UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K

|(Mark One)                                  |                                                                                         
|------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                           | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934    
|For the fiscal year ended December 31, 2007
|OR                                         
|o                                           | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from
 to
.

Commission File Number 000-50771

American Patriot Financial Group, Inc.(Exact name of registrant as specified in Charter)

|Tennessee                                                                                        |  | 62-1852691                          
|------------------------------------------------------------------------------------------------ |  | ------------------------------------
|(State or other jurisdiction
of incorporation or organization)                                   |  | (I.R.S. Employer
Identification No.)
|3095 East Andrew Johnson Highway,
Greeneville, Tennessee
(Address of principal executive office) |  | 37745(Zip Code)                     

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.333 par value per share

Indicate by check mark if the registrant is a well-known, seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o    No ý

Indicate by check mark whether registrant (1) has filed 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 ý    No o.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. 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
definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a smaller reporting company)

Smaller reporting company o


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

The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant at March 20, 2008 was $12,073,176, based
upon the average sale price on that date.

As
of March 21, 2008, there were 2,314,391 shares of the registrant's common stock outstanding.

DOCUMENTS
INCORPORATED BY REFERENCE

Part IIIDefinitive
Proxy Statement involving the election of directors at the annual meeting of shareholders to be held May 20, 2008.



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TABLE OF CONTENTS

|PART I     
|-----------
|ITEM 1.    
|ITEM 1A.   
|ITEM 1B.   
|ITEM 2.    
|ITEM 3.    
|ITEM 4.    
|PART II    
|ITEM 5.    
|ITEM 6.    
|ITEM 7.    
|ITEM 7A.   
|ITEM 8.    
|ITEM 9.    
|ITEM 9A.   
|ITEM 9A(T).
|ITEM 9B.   
|PART III   
|ITEM 10.   
|ITEM 11.   
|ITEM 12.   
|ITEM 13.   
|ITEM 14.   
|PART IV    
|ITEM 15.   

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PART I

ITEM 1.    BUSINESS

General

American
Patriot Financial Group, Inc. (the "Corporation" or "we" or "us") is a one-bank holding company formed as a Tennessee corporation to own the shares of
American Patriot Bank (the "Bank"). The Corporation was incorporated on October 10, 2003, for the purpose of acquiring 100% of the shares of the Bank by means of a share exchange, and becoming
a registered bank holding company under the Federal Reserve Act. The share exchange was completed on January 23, 2004. The activities of the Corporation are subject to the supervision of the
Board of Governors of the Federal Reserve System ("Federal Reserve Board"). The offices of the Corporation are the same as the principal office of the Bank. The Bank is the only subsidiary of the
Corporation.

American
Patriot Bank commenced operations as a state chartered bank on July 9, 2001. The Bank has total assets of approximately $117 million at December 31, 2007.
The Bank's deposit accounts are insured by the FDIC, up to the maximum applicable limits thereof. The Bank is not a member of the Federal Reserve System.

The
Bank's customer base consists primarily of small to medium-sized business retailers, manufacturers, distributors, contractors, professionals, service businesses and local residents.
The Bank offers a full range of competitive retail and commercial banking services. The deposit services offered include various types of checking accounts, savings accounts, money market investment
accounts, certificates of deposits, and retirement accounts. Lending services include consumer installment loans, various types of mortgage loans, personal lines of credit, home equity loans, credit
cards, real estate construction loans, commercial loans to small and medium size businesses and professionals, and letters of credit. The Bank also offers safe deposit boxes of various sizes. The Bank
issues VISA and MasterCard credit cards and is a merchant depository for cardholder drafts under both types of credit cards. The Bank offers its customers drive-through banking services at its offices
and automated teller machines ("ATMs"). The Bank has trust powers but does not have a trust department.

The
Bank is subject to the regulatory authority of the Department of Financial Institutions of the State of Tennessee ("TDFI") and the Federal Deposit Insurance Corporation ("FDIC").

The
Corporation's and the Bank's principal executive offices are both located at 3095 East Andrew Johnson Highway, Greeneville, Tennessee 37745, and its telephone number is
(423) 636-1555.

Market
Area and Competition

All
phases of the Bank's business are highly competitive. The Bank is subject to intense competition from various financial institutions and other companies or firms that offer financial
services. The Bank competes for deposits with other commercial banks, savings and loan associations, credit unions and issuers of commercial paper and other securities, such as money-market and mutual
funds. In making loans, the Bank is expected to compete with other commercial banks, savings and loan associations, consumer finance companies, credit unions, leasing companies, and other lenders.

The
Bank's primary market area is Greene County and Blount County, Tennessee. In Greene County as of June 30, 2007, there were 7 banks and 1 savings and loan institution, with at
least 26 offices actively engaged in banking activities, including 3 major state-wide financial institutions, with a total of $1.1 billion in deposits. In Blount County as of
June 30, 2007, there were 11 banks and 1 savings and loan institution with at least 45 offices actively engaged in banking activities, including 4 major state-wide financial
institutions, with a total of $1.6 billion in deposits. In addition, there are numerous credit unions, finance companies, and other financial services providers.

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Employees

At
December 31, 2007, the Bank employed 43 persons on a full-time basis, and 6 persons on a part-time basis. The Bank's employees are not represented by
any union or other collective bargaining agreement and the Bank believes its employee relations are satisfactory.

Supervision
and Regulation



The Corporation is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "Holding Company Act"), and is registered
with the Federal Reserve Board. Its banking subsidiaries are subject to restrictions under federal law which limit the transfer of funds by the subsidiary banks to their respective holding companies
and nonbanking subsidiaries, whether in the form of loans, extensions of credit, investments, or asset purchases. Such transfers by any subsidiary bank to its holding company or any
non-banking subsidiary are limited in amount to 10% of the subsidiary bank's capital and surplus and, with respect to the Corporation and all such nonbanking subsidiaries, to an aggregate
of 20% of such bank's capital and surplus. Furthermore, such loans and extensions of credit are required to be secured in specified amounts. The Holding Company Act also prohibits, subject to certain
exceptions, a bank holding company from engaging in or acquiring direct or indirect control of more than 5% of the voting stock of any company engaged in non banking activities. An exception to this
prohibition is for activities expressly found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto or financial in
nature.

As
a bank holding company, the Corporation is required to file with the Federal Reserve Board semi-annual reports and such additional information as the Federal Reserve Board
may require. The Federal Reserve Board also makes examinations of the Corporation.

According
to Federal Reserve Board policy, bank holding companies are expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each
such subsidiary. This support may be required at times when a bank holding company may not be able to provide such support. Furthermore, in the event of a loss suffered or anticipated by the
FDICeither as a result of default of a banking or thrift subsidiary of the Corporation or related to FDIC assistance provided to a subsidiary in danger of defaultthe other
banking subsidiaries of the Corporation may be assessed for the FDIC's loss, subject to certain exceptions.

Various
federal and state statutory provisions limit the amount of dividends the subsidiary banks can pay to their holding companies without regulatory approval. The payment of dividends
by any bank also may be affected by other factors, such as the maintenance of adequate capital for such subsidiary bank. In addition to the foregoing restrictions, the Federal Reserve Board has the
power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices. The Federal Reserve Board has issued a policy statement on the payment of cash dividends
by bank holding companies, which expresses the Federal Reserve Board's view that a bank holding company experiencing earnings weaknesses should not pay cash dividends that exceed its net income or
that could only be funded in ways that weaken the bank holding company's financial health, such as by borrowing. Furthermore, the TDFI also has authority to prohibit the payment of dividends by a
Tennessee bank when it determines such payment to be an unsafe and unsound banking practice.

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A
bank holding company and its subsidiaries are also prohibited from acquiring any voting shares of, or interest in, any banks located outside of the state in which the operations of the
bank holding company's subsidiaries are located, unless the acquisition is specifically authorized by the statutes of the state in which the target is located. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with the extension of credit or provision of any property or service. Thus, an affiliate of a bank
holding company may not extend credit, lease or sell property, or furnish any services or fix or vary the consideration for these on the condition that (i) the customer must obtain or provide
some additional credit, property or services from or to its bank holding company or subsidiaries thereof or (ii) the customer may not obtain some other credit, property, or services from a
competitor, except to the extent reasonable conditions are imposed to assure the soundness of the credit extended.

In
approving acquisitions by bank holding companies of banks and companies engaged in the banking-related activities described above, the Federal Reserve Board considers a number of
factors, including the expected benefits to the public such as greater convenience, increased competition, or gains in efficiency, as weighed against the risks of possible adverse effects such as
undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. The Federal Reserve Board is also empowered to differentiate between new
activities and activities commenced through the acquisition of a going concern.

The
Attorney General of the United States may, within 30 days after approval by the Federal Reserve Board of an acquisition, bring an action challenging such acquisition under the
federal antitrust laws, in which case the effectiveness of such approval is stayed pending a final ruling by the courts. Failure of the Attorney General to challenge an acquisition does not, however,
exempt the holding company from complying with both state and federal antitrust laws after the acquisition is consummated or immunize the acquisition from future challenge under the
anti-monopolization provisions of the Sherman Act.

Capital
Guidelines

The
Federal Reserve Board has risk based capital guidelines for bank holding companies and member banks. Under the guidelines, the minimum ratio of capital to risk weighted assets
(including certain off balance sheet items, such as standby letters of credit) is 8%. To be considered a "well capitalized" bank or bank holding company under the guidelines, a bank or bank holding
company must have a total risk based capital ratio in excess of 10%. At December 31, 2007, on a pro forma basis, the Corporation would have been sufficiently capitalized to be considered "well
capitalized."

