
    537
    
    
    
    1.82
    
    
    
    20,726
    
    
    
    541
    
    
    
    2.61
    
    
    
    14,304
    
    
    
    462
    
    
    
    3.23Passbook savings accounts
    
    
    11,190
    
    
    
    48
    
    
    
    0.43
    
    
    
    11,350
    
    
    
    82
    
    
    
    0.72
    
    
    
    11,851
    
    
    
    95
    
    
    
    0.80Certificates of deposit
    
    
    115,786
    
    
    
    4,276
    
    
    
    3.69
    
    
    
    126,950
    
    
    
    5,604
    
    
    
    4.41
    
    
    
    117,072
    
    
    
    5,525
    
    
    
    4.72Total interest-bearing deposits
    
    
    199,901
    
    
    
    5,223
    
    
    
    2.61
    
    
    
    199,847
    
    
    
    6,744
    
    
    
    3.37
    
    
    
    178,677
    
    
    
    6,609
    
    
    
    3.70Federal Home Loan Bank advances
    
    
    10,960
    
    
    
    426
    
    
    
    3.89
    
    
    
    9,690
    
    
    
    366
    
    
    
    3.78
    
    
    
    11,035
    
    
    
    456
    
    
    
    4.13Securities sold under agreements
to repurchase
    
    
    1,046
    
    
    
    8
    
    
    
    0.76
    
    
    
    1,400
    
    
    
    23
    
    
    
    1.62
    
    
    
    1,692
    
    
    
    36
    
    
    
    2.14Total interest-bearing liabilities
    
    
    211,907
    
    
    
    5,657
    
    
    
    2.67
    
    
    
    210,937
    
    
    
    7,133
    
    
    
    3.38
    
    
    
    191,404
    
    
    
    7,101
    
    
    
    3.71Non-interest-bearing deposits
    
    
    8,340
    
    
    
    
    
    
    
    
    
    
    
    7,710
    
    
    
    
    
    
    
    
    
    
    
    8,112Other non-interest-bearing liabilities
    
    
    3,526
    
    
    
    
    
    
    
    
    
    
    
    3,347
    
    
    
    
    
    
    
    
    
    
    
    2,973Total liabilities
    
    
    223,773
    
    
    
    
    
    
    
    
    
    
    
    221,994
    
    
    
    
    
    
    
    
    
    
    
    202,489Total equity
    
    
    25,430
    
    
    
    
    
    
    
    
    
    
    
    23,511
    
    
    
    
    
    
    
    
    
    
    
    22,309Total liabilities and equity
    
    $
    249,203
    
    
    
    
    
    
    
    
    
    
    $
    245,505
    
    
    
    
    
    
    
    
    
    
    $
    224,798Net interest income
    
    
    
    
    
    $
    9,011
    
    
    
    
    
    
    
    
    
    
    $
    8,447
    
    
    
    
    
    
    
    
    
    
    $
    8,356Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.67
    
    
    
    
    
    
    
    
    
    
    
    3.51
    
    
    
    
    
    
    
    
    
    
    
    3.79Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.89
    
    
    
    
    
    
    
    
    
    
    
    3.74
    
    
    
    
    
    
    
    
    
    
    
    4.05Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    109.18
    %
    
    
    
    
    
    
    
    
    
    
    107.20
    %
    
    
    
    
    
    
    
    
    
    
    107.67
    %
  37




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##### Table of Contents



Rate/Volume Analysis.
 Year Ended December 31, 2009
    
    
    Year Ended December 31, 2008Compared to
    
    
    Compared toYear Ended December 31, 2008
    
    
    Year Ended December 31, 2007Increase (Decrease)
    
    
    
    
    
    
    Increase (Decrease)Due to
    
    
    
    
    
    
    Due to(In thousands)
    
    Volume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    NetInterest income:Interest-bearing deposits at
other financial institutions
    
    $
    67
    
    
    $
    (151
    )
    
    $
    (84
    )
    
    $
    (108
    )
    
    $
    (116
    )
    
    $
    (224
    )Loans receivable
    
    
    560
    
    
    
    (1,015
    )
    
    
    (455
    )
    
    
    1,736
    
    
    
    (1,333
    )
    
    
    403Investment securities
    
    
    (162
    )
    
    
    (45
    )
    
    
    (207
    )
    
    
    (77
    )
    
    
    (68
    )
    
    
    (145
    )Mortgage-backed and related securities
    
    
    (124
    )
    
    
    14
    
    
    
    (110
    )
    
    
    220
    
    
    
    32
    
    
    
    252Other interest-earning assets
    
    
    31
    
    
    
    (87
    )
    
    
    (56
    )
    
    
    (93
    )
    
    
    (70
    )
    
    
    (163
    )Total interest-earning assets
    
    
    372
    
    
    
    (1,284
    )
    
    
    (912
    )
    
    
    1,678
    
    
    
    (1,555
    )
    
    
    123Interest expense:Deposits
    
    
    (232
    )
    
    
    (1,289
    )
    
    
    (1,521
    )
    
    
    750
    
    
    
    (615
    )
    
    
    135Federal Home Loan Bank advances
    
    
    48
    
    
    
    12
    
    
    
    60
    
    
    
    (56
    )
    
    
    (34
    )
    
    
    (90
    )Securities sold under agreement to
repurchase
    
    
    (6
    )
    
    
    (9
    )
    
    
    (15
    )
    
    
    (6
    )
    
    
    (7
    )
    
    
    (13
    )Total interest-bearing liabilities
    
    
    (190
    )
    
    
    (1,286
    )
    
    
    (1,476
    )
    
    
    688
    
    
    
    (656
    )
    
    
    32Net increase (decrease) in
interest income
    
    $
    562
    
    
    $
    2
    
    
    $
    564
    
    
    $
    990
    
    
    $
    (899
    )
    
    $
    91
 Non-interest Income.
 Non-interest Expense.
 Income Tax Expense.
 Total Comprehensive Income.
  38




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##### Table of Contents



Risk Management
 Overview.
 Credit Risk Management.
  Analysis of Non-performing and Classified Assets.
   39




---



##### Table of Contents



At December 31,(Dollars in thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Non-accrual loans:Residential real estate
    
    $
    1,377
    
    
    $
    688
    
    
    $
    149
    
    
    $
    93
    
    
    $
    431Non-residential real estate
    
    
    410
    
    
    
    2,882
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    0
    
    
    
    270
    
    
    
    144
    
    
    
    
    
    
    
    Commercial business
    
    
    36
    
    
    
    280
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    174
    
    
    
    19
    
    
    
    23
    
    
    
    44
    
    
    
    66Total
    
    
    1,997
    
    
    
    4,139
    
    
    
    316
    
    
    
    137
    
    
    
    497Accruing loans past due 90 days or more:Residential real estate
    
    
    1
    
    
    
    3
    
    
    
    
    
    
    
    27
    
    
    
    Non-residential real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116Consumer
    
    
    15
    
    
    
    30
    
    
    
    43
    
    
    
    16
    
    
    
    17Total
    
    
    16
    
    
    
    33
    
    
    
    43
    
    
    
    43
    
    
    
    133Total of non-accrual and 90 days or
more past due loans
    
    
    2,013
    
    
    
    4,172
    
    
    
    359
    
    
    
    180
    
    
    
    630Real estate owned
    
    
    779
    
    
    
    230
    
    
    
    
    
    
    
    
    
    
    
    235Other non-performing assets
    
    
    10
    
    
    
    26
    
    
    
    36
    
    
    
    48
    
    
    
    42Total non-performing assets
    
    
    2,802
    
    
    
    4,428
    
    
    
    395
    
    
    
    228
    
    
    
    907Troubled debt restructurings
    
    
    3,515
    
    
    
    267
    
    
    
    219
    
    
    
    210
    
    
    
    214Troubled debt restructurings and
total non-performing assets
    
    $
    6,317
    
    
    $
    4,695
    
    
    $
    614
    
    
    $
    438
    
    
    $
    1,121Total non-performing loans to total loans
    
    
    1.03
    %
    
    
    2.08
    %
    
    
    0.20
    %
    
    
    0.11
    %
    
    
    0.45
    %Total non-performing loans to total assets
    
    
    0.73
    %
    
    
    1.66
    %
    
    
    0.16
    %
    
    
    0.08
    %
    
    
    0.33
    %Total non-performing assets and troubled
debt restructurings to total assets
    
    
    2.28
    %
    
    
    1.87
    %
    
    
    0.27
    %
    
    
    0.21
    %
    
    
    0.59
    %
      40




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##### Table of Contents



At December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Special mention assets
    
    $
    4,070
    
    
    $
    2,299
    
    
    $
    3,171Substandard assets
    
    
    7,732
    
    
    
    6,514
    
    
    
    1,122Doubtful assets
    
    
    
    
    
    
    
    
    
    
    Loss assets
    
    
    144
    
    
    
    34
    
    
    
    47Total classified assets
    
    $
    11,946
    
    
    $
    8,847
    
    
    $
    4,340
  Delinquencies.
 At December 31,200930-89 Days
    
    
    90 Days or MoreNumber
    
    
    Principal
    
    
    Number
    
    
    Principalof
    
    
    Balance
    
    
    of
    
    
    Balance(Dollars n thousands)
    
    Loans
    
    
    of Loans
    
    
    Loans
    
    
    of LoansResidential real estate
    
    
    11
    
    
    $
    1,085
    
    
    
    1
    
    
    $
    1Non-residential real estate
    
    
    1
    
    
    
    102
    
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial business
    
    
    3
    
    
    
    12
    
    
    
    
    
    
    
    Consumer
    
    
    55
    
    
    
    227
    
    
    
    4
    
    
    
    15Total
    
    
    70
    
    
    $
    1,426
    
    
    
    5
    
    
    $
    16
 At December 31,2008
    
    
    200730-89 Days
    
    
    90 Days or More
    
    
    30-89 Days
    
    
    90 Days or MoreNumber
    
    
    Principal
    
    
    Number
    
    
    Principal
    
    
    Number
    
    
    Principal
    
    
    Number
    
    
    Principalof
    
    
    Balance
    
    
    of
    
    
    Balance
    
    
    of
    
    
    Balance
    
    
    of
    
    
    Balance(Dollars in thousands)
    
    Loans
    
    
    of Loans
    
    
    Loans
    
    
    of Loans
    
    
    Loans
    
    
    of Loans
    
    
    Loans
    
    
    of LoansResidential real estate
    
    
    10
    
    
    $
    537
    
    
    
    2
    
    
    $
    3
    
    
    
    11
    
    
    $
    546
    
    
    
    
    
    
    $
    Non-residential real estate
    
    
    1
    
    
    
    176
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    7
    
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial business
    
    
    2
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    14
    
    
    
    
    
    
    
    Consumer
    
    
    69
    
    
    
    273
    
    
    
    8
    
    
    
    30
    
    
    
    47
    
    
    
    195
    
    
    
    9
    
    
    
    43Total
    
    
    82
    
    
    $
    1,006
    
    
    
    10
    
    
    $
    33
    
    
    
    60
    
    
    $
    762
    
    
    
    9
    
    
    $
    43
  41




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##### Table of Contents



Analysis and Determination of the Allowance for Loan Losses
  General Valuation Allowance.
 Specific Valuation Allowance. 
  .
 Unallocated Valuation Allowance.
  42




---



##### Table of Contents



At December 31,2009
    
    
    2008% of
    
    
    
    
    
    
    
    
    
    
    % of% of
    
    
    Loans in
    
    
    
    
    
    
    % of
    
    
    Loans inAllowance
    
    
    Category
    
    
    
    
    
    
    Allowance
    
    
    Categoryto Total
    
    
    to Total
    
    
    
    
    
    
    to Total
    
    
    to Total(Dollars in thousands)
    
    Amount
    
    
    Allowance
    
    
    Loans
    
    
    Amount
    
    
    Allowance
    
    
    LoansResidential real estate (1)
    
    $
    986
    
    
    
    28.90
    %
    
    
    52.11
    %
    
    $
    906
    
    
    
    29.39
    %
    
    
    51.58
    %Non-residential real estate (1)
    
    
    1,279
    
    
    
    37.47
    
    
    
    36.18
    
    
    
    1,221
    
    
    
    39.61
    
    
    
    34.89Commercial business
    
    
    605
    
    
    
    17.73
    
    
    
    6.16
    
    
    
    545
    
    
    
    17.69
    
    
    
    7.30Consumer
    
    
    512
    
    
    
    15.00
    
    
    
    5.55
    
    
    
    398
    
    
    
    12.90
    
    
    
    6.23Total
    
    
    3,382
    
    
    
