UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM 10-Q




(Mark
One)




x
              QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the quarterly period ended June 30, 2010




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   000-50771




AMERICAN PATRIOT FINANCIAL
GROUP, INC.


(Exact
name of registrant as specified in its charter)




Tennessee
                    
                    20-0307691(State
      or other jurisdiction of
                    
                    (I.R.S.
      Employer Identification No.)incorporation
      or organization)3095
      East Andrew Johnson Highway
                      Greeneville,
      Tennessee
                    
                    37745(Address
      of principal executive offices)
                    
                    (Zip
      Code)





Registrant’s
telephone number, including area code:  (423) 636-1555





Not
Applicable


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




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





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





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





Large
accelerated filer o        Accelerated
filer o        Non-accelerated
filer o       Smaller
reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.) YES oNOx





As of
August 1, 2010, there were 2,389,391 shares of common stock, $0.333 par value,
issued and outstanding.





PART
      I - FINANCIAL INFORMATION
                            
                            3Item
      1.
                            Financial
      Statements.
                            
                            3The
      consolidated financial statements of the Registrant and its wholly owned
      subsidiary are as follows:Consolidated
      Balance Sheets - June 30, 2010 (unaudited) and December 31,
      2009.
                            
                            3Consolidated
      Statements of Operations - For the six months ended June 30, 2010 and 2009
      (unaudited).
                            
                            4Consolidated
      Statements of Operations - For the three months ended June 30, 2010 and
      2009 (unaudited).
                            
                            5Consolidated
      Statements of Changes in Stockholders’ Equity - For the six months ended
      June 30, 2010 (unaudited).
                            
                            6Consolidated
      Statements of Cash Flows - For the six months ended June 30, 2010 and 2009
      (unaudited).
                            
                            7Notes
      to Consolidated Financial Statements.
                            
                            9Item
      2.
                            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                            
                            16Item
      3.
                            Quantitative
      and Qualitative Disclosures About Market Risk.
                            
                            25Item
      4.
                            Controls
      and Procedures.
                            
                            25PART
      II - OTHER INFORMATION
                            
                            26Item
      1.
                            Legal
      Proceedings.
                            
                            26Item
      1A.
                            Risk
      Factors.
                            
                            26Item
      2.
                            Unregistered
      Sales of Equity Securities and Use of Proceeds.
                            
                            26Item
      3.
                            Defaults
      Upon Senior Securities.
                            
                            26Item
      4.
                            (Removed
      and Reserved).
                            
                            27Item
      5.
                            Other
      Information.
                            
                            27Item
      6.
                            Exhibits.
                            
                            27


2


AMERICAN
PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY


Greeneville,
Tennessee


CONSOLIDATED
BALANCE SHEETS





Part
I. FINANCIAL INFORMATION


Item
1.  Financial Statements


As of
                                
                                
                                As ofJune 30, 2010
                                
                                
                                December 31, 2009(Unaudited)ASSETSCash
      and due from banks
                                
                                $
                                3,811,911
                                
                                
                                $
                                4,606,244Federal
      funds sold
                                
                                
                                3,273,575
                                
                                
                                
                                3,137,654Interest-bearing
      deposits in banks
                                
                                
                                1,008,027
                                
                                
                                
                                2,470,118Cash
      and cash equivalents
                                
                                
                                8,093,513
                                
                                
                                
                                10,214,016Securities
      available for sale
                                
                                
                                3,010,350
                                
                                
                                
                                2,984,945Federal
      Home Loan Bank stock, at cost
                                
                                
                                296,500
                                
                                
                                
                                296,500Loans,
      net of allowance for loan losses of$2,578,066
      in 2010 and $3,082,659 in 2009
                                
                                
                                83,484,978
                                
                                
                                
                                92,562,338Premises
      and equipment, net
                                
                                
                                4,923,324
                                
                                
                                
                                5,047,047Accrued
      interest receivable
                                
                                
                                535,590
                                
                                
                                
                                390,165Deferred
      tax assets, net
                                
                                
                                218,035
                                
                                
                                
                                228,303Foreclosed
      assets
                                
                                
                                4,575,315
                                
                                
                                
                                3,409,635Cash
      surrender value of bank owned life insurance
                                
                                
                                2,517,620
                                
                                
                                
                                2,464,771Other
      assets
                                
                                
                                572,537
                                
                                
                                
                                616,518Total
      Assets
                                
                                $
                                108,227,762
                                
                                
                                $
                                118,214,238LIABILITIES
      AND STOCKHOLDERS’ EQUITYLIABILITIESDeposits:Noninterest-bearingDemand
                                
                                $
                                5,950,528
                                
                                
                                $
                                6,669,598Interest-bearingMoney
      market, interest checking and savings
                                
                                
                                22,848,379
                                
                                
                                
                                25,512,212Time
      deposits
                                
                                
                                71,083,859
                                
                                
                                
                                74,327,770Total
      Deposits
                                
                                
                                99,882,766
                                
                                
                                
                                106,509,580Accrued
      interest payable
                                
                                
                                347,687
                                
                                
                                
                                621,045Other
      liabilities
                                
                                
                                472,619
                                
                                
                                
                                428,826Federal
      Home Loan Bank and other borrowings
                                
                                
                                4,380,612
                                
                                
                                
                                6,338,497Total
      Liabilities
                                
                                
                                105,083,684
                                
                                
                                
                                113,897,948Commitments
      and Contingencies
                                
                                
                                -
                                
                                
                                
                                -STOCKHOLDERS’
      EQUITYStock:Preferred
      stock, no par value; authorized 1,000,000 shares;issued
      and outstanding 177 shares at June 30, 2010
                                
                                
                                136,937
                                
                                
                                
                                -Common
      stock, $0.333 par value; authorized6,000,000
      shares; issued and outstanding 2,389,391shares
      at June 30, 2010 and  December 31, 2009
                                
                                
                                796,337
                                
                                
                                
                                796,337Additional
      paid-in capital
                                
                                
                                7,167,260
                                
                                
                                
                                7,167,260Retained
      deficit
                                
                                
                                (4,963,712
                                )
                                
                                
                                (3,638,017
                                )Accumulated
      other comprehensive income
                                
                                
                                7,256
                                
                                
                                
                                (9,290
                                )Total
      Stockholders’ Equity
                                
                                
                                3,144,078
                                
                                
                                
                                4,316,290Total
      Liabilities and Stockholders’ Equity
                                
                                $
                                108,227,762
                                
                                
                                $
                                118,214,238





The
accompanying notes are an integral part of these consolidated financial
statements.


3


AMERICAN
PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY


Greeneville,
Tennessee


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





Six Months EndedJune 30, 2010
                          
                          
                          June 30, 2009Interest
      and dividend income:Loans,
      including fees
                          
                          $
                          2,734,011
                          
                          
                          $
                          3,159,269Investment
      securities
                          
                          
                          24,745
                          
                          
                          
                          -Dividends
      on Federal Home Loan Bank stock
                          
                          
                          6,653
                          
                          
                          
                          6,528Federal
      funds sold and other
                          
                          
                          13,689
                          
                          
                          
                          11,505Total
      interest and dividend income
                          
                          
                          2,779,098
                          
                          
                          
                          3,177,302Interest
      expense:Deposits
                          
                          
                          950,344
                          
                          
                          
                          1,493,467Borrowed
      funds
                          
                          
                          96,195
                          
                          
                          
                          130,417Total
      interest expense
                          
                          
                          1,046,539
                          
                          
                          
                          1,623,884Net
      interest income before provisionfor loan
    losses
                          
                          
                          1,732,559
                          
                          
                          
                          1,553,418Provision
      for loan losses
                          
                          
                          847,901
                          
                          
                          
                          2,024,995Net
      interest income (loss) after provisionfor loan
      losses
                          
                          
                          884,658
                          
                          
                          
                          (471,577
                          )Noninterest
      income:Service
      charges on deposit accounts
                          
                          
                          193,932
                          
                          
                          
                          210,158Fees
      from origination of mortgage loans sold
                          
                          
                          9,248
                          
                          
                          
                          15,875Other
                          
                          
                          60,302
                          
                          
                          
                          70,763Total
      noninterest income
                          
                          
                          263,482
                          
                          
                          
                          296,796Noninterest
      expense:Salaries
      and employee benefits
                          
                          
                          754,670
                          
                          
                          
                          889,132Occupancy
                          
                          
                          288,172
                          
                          
                          
                          303,910Advertising
                          
                          
                          10,573
                          
                          
                          
                          25,995Data
      processing
                          
                          
                          160,492
                          
                          
                          
                          165,289Legal
      and professional
                          
                          
                          253,074
                          
                          
                          
                          388,069Other
      operating
                          
                          
                          1,003,211
                          
                          
                          
                          482,356Total
      noninterest expense
                          
                          
                          2,470,192
                          
                          
                          
                          2,254,751Net
      loss before income taxes
                          
                          
                          (1,322,052
                          )
                          
                          
                          (2,429,532
                          )Income
      tax benefit
                          
                          
                          -
                          
                          
                          
                          (930,340
                          )Net
      loss
                          
                          
                          (1,322,052
                          )
                          
                          $
                          (1,499,192
                          )Basic
      net loss per common share
                          
                          $
                          (.55
                          )
                          
                          $
                          (.63
                          )Diluted
      net loss per common share
                          
                          $
                          (.55
                          )
                          
                          $
                          (.63
                          )





The
accompanying notes are an integral part of these consolidated financial
statements.