At
least half of the total capital is to be comprised of common equity, retained earnings, and a limited amount of perpetual preferred stock, after subtracting goodwill and certain other
adjustments ("Tier I capital"). The remainder may consist of perpetual debt, mandatory convertible debt securities, a limited amount of subordinated debt, other preferred stock not qualifying
for Tier I capital, and a limited amount of loan loss reserves ("Tier II capital"). The Bank is subject to similar capital requirements adopted by the FDIC. In addition, the Federal
Reserve Board, and the FDIC have adopted a minimum leverage ratio (Tier I capital to total assets) of 3% (or 4% if the bank's CAMEL rating is below "1"). Generally, banking organizations are
expected to operate well above the minimum required capital level of 3% unless they meet certain specified criteria, including that they have the highest regulatory ratings. Most banking organizations
are required to maintain a leverage ratio of 3%, plus an additional cushion of at least 1% to 2%. Most community banks are encouraged to maintain a minimum leverage ratio of 6.5% to 7.0%; the Bank's
leverage ratio at December 31, 2007, was 7.66%. The guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without significant reliance upon intangible assets.

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Under
the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), failure to meet the capital guidelines could subject a banking institution to a variety of
enforcement remedies available to federal regulatory authorities, including the termination of deposit insurance by the FDIC.

Sarbanes-Oxley
Act of 2002

On
July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. This legislation represents a comprehensive revision of laws affecting corporate governance,
accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity securities registered, or that file reports under, the Securities Exchange Act of
1934. In particular, the act establishes (i) new requirements for audit committees, including independence, expertise and responsibilities; (ii) additional responsibilities regarding
financial statements for the chief executive officer and chief financial officer of the reporting company and new requirements for them to certify the accuracy of periodic reports; (iii) new
standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for the reporting company and its directors and executive officers, including an accelerated
time frame for reporting of insider transactions; and (v) new and increased civil and criminal penalties for violations of the federal securities laws. The legislation also established a new
accounting oversight board to enforce auditing standards and restrict the scope of services that accounting firms may provide to their public company audit clients.

Because
the Corporation's common stock is registered with the SEC, it is subject to the requirements of this legislation. At the present time, and subject to the final rules and
regulations to be adopted and issued by the SEC, management anticipates that the Corporation will incur additional expense as a result of the act but does not expect that the Corporation's compliance
will have a material impact on its business. To the extent that the Corporation has already implemented the requirements of this legislation and the related regulations, compliance has been
accomplished with existing Corporation personnel and the hiring of additional outside consultants.

The
Corporation files periodic reports with the SEC. The public may read and copy any materials the Corporation files with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Information regarding the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an
Internet site that contains reports, proxy and information statements, and other information regarding the Corporation that the Corporation files electronically with the SEC. This information may be
found at www.sec.gov.

Bank
Regulation

The
Bank is a Tennessee state-chartered bank and is subject to the regulations of and supervision by the FDIC as well as the TDFI, Tennessee's state banking authority. The Bank is also
subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be
granted and the interest that may be charged thereon and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations
also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board as it attempts to control the
money supply and credit availability in order to influence the economy.

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From
time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance
between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are
frequently made in Congress, in the Tennessee legislature and before various bank regulatory and other professional agencies. The likelihood of any major legislative changes and the impact such
changes might have on the Bank are impossible to predict.

General.The Bank, as a Tennessee state chartered bank, is subject to primary supervision, periodic examination and
regulation by the Commissioner of the TDFI ("Commissioner") and the FDIC. If, as a result of an examination of a bank, the FDIC should determine that the financial condition, capital resources, asset
quality, earnings prospects, management, liquidity or other aspects of the Bank's operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation,
various remedies are available to the FDIC. Such remedies include the power to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions resulting from any
violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of the Bank, to assess civil monetary penalties, to
remove officers and directors and ultimately to terminate a Bank's deposit insurance. The Commissioner has many of the same remedial powers, including the power to take possession of a bank whose
capital becomes impaired.

The
deposits of the Bank are insured by the FDIC in the manner and to the extent provided by law. For this protection, the Bank pays a semiannual statutory assessment. Although the Bank
is not a member of the Federal Reserve System, it is nevertheless subject to certain regulations of the Federal Reserve Board.

Various
requirements and restrictions under the laws of the State of Tennessee and the United States affect the operations of the Bank. State and federal statutes and regulations relate
to many aspects of the Bank's operations, including reserves against deposits, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of
branch offices and capital requirements. Further, the Bank is required to maintain certain levels of capital.

Tennessee
law contains limitations on the interest rates that may be charged on various types of loans and restrictions on the nature and amount of loans that may be granted and on the
types of investments which may be made. The operations of banks are also affected by various consumer laws and regulations, including those relating to equal credit opportunity and regulation of
consumer lending practices. All Tennessee banks must become and remain insured banks under the FDIA ("Federal Deposit Insurance Act"). (See 12 U.S.C. §1811, et seq.).

Payment of Dividends.The Bank is subject to the Tennessee Banking Act, which limits a bank's ability to pay dividends. The
payment of dividends by any bank is dependent upon its earnings and financial condition and subject to the statutory power of certain federal and state regulatory agencies to act to prevent what they
deem unsafe or unsound banking practices. The payment of dividends could, depending upon the financial condition of the Bank, be deemed to constitute such an unsafe or unsound banking practice. Under
Tennessee law, the board of directors of a state bank may not declare dividends in any calendar year that exceeds the total of its retained net income of the preceding two (2) years without the
prior approval of the TDFI. The FDIA prohibits a state bank, the deposits of which are insured by the FDIC, from paying dividends if it is in default in the payment of any assessments due the FDIC.
The Bank is also subject to the minimum capital requirements of the FDIC which impact the Bank's ability to pay dividends. If the Bank fails to meet these standards, it may not be able to pay
dividends or to accept additional deposits because of regulatory requirements.

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If,
in the opinion of the applicable federal bank regulatory authority, a depository institution is engaged in or is about to engage in an unsafe or unsound practice (which, depending on
the financial condition of the depository institution, could include the payment of dividends), such authority may require that such institution cease and desist from such practice. The federal
banking agencies have indicated that paying dividends that deplete a depository institution's capital base to an inadequate level would be such an unsafe and unsound banking practice. Moreover, the
Federal Reserve Board, the Comptroller of the Currency and the FDIC have issued policy statements which provide that bank holding companies and insured depository institutions generally should only
pay dividends out of current operating earnings.

The
payment of dividends by the Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.

FIRREA.Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") on
August 9, 1989. FIRREA provides that a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonable expected to be incurred by, the FDIC after
August 9, 1989 in connection with (i) the default of a commonly controlled FDIC insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC insured depository institution in danger of default. FIRREA provides that certain types of persons affiliated with financial institutions can be fined by the federal regulatory agency having
jurisdiction over a depository institution with federal deposit insurance (such as the Bank) up to $1 million per day for each violation of certain regulations related (primarily) to lending to
and transactions with executive officers, directors, principal shareholders and the interests of these individuals. Other violations may result in civil money penalties of $5,000 to $30,000 per day or
in criminal fines and penalties. In addition, the FDIC has been granted enhanced authority to withdraw or to suspend deposit insurance in certain cases.

FDICIA.The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") which was enacted on December 19,
1991, substantially revised the depository institution regulatory and funding provisions of the FDIA and made revisions to several other federal banking statutes. Among other things, FDICIA requires
the federal banking regulators to take "prompt corrective action" in respect of FDIC-insured depository institutions that do not meet minimum capital requirements. FDICIA establishes five
capital tiers: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." Under applicable regulations, a
FDIC-insured depository institution is defined to be well capitalized if it maintains a Leverage Ratio of at least 5%, a risk adjusted Tier 1 Capital Ratio of at least 6% and a
Total Risk-Based Capital Ratio of at least 10% and is not subject to a directive, order or written agreement to meet and maintain specific capital levels. An insured depository institution
is defined to be adequately capitalized if it meets all of its minimum capital requirements as described above. In addition, an insured depository institution will be considered undercapitalized if it
fails to meet any minimum required measure, significantly undercapitalized if it is significantly below such measure and critically undercapitalized if it fails to maintain a level of tangible equity
equal to not less than 2% of total assets. An insured depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.

The
capital-based prompt corrective action provision of FDICIA and their implementing regulations apply to FDIC-insured depository institutions and are not directly
applicable to holding companies which control such institutions. However, the Federal Reserve Board has indicated that, in regulating bank holding companies, it will take appropriate action at the
holding company level based on an assessment of the effectiveness of supervisory actions imposed upon subsidiary depository institutions pursuant to such provisions and regulations.

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FDICIA
generally prohibits an FDIC-insured depository institution from making any capital distribution (including payment of dividends) or paying any management fee to its
holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System.
In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. A depository institution's holding company must guarantee
the capital plan, up to an amount equal to the lesser of 5% of the depository institution's assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to
succeed in restoring the depository institution's capital. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.

Significantly
undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions are subject to appointment of a
receiver or conservator generally within 90 days of the date on which they became critically undercapitalized.

The
Bank believes that at December 31, 2007, the Bank was well capitalized under the criteria discussed above.

FDICIA
contains numerous other provisions, including accounting, audit and reporting requirements, termination of the "too big to fail" doctrine except in special cases, limitations on
the FDIC's payment of deposits at foreign branches, new regulatory standards in such areas as asset quality, earnings and compensation and revised regulatory standards for, among other things, powers
of state banks, real estate lending and capital adequacy. FDICIA also requires that a depository institution provide 90 days prior notice of the closing of any branches.

Various
other legislation, including proposals to revise the bank regulatory system and to limit the investments that a depository institution may make with insured funds, is from time
to time introduced in Congress. The TDFI and FDIC will examine the Bank periodically for compliance with various regulatory requirements. Such examinations, however, are for the protection of the
Deposit Insurance Fund ("DIF") and for depositors, and not for the protection of investors and shareholders.