    99.10
    %
    
    
    100.00
    %
    
    
    3,070
    
    
    
    99.59
    
    
    
    100.00
    %Unallocated
    
    
    31
    
    
    
    0.90
    
    
    
    
    
    
    
    13
    
    
    
    0.41Total allowance for loan losses
    
    $
    3,413
    
    
    
    100.00
    %
    
    
    
    
    
    $
    3,083
    
    
    
    100.00
    %
 At December 31,2007
    
    
    2006
    
    
    2005% of
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    % of% of
    
    
    Loans in
    
    
    
    
    
    
    % of
    
    
    Loans in
    
    
    
    
    
    
    % of
    
    
    Loans inAllowance
    
    
    Category
    
    
    
    
    
    
    Allowance
    
    
    Category
    
    
    
    
    
    
    Allowance
    
    
    Categoryto Total
    
    
    to Total
    
    
    
    
    
    
    to Total
    
    
    to Total
    
    
    
    
    
    
    to Total
    
    
    to Total(Dollars in thousands)
    
    Amount
    
    
    Allowance
    
    
    Loans
    
    
    Amount
    
    
    Allowance
    
    
    Loans
    
    
    Amount
    
    
    Allowance
    
    
    LoansResidential real estate (1)
    
    $
    989
    
    
    
    39.00
    %
    
    
    52.41
    %
    
    $
    220
    
    
    
    8.53
    %
    
    
    52.61
    %
    
    $
    235
    
    
    
    11.41
    %
    
    
    56.36
    %Non-residential real estate (1)
    
    
    777
    
    
    
    30.62
    
    
    
    34.13
    
    
    
    504
    
    
    
    19.58
    
    
    
    30.83
    
    
    
    410
    
    
    
    19.91
    
    
    
    29.53Commercial business
    
    
    278
    
    
    
    10.96
    
    
    
    5.48
    
    
    
    1,060
    
    
    
    41.19
    
    
    
    8.78
    
    
    
    223
    
    
    
    10.83
    
    
    
    5.32Consumer
    
    
    413
    
    
    
    16.30
    
    
    
    7.98
    
    
    
    369
    
    
    
    14.34
    
    
    
    7.78
    
    
    
    359
    
    
    
    17.44
    
    
    
    8.79Total
    
    
    2,457
    
    
    
    96.88
    
    
    
    100.00
    %
    
    
    2,153
    
    
    
    83.64
    
    
    
    100.00
    %
    
    
    1,227
    
    
    
    59.59
    
    
    
    100.00
    %Unallocated
    
    
    79
    
    
    
    3.12
    
    
    
    
    
    
    
    421
    
    
    
    16.36
    
    
    
    
    
    
    
    832
    
    
    
    40.41Total allowance for loan losses
    
    $
    2,536
    
    
    
    100.00
    %
    
    
    
    
    
    $
    2,574
    
    
    
    100.00
    %
    
    
    
    
    
    $
    2,059
    
    
    
    100.00
    %
 (1)
    
    Includes construction loans.   43




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##### Table of Contents



Analysis of Loan Loss Experience.
 Year Ended December 31,(Dollars in thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Allowance for loan losses at beginning of period
    
    $
    3,083
    
    
    $
    2,536
    
    
    $
    2,574
    
    
    $
    2,059
    
    
    $
    1,895Provision for loan losses
    
    
    1,024
    
    
    
    761
    
    
    
    443
    
    
    
    704
    
    
    
    341Charge offs:Residential real estate
    
    
    60
    
    
    
    30
    
    
    
    20
    
    
    
    1
    
    
    
    45Non-residential real estate
    
    
    196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    Commercial business
    
    
    228
    
    
    
    5
    
    
    
    244
    
    
    
    10
    
    
    
    Consumer
    
    
    274
    
    
    
    258
    
    
    
    265
    
    
    
    234
    
    
    
    213Total charge-offs
    
    
    758
    
    
    
    324
    
    
    
    529
    
    
    
    245
    
    
    
    258Recoveries:Residential real estate
    
    
    20
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    7Non-residential real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial business
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    43
    
    
    
    108
    
    
    
    48
    
    
    
    56
    
    
    
    74Total recoveries
    
    
    64
    
    
    
    110
    
    
    
    48
    
    
    
    56
    
    
    
    81Net charge-offs (recoveries)
    
    
    694
    
    
    
    214
    
    
    
    481
    
    
    
    189
    
    
    
    177Allowance for loan losses at end of period
    
    $
    3,413
    
    
    $
    3,083
    
    
    $
    2,536
    
    
    $
    2,574
    
    
    $
    2,059Allowance for loan losses to non-performing
loans
    
    
    169.54
    %
    
    
    73.87
    %
    
    
    704.52
    %
    
    
    1,457.43
    %
    
    
    326.81
    %Allowance for loan losses to total loans
outstanding at the end of the period
    
    
    1.75
    %
    
    
    1.52
    %
    
    
    1.37
    %
    
    
    1.58
    %
    
    
    1.44
    %Net charge-offs (recoveries) to average
loans outstanding during the period
    
    
    0.36
    %
    
    
    0.12
    %
    
    
    0.29
    %
    
    
    0.13
    %
    
    
    0.14
    %
 Interest Rate Risk Management.
  Net Portfolio Value Analysis.
  44




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##### Table of Contents



Net Portfolio Value
    
    
    Net Portfolio Value as % ofBasis Point (bp)
    
    (Dollars in thousands)
    
    
    Portfolio Value of AssetsChange in Rates
    
    $ Amount
    
    
    $ Change
    
    
    % Change
    
    
    NPV Ratio
    
    
    Change300bp
    
    $
    40,175
    
    
    $
    3,153
    
    
    
    9
    %
    
    
    13.80
    %
    
    111
    bp200
    
    
    39,323
    
    
    
    2,304
    
    
    
    6
    
    
    
    13.49
    %
    
    
    80100
    
    
    38,338
    
    
    
    1,319
    
    
    
    4
    
    
    
    13.14
    %
    
    
    450
    
    
    37,019
    
    
    
    
    
    
    
    
    
    
    
    12.69
    %
    
    
    (100)
    
    
    35,494
    
    
    
    (1,525
    )
    
    
    (4
    )
    
    
    12.18
    %
    
    
    (51
    )
  Liquidity Management.
     45




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##### Table of Contents



Payments due by periodLess than
    
    
    One to
    
    
    Three to
    
    
    More ThanContractual Obligations
    
    Total
    
    
    One Year
    
    
    Three Years
    
    
    Five Years
    
    
    Five Years(In thousands)Deferred director fee arrangements
    
    $
    888
    
    
    $
    184
    
    
    $
    478
    
    
    $
    95
    
    
    $
    131Deferred compensation arrangements
    
    
    758
    
    
    
    37
    
    
    
    68
    
    
    
    68
    
    
    
    585Operating lease obligations
    
    
    580
    
    
    
    197
    
    
    
    223
    
    
    
    80
    
    
    
    80Federal Home Loan Bank advances
    
    
    10,324
    
    
    
    2,120
    
    
    
    5,204
    
    
    
    3,000
    
    
    
    0Total
    
    $
    12,550
    
    
    $
    2,538
    
    
    $
    5,973
    
    
    $
    3,243
    
    
    $
    796
  Financing and Investing Activities
  Year Ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Investing activities:Loan purchases
    
    $
    
    
    
    $
    1,009
    
    
    $
    4,648Loan originations
    
    
    120,362
    
    
    
    105,321
    
    
    
    107,665Loan principal repayments
    
    
    77,574
    
    
    
    77,131
    
    
    
    84,640Loan sales
    
    
    47,574
    
    
    
    10,735
    
    
    
    6,121Proceeds from calls, maturities and principal
repayments of investment securities
    
    
    8,039
    
    
    
    6,254
    
    
    
    6,850Proceeds from calls, maturities and principal
repayments of mortgage-backed and related
securities
    
    
    4,203
    
    
    
    2,727
    
    
    
    2,035Proceeds from sales of investment securities
available- for-sale
    
    
    
    
    
    
    2,160
    
    
    
    3,600Proceeds from sales of mortgage-backed
and related securities available-for-sale
    
    
    
    
    
    
    
    
    
    
    Purchases of investment securities
    
    
    5,000
    
    
    
    12,051
    
    
    
    6,355Purchases of mortgage-backed
and related securities
    
    
    
    
    
    
    4,527
    
    
    
    5,984Financing activities:Increase (decrease) in deposits
    
    $
    29,571
    
    
    $
    9,149
    
    
    $
    26,130Increase (decrease) in Federal Home Loan Bank
advances
    
    
    (5,986
    )
    
    
    10,778
    
    
    
    (10,098
    )Increase (decrease) in securities sold under
agreements to repurchase
    
    
    (12
    )
    
    
    (239
    )
    
    
    (530
    )
 Capital Management. Item 1. Business Regulation and Supervision 
Regulation of Federal Savings AssociationsCapital Requirements
  46




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##### Table of Contents



Off-Balance Sheet Arrangements.
  Impact of Recent Accounting Pronouncements
  Effect of Inflation and Changing Prices
  
 Item 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operation.
 
 Item 8.
    
    FINANCIAL STATEMENTS
  
 Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 Item 9A(T).
    
    CONTROLS AND PROCEDURES
   47




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##### Table of Contents



Item 9B.
    
    OTHER INFORMATION
  
 PART III
 
 Item 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Board of Directors
   Dr. James L. Carter, Jr.
  Elaine M. Cathcart
  Jeffrey L. Cunningham
  G. Scott Hannah
  G. Timothy Howard
  48




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##### Table of Contents



M. Darrell Murray
  Lyn B. Thompson
  Larry D. Wallace
  Executive Officers
  Name
    
    PositionJeffrey L. Cunningham
    
    President and Chief Executive Officer of both
Athens Bancshares Corporation and Athens
Federal Community BankMichael R. Hutsell
    
    Treasurer and Chief Financial Officer of Athens
Bancshares Corporation; and Vice President,
Chief Operating Officer and Chief Financial
Officer of Athens Federal Community BankJay Leggett, Jr.
    
    City PresidentCleveland of Athens Federal
Community BankRoss A. Millsaps
    
    Vice President and Chief Credit Officer of
Athens Federal Community Bank
   49




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##### Table of Contents



Michael R. Hutsell
 Jay Leggett, Jr.
 Ross A. Millsaps
 Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
 www.athensfederal.com
  50




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##### Table of Contents



Corporate Governance
  Board Leadership Structure and Boards Role in Risk Oversight
    51




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##### Table of Contents



Item 11.
    
    EXECUTIVE COMPENSATION
 Summary Compensation Table
  All OtherName and Principal Position
    
    Year
    
    
    Salary (1)
    
    
    Bonus
    
    
    Compensation (2)
    
    
    TotalJeffrey L. Cunningham
    
    
    2009
    
    
    $
    256,810
    
    
    $
    50,393
    
    
    $
    196,405
    
    
    $
    503,608President & Chief Executive Officer
    
    
    2008
    
    
    
    249,854
    
    
    
    
    
    
    
    139,325
    
    
    
    389,179Michael R. Hutsell
    
    
    2009
    
    
    
    152,938
    
    
    
    68,275
    
    
    
    19,073
    
    
    
    240,286Vice President, Chief Operating Officer and Chief Financial Officer
    
    
    2008
    
    
    
    144,200
    
    
    
    
    
    
    
    18,693
    
    
    
    162,893Jay Leggett, Jr.
    
    
    2009
    
    
    
    125,166
    
    
    
    42,000
    
    
    
    36,770
    
    
    
    203,936City PresidentCleveland
    
    
    2008
    
    
    
    116,699
    
    
    
    40,845
    
    
    
    35,501
    
    
    
    193,045
 
 (1)
    
    For Mr. Cunningham, includes $18,000 received in board fees during the year ended
December 31, 2009.(2)
    
    Details of the amounts disclosed in the All Other Compensation column for the fiscal year
ended December 31, 2009 are provided in the table below: Mr. Cunningham
    
    
    Mr. Hutsell
    
    
    Mr. LeggettEmployer contributions to 401(k) plan
    
    $
    22,050
    
    
    $
    14,470
    
    
    $
    14,994Supplemental executive retirement plan
    
    
    105,224
    
    
    
    
    
    
    
    Deferred compensation credit
    
    
    46,383
    (a)
    
    
    
    
    
    
    Perquisites
    
    
    22,748
    (b)
    
    
    4,603
    (c)
    
    
    21,776
    (d)Total
    
    $
    196,405
    
    
    $
    19,073
    
    
    $
    36,770
 
 (a)
    
    Represents a non-cash credit by the Bank to a deferred compensation account for the
benefit of Mr. Cunningham.(b)
    
    Includes an automobile allowance of $15,666 and $7,082 for country club dues and
employer paid insurance premiums.(c)
    
    Did not exceed $10,000.(d)
    
    Includes an automobile allowance of $13,534 and $8,242 for country club dues and
employer paid insurance premiums. Employment Agreements
     52




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##### Table of Contents



Life Insurance Benefits.
 Nonqualified Deferred Compensation
 Current Supplemental Executive Retirement Plan.
 Potential Post-Termination Benefits
 Death.
  53




---



##### Table of Contents



Disability.
 Just Cause.
 Without Just Cause or with Good Reason. or
 Voluntary Resignation.
  54




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##### Table of Contents



Director Compensation
  Fees Earned orPaid in Cash
    
    
    TotalDr. James L. Carter, Jr.
    