4


AMERICAN
PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY


Greeneville,
Tennessee


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





Three Months EndedJune 30, 2010
                          
                          
                          June 30, 2009Interest
      and dividend income:Loans,
      including fees
                          
                          $
                          1,379,864
                          
                          
                          $
                          1,492,679Investment
      securities
                          
                          
                          12,800
                          
                          
                          
                          -Dividends
      on Federal Home Loan Bank stock
                          
                          
                          3,290
                          
                          
                          
                          3,234Federal
      funds sold and other
                          
                          
                          7,121
                          
                          
                          
                          8,191Total
      interest and dividend income
                          
                          
                          1,403,075
                          
                          
                          
                          1,504,104Interest
      expense:Deposits
                          
                          
                          458,161
                          
                          
                          
                          747,850Borrowed
      funds
                          
                          
                          32,543
                          
                          
                          
                          64,911Total
      interest expense
                          
                          
                          490,704
                          
                          
                          
                          812,761Net
      interest income before provisionfor loan
    losses
                          
                          
                          912,371
                          
                          
                          
                          691,343Provision
      for loan losses
                          
                          
                          8,734
                          
                          
                          
                          1,168,339Net
      interest income (loss) after provisionfor loan
      losses
                          
                          
                          903,637
                          
                          
                          
                          (476,996
                          )Noninterest
      income:Service
      charges on deposit accounts
                          
                          
                          102,248
                          
                          
                          
                          107,077Fees
      from origination of mortgage loans sold
                          
                          
                          7,045
                          
                          
                          
                          5,376Other
                          
                          
                          34,214
                          
                          
                          
                          35,270Total
      noninterest income
                          
                          
                          143,507
                          
                          
                          
                          147,723Noninterest
      expense:Salaries
      and employee benefits
                          
                          
                          348,839
                          
                          
                          
                          403,665Occupancy
                          
                          
                          146,788
                          
                          
                          
                          156,938Advertising
                          
                          
                          3,897
                          
                          
                          
                          3,581Data
      processing
                          
                          
                          74,997
                          
                          
                          
                          81,739Legal
      and professional
                          
                          
                          137,071
                          
                          
                          
                          255,695Other
      operating
                          
                          
                          558,800
                          
                          
                          
                          271,199Total
      noninterest expense
                          
                          
                          1,270,392
                          
                          
                          
                          1,172,817Net
      loss before income taxes
                          
                          
                          (223,248
                          )
                          
                          
                          (1,502,090
                          )Income
      tax benefit
                          
                          
                          -
                          
                          
                          
                          (576,933
                          )Net
      loss
                          
                          
                          (223,248
                          )
                          
                          $
                          (925,157
                          )Basic
      net loss per common share
                          
                          $
                          (.09
                          )
                          
                          $
                          (.39
                          )Diluted
      net loss per common share
                          
                          $
                          (.09
                          )
                          
                          $
                          (.39
                          )





The
accompanying notes are an integral part of these consolidated financial
statements.


5


AMERICAN
PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY


Greeneville,
Tennessee


CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED


Six
Months Ended June 30, 2010





AccumulatedAdditional
                          
                          
                          
                          
                          
                          OtherComprehensive
                          
                          
                          Preferred
                          
                          
                          Common
                          
                          
                          Paid-In
                          
                          
                          Retained
                          
                          
                          ComprehensiveIncome
                          
                          
                          Stock
                          
                          
                          Stock
                          
                          
                          Capital
                          
                          
                          Deficit
                          
                          
                          Income
                          
                          
                          TotalBalance,
      December 31, 2009
                          
                          
                          
                          
                          $
                          -
                          
                          
                          $
                          796,337
                          
                          
                          $
                          7,167,260
                          
                          
                          $
                          (3,638,017
                          )
                          
                          $
                          (9,290
                          )
                          
                          $
                          4,316,290Comprehensive
      loss:Net
      loss
                          
                          $
                          (1,322,052
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,322,052
                          )
                          
                          
                          -
                          
                          
                          
                          (1,322,052
                          )Other
      comprehensive income:Unrealized
      holding gains on
      securities available for sale,net of tax effect of
      $10,268
                          
                          
                          16,546
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          16,546
                          
                          
                          
                          16,546Total
      comprehensive loss
                          
                          $
                          (1,305,506
                          )Issuance
      of preferred stock
                          
                          
                          
                          
                          
                          
                          133,294
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          133,294Accretion
      of discount on preferred stock -Series A
                          
                          
                          
                          
                          
                          
                          3,643
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (3,643
                          )
                          
                          
                          -
                          
                          
                          
                          -Balance,
      June 30, 2010
                          
                          
                          
                          
                          
                          $
                          136,937
                          
                          
                          $
                          796,337
                          
                          
                          $
                          7,167,260
                          
                          
                          $
                          (4,963,712
                          )
                          
                          $
                          7,256
                          
                          
                          $
                          3,144,078





The
accompanying notes are an integral part of these consolidated financial
statements.


6


AMERICAN
PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY


Greeneville,
Tennessee


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


SixMonths EndedJune 30, 2010
                                    
                                    
                                    June 30, 2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                                    
                                    $
                                    (1,322,052
                                    )
                                    
                                    $
                                    (1,499,192
                                    )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Provision
      for loan losses
                                    
                                    
                                    847,901
                                    
                                    
                                    
                                    2,024,995Depreciation
                                    
                                    
                                    138,569
                                    
                                    
                                    
                                    158,486Write-down
      of foreclosed assets
                                    
                                    
                                    78,739
                                    
                                    
                                    
                                    -Realized
      loss on sales of foreclosed assets
                                    
                                    
                                    154,073
                                    
                                    
                                    
                                    2,415Deferred
      income tax benefit
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (930,340
                                    )Increase
      in cash surrender value of bank owned lifeinsurance
                                    
                                    
                                    (52,849
                                    )
                                    
                                    
                                    (57,808
                                    )Net
      change in:Accrued
      interest receivable
                                    
                                    
                                    (145,425
                                    )
                                    
                                    
                                    88,803Other
      assets
                                    
                                    
                                    43,981
                                    
                                    
                                    
                                    34,500Other
      liabilities
                                    
                                    
                                    43,793
                                    
                                    
                                    
                                    (2,966
                                    )Accrued
      interest payable
                                    
                                    
                                    (273,358
                                    )
                                    
                                    
                                    162,204Net
      cash used in operating activities
                                    
                                    
                                    (486,628
                                    )
                                    
                                    
                                    (18,903
                                    )CASH
      FLOWS FROM INVESTING ACTIVITIES:Securities
      available for sale:Purchases
                                    
                                    
                                    (500,000
                                    )
                                    
                                    
                                    -Maturities,
      prepayments, and calls
                                    
                                    
                                    501,409
                                    
                                    
                                    
                                    -Federal
      Home Loan Bank stock purchase
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (5,300
                                    )Proceeds
      from sale of foreclosed assets
                                    
                                    
                                    493,855
                                    
                                    
                                    
                                    14,952Loan
      originations and principal collections, net
                                    
                                    
                                    6,337,112
                                    
                                    
                                    
                                    (1,781,222
                                    )Additions
      to premises and equipment
                                    
                                    
                                    (14,846
                                    )
                                    
                                    
                                    (4,718
                                    )Net
      cash provided by (used in)investing
    activities
                                    
                                    
                                    6,817,530
                                    
                                    
                                    
                                    (1,776,288
                                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      change in deposits (non-time deposits)
                                    
                                    
                                    (3,382,903
                                    )
                                    
                                    
                                    6,168,250Net
      change in time deposits
                                    
                                    
                                    (3,243,911
                                    )
                                    
                                    
                                    7,681,140Issuance
      of stock
                                    
                                    
                                    133,294
                                    
                                    
                                    
                                    -Repayments
      of other borrowings
                                    
                                    
                                    (107,000
                                    )
                                    
                                    
                                    -Federal
      Home Loan Bank repayments
                                    
                                    
                                    (1,850,885
                                    )
                                    
                                    
                                    (117,382
                                    )Net
      cash (used in) provided byfinancing
    activities
                                    
                                    
                                    (8,451,405
                                    )
                                    
                                    
                                    13,732,008Net
      change in cash and cash equivalents
                                    
                                    
                                    (2,120,503
                                    )
                                    
                                    
                                    11,936,817Cash
      and cash equivalents at beginning of period
                                    
                                    
                                    10,214,016
                                    
                                    
                                    
                                    6,396,406Cash
      and cash equivalents at end of period
                                    
                                    $
                                    8,093,513
                                    
                                    
                                    $
                                    18,333,223





The
accompanying notes are an integral part of these consolidated financial
statements.