Interstate Act.The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Act"), which
was enacted on September 29, 1994, among other things and subject to certain conditions and exceptions, permits on an interstate basis (i) bank holding company acquisitions commencing
one year after enactment of banks of a minimum age of up to five years as established by state law in any state, (ii) mergers of national and state banks after May 31, 1997 unless the
home state of either bank has opted out of the interstate bank merger provision, (iii) branching de novo by national and state banks if the host state has opted-in to this provision
of the Interstate Act, and (iv) certain bank agency activities after one year after enactment. The Interstate Act contains a 30% intrastate deposit cap, except for the initial acquisition in
the state, restriction that applies to certain interstate acquisitions unless a different intrastate cap has been adopted by the applicable state pursuant to the provisions of the Interstate Act and a
10% national deposit cap restriction. Tennessee has opted-in to the Interstate Act. Management cannot predict the extent to which the business of the Bank may be affected. Tennessee has
also adopted legislation allowing banks to acquire branches across state lines subject to certain conditions, including the availability of similar legislation in the other state.

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Brokered Deposits and Pass-Through Insurance.The FDIC has adopted regulations under FDICIA governing the receipt
of brokered deposits and pass-through insurance. Under the regulations, a bank cannot accept or rollover or renew brokered deposits unless (i) it is well capitalized or
(ii) it is adequately capitalized and receives a waiver from the FDIC. A bank that cannot receive brokered deposits also cannot offer "pass-through" insurance on certain employee
benefit accounts. Whether or not it has obtained such a waiver, an adequately capitalized bank may not pay an interest rate on any deposits in excess of 75 basis points over certain index prevailing
market rates specified by regulation. There are no such restrictions on a bank that is well capitalized. Because it believes that the Bank was well capitalized as of December 31, 2007, the Bank
believes the brokered deposits regulation will have no material effect on the funding or liquidity of the Bank.

FDIC Insurance Premiums.The Bank is required to pay semiannual FDIC deposit insurance assessments to the Deposit Insurance
Fund ("DIF"). The FDIC merged the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF") to form the DIF on March 31, 2006 in accordance with the Federal Deposit
Insurance Reform Act of 2005. The FDIC maintains the DIF by assessing depository institutions an insurance premium. The amount each institution is assessed is based upon statutory factors that include
the balance of insured deposits as well as the degree of risk the institution poses to the insurance fund. The FDIC uses a risk-based premium system that assesses higher rates on those
institutions that pose greater risks to the DIF. Under the rule adopted by the FDIC in November 2006, beginning in 2007, the FDIC will place each institution in one of four risk categories using a
two-step process based first on capital ratios (the capital group assignment) and then on other relevant information (the supervisory group assignment). Currently, rates range between $.05
and $.43 per $100 in assessable deposits. The new rate ranges are based on the four new risk categories that in turn are based on asset size as well as capital, supervisory, credit, and other risk
factors. Within the range for a given risk category, the rate applicable to any particular institution is determined by the FDIC according to formal guidelines. Any change in these rates and the
category of risk into which the Bank will fall could have an adverse effect on the Bank's earnings.

Under
the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition
to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by a federal bank regulatory agency.

Gramm-Leach-Bliley Act.The Gramm-Leach-Bliley Act adopted in
November 1999 has been referred to as the most important banking bill in over 60 years. The most significant provisions ratify new powers for banks and bank holding companies, especially in the
areas of securities and insurance. The Act also includes requirements regarding the privacy and protection of customer information held by financial institutions, as well as many other providers of
financial services. There are provisions providing for functional regulation of the various services provided by institutions among different regulators. There are other provisions which limit the
future expansion of unitary thrift holding companies which now prevent companies like Wal-Mart from owning a thrift institution. Finally, among many other sections of the Act, there is
some relief for small banks from the regulatory burden of the Community Reinvestment Act. The regulatory agencies have been adopting many new regulations to implement the Act.

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USA Patriot Act.On October 26, 2001, the President signed the USA PATRIOT Act of 2001 into law. This act contains the
International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (the "IMLAFA"). The IMLAFA substantially broadens existing anti-money laundering legislation
and the extraterritorial jurisdiction of the United States, imposes new compliance and due diligence obligations, creates new crimes and penalties, compels the production of documents located both
inside and outside the United States, including those of foreign institutions that have a correspondent relationship in the United States, and clarifies the safe harbor from civil liability to
customers. The U.S. Treasury Department has issued a number of regulations implementing the USA PATRIOT Act that apply certain of its requirements to financial institutions such as our banking and
broker-dealer subsidiaries. The regulations impose new obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering
and terrorist financing. The Treasury Department is expected to issue a number of additional regulations which will further clarify the USA PATRIOT Act's requirements.

The
IMLAFA requires all "financial institutions," as defined, to establish anti-money laundering compliance and due diligence programs no later than April 2003. Such programs
must include, among other things, adequate policies, the designation of a compliance officer, employee training programs, and an independent audit function to review and test the program. The Bank has
established anti-money laundering compliance and due diligence programs to comply with IMLAFA.

Capital Requirements.The federal regulatory agencies use capital adequacy guidelines in their examination and regulation of
banks. If the capital falls below the minimum levels established by these guidelines, the Bank may (1) be denied approval to acquire or establish additional banks or non-bank
businesses or to open facilities, or (2) be subject to other regulatory restrictions or actions.

Banking
organizations historically were required to maintain a minimum ratio of primary capital to total assets of 5.5%, and a minimum ratio of total capital to total assets of 6.0%. The
primary and total capital ratio requirements have been replaced by the adoption of risk-based and leverage capital requirements.

Risk-Based
Capital Requirements

The
FDIC adopted risk-based capital guidelines for banks effective after December 31, 1990. The risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in risk profile among banks to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets.
Assets and off-balance sheet items are assigned to broad risk categories each with appropriate weights. The resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items. The ratios are minimums. The guidelines require all federally regulated banks to maintain a minimum risk-based
total capital ratio of 8%, of which at least 4% must be Tier I capital (see the description of Tier I capital and Tier II capital below).

9

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A
banking organization's qualifying total capital consists of two components: Tier I capital (core capital) and Tier II capital (supplementary capital). Tier I
capital is an amount equal to the sum of: (i) common shareholders' equity (including adjustments for any surplus or deficit); (ii) non-cumulative perpetual preferred stock;
and (iii) the company's minority interests in the equity accounts of consolidated subsidiaries. Intangible assets generally must be deducted from Tier I capital, subject to limited
exceptions for goodwill arising from certain supervisory acquisitions. Other intangible assets may be included in an amount up to 25% of Tier I capital, provided that the asset meets each of
the following criteria: (i) the asset must be able to be separated and sold apart from the banking organization or the bulk of its assets; (ii) the market value of the asset must be
established on an annual basis through an identifiable stream of cash flows and there must be a high degree of certainty that the asset will hold this market value notwithstanding the future prospects
of the banking organization; and (iii) the banking organization must demonstrate that a liquid market exists for the asset. Intangible assets in excess of 25% of Tier I capital generally
are deducted from a banking organization's regulatory capital. At least 50% of the banking organization's total regulatory capital must consist of Tier I capital.

Tier II
capital is an amount equal to the sum of (i) the allowance for possible credit losses in an amount up to 1.25% of risk-weighted assets;
(ii) cumulative perpetual preferred stock with an original maturity of 20 years or more and related surplus; (iii) hybrid capital instruments (instruments with characteristics of
both debt and equity), perpetual debt and mandatory convertible debt securities; and (iv) in an amount up to 50% of Tier I capital, eligible term subordinated debt and
intermediate-term preferred stock with an original maturity of five years or more, including related surplus. The inclusion of the foregoing elements of Tier II capital are subject
to certain requirements and limitations of the FDIC.

Investments
in unconsolidated banking and finance subsidiaries, investments in securities subsidiaries and reciprocal holdings of capital instruments must be deducted from capital. The
federal banking regulators may require other deductions on a case-by-case basis.

Under
the risk-weighted capital guidelines, balance sheets assets and certain off-balance sheet items, such as standby letters of credit, are assigned to one of
four risk weight categories (0%, 20%, 50%, or 100%) according to the nature of the asset and its collateral or the identity of any obligor or guarantor. For example, cash is assigned to the 0% risk
category, while loans secured by one-to-four family residences are assigned to the 50% risk category. The aggregate amount of such asset and off-balance sheet items
in each risk category is adjusted by the risk weight assigned to that category to determine weighted values, which are added together to determine the total risk-weighted assets for the
banking organization. Accordingly, an asset, such as a commercial loan, which is assigned to a 100% risk category is included in risk-weighted assets at its nominal face value, whereas a
loan secured by a single-family home mortgage is included at only 50% of its nominal face value. The application ratios are equal to capital, as determined, divided by risk-weighted
assets, as determined.

Leverage
Capital Requirements

The
FDIC has a regulation requiring certain banking organizations to maintain additional capital of 1% to 2% above a 3% minimum Tier I Leverage Capital Ratio (Tier I
capital, less intangible assets, to total assets). In order for an institution to operate at or near the minimum Tier I leverage capital requirement of 3%, the FDIC expects that such
institution would have well-diversified risk, no undue rate risk exposure, excellent asset quality, high liquidity and good earnings. In general, the bank would have to be considered a
strong banking organization, rated in the highest category under the bank rating system and have no significant plans for expansion. Higher Tier I leverage capital ratios of up to 5% will
generally be required if all of the above characteristics are not exhibited, or if the institution is undertaking expansion, seeking to engage in new activities, or otherwise faces unusual or abnormal
risks.

10

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The FDIC rule provides that institutions not in compliance with the regulation are expected to be operating in compliance with a capital plan or agreement with the regulator. If they do
not do so, they are deemed to be engaging in an unsafe and unsound practice and may be subject to enforcement action. In addition, failure by an institution to maintain capital of at least 2% of
assets constitutes an unsafe and unsound practice and may subject the institution to enforcement action. An institution's failure to maintain capital of at least 2% of assets constitutes an unsafe and
unsound condition justifying termination of FDIC insurance.