    $
    18,000
    
    
    $
    18,000Elaine M. Cathcart
    
    
    18,000
    
    
    
    18,000G. Scott Hannah
    
    
    20,000
    
    
    
    20,000G. Timothy Howard
    
    
    18,900
    
    
    
    18,900M. Darrell Murray
    
    
    18,000
    
    
    
    18,000Lyn B. Thompson
    
    
    22,000
    
    
    
    22,000Larry D. Wallace
    
    
    21,500
    
    
    
    21,500
 Cash Retainer and Meeting Fees For Non-Employee Directors.
 Board of Directors of Athens Federal Community Bank:Monthly Retainer
    
    $
    1,500Additional Monthly Retainer for Chairman of the Board
    
    
    500Additional Monthly Retainer for Audit Committee
Chairperson
    
    
    1,000Additional Monthly Retainer for Compensation Committee
Chairperson
    
    
    500Board of Directors of Athens Bancshares Corporation:Monthly Retainer
    
    $
    400
 Directors Deferred Compensation Agreement.
  55




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##### Table of Contents



Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 Stock Ownership of Certain Beneficial Owners
  PercentNumber of
    
    
    of Common StockName and Address
    
    Shares Owned
    
    
    Outstanding (1)Athens Federal Community Bank
    
    
    222,180
    (2)
    
    
    8.00
    %Employee Stock Ownership Plan106 Washington AvenueAthens, Tennessee 37303Sandler ONeill Asset Management, LLC
    
    
    210,000
    (3)
    
    
    7.56
    %SOAM Holdings, LLCMalta Partners, L.P.Malta Hedge Fund, L.P.Malta Hedge Fund II, L.P.Malta Offshore, Ltd.Terry Maltese780 Third Avenue, 5th FloorNew York, New York 10017
 
 (1)
    
    Based on 2,777,250 shares of the Companys common stock outstanding and entitled to vote as
of March 19, 2010.(2)
    
    As of March 19, 2010, no shares have been allocated to participants ESOP accounts.(3)
    
    Based on a Schedule 13D filed with the Securities and Exchange Commission on January 22,
2010.  56




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##### Table of Contents



Ownership of Management
  Percent ofNumber of
    
    
    Common StockName
    
    Shares Owned (1)
    
    
    Outstanding (2)Directors:Dr. James. L. Carter, Jr.
    
    
    39,844
    (3)
    
    
    1.43
    %Elaine M. Cathcart
    
    
    50,000
    (4)
    
    
    1.80Jeffrey L. Cunningham
    
    
    30,000
    
    
    
    1.08G. Scott Hannah
    
    
    33,000
    (5)
    
    
    1.19G. Timothy Howard
    
    
    7,500
    
    
    
    *M. Darrell Murray
    
    
    37,200
    (6)
    
    
    1.34Lyn B. Thompson
    
    
    35,000
    (7)
    
    
    1.26Larry D. Wallace
    
    
    5,000
    
    
    
    *Executive Officers Who Are Not Directors:Michael R. Hutsell
    
    
    20,337
    (8)
    
    
    *Jay Leggett, Jr.
    
    
    29,522
    
    
    
    1.06Ross A. Millsaps
    
    
    10,297
    
    
    
    *All Directors and Executive Officers as
a Group (11) persons
    
    
    296,281
    
    
    
    10.72
    %
 
 *
    
    Represents less than 1% of the Companys outstanding shares.(1)
    
    Includes shares held under the Athens Federal Community Bank 401(k) Plan
through a unitized Employer Stock Fund as follows: Mr. Cunningham  30,000 units; Mr.
Hutsell  20,087 units; Mr. Leggett  13,322 units; and Mr. Millsaps  10,297 units.(2)
    
    Based on 2,777,250 shares of the Companys common stock outstanding and
entitled to vote as of March 19, 2010.(3)
    
    Includes 10,000 shares held by IRA, 20,000 shares held by Dr. Carters spouse,
1,294 shares held by his spouses IRA, 8,000 shares held jointly by his spouse and son
and 550 shares held by Dr. Carters spouse as custodian for their grandson.(4)
    
    Includes 5,500 shares held by IRA, 13,400 shares held by Ms. Cathcarts spouse
and 6,600 shares held by her spouses IRA.(5)
    
    Includes 20,885 shares held by IRA and 12,115 shares held by Mr. Hannahs
spouses IRA.(6)
    
    Includes 25,000 shares held by IRA and 12,200 shares held by Mr. Murrays
spouses IRA.(7)
    
    Includes 10,000 shares held by IRA and 25,000 shares held by Ms. Thompsons
spouses IRA.(8)
    
    Includes 150 shares held as custodian for Mr. Hutsells niece and 100 shares
held as custodian for his nephew. Changes in Control
  Securities Authorized for Issuance Under Compensation
   57




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##### Table of Contents



Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 Certain Relationships and Related Transactions
 Loans and Extensions of Credit.
     58




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##### Table of Contents



Item 1. Business  Regulation and
Supervision  Regulation of Federal Savings Associations  Transactions with Related Parties.
  Other Transactions.
 Director Independence
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2009
    
    
    2008Audit fees (1)
    
    $
    241,325
    
    
    $
    72,922Audit related fees (2)
    
    
    62,123
    
    
    
    59,783Tax fees (3)
    
    
    20,833
    
    
    
    10,900All other fees
    
    
    
    
    
    
    
 
 (1)
    
    Includes fees for the audit of the consolidated financial statements and review of
the interim financial information contained in the quarterly reports on Form 10-Q and
other regulatory reporting. In addition, this category includes fees for services
associated with SEC registration statements or other documents filed in connection with
securities offerings including comfort letters, consents and assistance with the review
of documents filed with the SEC.(2)
    
    Includes fees for attestation and related services traditionally performed by
the auditor including attestation services not required by statute or regulation,
consultations concerning financial accounting and reporting standards and due diligence
related to mergers or acquisitions.(3)
    
    Includes fees for tax compliance services including preparation of original and
amended federal and state income tax returns, preparation of personal property tax
returns and tax payment and planning advice.  59




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##### Table of Contents



Pre-Approval of Services by the Independent Registered Public Accounting Firm
    
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (1)
    
    The financial statements required in response to this item are incorporated by
reference from Item 8 of this Annual Report on Form 10-K.(2)
    
    All financial statement schedules are omitted because they are not required or
applicable, or the required information is shown in the consolidated financial
statements or the notes thereto.(3)
    
    Exhibits
 No.
    
    Description3.1
    
    Amended and Restated Charter of Athens Bancshares Corporation (1)3.2
    
    Amended and Restated Bylaws of Athens Bancshares Corporation (2)4.1
    
    Specimen Stock Certificate of Athens Bancshares Corporation (3)10.1
    
    Employment Agreement between Athens Federal Community Bank and Jeffrey L. Cunningham* (3)10.2
    
    Supplemental Executive Retirement Plan Agreement between Athens Federal Community Bank and Jeffrey L. Cunningham* (3)10.3
    
    Directors Deferred Compensation Agreement between Athens Federal Community Bank and Dr. James L. Carter, Jr. * (3)10.4
    
    Athens Federal Community Bank Amended Group Term Carve Out Plan for Jeffrey L.
Cunningham* (3)10.5
    
    Athens Federal Community Bank Amended Group Term Carve Out Plan for Michael R. Hutsell* (3)21.0
    
    Subsidiaries23.0
    
    Consent of Hazlett, Lewis & Bieter, PLLC31.1
    
    Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer32.0
    
    Section 1350 Certificate of Chief Executive Officer and Chief Financial Officer
 
 *
    
    Management contract or compensatory plan, contract or
arrangement(1)
    
    Incorporated herein by reference to the exhibit to the
Companys Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 10, 2009.(2)
    
    Incorporated herein by reference to the exhibit to the
Companys Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 23, 2009.(3)
    
    Incorporated herein by reference to the exhibits to the
Companys Registration Statement on Form S-1 (File No. 333-144454), as
amended, initially filed with the Securities and Exchange Commission on
September 17, 2009.  60




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    /s/ HAZLETT, LEWIS & BIETER, PLLC
 
  F-1




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
 2009
    
    
    2008ASSETSCash and due from banks
    
    $
    34,307,334
    
    
    $
    4,547,478Federal funds sold
    
    
    6,400,000
    
    
    
    Total cash and cash equivalents
    
    
    40,707,334
    
    
    
    4,547,478Interest-bearing deposits in banks
    
    
    1,279,000
    
    
    
    1,881,000Securities available for sale
    
    
    23,584,627
    
    
    
    30,509,092Securities held to maturity (fair value approximates $61 and
$4,961 at December 31, 2009 and December 31, 2008,
respectively)
    
    
    61
    
    
    
    4,961Federal Home Loan Bank stock, at cost
    
    
    2,898,800
    
    
    
    2,898,800Loans, net of allowance for loan losses of $3,412,963 and
$3,082,602 at December 31, 2009 and December 31,
2008, respectively
    
    
    191,403,719
    
    
    
    196,519,657Premises and equipment, net
    
    
    4,794,831
    
    
    
    5,343,364Accrued interest receivable
    
    
    988,232
    
    
    
    1,150,013Cash surrender value of bank owned life insurance
    
    
    6,468,054
    
    
    
    6,245,790Foreclosed real estate
    
    
    779,642
    
    
    
    230,491Other assets
    
    
    3,553,898
    
    
    
    1,669,426Total assets
    
    $
    276,458,198
    
    
    $
    251,000,072LIABILITIES AND EQUITYLIABILITIESDeposits:Noninterest-bearing
    
    $
    7,320,547
    
    
    $
    7,288,603Interest-bearing
    
    
    228,743,341
    
    
    
    199,204,715Total deposits
    
    
    236,063,888
    
    
    
    206,493,318Accrued interest payable
    
    
    263,006
    
    
    
    418,181Securities sold under agreements to repurchase
    
    
    899,421
    
    
    
    911,658Federal Home Loan Bank advances
    
    
    10,324,189
    
    
    
    16,310,272Accrued expenses and other liabilities
    
    
    3,185,558
    
    
    
    2,654,746Total liabilities
    
    
    250,736,062
    
    
    
    226,788,175COMMITMENTS AND CONTINGENCIESEQUITYAccumulated other comprehensive income
    
    
    223,215
    
    
    
    58,054Retained earnings
    
    
    25,498,921
    
    
    
    24,153,843Total equity
    
    
    25,722,136
    
    
    
    24,211,897Total liabilities and equity
    
    $
    276,458,198
    
    
    $
    251,000,072
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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2009 and 2008
 2009
    
    
    2008Interest and dividend income:Loans, including fees
    
    $
    13,368,827
    
    
    $
    13,824,469Dividends
    
    
    142,465
    
    
    
    153,062Securities and interest-bearing deposits in other banks
    
    
    1,156,578
    
    
    
    1,602,878Total interest income
    
    
    14,667,870
    
    
    
    15,580,409Interest expense:Deposits
    
    
    5,223,431
    
    
    
    6,744,227Federal funds purchased and securities sold under
agreements to repurchase
    
    
    8,176
    
    
    
    22,720Federal Home Loan Bank advances
    
    
    425,805
    
    
    
    366,061Total interest expense
    
    
    5,657,412
    
    
    
    7,133,008Net interest income
    
    
    9,010,458
    
    
    
    8,447,401Provision for loan losses
    
    
    1,023,540
    
    
    
    760,803Net interest income after provision for loan losses
    
    
    7,986,918
    
    
    
    7,686,598Noninterest income:Customer service fees
    
    
    1,712,016
    
    
    
    1,621,943Other charges and fees
    
    
    1,762,052
    
    
    
    1,775,629Investment sales commissions
    
    
    252,394
    
    
    
    288,865Increase in cash surrender value of life insurance
    
    
    258,767
    
    
    