7





AMERICAN
PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY


Greeneville,
Tennessee


CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)


(Unaudited)





Six Months EndedJune 30, 2010
                
                
                June 30, 2009SUPPLEMENTARY
      CASH FLOW INFORMATION:Interest
      paid on deposits and borrowed funds
                
                $
                1,319,897
                
                
                $
                1,461,680Income
      taxes paid
                
                $
                -
                
                
                $
                152,004SUPPLEMENTAL
      SCHEDULE OF NON-CASH ACTIVITIES:Loans
      moved to foreclosed/repossessed assets
                
                $
                1,892,347
                
                
                $
                2,454,965





The
accompanying notes are an integral part of these consolidated financial
statements.


8


AMERICAN
PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY


Greeneville,
Tennessee


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Note
1.   Summary of Significant Accounting Policies





Nature of
Business:





American
Patriot Financial Group, Inc. (the “Company”) is a bank holding company which
owns all of the outstanding common stock of American Patriot Bank (the
“Bank”).  The Bank provides a variety of financial services through
its locations in Greeneville and Maryville, Tennessee and surrounding
areas.  The Bank’s primary deposit products are demand deposits,
savings accounts, and certificates of deposit.  Its primary lending
products are commercial loans, real estate loans, and installment
loans.





The
following is a description of the significant policies used in the preparation
of the accompanying consolidated financial statements.





Basis
of Presentation:





These
consolidated financial statements include the accounts of American Patriot
Financial Group, Inc. and its wholly owned subsidiary, American Patriot
Bank.  Significant intercompany transactions and accounts are
eliminated in consolidation.





The
accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
("GAAP") for interim financial information and in accordance with the
instructions to Form 10-Q and Article 10 of Regulation  S-X as
promulgated by the Securities and Exchange Commission
(“SEC”).  Accordingly, they do not include all the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements.  In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the financial position and results of
operations for the periods presented have been included.  Operating
results for the three and six months ended June 30, 2010, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2010.  For further information, refer to the consolidated financial
statements and notes thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2009.  Certain amounts from prior
period financial statements have been reclassified to conform to current
period’s presentation.





Preferred
Stock Issuance:





In
accordance with its charter, the Company has authorized and began offering and
issuing up to 5,000 shares of series A Preferred Stock (preferred stock) at a
price of $1,000 per share.  The preferred stock will accrue cumulative
dividends at a rate of 6% per annum.  Dividends will be payable
quarterly in arrears.  However, the Bank and Company are currently
prohibited from paying dividends.  The shares have a liquidation
preference of $1,000 per share.  The shares may be converted to common
stock after three years at a $5.00 per share conversion rate.  The
preferred stock is redeemable only at the option of the Company, subject to
regulatory approval, after the third anniversary date of the investment at 100%
of the issuance price of $1,000 per share plus any accrued and unpaid
dividends.  The preferred stock ranks senior to the Company's common
stock, and no dividends on common stock may be declared or paid until all
accrued and unpaid dividends for all past dividend periods have been paid on the
preferred stock.  The preferred stock is non-voting, other than
certain class voting rights. For the six months ended June 30, 2010, the Company
issued 177 shares of preferred stock.  The Company incurred $43,706 in
issuance costs.


9





Going
Concern:





The
Company continues to prepare its consolidated financial statements on a going
concern basis. For further information regarding this issue, refer to note 2
“Regulatory Actions & Going Concern Considerations” of the Company’s Annual
Report on Form 10-K for the year ended December 31, 2009, as filed with the
Securities and Exchange Commission on April 15, 2010. The consolidated financial
statements and notes thereto are presented in accordance with the instructions
for Form 10-K.





Use
of Estimates:





The
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 disclosures of contingent assets and
liabilities as of the balance sheet date and the reported amounts of revenues
and expenses during the reporting period.  Actual results could differ
from those estimates.  The most significant management accounting
estimate is the allowance for loan losses.  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.





Note
      2.
            Stock
      Options and Awards





No
      options were granted during the six months ended June 30, 2010, and no
      compensation cost related to options is recognized in the consolidated
      statements of income for the six months ended June 30, 2010 or
      2009.  No intrinsic value exists at June 30, 2010, as the market
      price of the Company's common stock of $2.75 per common share is below the
      exercise price of the outstanding
options.





Note
3.   Earnings (Loss) Per Share of Common Stock





Basic
      earnings (loss) per share (EPS) of common stock is computed by dividing
      net income (loss) available to common shareholders by the weighted average
      number of common shares outstanding during the period.  Diluted
      earnings (loss) per share of common stock is computed by dividing net
      income (loss) available to common shareholders by the weighted average
      number of common shares and potential dilutive common shares outstanding
      during the period.  Stock options are regarded as potential
      common shares.  Potential common shares are computed using the
      treasury stock method.  For the six months ended June 30, 2010,
      31,650 options are excluded from the effect of dilutive securities because
      they are anti-dilutive; 71,150 options are similarly excluded from the
      effect of dilutive securities for the six months ended June 30,
      2009.


10





The
      following is a reconciliation of the numerators and denominators used in
      the basic and diluted earnings (loss) per share computations for the three
      and six months ended June 30, 2010 and
2009.





Three Months Ended June 30,2010
                                    
                                    
                                    2009Income (Loss)
                                    
                                    
                                    Shares
                                    
                                    
                                    Income (Loss)
                                    
                                    
                                    Shares(Numerator)
                                    
                                    
                                    (Denominator)
                                    
                                    
                                    (Numerator)
                                    
                                    
                                    (Denominator)Basic
      EPSIncome
      (loss) available tocommon
      stockholders
                                    
                                    $
                                    (223,248
                                    )
                                    
                                    
                                    2,389,391
                                    
                                    
                                    $
                                    (925,157
                                    )
                                    
                                    
                                    2,389,391Effect
      of dilutive securitiesStock
      options outstanding
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Diluted
      EPSIncome
      (loss) available tocommon
      shareholders plusassumed
      conversions
                                    
                                    $
                                    (223,248
                                    )
                                    
                                    
                                    2,389,391
                                    
                                    
                                    $
                                    (925,157
                                    )
                                    
                                    
                                    2,389,391





Six Months Ended June 30,2010
                      
                      
                      2009Income
                      
                      
                      Shares
                      
                      
                      Income
                      
                      
                      Shares(Numerator)
                      
                      
                      (Denominator)
                      
                      
                      (Numerator)
                      
                      
                      (Denominator)Basic
      EPSIncome
      (loss) available tocommon
      stockholders
                      
                      $
                      (1,322,052
                      )
                      
                      
                      2,389,391
                      
                      
                      $
                      (1,499,192
                      )
                      
                      
                      2,389,391Effect
      of dilutive securitiesStock
      options outstanding
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Diluted
      EPSIncome
      (loss) available tocommon
      shareholders plusassumed
      conversions
                      
                      $
                      (1,322,052
                      )
                      
                      
                      2,389,391
                      
                      
                      $
                      (1,499,192
                      )
                      
                      
                      2,389,391


11


Note
      4.
            Fair
      Value Disclosures





The
      Company uses fair value measurements to record fair value adjustments to
      certain assets and liabilities and to determine fair value
      disclosures.  In accordance with the Fair Value Measurements and
      Disclosures ASC 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.