Depositor Preference.The Omnibus Budget Reconciliation Act of 1993 provides that deposits and certain claims for
administrative expenses and employee compensation against an insured depositary institution would be afforded a priority over other general unsecured claims against such an institution, including
federal funds and letters of credit, in the "liquidation or other resolution" of such an institution by any receiver.

Effect of Governmental Policies.The Bank is affected by the policies of regulatory authorities, including the Federal
Reserve System. An important function of the Federal Reserve System is to regulate the national money supply. Among the instruments of monetary policy used by the Federal Reserve are: purchases and
sales of U.S. Government securities in the marketplace; changes in the discount rate, which is the rate any depository institution must pay to borrow from the Federal Reserve; and changes in the
reserve requirements of depository institutions. These instruments are effective in influencing economic and monetary growth, interest rate levels and inflation.

The
monetary policies of the Federal Reserve System and other governmental policies have had a significant effect on the operating results of commercial banks in the past and are
expected to continue to do so in the future. Because of changing conditions in the national economy and in the money market, as well as the result of actions by monetary and fiscal authorities, it is
not possible to predict with certainty future changes in interest rates, deposit levels, loan demand or the business and earnings of the Bank or whether the changing economic conditions will have a
positive or negative effect on operations and earnings.

Bills
are pending before the United States Congress and the Tennessee General Assembly which could affect the business of the Bank, and there are indications that other similar bills may
be introduced in the future. It cannot be predicted whether or in what form any of these proposals will be adopted or the extent to which the business of the Bank may be affected thereby.

Investment
Policy

The
objective of the Bank's investment policy is to invest funds not otherwise needed to meet the loan demand of its market area to earn the maximum return for the Bank, yet still
maintain sufficient liquidity to meet fluctuations in the Bank's loan demand and deposit structure. In doing so, the Bank balances the market and credit risks against the potential investment return,
makes investments compatible with the pledge requirements of the Bank's deposits of public funds, maintains compliance with regulatory investment requirements, and assists the various public entities
with their financing needs. The asset liability and investment committee has full authority over the investment portfolio and makes decisions on purchases and sales of securities. The entire
portfolio, along with all investment transactions occurring since the previous Board of Director's meeting, is reviewed by the Board at its next monthly meeting. The investment policy allows portfolio
holdings to include short-term securities purchased to provide the Bank's needed liquidity and longer term securities purchased to generate level income for the Bank over periods of
interest rate fluctuations. At this time the Bank does not have a security portfolio.

11

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Loan
Policy

All
lending activities of the Bank are under the direct supervision and control of the full Board of Directors and Douglas P. Archbold, Chief Credit Officer. The Board of Directors
enforces loan authorizations, decides on loans exceeding such limits, services all requests for officer credits to the extent allowable under current laws and regulations, administers all problem
credits, and determines the allocation of funds for each lending division. The Bank's established maximum loan volume to deposits is 100%. The loan portfolio consists primarily of real estate,
commercial, farming and installment loans. Commercial loans consist of either real estate loans or term loans. Maturity of term loans is normally limited to five to seven years. Conventional real
estate loans may be made up to 85% of the appraised value or purchase cost of the real estate for no more than a thirty year term. Installment loans are based on the earning capacity and vocational
stability of the borrower.

The
full Board makes a monthly review of loans which are 30 days or more past due and the full Board of Directors makes a monthly review of loans which are 45 days or more
past due.

Management
of the Bank periodically reviews the loan portfolio, particularly nonaccrual and renegotiated loans. The review may result in a determination that a loan should be placed on a
nonaccrual status for income recognition. In addition, to the extent that management identifies potential losses in the loan portfolio, it reduces the book value of such loans, through
charge-offs, to their estimated collectible value. The Bank's policy is that accrual of interest is discontinued on a loan when management of the Bank determines upon consideration of
economic and business factors affecting collection efforts that collection of interest is doubtful. The Bank maintains a specific reserve for impaired loans.

When
a loan is classified as nonaccrual, any unpaid interest is reversed against current income. Interest is included in income thereafter only to the extent received in cash. The loan
remains in a nonaccrual classification until such time as the loan is brought current, when it may be returned to accrual classification. When principal or interest on a nonaccrual loan is brought
current, if in management's opinion future payments are questionable, the loan would remain classified as nonaccrual. After a nonaccrual or renegotiated loan is charged off, any subsequent payments of
either interest or principal are applied first to any remaining balance outstanding, then to recoveries and lastly to income.

The
Bank had no tax-exempt loans during the period ended December 31, 2007. The Bank had no loans outstanding to foreign borrowers at December 31, 2007. The
Bank's underwriting guidelines are applied to four major categories of loans, commercial and industrial, consumer, agricultural and real estate which includes residential, construction and development
and certain other real estate loans. The Bank requires its loan officers and Board to consider the borrower's character, the borrower's financial condition as reflected in current financial
statements, the borrower's management capability, the borrower's industry and the economic environment in which the loan will be repaid. Before approving a loan, the loan officer or Board must
determine that the borrower is basically honest and creditworthy, determine that the borrower is a capable manager, understand the specific purpose of the loan, understand the source and plan of
repayment, determine that the purpose, plan and source of repayment as well as collateral are acceptable, reasonable and practical given the normal framework within which the borrower operates.

Credit
Risk Management and Reserve for Loan Losses

Credit
risk and exposure to loss are inherent parts of the banking business. Management seeks to manage and minimize these risks through its loan and investment policies and loan review
procedures. Management establishes and continually reviews lending and investment criteria and approval procedures that it believes reflect the risk sensitive nature of the Bank. The loan review
procedures are set to monitor adherence to the established criteria and to ensure that on a continuing basis such standards are enforced and maintained. Management's objective in establishing lending
and investment standards is to manage the risk of loss and provide for income generation through pricing policies.

12

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The
loan portfolio is regularly reviewed and management determines the amount of loans to be charged-off. In addition, such factors as the Bank's previous loan loss
experience, prevailing and anticipated economic conditions, any industry concentrations and the overall quality of the loan portfolio are considered. While management uses available information to
recognize losses on loans and real estate owned, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the allowances for losses on loans and real estate owned. Such agencies may require the Bank to recognize additions to the allowances based on
their judgments about information available at the time of their examinations. In addition, any loan or portion thereof which is classified as a "loss" by regulatory examiners is
charged-off.

Capital
Resources/Liquidity

Liquidity.Of primary importance to depositors, creditors and regulators is the ability to have readily available funds
sufficient to repay fully maturing liabilities. The Bank's liquidity, represented by cash and cash due from banks, is a result of its operating, investing and financing activities. In order to insure
funds are available at all times, the Bank devotes resources to projecting on a monthly basis the amount of funds which will be required and maintains relationships with a diversified customer base so
funds are accessible. Liquidity requirements can also be met through short-term borrowings or the disposition of short-term assets which are generally matched to correspond to
the maturity of liabilities.

The
Bank has a formal liquidity policy whereby management considers several liquidity ratios on a monthly basis to determine the adequacy of liquidity. In the opinion of management, its
liquidity levels are considered adequate. The Bank is subject to general FDIC guidelines which do not require a minimum level of liquidity. Management believes its liquidity ratios meet or exceed
these guidelines. Management does not know of any trends or demands which are reasonably likely to result in liquidity increasing or decreasing in any material manner.

Impact of Inflation and Changing Prices.The financial statements and related financial data presented herein have been
prepared in accordance with U.S. generally accepted accounting principles which 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 and due to inflation. The impact of inflation on operations of the Bank is reflected in increased operating costs. Unlike most
industrial companies, virtually all of the assets and liabilities of the Bank are monetary in nature. As a result, interest rates have a more significant impact on the Bank's performance than the
effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services.

Capital
Adequacy

Capital
adequacy refers to the level of capital required to sustain asset growth over time and to absorb losses. The objective of the Bank's management is to maintain a level of
capitalization that is sufficient to take advantage of profitable growth opportunities while meeting regulatory requirements. This is achieved by improving profitability through effectively allocating
resources to more profitable businesses, improving asset quality, strengthening service quality, and streamlining costs. The primary measures used by management to monitor the results of these efforts
are the ratios of average equity to average assets, average tangible equity to average tangible assets, and average equity to net loans.

The
Federal Reserve Board has adopted capital guidelines governing the activities of bank holding companies. These guidelines require the maintenance of an amount of capital based on
risk-adjusted assets so that categories of assets with potentially higher credit risk will require more capital backing than assets with lower risk. In addition, banks and bank holding
companies are required to maintain capital to support, on a risk-adjusted basis, certain off-balance sheet activities such as loan commitments.

13

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The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") established five capital categories for banks and bank holding companies. The bank regulators adopted
regulations defining these five capital categories in September 1992. Under these new regulations each bank is classified into one of the five categories based on its level of risk-based
capital as measured by Tier I capital, total risk-based capital, and Tier I leverage ratios and its supervisory ratings.

The
following table lists the five categories of capital and each of the minimum requirements for the three risk-based capital ratios.

Total Risk-Based
Capital Ratio

Tier I Risk-Based
Capital Ratio

Leverage RatioWell-capitalized

10% or above

6% or above

5% or aboveAdequately capitalized

8% or above

4% or above

4% or aboveUndercapitalized

Less than 8%

Less than 4%

Less than 4%Significantly undercapitalized

Less than 6%

Less than 3%

Less than 3%Critically undercapitalized





2% or less


ITEM 1A.    RISK FACTORS

Investing in our common stock involves various risks which are particular to us, our bank, our industry and our market area. Several risk factors regarding
investing in our common stock are discussed below. This listing should not be considered as all-inclusive. If any of the following risks were to occur, we may not be able to conduct our
business as currently planned and our financial condition or operating results could be negatively impacted. These matters could cause the trading price of our common stock to decline in future
periods.

We are geographically concentrated in Greeneville and Maryville, Tennessee, and changes in local economic conditions impact our profitability.