    256,153Other noninterest income
    
    
    684,890
    
    
    
    218,252Total noninterest income
    
    
    4,670,119
    
    
    
    4,160,842Noninterest expenses:Salaries and employee benefits
    
    
    5,919,339
    
    
    
    5,638,138Occupancy and equipment
    
    
    1,478,239
    
    
    
    1,613,481Federal deposit insurance premiums
    
    
    391,155
    
    
    
    82,630Data processing
    
    
    592,511
    
    
    
    742,967Advertising
    
    
    144,140
    
    
    
    227,293Other operating expenses
    
    
    2,142,315
    
    
    
    1,946,271Total noninterest expenses
    
    
    10,667,699
    
    
    
    10,250,780Income before income taxes
    
    
    1,989,338
    
    
    
    1,596,660Income taxes
    
    
    644,260
    
    
    
    487,253Net income
    
    $
    1,345,078
    
    
    $
    1,109,407
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ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 2009 and 2008
 AccumulatedOtherComprehensive
    
    
    Retained
    
    
    ComprehensiveIncome
    
    
    Earnings
    
    
    Income
    
    
    TotalBalance, December 31, 2007
    
    
    
    
    
    $
    23,277,556
    
    
    $
    (7,039
    )
    
    $
    23,270,517Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (233,120
    )
    
    
    
    
    
    
    (233,120
    )Comprehensive income:Net income
    
    $
    1,109,407
    
    
    
    1,109,407
    
    
    
    
    
    
    
    1,109,407Other comprehensive income, net of tax:Change in unrealized gains (losses) on securities
available for sale, net of tax effect of $39,890
    
    
    65,093
    
    
    
    
    
    
    
    65,093
    
    
    
    65,093Total comprehensive income
    
    $
    1,174,500Balance, December 31, 2008
    
    
    
    
    
    
    24,153,843
    
    
    
    58,054
    
    
    
    24,211,897Comprehensive income:Net income
    
    $
    1,345,078
    
    
    
    1,345,078
    
    
    
    
    
    
    
    1,345,078Other comprehensive income, net of tax:Change in unrealized gains (losses) on securities
available for sale, net of tax effect of $101,233
    
    
    165,161
    
    
    
    
    
    
    
    165,161
    
    
    
    165,161Total comprehensive income
    
    $
    1,510,239Balance, December 31, 2009
    
    
    
    
    
    $
    25,498,921
    
    
    $
    223,215
    
    
    $
    25,722,136
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ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2009 and 2008
 2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,345,078
    
    
    $
    1,109,407Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    654,230
    
    
    
    763,939Amortization of securities and other assets
    
    
    199,334
    
    
    
    255,855Provision for loan losses
    
    
    1,023,540
    
    
    
    760,803Deferred income taxes
    
    
    (236,293
    )
    
    
    (192,559
    )Other gains and losses, net
    
    
    15,257
    
    
    
    (10,296
    )Federal Home Loan Bank stock dividends
    
    
    
    
    
    
    (112,800
    )Net change in:Cash surrender value of life insurance
    
    
    (222,264
    )
    
    
    (225,587
    )Loans held for sale
    
    
    (381,250
    )
    
    
    (83,011
    )Accrued interest receivable
    
    
    161,781
    
    
    
    95,711Accrued interest payable
    
    
    (155,175
    )
    
    
    (36,269
    )Prepaid FDIC assessment
    
    
    (1,063,792
    )
    
    
    Other assets and liabilities
    
    
    (293,270
    )
    
    
    (206,194
    )Net cash provided by operating activities
    
    
    1,047,176
    
    
    
    2,118,999CASH FLOWS FROM INVESTING ACTIVITIES:Net change in interest-bearing deposits in banks
    
    
    602,000
    
    
    
    (1,881,000
    )Securities available for sale:Purchases
    
    
    (5,148,500
    )
    
    
    (16,687,862
    )Maturities, prepayments and calls
    
    
    12,278,487
    
    
    
    8,941,411Sales
    
    
    
    
    
    
    212,632Securities held to maturity:Principal repayments received
    
    
    4,900
    
    
    
    9,486Loan originations and principal collections, net
    
    
    875,969
    
    
    
    (18,855,847
    )Purchases of premises and equipment
    
    
    (105,697
    )
    
    
    (251,262
    )Proceeds from sales of premises and equipment
    
    
    
    
    
    
    8,597Proceeds from sale of foreclosed real estate
    
    
    3,033,271
    
    
    
    Redemption of investments, at cost
    
    
    
    
    
    
    1,960,000Net cash provided by (used in) investing activities
    
    
    11,540,430
    
    
    
    (26,543,845
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    29,570,570
    
    
    
    9,149,229Net decrease in securities sold under agreements to repurchase
    
    
    (12,237
    )
    
    
    (239,314
    )Proceeds from Federal Home Loan Bank advances
    
    
    7,150,000
    
    
    
    44,530,000Repayment of Federal Home Loan Bank advances
    
    
    (13,136,083
    )
    
    
    (33,752,001
    )Net cash provided by financing activities
    
    
    23,572,250
    
    
    
    19,687,914NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
    
    
    36,159,856
    
    
    
    (4,736,932
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    4,547,478
    
    
    
    9,284,410CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    40,707,334
    
    
    $
    4,547,478SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:Interest paid on deposits and borrowed funds
    
    $
    5,812,587
    
    
    $
    7,169,277Income taxes paid
    
    
    1,023,136
    
    
    
    531,854SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES:Acquisition of real estate acquired through foreclosure
    
    $
    3,597,679
    
    
    $
    230,491
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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 1.
    
    Summary of Significant Accounting Policies
 The accounting and reporting policies of Athens Federal Community Bank (Bank) and
subsidiaries conform with United States generally accepted accounting principles (GAAP)
and practices within the banking industry. During 2009 the Financial Accounting
Standards Board (FASB) adopted the FASB Accounting Standards Codification (ASC) as the
single source of authoritative nongovernmental GAAP. Rules and interpretive releases
of the Securities and Exchange Commission (SEC) are also sources of authoritative GAAP
for SEC registrants.The policies that materially affect financial position and results of operations are
summarized as follows:Principles of consolidationThe consolidated financial statements of Athens Federal Community Bank and subsidiaries
include the Bank and its wholly-owned subsidiaries: Southland Finance, Inc. (Southland)
and Ti-Serv, Inc. All material intercompany accounts and transactions have been
eliminated in consolidation.Nature of operationsThe Bank provides a variety of financial services to individuals and corporate
customers through its seven branches located in Athens, Sweetwater, Etowah,
Madisonville, and Cleveland, Tennessee. The Banks primary deposit products include
checking, savings, certificates of deposit, and IRA accounts. Its primary lending
products are one-to-four family residential, commercial real estate, and consumer
loans. Southland is a consumer finance company with one branch located in Athens,
Tennessee. Ti-Serv, Inc. maintains the Banks investment in Valley Title Services, LLC
and provides title insurance services.Use of estimatesThe preparation of consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses, the valuation of
deferred tax assets, other-than-temporary impairment of securities, and the fair value
of financial instruments.Cash and cash equivalentsFor purposes of the consolidated statements of cash flows, cash and cash equivalents
include cash and balances due from banks, money market mutual funds and federal funds
sold and securities purchased under agreements to resell, all of which mature within
ninety days.
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ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 1.
    
    Summary of Significant Accounting Policies(Continued)
 Interest-bearing deposits in banksInterest-bearing deposits in banks have a maturity of one year or less and are carried
at cost.SecuritiesDebt securities are classified as held to maturity when the Bank has the intent and
ability to hold the securities to maturity. Securities held to maturity are carried at
amortized cost. The amortization of premiums and accretion of discounts are recognized
in interest income using the interest method over the period to maturity.Securities available for sale are carried at fair value, with unrealized gains and
losses excluded from earnings and reported in other comprehensive income. Realized
gains and losses on securities available for sale are included in other income and,
when applicable, are reported as a reclassification adjustment, net of tax, in other
comprehensive income. Gains and losses on sales of securities are determined on the
specific-identification method.Prior to a change in accounting guidance on April 1, 2009, in determining whether
other-than-temporary impairment existed, management considered (1) the length of time
and the extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer, and (3) the intent and ability of the
Bank to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value. Declines in the fair value of individual
securities below their cost that are deemed to be other-than-temporary are reflected in
earnings as realized losses.Effective April 1, 2009, the Bank adopted new accounting guidance related to
other-than-temporary impairment of securities. The new guidance amended the criteria
for recognizing other-than-temporary impairments of debt securities and expanded the
disclosure requirements for impairment losses on debt and equity securities. The new
guidance specifies that (1) if a company does not have the intent to sell a debt
security prior to recovery and (2) it is more likely than not that it will not have to
sell the debt security prior to recovery, the security would not be considered
other-than-temporarily impaired unless there is a credit loss. The credit loss
component is the amount of principal cash flows not expected to be received over the
remaining term of the security based on cash flow projections. For debt securities
that management has no intent to sell and believes that it more likely than not will be
required to sell prior to recovery, only the credit loss component of the impairment is
recognized in earnings, while the non-credit loss is included in accumulated other
comprehensive income.LoansThe Bank grants mortgage, commercial and consumer loans to customers. A substantial
portion of the loan portfolio is represented by mortgage and commercial real estate
loans located primarily in the East Tennessee area. The ability of the Banks debtors
to honor their contracts is dependent upon the real estate and general economic
conditions in this area.
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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 1.
    
    Summary of Significant Accounting Policies(Continued)
 Loans(Continued)Loans that management has the intent and ability to hold for the foreseeable future or
until maturity or pay-off generally are stated at unpaid principal balances, less the
allowance for loan losses, net deferred loan origination fees and costs, and unearned
interest and fees.Loan fees, net of estimated initial direct cost relating to initiating and closing
mortgage loans, have been deferred and are being amortized into interest income over
the remaining contractual lives of the loans as an adjustment of yield using the level
yield method.Unearned interest on consumer finance loans is recognized as income over the terms of
the loans using a declining balance method. Interest on other loans is calculated
using the simple interest method on the principal outstanding.The accrual of interest on mortgage and commercial loans is discontinued at the time
the loan is 90 days past due unless the credit is well-secured and in process of
collection. Other personal loans are typically charged off no later than 120 days past
due. Past due status is based on contractual terms of the loan. In all cases, loans
are placed on nonaccrual or charged off at an earlier date if collection of principal
or interest is considered doubtful.All interest accrued but not collected for loans that are placed on non-accrual or
charged off is reversed against interest income. The interest on these loans is
accounted for on the cash-basis or cost-recovery method, until qualifying for return to
accrual. Loans are returned to accrual status when all the principal and interest
amounts contractually due are brought current and future payments are reasonably
assured.Allowance for loan lossesThe allowance for loan losses is established as losses are estimated to have occurred
through a provision for loan losses charged to earnings. Loan losses are charged
against the allowance when management believes the uncollectibility of a loan balance
is confirmed. Subsequent recoveries, if any, are credited to the allowance.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 the loans in light of
historical experience, the nature and volume of the loan portfolio, adverse situations
that may affect the borrowers ability to repay, estimated value of any 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.
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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 1.
    
    Summary of Significant Accounting Policies(Continued)
 Allowance for loan losses(Continued)The allowance consists of allocated and general components. The allocated component
relates to loans that are classified as impaired. For those loans that are classified
as impaired, 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 component covers non-classified loans and is based on
historical charge-off experience and expected loss given default derived from the
Banks internal risk rating process. Other adjustments may be made to the allowance
for pools of loans after an assessment of internal or external influences on credit
quality that are not fully reflected in the historical loss or risk rating data.A loan is considered impaired when, based on current information and events, it is
probable the Bank will be unable to collect the scheduled payments of principal or
interest when due according to contractual terms of the loan agreement. Factors
considered by management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment shortfalls are not
classified as impaired. Management determines the significance of payment delays and
payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the delay,
the reasons for the delay, the borrowers prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a
loan-by-loan basis by either the present value of future cash flows discounted at the
loans effective interest rate, the loans obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Bank does not separately identify individual consumer
loans for impairment disclosures, unless such loans are the subject of a restructuring
agreement due to financial difficulties of the borrower.Significant group concentrations of credit riskMost of the Banks activities are with customers located in East Tennessee. The types
of securities that the Bank invests in are included in Note 3. The types of lending
the Bank engages in are included in Note 4. The Bank does not have any significant
concentrations to any one industry or customer.Commercial real estate, including commercial construction loans, represented 28.61
percent of the loan portfolio at December 31, 2009, and 29.38 percent of the loan
portfolio at December 31, 2008.
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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 1.
    