ASC
      Topic 820 also establishes a three-tier fair value hierarchy 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 Company 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 the 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 Company in estimating
      fair value disclosures for financial
  instruments:





Cash
      and cash equivalents:





The
      carrying amounts of cash and due from banks, interest-bearing deposits in
      banks, and federal funds sold 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.


12





The
carrying value of Federal Home Loan Bank stock approximates fair value based on
the redemption provisions of the Federal Home Loan Bank.





Loans:





For
      variable-rate loans that reprice frequently and with no significant change
      in credit risk, fair values are based on carrying values.  Fair
      values for fixed-rate loans are estimated using discounted cash flow
      analyses, using market interest rates for comparable
      loans.  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, Accounting by Creditorsfor Impairment of
      a Loan.  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 June 30, 2010, substantially all of the total
      impaired loans were evaluated based on the fair value of
      collateral.  In accordance with ASC Topic 820, 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 an observable market price or a
      current appraised value, the Company records the impaired loan as
      nonrecurring Level 2.  When an appraised value is not
      available or management determines the fair value of the collateral is
      further impaired below the appraised value and there is no observable
      market price, the Company records the impaired loan as nonrecurring Level
      3.





Accrued
      interest:





The
      carrying amounts of accrued interest approximate fair
    value.





Foreclosed
      assets:





Foreclosed
      assets, 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 adjustment
      to the fair value are recorded as a component of foreclosed real estate
      expense.  Foreclosed assets are included in Level 2 of the
      valuation hierarchy when the fair value is based on an observable market
      price or a current appraised value.  When an appraised value is
      not available or management determines the foreclosed asset is impaired
      below the appraised value and there is no observable market price, the
      Company records the foreclosed asset as nonrecurring Level
    3.





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 Company reflects these
      assets within Level 2 of the valuation
  hierarchy.


13





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 carrying amounts of variable-rate, fixed-term money
      market accounts and certificates of deposit approximate their fair values
      at the reporting date.  Fair values for fixed-rate certificates
      of deposit are estimated using a discounted cash flow calculation that
      applies market interest rates on comparable instruments to a schedule of
      aggregated expected monthly maturities on time
  deposits.





Federal
      Home Loan Bank and other
borrowings:





Fair
      values of Federal Home Loan Bank and other borrowings are estimated using
      discounted cash flow analyses based on the Company’s current incremental
      borrowing rates for similar types of borrowing
    arrangements.





The
      tables below present the recorded amount of assets and liabilities
      measured at fair value on a recurring
basis.






Quoted Prices in
                  
                  
                  Significant
                  
                  
                  SignificantBalance as
                  
                  
                  Active Markets
                  
                  
                  Other
                  
                  
                  Otherof
                  
                  
                  for Identical
                  
                  
                  Observable
                  
                  
                  UnobservableJune 30,
                  
                  
                  Assets
                  
                  
                  Inputs
                  
                  
                  Inputs2010
                  
                  
                  (Level 1)
                  
                  
                  (Level 2)
                  
                  
                  (Level 3)Securities
      available for sale:U.S.
      Government-sponsoredEnterprises (GSEs)
                  
                  $
                  3,010,350
                  
                  
                  $
                  -
                  
                  
                  $
                  3,010,350
                  
                  
                  $
                  -Cash
      surrender value of life insurance
                  
                  $
                  2,517,620
                  
                  
                  $
                  -
                  
                  
                  $
                  2,517,620
                  
                  
                  $
                  -




The
      Company has no assets or liabilities whose fair values are measured on a
      recurring basis using Level 3
inputs.





Certain
      assets and liabilities are measured at fair value on a nonrecurring basis,
      which means the assets and liabilities are not measured at fair value on
      an ongoing basis but are subject to fair value adjustments in certain
      circumstances (for example, when there is evidence of
      impairment).  The tables below present information about assets
      and liabilities for which a nonrecurring change in fair value was
      recorded.




Quoted Prices in
                
                
                Significant
                
                
                SignificantBalance as
                
                
                Active Markets
                
                
                Other
                
                
                Otherof
                
                
                for Identical
                
                
                Observable
                
                
                UnobservableJune 30,
                
                
                Assets
                
                
                Inputs
                
                
                Inputs2010
                
                
                (Level 1)
                
                
                (Level 2)
                
                
                (Level 3)Impaired
      loans
                
                $
                4,109,835
                
                
                $
                -
                
                
                $
                4,109835
                
                
                $
                -Foreclosed
      real estate
                
                
                4,575,315
                
                
                
                -
                
                
                
                3,873,457
                
                
                
                701,858




14





Loans
      include impaired loans held for investment for which an allowance for loan
      losses has been calculated based upon the fair value of the loans at June
      30, 2010.





The
      carrying amount and estimated fair value of the Company's financial
      instruments are as follows:





June 30, 2010
                            
                            
                            December 31, 2009Carrying
                            
                            
                            Fair
                            
                            
                            Carrying
                            
                            
                            FairAmount
                            
                            
                            Value
                            
                            
                            Amount
                            
                            
                            ValueFinancial
      Assets:Cash
      and cash equivalents
                            
                            $
                            8,093,513
                            
                            
                            $
                            8,093,513
                            
                            
                            $
                            10,214,016
                            
                            
                            $
                            10,214,016Securities
      available for sale
                            
                            
                            3,010,350
                            
                            
                            
                            3,010,350
                            
                            
                            
                            2,984,945
                            
                            
                            
                            2,984,945Federal
      Home Loan Bank stock
                            
                            
                            296,500
                            
                            
                            
                            296,500
                            
                            
                            
                            296,500
                            
                            
                            
                            296,500Loans,
      net
                            
                            
                            83,484,978
                            
                            
                            
                            83,659,265
                            
                            
                            
                            92,562,338
                            
                            
                            
                            92,675,811Accrued
      interest receivable
                            
                            
                            535,590
                            
                            
                            
                            535,590
                            
                            
                            
                            390,165
                            
                            
                            
                            390,165Cash
      surrender value of life insurance
                            
                            
                            2,517,620
                            
                            
                            
                            2,517,620
                            
                            
                            
                            2,464,771
                            
                            
                            
                            2,464,771Financial
      Liabilities:Deposits
                            
                            
                            99,882,766
                            
                            
                            
                            100,235,363
                            
                            
                            
                            106,509,580
                            
                            
                            
                            107,009,991Accrued
      interest payable
                            
                            
                            347,687
                            
                            
                            
                            347,687
                            
                            
                            
                            621,045
                            
                            
                            
                            621,045Federal
      Home Loan Bank and other borrowings
                            
                            
                            4,380,612
                            
                            
                            
                            4,478,715
                            
                            
                            
                            6,338,497
                            
                            
                            
                            6,495,938




Note
      5.
            Securities
      Available for Sale





Securities
      have been classified in the balance sheet according to management’s intent
      as securities available for sale.  The amortized cost and
      approximate fair value of securities are as
  follows:




June 30, 2010Gross
                                
                                
                                GrossAmortized
                                
                                
                                Unrealized
                                
                                
                                Unrealized
                                
                                
                                FairCost
                                
                                
                                Gains
                                
                                
                                Losses
                                
                                
                                ValueDebt
      securities available for sale:U.S.
      Government-sponsored Enterprises (GSEs)
                                
                                $
                                2,998,591
                                
                                
                                $
                                11,759
                                
                                
                                $
                                -
                                
                                
                                $
                                3,010,350




December 31, 2009Gross
                            
                            
                            GrossAmortized
                            
                            
                            Unrealized
                            
                            
                            Unrealized
                            
                            
                            FairCost
                            
                            
                            Gains
                            
                            
                            Losses
                            
                            
                            ValueDebt
      securities available for sale:U.S.
      Government-sponsored Enterprises (GSEs)
                            
                            $
                            3,000,000
                            
                            
                            $
                            2,490
                            
                            
                            $
                            (17,545
                            )
                            
                            $
                            2,984,945


15





U.S.
      Government sponsored enterprises include entities such as Federal National
      Mortgage Association, Federal Home Loan Mortgage Corporation, and Federal
      Home Loan Banks.





The
      securities have maturity dates of one to five
  years.





Securities
      with a carrying value of approximately $3,010,000 at June 30, 2010 were
      pledged to secure a federal funds line of credit with First National
      Bankers Bank, Alabama.





Upon
      acquisition of a security, the Company determines the appropriate
      impairment model that is applicable.  If the security is a
      beneficial interest in securitized financial assets, the Company uses the
      beneficial interests in securitized financial assets impairment
      model.  If the security is not a beneficial interest in
      securitized financial assets, the Company uses the debt and equity
      securities impairment model.  The Company conducts periodic
      reviews to evaluate each security to determine whether an
      other-than-temporary impairment has occurred.  The Company does
      not have any securities that have been classified as
      other-than-temporarily-impaired at June 30,
  2010.