We operate primarily in Greeneville and Maryville, Tennessee, and substantially all of our loan customers and most of our deposit and other customers live or have
operations in Greeneville and Maryville. Accordingly, our success significantly depends upon the growth in population, income levels, deposits and housing starts in Greeneville and Maryville, along
with the continued attraction of business ventures to these areas. Our profitability is impacted by the changes in general economic conditions in these markets. Additionally, unfavorable local or
national economic conditions could reduce our growth rate, affect the ability of our customers to repay their loans to us and generally affect our financial condition and results of operations.

We
are less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of diversified economies. Moreover, we cannot give any
assurance that we will benefit from any market growth or favorable economic conditions in our primary market areas if they do occur.

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Our continued growth may require the need for additional capital and further regulatory approvals which, if not obtained, could adversely impact our profitability and
implementation of our current business plan.

To continue to grow, we will need to provide sufficient capital to the Corporation through earnings generation, additional equity offerings or borrowed funds or
any combination of these sources of funds. Should we incur indebtedness, we are required to obtain certain regulatory approvals beforehand. Should our growth exceed our expectations, we may need to
raise additional capital over our projected capital needs. However, our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside
our control, and on our financial performance. Accordingly, we cannot assure our ability to raise additional capital if needed on terms acceptable to us. If we cannot raise additional capital when
needed, our ability to further expand and grow our operations could be materially impaired.

If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings will decrease.

If loan customers with significant loan balances fail to repay their loans according to the terms of these loans, our earnings would suffer. We make various
assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of any collateral securing the repayment of our loans. We
maintain an allowance for loan losses in an attempt to cover the inherent risks associated with lending. In determining the size of this allowance, we rely on an analysis of our loan portfolio based
on volume and types of loans, internal loan classifications, trends in classifications, volume and trends in delinquencies, nonaccruals and charge-offs, national and local economic
conditions, other factors and other pertinent information. Because we are a relatively young organization, our allowance estimation may be less reflective of our historical loss experience than a more
mature organization. If our assumptions are inaccurate, our current allowance may not be sufficient to cover potential loan losses, and additional provisions may be necessary which would decrease our
earnings.

In
addition, federal and state regulators periodically review our loan portfolio and may require us to increase our allowance for loan losses or recognize loan charge-offs.
Their conclusions about the quality of our loan portfolio may be different than ours. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory
agencies could have a negative effect on our operating results.

Fluctuations in interest rates could reduce our profitability.

Changes in interest rates may affect our level of interest income, the primary component of our gross revenue, as well as the level of our interest expense.
Interest rate fluctuations are caused by many factors which, for the most part, are not under our direct control. For example, national monetary policy plays a significant role in the determination of
interest rates. Additionally, competitor pricing and the resulting negotiations that occur with our customers also impact the rates we collect on loans and the rates we pay on deposits.

As
interest rates change, we expect that we will periodically experience "gaps" in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing
liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to our position,
this "gap" may work against us, and our earnings may be negatively affected.

Changes
in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of
our assets, all of which ultimately affect our earnings. A decline in the market value of our assets may limit our ability to borrow additional funds. As a result, we could be required to sell some of
our loans and investments under adverse market conditions, upon terms that are not favorable to us, in order to maintain our liquidity. If those sales are made at prices lower than the amortized costs
of the investments, we will incur losses.

15

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The Corporation could sustain losses if its asset quality declines.

The Corporation's earnings are affected by the Bank's ability to properly originate, underwrite and service loans. The Bank could sustain losses if it incorrectly
assesses the creditworthiness of its borrowers or fails to detect or respond to deterioration in asset quality in a timely manner. Problems with asset quality could cause the Bank's interest income
and net interest margin to decrease and its provisions for loan losses to increase, which could adversely affect the Corporation's results of operations and financial condition.

Loss of our senior executive officers or other key employees could impair our relationship with our customers and adversely affect our business.

We have assembled a senior management team which has a substantial background and experience in banking and financial services in the Greeneville and Maryville
markets. Loss of these key personnel could negatively impact our earnings because of their skills, customer relationships and/or the potential difficulty of promptly replacing them.

Competition with other banking institutions could adversely affect our profitability.

A number of banking institutions in the Greeneville and Maryville markets have higher lending limits, more banking offices, and a larger market share. In some
respects, this may place these competitors in a competitive advantage, although many of our customers have selected us because of service quality concerns at the larger enterprises. This competition
may limit or reduce our profitability, reduce our growth and adversely affect our results of operations and financial condition.

The Corporation's common stock is currently traded on a local basis, the trading volume in its common stock has been thin and the sale of substantial amounts of the
Corporation's common stock could depress the price of its common stock.

The Corporation cannot say with any certainty when a more active and liquid trading market for its common stock will develop or be sustained. Because of this, the
Corporation's shareholders may not be able to sell their shares at the volumes, prices, or times that they desire.

The
Corporation cannot predict the effect, if any, that future sales of its common stock, or availability of shares of its common stock for sale, will have on the price of the
Corporation's common stock. The Corporation, therefore, can give no assurance that sales of substantial amounts of its common stock, or the potential for large amounts of sales, would not cause the
price of its common stock to decline or impair its ability to raise capital through sales of its common stock.

The
price of the Corporation's common stock may fluctuate in the future, and these fluctuations may be unrelated to its performance.

The Corporation may issue additional common stock or other equity securities in the future which could dilute the ownership interest of existing shareholders.

In order to maintain its capital at desired levels or required regulatory levels, or to fund future growth, the Corporation's board of directors may decide from
time to time to issue additional shares of common stock, or securities convertible into, exchangeable for or representing rights to acquire shares of its common stock. The sale of these shares may
significantly dilute the Corporation's shareholders ownership interest as a shareholder and the per share book value of its common stock. New investors in the future may also have rights, preferences
and privileges senior to its current shareholders which may adversely impact its current shareholders.

16

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The Corporation's ability to declare and pay dividends is limited by law and it may be unable to pay future dividends.

The Corporation'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 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 FRB may impose restrictions
on the Corporation's ability to pay dividends on its common stock. As a result, the Corporation cannot assure its shareholders that it will declare or pay dividends on shares of its common stock in
the future.

Liquidity needs could adversely affect the Corporation's results of operations and financial condition.

The Corporation relies on dividends from the Bank as its primary source of funds. The primary source of funds of the Bank are customer deposits and loan
repayments. While scheduled loan repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans. The ability of borrowers to repay loans can be
adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business
closings or lay-offs, inclement weather, natural disasters and international instability. Additionally, deposit levels may be affected by a number of factors, including rates paid by
competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions. Accordingly, the Bank may be required from time to time to rely on
secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include Federal Home Loan Bank advances and federal funds lines of credit from correspondent banks.
While the Bank believes that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity demands. The Bank may be required to slow or discontinue
loan growth, capital expenditures or other investments or liquidate assets should such sources not be adequate.

Our business is dependent on technology, and an inability to invest in technological improvements may adversely affect our results of operations and financial condition.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition
to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. We have made significant investments in data processing,
management information systems and internet banking accessibility. Our future success will depend in part upon our ability to create additional efficiencies in our operations through the use of
technology, particularly in light of our past and projected growth strategy. Many of our competitors have substantially greater resources to invest in technological improvements. We cannot make
assurances that our technological improvements will increase our operational efficiency or that we will be able to effectively implement new technology-driven products and services or be successful in
marketing these products and services to our customers.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

Not applicable.

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ITEM 2.    PROPERTIES

The main office of the Corporation 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. A full service branch banking office of the Bank is located at 506 Asheville Highway, Greeneville,
Greene County, Tennessee. The Bank also operates a full service branch banking office in Maryville, Blount County, 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. 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.

ITEM 3.    LEGAL PROCEEDINGS

To the best of the Corporation's knowledge, there are no pending legal proceedings, other than routine litigation incidental to the business, to which the
Corporation or the Bank is a party or of which any of the Corporation's or the Bank's property is the subject.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth quarter of 2007 through the solicitation of proxies or otherwise.

18

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

The common stock of the Corporation is not traded through an organized exchange nor is there a known active trading market. The number of shareholders of record
at December 31, 2007 was 1,593. Holders of the Corporation's common stock are entitled to receive dividends when declared by the Board of Directors out of funds legally available. Dividends
will be affected by other factors including applicable government regulations and policies. The following table shows the quarterly range of high and low sale prices for the Corporation's stock during
the fiscal years 2007 and 2006. These sale prices represent known transactions and do not necessarily represent all trading transactions for the periods.

Year



High

Low2006:

First Quarter

$
15.00

$
12.00Second Quarter

$
13.00

$
12.00Third Quarter

$
11.00

$
9.50Fourth Quarter

$
10.00

$
9.502007:

First Quarter

$
9.75

$
8.00Second Quarter

$
9.00

$
9.00Third Quarter

$
9.00

$
7.00Fourth Quarter

$
8.50

$
7.00


Dividends

The payment of cash dividends is subject to the discretion of the Corporation's Board of Directors and the Bank's ability to pay dividends. The Bank's ability to
pay dividends is restricted by applicable regulatory requirements. For more information on these restrictions, please see PART I, ITEM 1 "DESCRIPTION OF BUSINESSPayment of Dividends". No
assurances can be given that any dividend will be declared or, if declared, what the amount of such dividend would be or whether such dividends would continue in future periods.

19

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Securities Authorized for Issuance Under Equity Compensation Plans

The Bank issued stock option agreements to certain officers and employees ("Options"), at various times beginning on July 16, 2001. These Options were not
approved by the shareholders, as such approval is not necessary for these non-qualified option agreements. Upon consummation of the Share Exchange, the Corporation became party to these
options issued by the Bank.