    Summary of Significant Accounting Policies(Continued)
 ServicingGenerally, servicing assets are recognized as separate assets when rights are acquired
through purchase or through sale of financial assets. For sales of mortgage loans, a
portion of the cost of originating the loan is allocated to the servicing right based
on fair value. Fair value is based on market prices for comparable mortgage servicing
contracts, when available, or alternatively, is based on a valuation model that
calculates the present value of estimated future net servicing income. The valuation
model incorporates assumptions that market participants would use in estimating future
net servicing income, such as the cost to service, the discount rate, the custodial
earnings rate, an inflation rate, ancillary income, prepayment speeds, and default
rates and losses.The Bank has not recorded any servicing assets or liabilities in accordance with ASC
Topic 860, Transfers and Servicing, because the benefits received for servicing
approximate the costs incurred by the Bank for its servicing responsibilities.Servicing fee income is recorded for fees earned for servicing loans. The fees are
based on a contractual percentage of the outstanding principal; or a fixed amount per
loan and are recorded as income when earned. The amortization of mortgage servicing
rights is netted against loan servicing fee income.Foreclosed real estateAssets acquired through, or in lieu of, loan foreclosures are held for sale and are
initially recorded at fair value less cost to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are periodically
performed by management and the assets are carried at the lower of carrying amount or
fair value less cost to sell. Revenue and expenses from operations and changes in the
valuation allowance are included in net expenses from foreclosed assets.Premises and equipmentLand is carried at cost. Other premises and equipment are stated at cost less
accumulated depreciation. Depreciation, computed using a combination of accelerated
and straight-line methods, is based on estimated useful lives of three to forty years.
Maintenance and repairs are expensed as incurred while major additions and improvements
are capitalized. Gains and losses on dispositions are included in current operations.Federal Home Loan Bank StockThe Bank, as a member of the Federal Home Loan Bank (FHLB) of Cincinnati, is
required to maintain an investment in capital stock of the FHLB. Based on redemption
provisions of the FHLB, the stock has no quoted market value and is carried at cost.
Management reviews for impairment based on the ultimate recoverability of the cost
basis in the FHLB stock.
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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 1.
    
    Summary of Significant Accounting Policies(Continued)
 Cash surrender value of bank owned life insuranceThe Bank maintains life insurance policies (BOLI) on certain key executives and
directors to help offset the rising cost of employee benefits and to assist in the
funding of deferred compensation and other employee benefits. BOLI is accounted for
using the cash surrender value method and is recorded at the amount that can be
realized under the insurance policies at the balance sheet date. At December 31, 2009
and 2008, the aggregate cash surrender value of these policies was $6,468,054 and
$6,245,790, respectively.Income taxesThe Bank accounts for income taxes in accordance with income tax accounting guidance in
ASC Topic 740. 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 taxable income or loss. The Bank determines deferred income taxes using the
liability 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. The Banks deferred taxes relate primarily to differences between the
basis of the allowance for loan losses, deferred compensation plans and accumulated
depreciation. Deferred tax assets and liabilities are reflected at income tax rates
applicable to the period in which the deferred tax assets or liabilities are expected
to be realized or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes. The Bank
files consolidated income tax returns with its subsidiaries.The Bank recognizes deferred tax assets if it is more likely than not, based on the
technical merits, that the tax position will be realized or sustained upon examination.
The Bank follows the statutory requirements for its income tax accounting and
generally avoids risks associated with potentially problematic tax positions that may
be challenged upon examination.Advertising costsAdvertising costs are expensed as incurred.Variable interest entitiesAn entity is referred to as a variable interest entity (VIE) if it meets the criteria
outlined in ASC Topic 810, which are: (1) the entity has equity that is insufficient to
permit the entity to finance its activities without additional subordinated financial
support from other parties, or (2) the entity has equity investors that cannot make
significant decisions about the entitys operations or that do not absorb the expected
losses or receive the expected returns of the entity. A VIE must be consolidated by
the Bank if it is deemed to be the primary beneficiary of the VIE, which is the party
involved with the VIE that
has a majority of the expected losses, expected residual returns, or both. At December
31, 2009, the Bank was not involved with any entity that is deemed to be a VIE.
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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 1.
    
    Summary of Significant Accounting Policies(Continued)
 Comprehensive incomeComprehensive income consists of net income and other comprehensive income. Other
comprehensive income includes unrealized gains on securities available for sale, and
unrealized losses related to factors other than credit losses on debt securities.Securities sold under agreements to repurchaseThe Bank enters into sales of securities under agreements to repurchase identical
securities the next day.Segment reportingASC Topic 280, Segment Reporting, provides for the identification of reportable
segments on the basis of discrete business units and their financial information to the
extent such units are reviewed by an entitys chief decision maker (which can be an
individual or group of management persons). The Statement permits aggregation or
combination of segments that have similar characteristics. In the operations of the
Bank and its subsidiaries, each bank branch is viewed by management as being a
separately identifiable business or segment from the perspective of monitoring
performance and allocation of financial resources. Although the branches operate
independently and are managed and monitored separately, each is substantially similar
in terms of business focus, type of customers, products, and services. Further, the
results of Southland and Ti-Serv, Inc. for the years ended December 31, 2009 and 2008,
were not significant for separate disclosure. Accordingly, the Banks consolidated
financial statements reflect the presentation of segment information on an aggregated
basis in one reportable segment.Transfers of financial assetsTransfers of financial assets are accounted for as sales, when control over the assets
has been surrendered. Control over transferred assets is deemed to be surrendered when
(1) the assets have been isolated from the Bank, (2) the transferee obtains the right
(free of conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Bank does not maintain effective control
over the transferred assets through an agreement to repurchase them before their
maturity or the ability to unilaterally cause the holder to return specific assets.The Bank originates fixed-rate mortgage loans for sale to secondary market investors
subject to contractually specified and limited recourse provisions. The Bank may be
required to repurchase a previously sold mortgage loan if there is major noncompliance
with defined loan origination or documentation standards, including fraud, negligence
or material misstatement in the loan documents. The Bank has been notified by FHLMC
that four loans previously sold to them may not have qualified under their terms of
purchase, and the Bank may be required to repurchase these loans in the future. At
December 31, 2009 and December 31, 2008, the aggregate outstanding balance of loans
subject to this recourse obligation was approximately $226,000 and $237,000,
respectively. For the years ended December 31, 2009 and 2008, the Bank was not
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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 1.
    
    Summary of Significant Accounting Policies(Continued)
 Transfers of financial assets(Continued)required to repurchase any loans and realized no gains or losses. Recourse
obligations, if any, are determined based upon an estimate of probable credit losses
over the term of the loan, and are not significant to the consolidated financial
statements.Subsequent EventsThe Bank has evaluated subsequent events for potential recognition and disclosure in
the consolidated financial statements and accompanying notes included in this annual
report. Upon evaluation management believes that the following meets the requirement
for disclosure:Mutual to Stock Conversion and Change in Corporate Form:On January 6, 2010, in accordance with a Plan of Conversion by its Board of Directors
as approved by its members, the Bank converted from a mutual savings bank to a stock
savings bank and became the wholly-owned subsidiary of Athens Bancshares Corporation
(Company), a stock holding company. In connection with the conversion, the Company
issued an aggregate of 2,677,250 shares of common stock at an offering price of $10.00
per share. In connection with the conversion, Athens Community Foundation was formed,
to which the Company contributed 100,000 shares of common stock and $100,000 in cash.
In addition, the Banks Board of Directors adopted an employee stock ownership plan
(ESOP) which subscribed for 8 percent of the sum of the common stock sold in the
offering and contributed to the foundation.Recent accounting pronouncementsIn April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability have Significantly Decreased
and Identifying Transactions that Are Not Orderly(FSP 157-4) (ASC Topic 820, Fair
Value Measurements and Disclosures). FSP 157-4 indicates that if an entity determines
that either the volume and/or level of activity for an asset or liability has
significantly decreased (from normal conditions for that asset or liability) or price
quotations or observable inputs are not associated with orderly transactions, increased
analysis and management judgment will be required to estimate fair value. FSP 157-4 is
effective for interim and annual periods ended after June 15, 2009, with early adoption
permitted. FSP 157-4 must be applied prospectively. The provisions of FSP 157-4 became
effective for the Banks interim period ended on June 30, 2009, and its adoption did
not have a significant impact on the consolidated financial statements.In April 2009, the FASB issued FSP No. 107-1 and APB 28-1, Interim Disclosures about
Fair Value of Financial Instruments(FSP 107-1 and APB 28-1) (ASC Topic
825, Financial Instruments, and ASC Topic 270, Interim Reporting). FSP 107-1 and APB
28-1 requires disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements.
  F-13




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ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 1.
    
    Summary of Significant Accounting Policies(Continued)
 Recent accounting pronouncements(Continued)This FSP also amends ASC Topic 270, Interim Reporting, to require those disclosures in
summarized financial information at interim reporting periods. The provisions of FSP
107-1 and APB 28-1 became effective for the Banks interim period ended on June 30,
2009 and resulted in the applicable fair value disclosures being included in interim
reporting periods.In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments(FSP 115-2 and 124-2) (ASC Topic
320, Investments  Debt and Equity Securities). FSP 115-2 and 124-2 clarifies the
interaction of the factors that should be considered when determining whether a debt
security is other-than-temporarily impaired. For debt securities, management must
assess whether (a) it has the intent to sell the security and (b) it is more likely
than not that it will be required to sell the security prior to its anticipated
recovery. These assessments are made before assessing whether the entity will recover
the cost basis of the investment. This change does not affect the need to forecast
recovery of the value of the security through either cash flows or market price. In
instances when a determination is made that an other-than-temporary impairment exists
but the investor does not intend to sell the debt security and it is not more likely
than not that it will be required to sell the debt security prior to its anticipated
recovery, FSP 115-2 and 124-2 changes the presentation and amount of the
other-than-temporary impairment recognized in the income statement. The
other-than-temporary impairment is separated into (a) the amount of the total
other-than-temporary impairment related to a decrease in cash flows expected to be
collected from the debt security (the credit loss) and (b) the amount of the total
other-than-temporary impairment related to all other factors. The amount of the total
other-than-temporary impairment related to the credit loss is recognized in earnings.
The amount of the total other-than-temporary impairment related to all other factors is
recognized in other comprehensive income. FSP 115-2 and 124-2 also requires substantial
additional disclosures. The provisions of FSP 115-2 and 124-2 became effective for the
Banks interim period ended on June 30, 2009, and there was no impact from the adoption
on the Banks financial position, results of operations or cash flows. The expanded
disclosures related to FSP 115-2 and 124-2 are included in Note 3.On June 30, 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles  a
Replacement of FASB Statement No. 162(the Codification) (ASC Topic 105, Generally
Accepted Accounting Principles). The Codification became the single source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental entities.
Rules and interpretive releases of the Securities and Exchange Commission are also
sources of authoritative GAAP registrants. All guidance contained in the Codification
carries an equal level of authority. The Codification is not intended to change GAAP,
but rather is expected to simplify accounting research by reorganizing current GAAP
into approximately 90 accounting topics. The Bank adopted this
accounting standard in preparing its consolidated financial statements for the period
ended September 30, 2009. The adoption of this accounting standard had no impact on
retained earnings or on the Banks consolidated statements of income and condition.
  F-14




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ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 1.
    
    Summary of Significant Accounting Policies(Continued)
 Recent accounting pronouncements(Continued)On August 18, 2009, the Securities and Exchange Commission published interpretive
guidance titled Commission Guidance Regarding the Financial Accounting Standards
Boards Accounting Standards of Codification. In its guidance, the SEC stated that
concurrent with the effective date, references in the SECs rules and SEC staff
guidance to specific standards under GAAP should be understood to mean the
corresponding reference in the Codification. The SEC also stated that the Codification
does not supersede any SEC rules or regulations, is not the authoritative source for
SEC rules or SEC staff guidance, and the inclusion of any SEC rules or SEC staff
guidance in the Codification will not affect how such items may be updated in the
future by the SEC.ASC Topic 855, Subsequent Events, was issued in May 2009 and established general
standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued. The Bank adopted the provisions of ASC
Topic 855 during the period ended June 30, 2009. The adoption of ASC Topic 855 did not
have a significant impact on the consolidated financial statements.In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU
2009-05), Fair Value Measurements and Disclosures(ASC Topic 820, Measuring
Liabilities at Fair Value).ASU 2009-05 amends subtopic 820-10, Fair Value
Measurements and Disclosures  Overall, and provides clarification for the fair value
measurement of liabilities. ASU 2009-05 is effective for the first reporting period
including interim periods beginning after issuance. The Bank adopted this standard for
the year ended December 31, 2009, and its adoption did not have a material impact on
its consolidated financial statements.Other than disclosures contained within these statements, the Bank has determined that
all other recently issued accounting pronouncements will not have a material impact on
its consolidated financial statements or do not apply to its operations.ReclassificationCertain amounts in the 2008 consolidated financial statements have been reclassified to
conform to the 2009 presentation.
 Note 2.
    