Note
      6.
            Subsequent
      Events





Management
      evaluated subsequent events through the date the financial statements were
      issued.  Material events or transactions occurring after June
      30, 2010, that provided additional evidence about conditions that existed
      at June 30, 2010, have been recognized in the financial statements for the
      period ended June 30, 2010.  Events or transactions that
      provided evidence about conditions that did not exist at June 30, 2010,
      have not been recognized in the financial statements for the period ended
      June 30, 2010.




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




Impact
of Inflation





The
consolidated financial statements and related financial data presented herein
have been prepared in accordance with accounting principles generally accepted
in the United States and practices within the banking industry that require the
measurement of financial position and operating results in terms of historical
dollars without considering the changes in the relative purchasing power of
money over time due to inflation.  Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature.  As a result, interest rates have a more significant impact on a
financial institution’s performance than the effects of general levels of
inflation.




Critical
Accounting Estimates




The
Company follows generally accepted accounting principles that are recognized in
the United States, along with general practices within the banking
industry.  In connection with the application of those principles and
practices, we have made judgments and estimates which, in the case of our
allowance for loan and lease losses (“ALLL”), are material to the determination
of our financial position and results of operation.  Other estimates relate
to the valuation of assets acquired in connection with foreclosures or in
satisfaction of loans, and realization of deferred tax assets.


16





Recent
Accounting Pronouncements





In April
2010, the Financial Accounting Standards Board ("FASB") issued Accounting
Standards Update No. 2010-18 ("ASU 2010-18"), Effect of a Loan Modification When
the Loan Is Part of a Pool That Is Accounted for as a Single Asset (ASC
Topic 310, Receivables).  ASU
2010-18 provides that modifications of loans that are accounted for within a
pool under Subtopic 310-30, Loans and Debt Securities Acquired
with Deteriorated Credit Quality, do not result in the removal of those
loans from the pool even if the modification of those loans would otherwise be
considered a troubled debt restructuring.  An entity will continue to
be required to consider whether the pool of assets in which the loan is included
is impaired if expected cash flows for the pool change.  ASU 2010-18
does not affect the accounting for loans under the scope of Subtopic 310-30 that
are not accounted for within pools.  Loans accounted for individually
under Subtopic 310-30 continue to be subject to the troubled debt restructuring
accounting guidance.  ASU 2010-18 is effective for interim and annual
reporting periods ending on or after July 15, 2010.  The adoption of
this standard is not expected to materially impact the Company's consolidated
financial statements.





In July
2010, the FASB issued Accounting Standards Update No. 2010-20 ("ASU
2010-20"),Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit
Losses (ASC Topic 310, Receivables).   ASU
2010-20 will improve transparency by requiring expanded disclosures about the
credit quality of our loans and the related reserves against
them.  ASU 2010-20 is effective for interim and annual reporting
periods ending on or after December 15, 2010.  The adoption of this
standard is not expected to materially impact the Company's consolidated
financial statements.





The
Company 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.





Forward-Looking
Statements




Management’s discussion of the Company
and management’s analysis of the Company’s operations and prospects, and other
matters, may include forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and other provisions of federal
and state securities laws.  Although the Company believes that the
assumptions underlying such forward-looking statements contained in this Report
are reasonable, any of the assumptions could be inaccurate and, accordingly,
there can be no assurance that the forward-looking statements included herein
will prove to be accurate.  The use of such words as “may”, “will”,
“anticipate”, “assume”, “should”, “indicate”, “attempt”, “would”, “believe”,
“contemplate”, “expect”, “seek”, “estimate”, “continue”, “plan”, “point to”,
“project”, “predict”, “could”, “intend”, “target”, “potential”, “forecast,” and
comparable terms should be understood by the reader to indicate that the
statement is “forward-looking” and thus subject to change in a manner that can
be unpredictable.  Factors that could cause actual results to differ
materially from the results anticipated, but not guaranteed, in this Report,
include those factors included in Part I Item 1A of the Company’s Annual Report
on Form 10-K for the year ended December 31, 2009 and include (without
limitation) deterioration in the financial condition of borrowers resulting in
significant increases in loan losses, and provisions for those losses, economic
and social conditions, competition for loans, mortgages, and other financial
services and products, results of regulatory examinations and/or efforts to
comply with the requirements of regulatory proceedings, changes in interest
rates, unforeseen changes in liquidity, results of operations, and financial
conditions affecting the Company’s customers, and other risks that cannot be
accurately quantified or completely identified.  Many factors
affecting the Company’s financial condition and profitability, including changes
in economic conditions, the volatility of interest rates, political events and
competition from other providers of financial services simply cannot be
predicted. Because these factors are unpredictable and beyond the Company’s
control, earnings may fluctuate from period to period.  The purpose of
this type of information is to provide readers with information relevant to
understanding and assessing the financial condition and results of operations of
the Company, and not to predict the future or to guarantee
results.  The Company is unable to predict the types of circumstances,
conditions and factors that can cause anticipated results to
change.  The Company undertakes no obligation to publish revised
forward-looking statements to reflect the occurrence of changed or unanticipated
events, circumstances or results.


17




General





On
January 23, 2004, American Patriot Financial Group, Inc. (the “Company”), a bank
holding company, acquired all of the outstanding shares of American Patriot Bank
(the “Bank”) in a one for one stock exchange.  The Bank is a
Tennessee-chartered, FDIC-insured, non-Member commercial bank offering a wide
range of banking services, including checking, savings, and money market deposit
accounts, certificates of deposit and loans for consumers, commercial and real
estate purposes, and is the principal business of the Company. The main office
of the Company is located at 3095 East Andrew Johnson Highway, Greeneville,
Greene County, Tennessee, which is also the main office of the
Bank.  This location is a 2.66 acre lot, on which there is a fully
operational modular bank unit.  Other full service branch banking
offices of the Bank are located at 506 Asheville Highway and 208 West Summer
Street, Greeneville, Greene County, Tennessee.  During 2007 the Bank
purchased property in Maryville, Tennessee at 710 South Foothills Plaza
Drive.  This location is a 1.17 acre lot, on which there is a 3,272
square foot fully operational brick bank building with drive through facilities
that was opened for business on July 9, 2007.  These locations are
centrally located and in high traffic/exposure areas.  Automatic
teller machines and overnight "deposit drops" are positioned to serve the Bank's
clients.  Additional branches may be established as market
opportunities surface or existing branch locations may be sold or closed if in
the opinion of the Company such closure or sale is appropriate.





Liquidity





At June 30, 2010, the Company had
liquid assets of approximately $11.1 million in the form of cash, federal funds
sold and securities available for sale compared to approximately $13.2 million
on December 31, 2009.  Management believes that the liquid assets are
adequate at June 30, 2010. Additional liquidity should be provided by the growth
in deposit accounts and loan repayments.  The Company also has the ability
to purchase federal funds. Management has taken a pro-active approach to develop
a larger local deposit base to help reduce any risk of over reliance on non-core
funding including brokered deposits.





Results
of Operations





The Company had a net loss of
$(223,248) or $(.09) per share for the quarter ended June 30, 2010 compared to a
net loss of $(925,157) or $(.39) per share for the quarter ended June 30,
2009.  The Company had a net loss for the six months ended June 30,
2010 of $(1,322,052) as compared to a net loss of $(1,499,192) for the same
period in 2009. During the quarter ended June 30, 2010, the Company recorded a
provision for loan losses of $8,734 as compared to $1,168,339 for the same
period in 2009.





Net
Interest Income/Margin





Net interest income represents the
amount by which interest earned on various assets exceeds interest paid on
deposits and other interest-bearing liabilities and is the most significant
component of the Company's earnings.  Interest income for the quarter
ended June 30, 2010 was $1,403,075 compared to $1,504,104 for the same period in
2009, and total interest expense was $490,704 in 2010 compared to $812,761 in
2009 for the same period.  Interest income for the six months ended
June 30, 2010 was $2,779,098, compared to $3,177,302 for the same period in
2009, and total interest expense was $1,046,539 in 2010 compared to $1,623,884
in 2009 for the same period.  Net interest margin was 3.47% for the
first six months of 2010 compared to 2.76% for the comparable period in 2009, or
a 71 basis point increase. Our net interest margin has begun to stabilize in
2010 and improve as compared to 2009 comparable periods and should continue to
do so for the remainder of the year.  Many economists now believe we
are at the end of interest rate cuts with likely increases later in 2010. If
interest rates remain stable or begin to increase, net interest margin should
continue to increase.  However, continued elevated levels of
nonaccrual loans will continue to negatively impact our net intrest margin. Net
interest income before provision for loan losses increased by $221,028 and
$179,141 for the three and six months ended June 30, 2010, respectively,
compared to the comparable periods in 2009.