The
following table reflects the number of shares to be issued upon the exercise of options granted under the Option agreements, the weighted-average exercise price of all such options,
and the total number of shares of common stock reserved for issuance upon the exercise of authorized, not-yet-granted options as of December 31, 2007:

|Plan Category                                              |  | # of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
(a) |  | Weighted-average
Exercise Price of
Outstanding Options,
Warrants, and Rights
(b) |      | # of Equity Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (excluding
securities reflected in
column (a))
(c)
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------
|Equity Compensation Plans Approved by Security Holders     |  |                                                                                           |  |                                                                                  |     |                                                                                                                                                  
|Equity Compensation Plans Not Approved by Security Holders |  | 206,619                                                                                    |  | $                                                                                | 5.01 |                                                                                                                                                  
|                                                           |  |                                                                                            |  |                                                                                  |      |                                                                                                                                                  
|Total                                                      |  | 206,619                                                                                    |  | $                                                                                | 5.01 |                                                                                                                                                  
|                                                           |  |                                                                                            |  |                                                                                  |      |                                                                                                                                                  

The
maximum number of shares of the Corporation's common stock available for issuance pursuant to stock options is 375,000 shares. As of December 31, 2007 the maximum number of
shares available for future stock option grants is 106,390 shares. The option exercise price is equal to the fair market value of the Corporation's common stock at the date of the grant. The options
expire on the tenth anniversary of the date of the option. Prior to adopting Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),Share-Based
Payment, the Corporation elected to immediately vest all remaining stock options as of May 17, 2005. Proceeds received by the Corporation from exercises of the stock
options are credited to common stock and additional paid-in capital.

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Comparison of Five-Year Cumulative Total Return

The following graph compares the cumulative total return on American Patriot Financial Group, Inc.'s common stock with the NASDAQ Bank Index and the
Russell 2000 Index over the five-year period extending through December 31, 2007. The graph assumes that $100.00 was invested on December 31, 2002 in American Patriot
Financial Group, Inc.'s, common stock, the NASDAQ Bank Index and the Russell 2000 Index and that all dividends were reinvested.

Cumulative Total Returns(1)

Comparison of

AMERICAN PATRIOT FINANCIAL GROUP, INC.
NASDAQ BANK INDEX
RUSSELL 2000 INDEX

At December 31, 2002 through December 31, 2007

GRAPH

|Index                            |  | 12/31/2002 |  | 12/31/2003 |  | 12/31/2004 |  | 12/31/2005 |  | 12/31/2006 |  | 12/31/2007
|-------------------------------- |  | ---------- |  | ---------- |  | ---------- |  | ---------- |  | ---------- |  | ----------
|American Patriot Financial Group |  | 100.00     |  | 166.63     |  | 225.00     |  | 187.50     |  | 125.00     |  | 87.50     
|Russell 2000 Index               |  | 100.00     |  | 147.27     |  | 174.40     |  | 182.46     |  | 216.08     |  | 212.71    
|Nasdaq Bank Index                |  | 100.00     |  | 133.03     |  | 151.18     |  | 148.26     |  | 168.72     |  | 135.16    

21

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Recent Sales of Unregistered Securities

In July 2001, the Bank issued 750,000 shares of its common stock in an initial offering. This sale was exempt from registration under the Securities Act of 1933,
as amended, pursuant to Section 3. Since its initial offering, neither the Bank nor the Corporation has sold any additional shares of its common stock, except as follows:



Purchases of Equity Securities by the Registrant and Affiliated Purchasers

The Corporation made no repurchases of its equity securities, and no Affiliated Purchasers (as defined in Rule 10b - 18(a)(3) under the Securities
Exchange Act of 1934) purchased any shares of the Corporation's equity securities during the fourth quarter of the fiscal year ended December 31, 2007.

22

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ITEM 6.    SELECTED FINANCIAL DATA

The following selected financial data for the years ended December 31, 2007, 2006, 2005, 2004, and 2003 should be read in conjunction with the financial
statements included in Item 8:

|                                                                          |  | 2007 |             | 2006 |   | 2005       |   | 2004 |            | 2003 |  
|------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ---------- | - | ---- | ---------- | ---- | -
|Income Statement Data:                                                    |  |      |             |      |   |            |   |      |            |      |  
|Total interest and dividend income                                        |  | $    | 8,024,221   |      | $ | 6,686,333  |   | $    | 5,499,510  |      | $
|Total interest expense                                                    |  |      | 3,880,004   |      |   | 2,842,427  |   |      | 2,118,949  |      |  
|                                                                          |  |      |             |      |   |            |   |      |            |      |  
|Net interest income before provision for loan losses                      |  |      | 4,144,217   |      |   | 3,843,906  |   |      | 3,380,561  |      |  
|(Provision for)/benefit from loan losses                                  |  |      | (930,963    | )    |   | 23,758     |   |      | 555,222    |      |  
|                                                                          |  |      |             |      |   |            |   |      |            |      |  
|Net interest income after provision for loan losses                       |  |      | 3,213,254   |      |   | 3,867,664  |   |      | 3,935,783  |      |  
|Noninterest income                                                        |  |      | 757,409     |      |   | 547,783    |   |      | 565,259    |      |  
|Noninterest expenses                                                      |  |      | (4,327,689  | )    |   | (3,601,111 | ) |      | (3,573,651 | )    |  
|                                                                          |  |      |             |      |   |            |   |      |            |      |  
|Income (loss) before income taxes                                         |  |      | (357,026    | )    |   | 814,336    |   |      | 927,391    |      |  
|Income tax benefit (expense)                                              |  |      | 166,441     |      |   | (318,631   | ) |      | (342,981   | )    |  
|                                                                          |  |      |             |      |   |            |   |      |            |      |  
|Net income (loss)                                                         |  | $    | (190,585    | )    | $ | 495,705    |   | $    | 584,410    |      | $
|                                                                          |  |      |             |      |   |            |   |      |            |      |  
|Per Share Data:(1)                                                        |  |      |             |      |   |            |   |      |            |      |  
|Net income (loss), basic                                                  |  | $    | (.08        | )    | $ | 0.21       |   | $    | 0.25       |      | $
|Net income (loss), assuming dilution                                      |  | $    | (.08        | )    | $ | 0.20       |   | $    | 0.24       |      | $
|Dividends declared                                                        |  |      | N/A         |      |   | N/A        |   |      | N/A        |      |  
|Book value                                                                |  | $    | 3.74        |      | $ | 3.82       |   | $    | 3.61       |      | $
|Financial Condition Data:                                                 |  |      |             |      |   |            |   |      |            |      |  
|Total assets                                                              |  | $    | 116,534,323 |      | $ | 97,752,681 |   | $    | 87,784,710 |      | $
|Loans, net                                                                |  | $    | 91,848,845  |      | $ | 77,059,828 |   | $    | 64,054,625 |      | $
|Federal Home Loan Bank stock                                              |  | $    | 258,800     |      | $ | 258,800    |   | $    | 244,500    |      | $
|Federal funds sold                                                        |  | $    | 10,607,427  |      | $ | 12,224,443 |   | $    | 13,557,689 |      | $
|Deposits                                                                  |  | $    | 105,029,339 |      | $ | 82,503,052 |   | $    | 74,702,688 |      | $
|Federal Home Loan Bankadvances                                           |  | $    | 1,926,026   |      | $ | 2,368,159  |   | $    | 4,179,052  |      | $
|Stockholder's equity                                                      |  | $    | 8,687,002   |      | $ | 8,836,528  |   | $    | 8,340,823  |      | $
|Selected Ratios:                                                          |  |      |             |      |   |            |   |      |            |      |  
|Interest rate spread                                                      |  |      | 3.93        | %    |   | 4.29       | % |      | 3.95       | %    |  
|Net yield on interest-earning assets                                      |  |      | 4.39        | %    |   | 4.78       | % |      | 4.24       | %    |  
|Return on average assets                                                  |  |      | (0.18       | )%   |   | 0.56       | % |      | 0.67       | %    |  
|Return on average equity                                                  |  |      | (2.11       | )%   |   | 5.79       | % |      | 7.32       | %    |  
|Average equity to average assets                                          |  |      | 8.65        | %    |   | 9.70       | % |      | 9.12       | %    |  
|Dividend payout ratio                                                     |  |      | N/A         |      |   | N/A        |   |      | N/A        |      |  
|Ratio of nonperforming assets to total assets                             |  |      | 0.13        | %    |   | 1.56       | % |      | 2.39       | %    |  
|Ratio of allowance for loan losses to nonperforming assets                |  |      | 733.08      | %    |   | 40.47      | % |      | 33.28      | %    |  
|Ratio of allowance for loan losses to total loans, net of unearned income |  |      | 1.18        | %    |   | 0.80       | % |      | 1.08       | %    |  

---

23

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following is a discussion of our financial condition and results of operations for the years ended December 31, 2007, 2006 and 2005. The discussion and
analysis should be read in conjunction with our consolidated financial statements and related notes in order to obtain a better understanding of the information contained in the financial statements.
The discussions contained herein are for the consolidated entity American Patriot Financial Group, Inc. (the "Corporation") and its wholly-owned subsidiary American Patriot Bank (the "Bank")
collectively referred to herein as the "Company".

Overview

The Company had net income of $495,705 in 2006 as compared to a net loss of $190,585 for 2007. The primary reason for the decrease in net income can be attributed
to the Company not having as much benefit from recapture of income from the estimated allowance for loan losses. In 2006, the Company was able to recapture $23,758 in income from loans that had
previously been charged off or placed on nonaccrual. There was no recapture or benefit in 2007, instead, there was a provision or a charge to income of $930,963. As of December 31, 2007
approximately 72% of the Company's loans are adjustable rate loans that reprice with the Wall Street Journal prime rate increases on a daily basis. The Company will place emphasis on making fixed rate
loans due to declining cost of funds. Please refer to the Benefit from / Provision for loan losses section under the Results for Operations caption that follows for a more in depth discussion.

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 which 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.