    Cash and Cash Equivalents Restrictions on cash and due from banksThe Bank is required to maintain average balances on hand or with the Federal Reserve
Bank. At December 31, 2009 and 2008, these reserve balances amounted to $350,000 and
$350,000, respectively.
  F-15




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 3.
    
    Securities
 The amortized cost and estimated fair value of securities classified as available for
sale and held to maturity at December 31, 2009 and December 31, 2008 are as follows:
 December 31, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSecurities Available for Sale:Securities of U.S.
Government agencies
and corporations
    
    $
    8,612,168
    
    
    $
    81,170
    
    
    $
    (90,912
    )
    
    $
    8,602,426Mortgage-backed and
related securities (1)
    
    
    10,079,939
    
    
    
    455,459
    
    
    
    (1,912
    )
    
    
    10,533,486State and municipal
securities
    
    
    4,532,497
    
    
    
    11,325
    
    
    
    (95,107
    )
    
    
    4,448,715$
    23,224,604
    
    
    $
    547,954
    
    
    $
    (187,931
    )
    
    $
    23,584,627Securities Held to Maturity:Mortgage-backed and
related securities (1)
    
    $
    61
    
    
    $
    
    
    
    $
    
    
    
    $
    61
 December 31, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSecurities Available for Sale:Securities of U.S.
Government agencies
and corporations
    
    $
    10,545,132
    
    
    $
    117,062
    
    
    $
    (13,529
    )
    
    $
    10,648,665Mortgage-backed and
related securities (1)
    
    
    14,326,656
    
    
    
    328,282
    
    
    
    (71,006
    )
    
    
    14,583,932State and municipal
securities
    
    
    5,543,675
    
    
    
    2,349
    
    
    
    (269,529
    )
    
    
    5,276,495$
    30,415,463
    
    
    $
    447,693
    
    
    $
    (354,064
    )
    
    $
    30,509,092Securities Held to Maturity:Mortgage-backed and
related securities (1)
    
    $
    4,961
    
    
    $
    
    
    
    $
    
    
    
    $
    4,961
 (1)
    
    Collateralized by residential mortgages and guaranteed by U.S. Government sponsored
entities.  F-16




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 3.
    
    Securities(Continued)
 The amortized cost and estimated fair value of securities at December 31, 2009, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
 December 31, 2009Securities Available for Sale
    
    
    Securities Held to MaturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Due after one year through
five years
    
    
    5,375,985
    
    
    
    5,346,561
    
    
    
    
    
    
    
    Due five years to ten years
    
    
    2,637,156
    
    
    
    2,674,195
    
    
    
    
    
    
    
    Due after ten years
    
    
    5,131,524
    
    
    
    5,030,385
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    10,079,939
    
    
    
    10,533,486
    
    
    
    61
    
    
    
    61Total
    
    $
    23,224,604
    
    
    $
    23,584,627
    
    
    $
    61
    
    
    $
    61
 Proceeds from sales of securities available for sale totaled $212,632 in 2008.
There were no sales during 2009. No realized gains or losses were recognized for the
years ended December 31, 2009 and 2008.The Bank has pledged securities with carrying values of approximately $16,310,000 and
$22,612,000 (which approximates market values) to secure deposits of public and private
funds as of December 31, 2009 and December 31, 2008.Securities with gross unrealized losses at December 31, 2009 and December 31, 2008,
aggregated by investment category and length of time that individual securities have
been in a continuous loss position, are as follows:
 December 31, 2009Less than 12 Months
    
    
    12 Months or Greater
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(dollars in thousands)Securities Available for
Sale:Securities of U.S.
Government agencies
and corporations
    
    $
    5,045
    
    
    $
    (91
    )
    
    $
    
    
    
    $
    
    
    
    $
    5,045
    
    
    $
    (91
    )Mortgage-backed and
related securities
    
    
    722
    
    
    
    (1
    )
    
    
    299
    
    
    
    (1
    )
    
    
    1,021
    
    
    
    (2
    )State and municipal
securities
    
    
    3,263
    
    
    
    (26
    )
    
    
    874
    
    
    
    (69
    )
    
    
    4,137
    
    
    
    (95
    )$
    9,030
    
    
    $
    (118
    )
    
    $
    1,173
    
    
    $
    (70
    )
    
    $
    10,203
    
    
    $
    (188
    )
  F-17




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 3.
    
    Securities(Continued)
 December 31, 2008Less than 12 Months
    
    
    12 Months or Greater
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(dollars in thousands)Securities Available for Sale:Securities of U.S.
Government agencies
and corporations
    
    $
    1,759
    
    
    $
    (14
    )
    
    $
    
    
    
    $
    
    
    
    $
    1,759
    
    
    $
    (14
    )Mortgage-backed and
related securities
    
    
    1,958
    
    
    
    (14
    )
    
    
    1,393
    
    
    
    (57
    )
    
    
    3,351
    
    
    
    (71
    )State and municipal
securities
    
    
    3,344
    
    
    
    (151
    )
    
    
    618
    
    
    
    (119
    )
    
    
    3,962
    
    
    
    (270
    )$
    7,061
    
    
    $
    (179
    )
    
    $
    2,011
    
    
    $
    (176
    )
    
    $
    9,072
    
    
    $
    (355
    )
 Management performs periodic reviews for impairment in accordance with ASC Topic
320, Investment  Debt and Equity Securities.At December 31, 2009, the 22 securities with unrealized losses had depreciated 1.84
percent from the Banks amortized cost basis. At December 31, 2008, the 25 securities
with unrealized losses had depreciated 3.76 percent from the Banks amortized cost
basis. Most of these securities are guaranteed by either U.S. government corporations
or agencies or had investment grade ratings upon purchase. Further, the issuers of
these securities have not established any cause for default. The unrealized losses
associated with these investment securities are primarily driven by changes in interest
rates and are not due to the credit quality of the securities. These securities will
continue to be monitored as a part of the Banks ongoing impairment analysis, but are
expected to perform even if the rating agencies reduce the credit rating of the bond
insurers. Management evaluates the financial performance of each issuer on a quarterly
basis to determine if it is probable that the issuers can make all contractual
principal and interest payments.ASC Topic 320 requires an entity to assess whether the entity has the intent to sell
the debt security or more likely than not will be required to sell the debt security
before its anticipated recovery. Management does not intend to sell these securities
and it is not more likely than not that management will be required to sell the
investments before the recovery of its amortized cost bases. In making this
determination, management has considered its cash flow and liquidity requirements,
capital requirements, economic factors, and contractual or regulatory obligations for
indication that these securities will be required to be sold before a forecasted
recovery occurs. Therefore, in managements
opinion, all securities that have been in a continuous unrealized loss position for the
past 12 months or longer as of December 31, 2009, are not other-than-temporarily
impaired, and therefore, no impairment charges as of December 31, 2009 are warranted.
  F-18




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 4.
    
    Loans and Allowance for Loan Losses
   2009
    
    
    2008Mortgage loans on real estate:Residential 1-4 family
    
    $
    79,572,745
    
    
    $
    75,296,542Residential multifamily (5 or more units)
    
    
    14,624,421
    
    
    
    11,255,113Commercial
    
    
    37,905,281
    
    
    
    32,294,514Construction and development
    
    
    23,512,087
    
    
    
    39,207,695Equity lines of credit
    
    
    16,552,356
    
    
    
    14,670,665172,166,890
    
    
    
    172,724,529Commercial loans
    
    
    12,001,374
    
    
    
    14,564,990Consumer loans
    
    
    11,084,816
    
    
    
    12,865,843Total loans
    
    
    195,253,080
    
    
    
    200,155,362Less: Allowance for loan losses
    
    
    (3,412,963
    )
    
    
    (3,082,602
    )Unearned interest and fees
    
    
    (271,072
    )
    
    
    (360,646
    )Net deferred loan origination fees
    
    
    (165,326
    )
    
    
    (192,457
    )Loans, net
    
    $
    191,403,719
    
    
    $
    196,519,657
  Years Ended December 31,2009
    
    
    2008Balance, beginning of year
    
    $
    3,082,602
    
    
    $
    2,536,097Provision for loan losses
    
    
    1,023,540
    
    
    
    760,803Loans charged-off
    
    
    (758,193
    )
    
    
    (323,747
    )Recoveries of loans previously charged-off
    
    
    65,014
    
    
    
    109,449Balance, end of year
    
    $
    3,412,963
    
    
    $
    3,082,602
 Loan impairment and any related valuation allowance is determined under the
provisions established by ASC Topic 310. For all periods presented above, impaired
loans without a valuation allowance represent loans for which management believes that
the collateral value of the loan is higher than the carrying value of that loan.
  F-19




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 4.
    
    Loans and Allowance for Loan Losses(Continued)
 The following is a summary of information pertaining to impaired and non-accrual loans:
 December 31,2009
    
    
    2008Impaired loans without a valuation allowance
    
    $
    2,090,046
    
    
    $
    1,227,695Impaired loans with a valuation allowance
    
    
    5,735,999
    
    
    
    5,320,770Total impaired loans
    
    $
    7,826,045
    
    
    $
    6,548,465Valuation allowance related to impaired loans
    
    $
    1,037,069
    
    
    $
    926,770Total non-accrual loans
    
    $
    1,996,455
    
    
    $
    4,139,467Total loans past-due ninety days or more and still accruing
    
    $
    15,644
    
    
    $
    33,712
 Years Ended December 31,2009
    
    
    2008Average investment in impaired loans
    
    $
    4,480,879
    
    
    $
    3,653,844Interest income recognized on impaired loans
    
    $
    310,000
    
    
    $
    406,000Interest income recognized on a cash basis on impaired loans
    
    $
    310,000
    
    
    $
    406,000
 Note 5.
    
    Premises and Equipment
 A summary of the Banks premises and equipment is as follows:
 December 31,2009
    
    
    2008Land
    
    $
    1,060,880
    
    
    $
    1,060,880Buildings
    
    
    5,181,517
    
    
    
    5,171,389Leasehold improvements
    
    
    88,987
    
    
    
    88,987Equipment
    
    
    4,585,384
    
    
    
    4,515,404Automobiles
    
    
    22,494
    
    
    
    22,49410,939,262
    
    
    
    10,859,154Less accumulated depreciation
    
    
    (6,144,431
    )
    
    
    (5,515,790
    )$
    4,794,831
    
    
    $
    5,343,364
 Depreciation expense amounted to $654,230 and $763,939 for the years ended
December 31, 2009 and 2008, respectively.
  F-20




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 6.
    
    Deposits
 The aggregate amount of time deposits in denominations of $100,000 or more were
$40,273,857 and $56,444,040 at December 31, 2009 and 2008.Deposit accounts are federally insured up to $250,000 per depositor through December
31, 2013. On January 1, 2014, the FDIC insurance limit will return to $100,000 per
depositor for all deposit categories except for IRA and certain retirement accounts,
which will remain at $250,000 per depositor.At December 31, 2009, the scheduled maturities of time deposits are as follows:
 2010
    
    $
    64,220,7922011
    
    
    18,399,7952012
    
    
    13,348,8162013
    
    
    6,190,4332014
    
    
    1,327,743$
    103,487,579
 Deposit interest expense for the years ended December 31, 2009 and 2008 is as
follows:
 December 31,2009
    
    
    2008Demand deposit and NOW accounts
    
    $
    361,611
    
    
    $
    517,724Money market accounts
    
    
    537,376
    
    
    
    540,757Savings accounts
    
    
    48,266
    
    
    
    81,950IRA accounts
    
    
    1,339,559
    
    
    
    1,563,692Certificates of deposit
    
    
    2,936,619
    
    
    
    4,040,104$
    5,223,431
    
    
    $
    6,744,227
 Note 7.
    
    Securities Sold Under Agreements to Repurchase
 Securities sold under agreements to repurchase averaged approximately $1,046,000 and
$1,400,000 for the years ended December 31, 2009 and 2008, respectively.
  F-21




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 8.
    