18





Provision
for Loan Losses





The
provision for loan losses represents a charge to operations necessary to
establish an allowance for possible loan losses, which in management's
evaluation, is adequate to provide coverage for estimated losses on outstanding
loans and to provide for uncertainties in the economy. The provision for loan
losses for the three month and six month periods ended June 30, 2010 was $8,734
and $847,901, respectively, as compared to $1,168,339 and $2,024,995 for the
same three month and six month periods ended June 30, 2009.  During
the three and six months ended June 30, 2010, loan charge-offs were $53,982 and
$1,388,316, respectively.  The recoveries for the three and six month
periods ended June 30, 2010 were $8,110 and $35,822,
respectively.  The allowance for loan losses was $2,578,066 at June
30, 2010 as compared to $3,082,659 at December 31, 2009, a decrease of
16.4%.  The allowance was 3.0% of loans at June 30, 2010 as compared
to 2.9% at March 31, 2010 and 3.2% at December 31, 2009.  These
continued elevated levels of allowance for loan losses were primarily caused by
provision expense in 2009 and the first three months of 2010 reflecting the
continued deterioration in the Company’s construction and development loan
portfolio, particularly loans to residential builders and developers for
projects in the Company’s Blount County market as well as continued elevated
unemployment in the Bank’s primary market areas of Greene and Blount Counties,
Tennessee.  The Company’s construction and development loan portfolio
continues to experience weakness due to continuing decreased real estate sales
in the Company’s markets, particularly the Blount County market, which has led
to falling appraisal values of the collateral which secures the Company’s
construction and development loan portfolio.  The Company’s
collateral, for substantially all construction and development loans, is its
primary source of repayment and as the value of the collateral deteriorates,
ultimate repayment by the borrower becomes increasingly unlikely. Management
feels that the allowance for loan losses is adequate at June 30, 2010. However,
there can be no assurance that additional provisions for loan losses will not be
required in the future, including as a result of possible changes in the
economic assumptions underlying management’s estimates and judgments, adverse
developments in the economy, and the residential real estate market in
particular, or changes in the circumstances of particular borrowers. 
Management intends to pursue more aggressive strategies for problem loan
resolution, and is committed to bolster loan loss reserves to levels sufficient
to absorb losses recognized in the pursuit of this
strategy.





Provision
for/ Benefit from Income Taxes





The Company had no expense or benefit
from income taxes for the three and six months ended June 30, 2010, as compared
to a benefit of $576,933 and $930,340 for the three and six months ended June
30, 2009. The significant decline from 2009 was a result of a valuation
allowance on a substantial portion of our deferred tax assets during 2010. The
tax benefit created by the net loss during the quarter was offset by additional
deferred tax asset valuation.


19





Noninterest
Income





The Company's noninterest income
consists of service charges on deposit accounts and other fees and
commissions.  Total noninterest income for the three and six months
ended June 30, 2010 was $143,507 and $263,482, respectively, compared to
$147,723 and $296,796 for the same periods in 2009.  Service charges
on deposit accounts decreased $4,829 and $16,226 for the three and six months
ended June 30, 2010, respectively, compared to the same periods in 2009. Most of
the decrease was related to declines in NSF and overdraft fees. These fees are
primarily activity driven and relate to transaction based checking accounts.
 The Bank noted a decline in checking account balances when comparing the
first and second quarters of 2010 to the same periods in 2009. Fees from
origination of mortgage loans sold increased for the three months ended June 30,
2010 by $1,669, while decreasing for the six months ended June 30, 2010 by
$6,627 when compared to the same periods in 2009.





Noninterest
Expense





Noninterest expenses totaled $1,270,392
and $2,470,192 for the three and six months ended June 30, 2010, as compared to
$1,172,817 and $2,254,751 for the same periods in 2009.   Salaries and
benefits decreased $54,826 and $134,462 for the three and six months ended June
30, 2010, as compared to the same periods in 2009.  The decrease in
salaries and benefits for the three and six months ended June 30, 2009 is due to
reductions in senior level management positions. Legal and professional fees
decreased $118,624 and $134,995 for the three and six months ended June 30,
2010, as compared to the same periods in 2009 with a portion of this decrease
directly related to the resignation of a former CEO during 2009 along with the
issuance of a Cease and Desist order by the FDIC during 2009. The Company has
incurred significant noninterest expense increases in other operating expenses
primarily as a result of increased collection expenses, ATM expenses, FDIC
insurance, state banking assessments and foreclosed real estate expenses and
losses on sales of foreclosed assets. The increase in foreclosed real estate
expense is related to the continued weakness in local real estate values in the
Company’s market, particularly with respect to foreclosed properties acquired
from builders and residential land developers. Foreclosed real estate expense is
composed of three types of charges: maintenance costs, valuation adjustments
based on new appraisal values and gains or losses on disposition. Combined,
other operating expenses increased $287,601 and $520,855 for the three and six
months ended June 30, 2010, when compared to the same periods in
2009.





Financial
Condition





Total assets at June 30, 2010, were
$108,227,762, a decrease of $9,986,476 or 8.5% compared to 2009 year-end assets
of $118,214,238.  Deposits decreased to $99,882,766 at June 30, 2010,
a decrease of $6,626,814 or 6.2% from $106,509,580 at December 31, 2009.
Premises and equipment decreased to $4,923,324 at June 30, 2010 a decrease
of $123,723, or 2.5%, from $5,047,047 at December 31, 2009, primarily as a
result of minimal fixed asset purchases coupled with normal depreciation
charges.  Other significant changes noted as of June 30, 2010 when
compared to December 31, 2009 relate to foreclosed assets which increased by
$1,165,680 or 34.2% to $4.6 million at June 30, 2010 compared to $3.4 million at
December 31, 2009.  The Company anticipates that foreclosed real estate
assets and related charges will remain at elevated levels throughout
2010.





The Company places an emphasis on an
integrated approach to its balance sheet management. Significant balance sheet
components of loans and sources of funds are managed in an integrated manner
with the management of interest rate risk, liquidity, and
capital.  These components are discussed below.


20





Loans





Net loans
outstanding totaled $83,484,978 at June 30, 2010 compared to $92,562,338 at
December 31, 2009, a decrease of $9,077,360 or 9.8%. The decrease in loan
volume is largely attributable to management’s strategy to decrease
concentrations in certain loan types, particularly residential real estate
construction and development loans, and the movement of one large real estate
loan totaling $1,086,704 to foreclosed real estate following completion of
foreclosure.  Management is monitoring the portfolio closely and
believes it has identified and properly reserved for all major problem credits
in the portfolio.  In the event that a loan is ninety days or more
past due, the accrual of income is generally discontinued when the full
collection of principal and interest is in doubt unless the obligations are both
well secured and in the process of collection.  At June 30, 2010 there
was $5,688,663 in loans not accruing interest as compared to $7,790,863 at
December 31, 2009. Although reduced from December 31, 2009 levels as a result of
some of these loans being foreclosed on and transferred to foreclosed real
estate, the level of nonaccrual loans remains elevated over historical levels as
a result of the continued weakened real estate market in the Company’s market
areas, particularly its Blount County market.  Within this segment of
the loan portfolio, the Company makes loans to home builders and developers and
sub-dividers of land.  These borrowers have experienced stress due to
a combination of declining residential real estate demand and resulting price
and collateral value declines.  Further, housing starts in the
Company’s market areas continue to lag at historical levels.





The
following is a summary of information pertaining to impaired
loans:





June 30,
                              
                              
                              December 31,2010
                              
                              
                              2009Impaired
      loans without a specific valuation allowance
                              
                              $
                              4,837,464
                              
                              
                              $
                              5,324,899Impaired
      loans with a specific valuation allowance
                              
                              $
                              5,035,375
                              
                              
                              $
                              6,622,969Total
      specifically evaluated impaired loans
                              
                              $
                              9,872,839
                              
                              
                              $
                              11,947,868Specific
      valuation allowance related to impaired loans
                              
                              $
                              925,540
                              
                              
                              $
                              2,049,912





In
addition to the specifically evaluated impaired loans above, the Bank
collectively evaluates large groups of smaller balance homogeneous loans for
impairment.  Loans collectively evaluated for impairment, with a
classification of special mention, substandard and doubtful, as of June 30, 2010
and December 31, 2009 were $162,775 and $2,972,100 respectively.  The
Bank has reserved $16,651 and $101,994 related to these loans as of June 30,
2010 and December 31, 2009, respectively.