Recent Accounting Pronouncements

In March 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 156,Accounting for Servicing of Financial
Assets, ("SFAS 156") an Amendment of FASB Statement No. 140,Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, ("SFAS 140") which requires that all separately recognized servicing assets and liabilities be initially measured at fair value, if
practicable, and requires entities to elect either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of Statement 140 for
subsequent measurement. SFAS 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006. The Company adopted SFAS 156 on
January 1, 2007. The adoption of SFAS 156 did not have any material impact on the Company's consolidated financial condition or results of operation.

24

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In
July 2006, FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes, ("FIN 48"). FIN 48
became effective for fiscal years beginning after December 15, 2006. FIN 48 applies to all income tax positions subject to FASB Statement No. 109, Accounting for Income Tax("SFAS 109"), including tax positions considered to be routine and those with a high degree of uncertainty.
FIN 48 did not have a material impact on the Company's consolidated financial statements.

In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements("SFAS" 157"). SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 will be applied prospectively and is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. SFAS 157 is not expected to have a material impact on the Company's consolidated financial statements.

In
September 2006, the Financial Accounting Standards Board ratified a consensus opinion reached by the Emerging Issues Task Force on Issue 06-04, Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements,
("EITF 06-04") which requires employers that enter into endorsement split-dollar life insurance arrangements that provide an employee with a postretirement benefit to recognize a
liability for the future benefits promised based on the substantive agreement made with the employer. Whether the accrual is based on a death benefit or on the future cost of maintaining the insurance
would depend on what the employer has effectively agreed to provide during the employee's retirement. The purchase of an endorsement-type life insurance policy does not qualify as a
settlement of the liability. The consensus in EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The Company intends to adopt
EITF 06-4 effective January 1, 2008. The Company is currently evaluating the impact this guidance will have on the Company's financial position and results of operation.

In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities,
("SFAS 159"). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of this standard is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions. This statement is effective as of the beginning of fiscal years beginning after November 15, 2007, with early adoption permitted under certain circumstances. The Company
did not choose to early adopt this standard and does not expect the implementation of SFAS 159 to have a material impact on its financial position or results of operations.

In
March 2007, the EITF reached a final consensus on Issue No. 06-10,Accounting for Deferred Compensation and Postretirement Benefit Aspects
of Collateral Assignment Split-Dollar Life Insurance Arrangements, ("EITF 06-10"). EITF 06-10 requires employers to recognize a liability
for the post-retirement benefit related to collateral assignment split-dollar life insurance arrangements in accordance with SFAS No. 106 or APB Opinion No. 12.
EITF 06-10 also requires employers to recognize and measure an asset based on the nature and substance of the collateral assignment split-dollar life insurance arrangement. The
provisions of EITF 06-10 are effective for the Company on January 1, 2008, with earlier application permitted, and are to be applied as a change in accounting principle
either through a cumulative-effect adjustment to retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the year of adoption; or as
a change in accounting principle through retrospective application to all prior periods. The Company does not expect adoption of EITF 06-10 to have a significant impact on its
consolidated financial statements, results of operations or liquidity.

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.

25

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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 "expect," "anticipate," "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 from the results anticipated, but not guaranteed, in
this Report, include (without limitation) economic and social conditions, competition for loans, mortgages, and other financial services and products, 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 changes or unanticipated events, circumstances, or results.

Results of Operations

The Company had a net loss of $190,585 for the year ended December 31, 2007 (or a negative $.08 per share) compared to net income of $495,705 (or $.21 per
share) and $584,410 (or $.25 per share) for the years ended December 31, 2006 and 2005 respectively.



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 2007 was $8,024,221 compared to $6,686,333 and $5,499,510 in 2006 and 2005 respectively. Total interest expense was
$3,880,004 in 2007 compared to $2,842,427 and $2,118,949 in 2006 and 2005 respectively. Average earning assets remained relatively unchanged at approximately $80 million in 2005 and 2006. While
average earning assets increased approximately $14 million (17.5%) to approximately $94 million for the year 2007. Average interest-bearing deposits decreased from approximately
$72 million in 2005 to approximately $71 million in 2006 (1%) and increased to approximately $85 million (19.7%) in 2007. Net interest margin was 4.39% in 2007 compared to 4.78%
in 2006, or 39 basis points decrease. The net change in the net interest margin was significant because the net increases in the yield on interest-earning assets was approximately 20 basis points
compared to the increase in the rate paid on interest-bearing liabilities of 56 basis points, which is attributable to the Bank being asset sensitive with assets repricing faster than liabilities.

26

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The provision for (benefit from) loan losses represents a charge (or recovery) to operations necessary to establish an estimated allowance for loan losses, which
in management's evaluation, is adequate to provide coverage for estimated losses on outstanding loans. The estimated allowance for loan losses is evaluated on a regular basis by management and is
based upon the Bank's historical loss experience adjusted for certain other factors based on management's judgment.

The
year 2007 represents the Bank's sixth full year of operations. During 2007, the Bank recognized a provision for loan losses of $930,963. There are three primary contributors to this
provision. First, the Bank incurred an increase in net charge-offs during 2007 as compared with 2006 and 2005. Net charge-offs were $454,836, $55,299 and $355,324 for 2007,
2006 and 2005, respectively. This impacted the Bank's historical loss ratio and consequently the allowance for loan losses calculation. Secondly, gross loans increased from $77,677,784 at
December 31, 2006 to $92,942,928 or 19.7% at December 31, 2007. This approximate $15,300,000 increase in gross loans resulted in the need for additional allowance for loan losses.
Finally, loans classified as impaired increased substantially during 2007, primarily in the fourth quarter of the year. Impaired loans at December 31, 2007 were $6,269,888 as compared to
$1,425,564 at December 31, 2006. Management has evaluated its impaired loans and provided valuation allowances as considered necessary which further contributed to the 2007 provision for loan
losses. Prior to 2006, the Bank had adjusted its historical loss experience by adding 25 basis points for a lack of historical experience. In 2006, the Bank removed this factor from its estimate of
the allowance for loan losses. The removal of this factor accounts for the majority of the benefit from the reduction of the estimated allowance for loan losses in 2006.

During
2005, the Bank recognized a benefit of $555,222 from the reduction of the allowance for loan losses. One factor was that several loans, which were classified as special mention,
substandard or doubtful as of December 31, 2004, were paid out during 2005 with minimal losses. In addition, the Bank's loan portfolio as a whole, as of December 31, 2005, had decreased
by approximately $9,200,000 (includes classified loans from 2004 that paid out in 2005) since December 31, 2004. Another factor is that the Bank modified its methodology to evaluate more
specific loans for impairment. This change in methodology provided a benefit of approximately $163,000 in 2005.



Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of the estimated allowance for loan losses and accumulated depreciation. Deferred income tax assets and liabilities are determined using the
liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of
the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

27

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The Company's noninterest income consists of service charges on deposit accounts and other fees and commissions. Total noninterest income for 2007 was $757,409
compared to $547,783 and $565,259 in 2006 and 2005 respectively. Service charge income increased during 2007 by $251,904 or (83.9%) when compared to 2006. This was due to an increased number of
customers utilizing overdraft protection products in 2007 over those in 2006. These products were introduced in late 2006. Other noninterest income increased due to earnings on the cash surrender
value of bank owned life insurance or "BOLI". Gains in noninterest income were offset by decreases of $24,008 or (24.6%) and $45,259 or (40.0%) in fees from origination of mortgage loans sold and
investment sale commissions, respectively. The main reasons for the decrease in 2006 when compared to 2005 was due to a $10,782 or (3.5%) decrease in service charges on deposit accounts and a $20,643
or (17.4%) decrease in fees from origination of mortgage loans sold. These decreases were offset by an investment sales commission increase of $13,040 or (13.0%). Management projects that other fees,
commissions and service charges will increase in 2008 due to the growth of the Company and the implementation of a more aggressive collection policy for other fees and service charges.



Noninterest expense consists of salaries and employee benefits, equipment and occupancy expenses, and other operating expenses. The following shows the comparison
of our noninterest expense for the years ended December 31, 2007, 2006 and 2005:

|                     |                                | Years ended
December 31,  |   | 2007-2006 |           | Year ended
December 31, |           | 2006-2005 |     
|-------------------- | ------------------------------ | ------------------------- | - | --------- | --------- | ----------------------- | --------- | --------- | ----
|
|Noninterest expense: |                                |                           |   |           |           |                         |           |           |     
|                     | Salaries and employee benefits |                           | $ | 2,186,911 |           | $                       | 1,834,310 |           | 19.2
|                     | Occupancy                      |                           |   | 602,754   |           |                         | 488,040   |           | 23.5
|                     | Advertising                    |                           |   | 123,013   |           |                         | 88,523    |           | 39.0
|                     | Data processing                |                           |   | 277,826   |           |                         | 217,919   |           | 27.5
|                     | Legal and professional         |                           |   | 413,977   |           |                         | 347,595   |           | 19.1
|                     | Other operating                |                           |   | 723,208   |           |                         | 624,724   |           | 15.8
|                     |                                |                           |   |           |           |                         |           |           |     
|                     |                                | Total noninterest expense |   | $         | 4,327,689 |                         | $         | 3,601,111 |     
|                     |                                |                           |   |           |           |                         |           |           |     

The
primary cause of the increase in noninterest expense between 2007 and 2006 is the opening of our Maryville branch in Blount County, Tennessee. This resulted in the need to hire
additional staffing and impacted our occupancy, advertising and data processing expenses significantly. Increases in legal and professional expenses were primarily attributable to compliance with the
Sarbanes-Oxley Act 404 rules.

Financial Condition

Total assets at December 31, 2007, were $116,534,323, an increase of $18,781,642 or 19.2% over 2006 year end assets of $97,752,681. Total assets for
the 2005 year end were $87,784,710. Deposits increased to $105,029,339 at December 31, 2007, an increase of $22,526,287 or 27.3% from $82,503,052 at December 31, 2006. Total
deposits for the year end 2005 were $74,702,688. Gross loans increased by $15,265,144, or 19.7%, to $92,942,928 at year end 2007, from $77,677,784 at year-end 2006. Total gross loans for
the year end 2005 were $64,751,638. Federal Home Loan Bank (FHLB) Stock was $258,800 at December 31, 2007 and 2006. FHLB Stock was $244,500 at year end 2005. Most of the increase in total
assets from 2006 to 2007 is accounted for by the growth in the loan portfolio, the purchase of a new branch (premises and equipment) and the purchase of bank owned life insurance (BOLI).