    Federal Home Loan Bank Advances
 The schedule of advances from the Federal Home Loan Bank (FHLB) at December 31, 2009
and 2008, are as follows:
 Interest
    
    FinalDate of Advance
    
    Rate
    
    Maturity Date
    
    2009
    
    
    2008September 6, 2002
    
    3.93%
    
    October 1, 2012
    
    $
    324,189
    
    
    $
    430,272November 30, 2006
    
    4.39%
    
    November 30, 2011
    
    
    5,000,000
    
    
    
    5,000,000February 5, 2008
    
    2.85%
    
    February 5, 2010
    
    
    2,000,000
    
    
    
    2,000,000July 11, 2008
    
    4.37%
    
    July 11, 2013
    
    
    1,500,000
    
    
    
    1,500,000July 31, 2008
    
    4.28%
    
    September 6, 2013
    
    
    1,500,000
    
    
    
    1,500,000November 28, 2008
    
    0.99%
    
    February 26, 2009
    
    
    
    
    
    
    3,000,000December 23, 2008
    
    0.54%
    
    March 23, 2009
    
    
    
    
    
    
    2,655,000December 29, 2008
    
    0.54%
    
    March 27, 2009
    
    
    
    
    
    
    225,000$
    10,324,189
    
    
    $
    16,310,272
 Pursuant to collateral agreements with the FHLB, the advances and letters of
credit described below are secured by the Banks FHLB stock and qualifying first
mortgage loans, totaling approximately $33,745,000 and $41,037,000 as of December 31,
2009 and 2008, respectively.The Bank also has a Standby Letter of Credit for Public Unit Deposit Collateralization
Line with the FHLB which provides an alternative for the Bank instead of pledging
securities to public depositors up to a maximum credit line of approximately
$18,000,000. This line of credit is also secured by the same collateral described
above. The FHLB issues irrevocable letters of credit on behalf of the Bank to certain
public entities which are depositors of the Bank. Letters of credit outstanding as of
December 31, 2009 and 2008, were $14,350,000 and $14,200,000, respectively.At December 31, 2009, the scheduled maturities of the FHLB advances are as follows:
 2010
    
    $
    2,119,7192011
    
    
    5,115,1182012
    
    
    89,3522013
    
    
    3,000,0002014
    
    
    $
    10,324,189
  F-22




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 9.
    
    Minimum Regulatory Capital Requirements
 The Bank is subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material affect on the Bank and the consolidated
financial statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Banks assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Banks capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.Quantitative measures established by regulation to ensure capital adequacy require the
Bank to maintain minimum amounts and ratios (set forth in the table below) of total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital (as defined) to average assets (as defined). Management
believes, as of December 31, 2009 and December 31, 2008, that the Bank met all capital
adequacy requirements to which it was subject.As of December 31, 2009, the most recent notification from the OTS categorized the Bank
as well capitalized under the regulatory framework for prompt corrective action. There
are no conditions or events since that notification that management believes have
changed the institutions prompt corrective action category.The Banks actual capital amounts and ratios are presented in the following table.
Dollar amounts are presented in thousands.
 To be WellCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAs of December 31, 2009:Total capital
(to risk-weighted assets)
    
    $
    27,223
    
    
    
    15.33
    %
    
    $
    14,202
    
    
    
    8.00
    %
    
    $
    17,753
    
    
    
    10.00
    %Tier I capital
(to risk-weighted assets)
    
    
    25,002
    
    
    
    14.08
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    10,652
    
    
    
    6.00
    %Tier I capital
(to adjusted total assets)
    
    
    25,002
    
    
    
    9.07
    %
    
    
    11,020
    
    
    
    4.00
    %
    
    
    13,776
    
    
    
    5.00
    %Tangible capital
(to adjusted total assets)
    
    
    25,002
    
    
    
    9.07
    %
    
    
    4,133
    
    
    
    1.50
    %
    
    
    N/A
    
    
    
    N/A
  F-23




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 9.
    
    Minimum Regulatory Capital Requirements(Continued)
 To be WellCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAs of December 31, 2008:Total capital
(to risk-weighted assets)
    
    $
    25,757
    
    
    
    14.01
    %
    
    $
    14,709
    
    
    
    8.00
    %
    
    
    18,386
    
    
    
    10.00
    %Tier I capital
(to risk-weighted assets)
    
    
    23,518
    
    
    
    12.79
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    11,031
    
    
    
    6.00
    %Tier I capital
(to adjusted total assets)
    
    
    23,518
    
    
    
    9.40
    %
    
    
    10,152
    
    
    
    4.00
    %
    
    
    12,514
    
    
    
    5.00
    %Tangible capital
(to adjusted total assets)
    
    
    23,518
    
    
    
    9.40
    %
    
    
    3,754
    
    
    
    1.50
    %
    
    
    N/A
    
    
    
    N/A
 Below is a reconciliation of GAAP and regulatory capital amounts (in thousands):
 December 31,2009
    
    
    2008Total equity per the financial statements
    
    $
    25,722
    
    
    $
    24,212Other intangible assets
    
    
    (497
    )
    
    
    (636
    )Unrealized gains on available for sale securities
    
    
    (223
    )
    
    
    (58
    )Tier I capital
    
    
    25,002
    
    
    
    23,518Allowance for loan losses  allowable portion
    
    
    2,221
    
    
    
    2,239Total risk-based capital
    
    $
    27,223
    
    
    $
    25,757
  F-24




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 10.
    
    Income Taxes
 Net deferred tax assets consist of the following components as of December 31, 2009 and
December 31, 2008:
 December 31,2009
    
    
    2008Deferred tax assets:Allowance for loan losses
    
    $
    555,084
    
    
    $
    428,589Deferred compensation
    
    
    637,177
    
    
    
    597,600Executive benefit plan
    
    
    159,746
    
    
    
    172,252Other
    
    
    114,901
    
    
    
    74,8321,466,908
    
    
    
    1,273,273Deferred tax liabilities:FHLB stock dividends
    
    
    375,510
    
    
    
    375,510Depreciable assets
    
    
    214,657
    
    
    
    168,447Other
    
    
    507,136
    
    
    
    494,7771,097,303
    
    
    
    1,038,734Net deferred tax assets
    
    $
    369,605
    
    
    $
    234,539
 The provision for income taxes charged to income for the years ended December 31,
2009 and 2008, consists of the following:
 Years EndedDecember 31,2009
    
    
    2008Current tax expense
    
    $
    880,553
    
    
    $
    679,812Deferred benefit
    
    
    (236,293
    )
    
    
    (192,559
    )Provisions for income taxes
    
    $
    644,260
    
    
    $
    487,253
  F-25




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 10.
    
    Income Taxes(Continued)
 The income tax provision is less than the expected tax provision computed by multiplying
income before income taxes by the statutory federal income tax rates. The reasons for
this difference are as follows:
 Years Ended December 31,2009
    
    
    %
    
    
    2008
    
    
    %Expected tax at statutory rates
    
    $
    676,400
    
    
    
    34.00
    %
    
    $
    542,900
    
    
    
    34.00
    %Tax-exempt earnings on
life insurance policies
    
    
    (99,100
    )
    
    
    (4.98
    )
    
    
    (98,100
    )
    
    
    (6.14
    )Tax-exempt interest
    
    
    (82,650
    )
    
    
    (4.15
    )
    
    
    (75,650
    )
    
    
    (4.74
    )State income taxes, net of federal
income tax benefit
    
    
    85,350
    
    
    
    4.29
    
    
    
    68,500
    
    
    
    4.29Other
    
    
    64,260
    
    
    
    3.23
    
    
    
    49,603
    
    
    
    3.11Provision for income taxes
    
    $
    644,260
    
    
    
    32.39
    %
    
    $
    487,253
    
    
    
    30.52
    %
 Note 11.
    
    Employee Benefit Plan The Bank has adopted a 401(k) plan covering substantially all employees. Employees are
allowed to contribute up to 75% of earnings and, in addition, the Bank will match a
portion of the employees contributions. The expenses incurred by the Bank for the plan
totaled $305,935 and $312,568 for the years ended December 31, 2009 and 2008,
respectively.
 Note 12.
    
    Deferred Compensation The Bank has established deferred compensation plans for the benefit of its board of
directors. Under the plans, any director electing to defer directors fees will be
entitled to receive the accumulated benefits, including interest earned, over a period
of five to fifteen years following retirement. The Bank recognizes the liability for
these benefits over the service period. As of December 31, 2009 and December 31, 2008,
the liability for these benefits was $888,142 and $926,608, respectively. The expenses
incurred by the Bank for these plans totaled $21,991 and $39,376 for the years ended
December 31, 2009 and 2008, respectively. The Bank, utilizing bank owned life
insurance, has insured the lives of certain directors who participate in the deferred
compensation plans to assist in the funding of the deferred compensation liability. The
Bank is the owner and beneficiary of the insurance policies.
  F-26




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 13.
    
    Executive Benefit Plans
 The Bank has adopted a noncontributory executive salary continuation agreement and an
executive salary continuation plan for its former president. The following is a summary
of the plans funded status:
 December 31,2009
    
    
    2008Projected benefit obligation at beginning of period
    
    $
    449,863
    
    
    $
    473,004Service cost and net periodic benefit cost
    
    
    26,996
    
    
    
    27,331Payments to former president
    
    
    (59,659
    )
    
    
    (50,472
    )Net benefit liability at end of period
    
    $
    417,200
    
    
    $
    449,863
 The weighted-average discount rate used in determining the present value of the benefit
liability is 6%.Also, the Bank has an employment agreement with its president and chief executive
officer for post-retirement compensation and other related benefits. As of December 31,
2009 and December 31, 2008, the net present value liability of these benefits was
approximately $341,000 and $168,000, respectively. The expenses incurred by the Bank
for these executive benefits totaled $172,592 and $130,067 for the years ended December
31, 2009 and 2008, respectively.Note 14.
    
    Fair Value DisclosuresThe Bank 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 DisclosuresASC Topic 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. 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.ASC Topic 820 provides a consistent definition of fair value, which focuses on exit
price in an orderly transaction 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.
  F-27




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 14.
    
    Fair Value Disclosures(Continued)
 ASC Topic 820 also establishes a three-tier fair value which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value, as follows: Level 1  Quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Bank has the ability to access.Level 2  Significant other observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities in active markets, quoted prices in markets
that are not active and other inputs that are observable or can be corroborated by
observable market data.Level 3  Significant unobservable inputs that reflect a companys own assumptions
about the assumptions that market participants would use in pricing an asset or
liability. 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 Bank in estimating fair value
disclosures for financial instruments:Cash, cash equivalents, and interest-bearing deposits in banks:The carrying amounts of cash, cash equivalents, and interest-bearing deposits in banks
approximate fair values based on the short-term nature of the assets.Securities:Fair values are estimated 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. Securities classified as
available for sale are reported at fair value utilizing Level 2 inputs.Federal Home Loan Bank stock, at cost:The carrying value of FHLB stock approximates fair value based on the redemption
provisions of the FHLB.Loans:For variable-rate loans that reprice frequently and with no significant change in credit
risk, fair values are based on carrying values. Fair value for fixed-rate loans are
estimated using discounted cash flow analyses, using market interest rates for
comparable loans. The Bank does not record loans at fair value on a recurring basis.
However, from time to time, a loan is considered impaired and an allowance for loan
losses is
  F-28




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 14.
    
    Fair Value Disclosures(Continued)
 Loans: (continued)established. Loans for which it is probable that payment of interest and principal will
not be made in accordance with the contractual terms of the loan agreement are
considered impaired. Once a loan is identified as individually impaired, management
measures impairment in accordance with ASC Topic 310, Receivables. The fair value of
impaired loans is estimated using several methods including collateral value,
liquidation value and discounted cash flows. Those impaired loans not requiring an
allowance represent loans for which the fair value of the expected repayments or
collateral exceed the recorded investments in such loans. At December 31, 2009,
substantially all of the total impaired loans were evaluated based on the fair value of
collateral. In accordance with ASC Topic 310, impaired loans where an allowance is
established based on the fair value of collateral require classification in the fair
value hierarchy. When the fair value of the collateral is based on the observable
market price or a current, independent appraised value, the Bank records the impaired
loan as nonrecurring Level 2. The Bank records the impaired loan as nonrecurring Level
3 when management has become aware of events that have significantly impacted the
condition or marketability of the collateral since the most recent appraisal. In this
case, management will reduce the appraisal value based on factors determined by their
judgment and collective knowledge of the collateral and market conditions.Cash surrender value of bank owned life insurance:The carrying amounts of cash surrender value of bank owned life insurance approximate
their fair value. The carrying amount is based on information received from the
insurance carriers indicating the financial performance of the policies and the amount
the Company would receive should the policies be surrendered. The Bank reflects these
assets within Level 2 of the valuation hierarchy.Foreclosed real estate:Foreclosed real estate consisting of properties obtained through foreclosure or in
satisfaction of loans is initially recorded at fair value, determined on the basis of
current appraisals, comparable sales, and other estimates of value obtained principally
from independent sources, adjusted for estimated selling costs. At the time of
foreclosure, any excess of the loan balance over the fair value of the real estate held
as collateral is treated as a charge against the allowance for loan losses. Gains or
losses on sale and any subsequent adjustments to the fair value are recorded as a
component of foreclosed real estate expense. Other real estate is included in Level 2
of the valuation hierarchy.Deposits:The fair value of deposits with no stated maturity, such as noninterest-bearing demand
deposits and NOW, money market, and savings accounts, is equal to the amount payable on
demand at the reporting date. The fair value of time deposits is based on the
discounted value of contractual cash flows. The discount rate is estimated using the
rates currently offered for deposits of similar remaining maturities.
  F-29




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 14.
    