There are
no commitments to lend additional funds to any of the impaired
borrowers.





As of
June 30, 2010, the Company has identified loans aggregating $9,872,839 as being
impaired, of which $5,688,663 are non-performing as it relates to payment of
interest.  The aforementioned total is approximately $2,100,000 less
than reported at December 31, 2009.  The decrease is primarily related
to identified problem assets centered in the Blount County
Market.  Improved collections, obtaining additional collateral, and
foreclosures transferred to OREO have all contributed to the reduction of the
impaired loans. Continuation of the current challenging economic environment
will likely cause the Company’s real estate construction and land development
loans to continue to underperform and such underperformance, along with
continued stress on individual borrowers, particularly those impacted by the
elevated unemployment rates in the Greene and Blount County markets, may result
in increased levels of impaired loans which may negatively impact the Company’s
results of operations.


21





Nonperforming
Assets




At June
30, 2010 the Company had $10.3 million in nonperforming assets compared to $11.2
million at December 31, 2009. Included in nonperforming assets at June 30, 2010
were $5.7 million in nonperforming loans and $4.6 million in other real estate
owned. The continued elevated levels of nonperforming asset balances that the
Company continues to experience is primarily related to a weakened residential
real estate market in the Company’s primary markets. Home builders and
developers and sub-dividers of land have continued to experience stress due to a
combination of declining residential demand for new housing and resulting price
and collateral value declines in the Company’s market areas. The Company
believes that its nonperforming asset levels will remain elevated throughout the
remainder of 2010 as it works diligently to remediate these assets.





Restricted
Equity Investments




Federal
Home Loan Bank (“FHLB”) stock at June 30, 2010 had an amortized cost and market
value of $296,500 and remained unchanged from December 31,
2009.   As a member of the FHLB, the Company is required to
maintain stock in an amount equal to .15% of total assets.  Federal
Home Loan Bank stock is carried at cost.  Federal Home Loan Bank stock
is maintained by the Company at par value of one hundred dollars per
share.




Securities
Available for Sale





Securities have been classified in the
balance sheet according to management’s intent as securities available for
sale.  The amortized cost and approximate fair value of securities at
June 30, 2010 are as follows:





Amortized
                                                Cost
                                              
                                              
                                              Gross
                                                Unrealized
                                                Gains
                                              
                                              
                                              Gross
                                                Unrealized
                                                Losses
                                              
                                              
                                              Fair
                                                ValueDebt
      securities available for sale:U.S.
      Government-sponsored Enterprises (GSEs)
                                              
                                              $
                                              2,998,591
                                              
                                              
                                              $
                                              11,759
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              3,010,350




At June 30, 2010, securities with a
carrying value of approximately $2,508,590 were pledged to secure a federal
funds line of credit with the First National Bankers Bank, Alabama.





Deposits





Total deposits, which are the principal
source of funds for the Company, were $99,882,766 at June 30, 2010, compared to
$106,509,580 at December 31, 2009, representing a decrease of
6.2%.  The Company has targeted local consumers, professional and
commercial businesses as its central clientele; therefore, deposit instruments
in the form of demand deposits, savings accounts, money market demand accounts,
NOW accounts, certificates of deposit and individual retirement accounts are
offered to customers.   At June 30, 2010 the Company had
outstanding advances of $3,459,612 at the Federal Home Loan Bank compared with
$5,310,497 at December 31, 2009. At June 30, 2010 and December 31, 2009, the
Company also had $900,000 and $1,000,000, respectively, in short-term borrowings
from Jefferson Federal Bank which matures on August 29, 2010 and is secured by
100% of the Bank’s common stock.  Management is currently negotiating
to extend this short-term borrowing but can give no assurance that it will be
able to extend the maturity date. If the Company is unable to extend the
maturity date, Jefferson Federal Bank could choose to foreclose on the loan
and take ownership of the Bank. Further, there are $21,000 in loans
due to directors at June 30, 2010.


22





Because the Bank is 
“significantly undercapitalized” under the prompt corrective action provisions
of the FDICIA and subject to minimum capital requirements in the Order (as
defined below), it may not accept, renew or rollover brokered
deposits.  It is also prohibited from paying interest on deposits at
rates higher than certain nationally prescribed rates.  These
limitations could place pressure on the Bank’s liquidity as it may be unable to
retain deposits as they mature.





Capital
and Regulatory Matters





Pursuant to the terms of the Cease and
Desist Order (the “Order”) that the Bank entered into with the FDIC during the
second quarter of 2009, as more fully described below, the Bank is required to
develop and implement a capital plan that increases the Bank’s Tier 1 capital
ratio, Tier 1 risk-based capital ratio and Total risk-based capital ratio to 8%,
10% and 11%, respectively.  The capital plan has been submitted to the
FDIC and the Tennessee Department of Financial Institutions (the “TDFI”) for
approval. The capital plan has not yet been approved by the FDIC or the TDFI,
but, once approved, the Company must immediately initiate measures to effect
compliance with the capital plan within 30 days after the FDIC and the TDFI
respond to the capital plan.  The Bank and the Company are currently
evaluating their respective capital options and the Company believes that it
will need to issue additional shares of common or preferred stock to achieve
compliance with the minimum capital ratios set forth in the Order.
Alternatively, the Company may be required to seek another company with which to
merge or by which to be acquired.





As a result of the Bank’s total
risk-based capital ratio falling below 8% at June 30, 2009, the Bank was
considered undercapitalized since that date (and as described below is now
significantly undercapitalized) and it is subject to the provisions of Section
38 of the Federal Deposit Insurance Act, which among other things: (i) restricts
payment of capital distributions and management fees; (ii) requires that the
FDIC monitor the condition of the Bank; (iii) required submission of a capital
restoration plan within 45 days; (iv) restricts the growth of the Bank's assets;
and (v) requires prior approval of certain expansion proposals, many of which
restrictions or obligations, including the requirement to submit a capital
restoration plan, the Bank was already subject to as a result of the Order. The
Bank has submitted its capital restoration plan to the FDIC for approval, but
the plan has not yet been approved by the FDIC.





In order to secure the approval of the
FDIC of the Bank’s capital plan, the Company executed on March 5, 2010, a
Capital Maintenance Commitment and Guaranty (the “Commitment”) with the FDIC,
which remains subject to the FDIC’s approval and execution.  Pursuant
to the Commitment, the Company will be required to provide the FDIC assurance in
the form of a financial commitment and guaranty that the Bank will comply with
the Bank’s capital restoration plan until the Bank has been adequately
capitalized on average during each of four consecutive quarters and, in the
event the Bank fails to so comply, to pay to the Bank the lesser of five percent
of the Bank's total assets at the time the Bank was undercapitalized, or the
amount which is necessary to bring the Bank into compliance with all capital
standards applicable to the Bank at the time it failed to comply.





In August
2010, the FDIC notified the Bank that it intended to issue the Bank a prompt
corrective action directive requiring the Bank to submit an acceptable capital
restoration plan on or before August 31, 2010 providing that, among other
things, at a minimum the Bank shall restore and maintain its capital to the
level of “adequately capitalized.”  In the event that the Bank does
not increase its Tier 1 capital in accordance with the requirements of this
directive, the Bank will be required under the directive to take any necessary
action to result in the Bank’s acquisition by another depository institution
holding company or merge with another insured depository
institution.  The Company will be required to guarantee the capital
restoration plan submitted pursuant to the directive to the same extent
described in the immediately preceding paragraph. If the Bank is unable to raise
capital to the levels required by the directive or, thereafter, to take action
necessary to be acquired or merge with another insured depository institution,
the FDIC could place the Bank into receivership.  The directive will
also impose certain limitations on the Bank’s operations, many of which the Bank
is already subject to under the terms of the Order or as a result of the Bank
falling below “adequately capitalized” at June 30, 2009, including limitations
on the Bank’s ability to pay dividends, to pay management fees to the Company,
to grow the Bank’s asset base, to make acquisitions, establish new branches or
engage in new lines of business, to pay board and committee fees, to accept,
renew or rollover brokered deposits and to pay interest rates on deposits above
prescribed national rates.


23





Equity capital at June 30, 2010 was
$3,144,078, a decrease of $1,172,212 from $4,316,290 at December 31, 2009, due
to a net loss of $1,322,052 offset in part by an unrealized holding gain on
available for sale securities of $16,546 and the sale of $177,000 of preferred
stock minus the issuance cost of $43,706.





At June 30, 2010, the Bank’s Tier 1
risk-based capital ratio was in excess of the regulatory
minimums.  The Bank’s Tier 1 leverage ratio and Total risk-based
capital ratio, however, were less than the required minimum ratios and the
Bank, accordingly, now falls within the category of “significantly
undercapitalized” within the FDIC's prompt corrective action provisions. In
addition to the limitations on the Bank’s activities mandated by the Order, the
Bank, because it is significantly undercapitalized, is also now subject to
determinations by the FDIC to require the Bank to be recapitalized, to restrict
transactions with affiliates, restrict interest paid on deposits and to require
changes in the directorate and/or senior management.  The Bank’s
respective ratios at June 30, 2010 were as follows:





Required
                    Minimum
                    Ratio
                  
                  
                  To be
                    Well
                    Capitalized
                  
                  
                  Requirements
                    Under the
                    Order
                  
                  
                  BankTier
      1 Leverage ratio
                  
                  
                  4.00
                  %
                  
                  
                  5.00
                  %
                  
                  
                  8.00
                  %
                  
                  
                  3.52
                  %Tier
      1 risk-based capital ratio
                  
                  
                  4.00
                  %
                  
                  
                  6.00
                  %
                  
                  
                  10.00
                  %
                  
                  
                  4.38
                  %Total
      risk-based capital ratio
                  
                  
                  8.00
                  %
                  
                  
                  10.00
                  %
                  
                  
                  11.00
                  %
                  
                  
                  5.59
                  %





Liability
and Asset Management





The
Company’s Asset/Liability Committee (“ALCO”) actively measures and manages
interest rate risk using a process developed by the Company.  The ALCO
is also responsible for implementing the Company’s asset/liability management
policies, overseeing the formulation and implementation of strategies to improve
balance sheet positioning and earnings, and reviewing the Company’s interest
rate sensitivity position.




The
primary tool that management uses to measure short-term interest rate risk is a
net interest income simulation model prepared by an independent correspondent
institution.  These simulations estimate the impact that various
changes in the overall level of interest rates over one- and two-year time
horizons would have on net interest income.  The results help the
Company develop strategies for managing exposures to interest rate
risk.




Like any
forecasting technique, interest rate simulation modeling is based on a large
number of assumptions.  In this case, the assumptions relate primarily
to loan and deposit growth, asset and liability prepayments, interest rates and
balance sheet management strategies.  Management believes that both
individually and in the aggregate the assumptions are
reasonable.  Nevertheless, the simulation modeling process produces
only a sophisticated estimate, not a precise calculation of
exposure.


24




At June
30, 2010, approximately 67% of the Company’s gross loans had adjustable
rates.  Based on the asset/liability modeling, management believes
that these loans reprice at a faster pace than liabilities held by the
Company.  Because the majority of the Company’s liabilities are 12
months and under and the gap in repricing is asset sensitive, management
believes that a rising rate environment would have a positive impact on the
Company’s net interest margin.  Floors in the majority of the
Company’s adjustable rate assets also mitigate interest rate sensitivity in a
decreasing rate environment.  However, there is increasing pressure to
adjust the floor rates downward in the adjustable rate portfolio as customers
become more cost conscious and competition becomes more aggressive.




Off-Balance
Sheet Arrangements




At June 30, 2010, the Company had
outstanding unused lines of credit and standby letters of credit that totaled
approximately $7,069,000.  These commitments have fixed maturity dates
and many will mature without being drawn upon, meaning that the total commitment
does not necessarily represent the future cash requirements.  The
Company has the ability to liquidate federal funds sold or, on a short-term
basis, to purchase federal funds from another bank and to borrow from the
Federal Home Loan Bank.  At June 30, 2010, the Company had established
with a correspondent bank the ability to purchase federal funds if
needed.




Item
3.  Quantitative and Qualitative Disclosures about Market Risk




The
information set forth on pages 16 through 25 of Item 2, “MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”, is incorporated
herein by reference.




Item
4.  Controls and Procedures




a) Evaluation of Disclosure
Controls and Procedures




The
Company maintains disclosure controls and procedures, as defined in
Rule 13a-15(e) and 15d-15(e) promulgated under the Securities
Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that
information required to be disclosed by it in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time period specified in the SEC’s rules and forms and that such
information is accumulated and communicated to the Company’s management,
including its Chief Executive Officer and Chief Financial Officer.  The
Company carried out an evaluation, under the supervision and with the
participation of its management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of its
disclosure controls and procedures as of the end of the period covered by this
report.  Based on the evaluation of these disclosure controls and
procedures, the Chief Executive Officer and Chief Financial Officer concluded
that the Company’s disclosure control and procedures were
effective.





b) Changes in Internal Controls
and Procedures




There
were no changes in our internal controls over financial reporting during the
quarter ended June 30, 2010, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.


25


PART
II - OTHER INFORMATION





Item
1.   LEGAL PROCEEDINGS





None.




Item
1A.    RISK FACTORS





Except as set forth below, there
were no material changes to the Company’s risk factors as previously disclosed
in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2009:





The
impact on our future results of operations and financial condition of the
recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act is
not yet known.





On July 21, 2010, President Obama
signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
"Reform Act") into law.  The Reform Act significantly reforms the
structure of federal financial regulation and enacts new substantive
requirements and regulations that apply to a broad range of financial market
participants, affecting every segment of the financial services industry, which
will alter the way we conduct certain aspects of our business and may restrict
our ability to compete, increase costs and reduce revenues.  The
Reform Act, among other things, strengthens oversight and regulation of banks
and nonbank financial institutions, enhances regulation of over-the-counter
derivatives and asset-backed securities, and establishes new rules for credit
rating agencies.  The Reform Act may have a significant and negative
impact on our earnings through fee reductions, higher costs (from both a
regulatory and an implementation perspective) and new restrictions on our
operations.  The ultimate impact of the Reform Act on our operations
will be dependent on regulatory interpretation and rulemaking, as well as the
success of our actions to mitigate the negative impact of such rules and
regulations.  The full scope and effect of the Reform Act on the
Company and the Bank may not be known for several years.





Item
2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS





(a)
            None.




(b)
            Not
      applicable.




(c)
            No
      repurchases of Company securities were made during the quarter ended June
      30, 2010.




The
Company's ability to pay dividends is derived from the income of the
Bank.  The Bank's ability to declare and pay dividends is limited by
its obligations to maintain sufficient capital by the terms of the Order and the
prompt corrective action directive that is likely to be issued by the FDIC in
the third quarter of 2010 and by other general restrictions on its dividends
that are applicable to banks that are regulated by the FDIC and the
TDFI.  In addition, the Federal Reserve Board may impose restrictions
on the Company's ability to pay dividends on its common stock.  As a
result, the Company cannot assure its shareholders that it will declare or pay
dividends on shares of its common stock in the future and the Company has never
paid dividends in the past.




Item
3.   DEFAULTS UPON SENIOR SECURITIES





(a)
            None.




(b)
            None.


26




Item
4.   (REMOVED AND RESERVED).





Item
5.   OTHER INFORMATION





(a)   None.




(b)  None.





Item
6.   EXHIBITS.





Index to Exhibits.





Exhibit No.
                
                Description3.1*
                
                Charter
      of American Patriot Financial Group, Inc.3.2*
                
                Bylaws
      of American Patriot Financial Group, Inc.31.1
                
                Certification
      pursuant to Rule 13a-14a/15d-14(a)31.2
                
                Certification
      pursuant to Rule 13a-14a/15d-14(a)32.1
                
                Certification
      pursuant to Rule 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 200232.2
                
                Certification
      pursuant to Rule 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002





*
              Previously
      filed as an exhibit to a Current Report on Form 8-K filed by American
      Patriot Financial Group, Inc. (f/k/a BG Financial Group, Inc.) with the
      Commission on May 21, 2004.




27




SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





AMERICAN PATRIOT FINANCIAL
GROUP, INC.


(Registrant)





DATE:
                August 16, 2010
                
                /s/ John D. BelewJohn
      D. BelewChief
      Executive OfficerDATE:
                August 16, 2010
                
                /s/ T. Don WaddellT.
      Don WaddellChief
      Financial Officer




28