    Fair Value Disclosures(Continued)
 Securities sold under agreements to repurchase:The estimated fair value of these liabilities, which are extremely short term,
approximates their carrying value.Federal Home Loan Bank advances:Rates currently available to the Bank for debt with similar terms and remaining
maturities are used to estimate the fair value of existing debt.Accrued interest:The carrying amounts of accrued interest approximate fair value.Commitments to extend credit, letters of credit and lines of credit:The fair value of commitments is estimated using the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the agreements and
the present creditworthiness of the counterparties. For fixed-rate loan commitments,
fair value also considers the difference between current levels of interest rates and
the committed rates.The tables below present the recorded amount of assets and liabilities measured at fair
value on a recurring basis:
 Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Other
    
    
    OtherBalance as of
    
    
    for Identical
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Securities available
for sale:Securities of U.S.
Government agencies
and corporations
    
    $
    8,602,426
    
    
    $
    
    
    
    $
    8,602,426
    
    
    $
    Mortgage-backed
securities
    
    
    10,533,486
    
    
    
    
    
    
    
    10,533,486
    
    
    
    State and municipal
securities
    
    
    4,448,715
    
    
    
    
    
    
    
    4,448,715
    
    
    
    Total securities
available for sale
    
    $
    23,584,627
    
    
    $
    
    
    
    $
    23,584,627
    
    
    $
    Cash surrender value
of bank owned life
insurance
    
    $
    6,468,054
    
    
    $
    
    
    
    $
    6,468,054
    
    
    $
    
  F-30




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 14.
    
    Fair Value Disclosures(Continued)
 Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Other
    
    
    OtherBalance as of
    
    
    for Identical
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Securities available
for sale
    
    $
    30,509,092
    
    
    $
    
    
    
    $
    30,509,092
    
    
    $
    Cash surrender value
of bank owned life
insurance
    
    $
    6,245,790
    
    
    $
    
    
    
    $
    6,245,790
    
    
    $
    
 The tables below present information about assets and liabilities for which a
nonrecurring change in fair value was recorded:
 Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Other
    
    
    OtherBalance as of
    
    
    for Identical
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired loans
    
    $
    4,698,930
    
    
    $
    
    
    
    $
    4,687,430
    
    
    $
    11,500Foreclosed real estate
    
    
    779,642
    
    
    
    
    
    
    
    779,642
    
    
    
    
 Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets
    
    
    Other
    
    
    OtherBalance as of
    
    
    for Identical
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired loans
    
    $
    4,394,000
    
    
    $
    
    
    
    $
    4,209,000
    
    
    $
    185,000Foreclosed real estate
    
    
    230,491
    
    
    
    
    
    
    
    230,491
    
    
    
    
  F-31




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 14.
    
    Fair Value Disclosures(Continued)
 The carrying amount and estimated fair value of the Banks financial instruments at
December 31, 2009 and 2008, are as follows (in thousands):
 2009
    
    
    2008Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueFinancial assets:Cash and cash equivalents
    
    $
    40,707
    
    
    $
    40,707
    
    
    $
    4,547
    
    
    $
    4,547Interest-bearing deposits in banks
    
    
    1,279
    
    
    
    1,279
    
    
    
    1,881
    
    
    
    1,881Securities
    
    
    23,585
    
    
    
    23,585
    
    
    
    30,514
    
    
    
    30,514Federal Home Loan Bank stock, at cost
    
    
    2,899
    
    
    
    2,899
    
    
    
    2,899
    
    
    
    2,899Loans, net
    
    
    191,404
    
    
    
    193,362
    
    
    
    196,520
    
    
    
    198,575Cash surrender value of bank
owned life insurance
    
    
    6,468
    
    
    
    6,468
    
    
    
    6,246
    
    
    
    6,246Accrued interest receivable
    
    
    988
    
    
    
    988
    
    
    
    1,150
    
    
    
    1,150Financial liabilities:Deposits
    
    
    236,064
    
    
    
    242,097
    
    
    
    206,493
    
    
    
    214,439Securities sold under agreements
to repurchase
    
    
    899
    
    
    
    899
    
    
    
    912
    
    
    
    912Federal Home Loan Bank advances
    
    
    10,324
    
    
    
    10,553
    
    
    
    16,310
    
    
    
    16,883Accrued interest payable
    
    
    263
    
    
    
    263
    
    
    
    418
    
    
    
    418Unrecognized financial
instruments (net of contract amount):Commitments to extend credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Letter of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lines of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Note 15.
    
    Related Party TransactionsIn the ordinary course of business, the Bank grants loans to principal officers and
directors and their affiliates. The Bank is prohibited from making loans or extensions
of credit to executive officers and directors at different rates or terms than those
offered to the general public. Notwithstanding this rule, federal regulations permit
the Bank to make loans to executive officers at reduced interest rates if the loan is
made under a benefit program generally available to all other employees and does not
give preference to any executive officer over any other employee. All Bank employees
are provided a reduction in their interest rate of approximately 1.00%. Other than a
reduced interest rate, the loans are made on substantially the same terms as those
prevailing at the time for comparable transactions with other persons. Directors do not
participate in this benefit program. Loans to directors are substantially on the same
rates and terms offered to the general public. Further, in managements opinion, these
loans did not involve more than normal risk of collectability or present other
unfavorable features.
  F-32




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##### Table of Contents



ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 15.
    
    Related Party Transactions(Continued)
 Activity for the years ended December 31, 2009 and 2008, consisted of the following:
 2009
    
    
    2008Beginning balance
    
    $
    1,066,209
    
    
    $
    1,499,158New loans
    
    
    2,106,042
    
    
    
    1,230,730Repayments
    
    
    (1,993,121
    )
    
    
    (1,663,679
    )Ending balance
    
    $
    1,179,130
    
    
    $
    1,066,209
 The Bank held related party deposits of $5,337,406 and $5,099,187 at December 31, 2009
and 2008, respectively.Note 16.
    
    Financial Instruments With Off-Balance Sheet RiskThe Bank is party to financial instruments with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit. These
instruments involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recorded in the accompanying consolidated balance sheets. Such
financial instruments are recorded when they are funded.The Banks exposure to credit loss in the event of nonperformance by the counterparty to
the financial instruments for commitments to extend credit and standby letters of credit
is represented by the contractual amount of those instruments. The Bank uses the same
credit policies in making such commitments as it does for instruments that are included
in the balance sheet.At December 31, 2009 and 2008, commitments under standby letters of credit were
approximately $2,571,000, $3,200,000, respectively. Undisbursed loan commitments
aggregated approximately $14,248,000 and $22,869,000 at December 31, 2009 and 2008,
respectively. Approximately $479,000 of the $14,248,000 and $4,357,000 of the
$22,869,000 undisbursed loan commitments at December 31, 2009 and December 31, 2008,
respectively, represented fixed rate loan commitments for which the interest rates
committed ranged from 3.98% to 21.00% at December 31, 2009 and 4.97% to 21.00% at
December 31, 2008.
  F-33




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ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 16.
    
    Financial Instruments With Off-Balance Sheet Risk(Continued)Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have
fixed expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The Bank
evaluates each customers creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit, is based
on managements credit evaluation. Collateral held varies but may include accounts
receivable, inventory, property and equipment, and income-producing commercial
properties.Standby letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. Standby letters of credit generally
have fixed expiration dates or other termination clauses and may require payment of a
fee. The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Banks policy for
obtaining collateral, and the nature of such collateral, is essentially the same as that
involved in making commitments to extend credit.The Bank has not been required to perform on any financial guarantees during any of the
periods presented. The Bank has not incurred any losses on its commitments for the
years ended December 31, 2009 and 2008.
  F-34




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ATHENS FEDERAL COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
 Note 17. Quarterly Data (Unaudited)
 Years Ended December 31,2009
    
    
    2008Fourth
    
    
    Third
    
    
    Second
    
    
    First
    
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    FirstQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterInterest income
    
    $
    3,547,950
    
    
    $
    3,608,877
    
    
    $
    3,719,076
    
    
    $
    3,791,967
    
    
    $
    3,888,192
    
    
    $
    3,856,054
    
    
    $
    3,876,649
    
    
    $
    3,959,514Interest expense
    
    
    1,286,428
    
    
    
    1,367,696
    
    
    
    1,450,273
    
    
    
    1,553,015
    
    
    
    1,713,945
    
    
    
    1,743,768
    
    
    
    1,779,670
    
    
    
    1,895,625Net interest
income
    
    
    2,261,522
    
    
    
    2,241,181
    
    
    
    2,268,803
    
    
    
    2,238,952
    
    
    
    2,174,247
    
    
    
    2,112,286
    
    
    
    2,096,979
    
    
    
    2,063,889Provision for loan
losses
    
    
    477,537
    
    
    
    428,270
    
    
    
    48,059
    
    
    
    69,674
    
    
    
    151,972
    
    
    
    321,795
    
    
    
    214,429
    
    
    
    72,607Net interest
income after
provision for
loan losses
    
    
    1,783,985
    
    
    
    1,812,911
    
    
    
    2,220,744
    
    
    
    2,169,278
    
    
    
    2,022,275
    
    
    
    1,790,491
    
    
    
    1,882,550
    
    
    
    1,991,282Noninterest income
    
    
    1,104,898
    
    
    
    1,076,823
    
    
    
    1,271,053
    
    
    
    1,217,345
    
    
    
    959,636
    
    
    
    1,017,491
    
    
    
    1,109,492
    
    
    
    1,074,223Noninterest
expenses
    
    
    2,648,619
    
    
    
    2,629,979
    
    
    
    2,790,488
    
    
    
    2,598,613
    
    
    
    2,172,044
    
    
    
    2,637,117
    
    
    
    2,692,372
    
    
    
    2,749,247Income before
income taxes
    
    
    240,264
    
    
    
    259,755
    
    
    
    701,309
    
    
    
    788,010
    
    
    
    809,867
    
    
    
    170,865
    
    
    
    299,670
    
    
    
    316,258Income taxes
    
    
    186,451
    
    
    
    52,119
    
    
    
    118,425
    
    
    
    287,265
    
    
    
    309,674
    
    
    
    24,611
    
    
    
    78,368
    
    
    
    74,600Net income
    
    $
    53,813
    
    
    $
    207,636
    
    
    $
    582,884
    
    
    $
    500,745
    
    
    $
    500,193
    
    
    $
    146,254
    
    
    $
    221,302
    
    
    $
    241,658
  F-35




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##### Table of Contents



SIGNATURES
  ATHENS BANCSHARES CORPORATIONDate: March 29, 2010
    By:
    /s/ Jeffrey L. CunninghamJeffrey L. CunninghamPresident, Chief Executive Officer and Director  Name
    
    Title
    
    Date/s/ Jeffrey L. Cunningham
    
    President, Chief Executive Officer
and Director
    
    March 29, 2010Jeffrey L. Cunningham
    
    (principal executive officer)/s/ Michael R. Hutsell
    
    Treasurer and Chief Financial Officer
    
    March 29, 2010Michael R. Hutsell
    
    (principal accounting and financial officer)/s/ Dr. James L. Carter, Jr.
    
    Director
    
    March 29, 2010Dr. James L. Carter, Jr./s/ Elaine M. Cathcart
    
    Director
    
    March 29, 2010Elaine M. Cathcart/s/ G. Scott Hannah
    
    Director
    
    March 29, 2010G. Scott Hannah/s/ G. Timothy Howard
    
    Director
    
    March 29, 2010G. Timothy Howard/s/ M. Darrell Murray
    
    Director
    
    March 29, 2010M. Darrell Murray/s/ Lyn B. Thompson
    
    Director
    
    March 29, 2010Lyn B. Thompson/s/ Larry D. Wallace
    
    Director
    
    March 29, 2010Larry D. Wallace