28

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



Gross loans outstanding totaled $92,942,928 at December 31, 2007 compared to $77,677,784 and $64,751,638 at December 31, 2006 and 2005,
respectively. The growth experienced in 2007 is in the commercial real estate segment of the portfolio which now encompasses approximately sixty percent of the entire portfolio. Consumer and owner
occupied residential loans decreased approximately 10.0% as a percentage of the entire portfolio. Aggregate commercial (non-real estate) loans declined approximately 2.0% as a percentage
of the entire portfolio. The shift from commercial to commercial real estate reflects the acceptable lending opportunities available in the Bank's service area and not any change in portfolio
management strategy.

Management
believes that overall portfolio quality remains sound and is indicative of reasonably conservative policies and underwriting standards and effective risk management practices.
In the event that a loan is 90 days or more past due the accrual of income is generally discontinued when the full collection of principal or interest is in doubt unless the obligations are
both well secured and in the process of collection. At December 31, 2007, there were no loans 90 days or more past due and still accruing interest, while total loans 90 days or
more past due and in non-accrual status equaled $149,244.



Federal Home Loan Bank (FHLB) stock at December 31, 2007 had an amortized cost of $258,800 remaining unchanged from the year of 2006. The amortized cost of
the FHLB stock for the year end 2005 was $244,500. As a member of the FHLB, the Company is required to maintain stock in an amount equal to 0.15% of total assets and 4% of outstanding FHLB advances.
FHLB stock is maintained by the Company at par value of $100 per share.



Total deposits, which are the principal source of funds for the Company, were $105,029,339 at December 31, 2007 compared to $82,503,052 and $74,702,688 at
December 31, 2006 and 2005, respectively. The increase of $22,526,287 from year end 2006 to year end 2007 represents an increase of 27.3%. 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. The Company has established a line of credit with the Federal Home Loan Bank secured by a blanket-pledge of 1-4 family
residential mortgage loans. At December 31, 2007, 2006 and 2005 the Company had outstanding advances of $1,926,026, $2,368,159 and $4,179,052, respectively, at the Federal Home Loan Bank.
Generally, banks classify their funding base as either core funding or non-core funding. Core funding consists of all deposits, other than public funds and brokered deposits, issued in
denominations of $100,000 or less while all other funding is deemed to be non-core.

29

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The following table represents the balances of our deposits and other fundings and the percentage of each type to the total at December 31, 2007 and December 31, 2006:

|                  |                                             | December 31
2007       |        | Percent    |            | December 31
2006 |      | Percent |           
|----------------- | ------------------------------------------- | ---------------------- | ------ | ---------- | ---------- | ---------------- | ---- | ------- | ----------
|Core funding:     |                                             |                        |        |            |            |                  |      |         |           
|                  | Noninterest-bearing deposit accounts        |                        | $      | 12,352,954 |            | 11.6             | %    | $       | 9,326,547 
|                  | Interest-bearing demand accounts            |                        |        | 2,886,852  |            | 2.7              | %    |         | 3,765,438 
|                  | Savings and money market accounts           |                        |        | 28,712,635 |            | 26.8             | %    |         | 24,731,496
|                  | Time deposits accounts less than $100,000   |                        |        | 39,805,013 |            | 37.2             | %    |         | 29,315,300
|                  |                                             |                        |        |            |            |                  |      |         |           
|                  |                                             | Total core funding     |        |            | 83,757,454 |                  | 78.3 | %       |           
|                  |                                             |                        |        |            |            |                  |      |         |           
|Non-core funding: |                                             |                        |        |            |            |                  |      |         |           
|                  | Time deposit accounts greater than $100,000 |                        |        | 13,045,243 |            | 12.2             | %    |         | 11,538,508
|                  | Public funds                                |                        |        | 437,642    |            | 0.4              | %    |         | 50,000    
|                  | Brokered deposits                           |                        |        | 7,789,000  |            | 7.3              | %    |         | 3,775,763 
|                  | Federal Home Loan Bank advances             |                        |        | 1,926,026  |            | 1.8              | %    |         | 2,368,159 
|                  |                                             |                        |        |            |            |                  |      |         |           
|                  |                                             | Total non-core funding |        |            | 23,197,911 |                  | 21.7 | %       |           
|                  |                                             |                        |        |            |            |                  |      |         |           
|                  |                                             |                        | Totals |            | $          | 106,955,365      |      | 100.00  | %         
|                  |                                             |                        |        |            |            |                  |      |         |           



At December 31, 2007, the Company had liquid assets of approximately $15.3 million in the form of cash, federal funds sold and Federal Home Loan
Bank Stock available for sale compared to approximately $15.7 million and approximately $18.5 million on December 31, 2006 and 2005 respectively. Management believes that the
liquid assets are adequate at December 31, 2007. Additional liquidity will be provided by the growth in deposit accounts and loan repayments. The Company also has the ability to purchase
federal funds and is a member of the Federal Home Loan Bank of Cincinnati that will provide an additional credit line if necessary. Management is not aware of any trends, events or uncertainties that
are reasonably likely to have a material impact on the Company's short term or long term liquidity.



Total stockholders' equity at December 31, 2007 was $8,657,002, a decrease of $179,526 from $8,836,528 at December 31, 2006. This decrease was due
to a net loss of $190,585 for 2007 that was partially offset by the purchase of 3,320 shares of common stock by key officers of the Company. Common stock increased $1,106 and surplus $9,953 from the
exercise of common stock options. The total capital for the year end 2005 was $8,340,823.

At
December 31, 2007 capital ratios were in excess of the regulatory minimums with the Company's Tier 1, total risk-based and leverage ratio.

30

---



The
Company's actual capital amounts and ratios are as follows:

|                                          |                       | Actual |   | For Capital
Adequacy Purposes |  | To Be Well
Capitalized Under
Prompt Corrective
Action Provisions |   
|----------------------------------------- | --------------------- | ------ | - | ----------------------------- |  | ---------------------------------------------------------------- | --
|
|As of December 31, 2007 (in Thousands)    |                       |        |   |                               |  |                                                                  |   
|Tier 1 Capital (To Average assets):       |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 8,657                         |  | 7.71                                                             | %3
|                                          | American Patriot Bank |        | $ | 8,610                         |  | 7.66                                                             | %3
|Tier 1 Capital (To Risk Weighted Assets): |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 8,657                         |  | 9.06                                                             | %3
|                                          | American Patriot Bank |        | $ | 8,610                         |  | 9.01                                                             | %3
|Total Capital (To Risk Weighted Assets):  |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 9,751                         |  | 10.20                                                            | %3
|                                          | American Patriot Bank |        | $ | 9,704                         |  | 10.16                                                            | %3
|As of December 31, 2006 (in Thousands)    |                       |        |   |                               |  |                                                                  |   
|Tier 1 Capital (To Average assets):       |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 8,837                         |  | 9.80                                                             | %3
|                                          | American Patriot Bank |        | $ | 8,803                         |  | 9.76                                                             | %3
|Tier 1 Capital (To Risk Weighted Assets): |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 8,837                         |  | 11.69                                                            | %3
|                                          | American Patriot Bank |        | $ | 8,803                         |  | 11.65                                                            | %3
|Total Capital (To Risk Weighted Assets):  |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 9,454                         |  | 12.51                                                            | %3
|                                          | American Patriot Bank |        | $ | 9,420                         |  | 12.46                                                            | %3
|As of December 31, 2005 (in Thousands)    |                       |        |   |                               |  |                                                                  |   
|Tier 1 Capital (To Average assets):       |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 8,345                         |  | 9.65                                                             | %3
|                                          | American Patriot Bank |        | $ | 8,317                         |  | 9.62                                                             | %3
|Tier 1 Capital (To Risk Weighted Assets): |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 8,345                         |  | 12.12                                                            | %3
|                                          | American Patriot Bank |        | $ | 8,317                         |  | 12.08                                                            | %3
|Total Capital (To Risk Weighted Assets):  |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 9,042                         |  | 13.13                                                            | %3
|                                          | American Patriot Bank |        | $ | 9,014                         |  | 13.09                                                            | %3



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.

31

---



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.

At
December 31, 2007, approximately 72% 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 at the Company. Because the majority of the institution's liabilities are 12 months and under and the gap in repricing is asset sensitive, with loans repricing
daily, 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.

Off-Balance Sheet Arrangements

The Company, at December 31, 2007, had outstanding unused lines of credit and standby letters of credit that totaled $13,998,939. 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 other banks and to borrow from the Federal Home Loan Bank. At December 31, 2007, the Company
had established with correspondent banks the ability to purchase Federal funds if needed.

32

---



The
following table shows the amount of our average balances, interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the
average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net yield on average interest-earning assets for each of the years in the
two-year period ended December 31, 2007. The table is presented on taxable equivalent basis, if applicable.

|                                     |                                            | 2007 |            | 2006        |  
|------------------------------------ | ------------------------------------------ | ---- | ---------- | ----------- | -
|
|Assets:                              |                                            |      |            |             |  
|Interest-earning assets:             |                                            |      |            |             |  
|Loans                                |                                            | $    | 83,490,614 |             | $
|FHLB stock                           |                                            |      | 259,167    |             |  
|Deposits                             |                                            |      | 61,035     |             |  
|Federal funds sold                   |                                            |      | 10,505,740 |             |  
|                                     |                                            |      |            |             |  
|                                     | Total interest-earning assets              |      |            | 94,316,556  |  
|                                     |                                            |      |            |             |  
|Cash and due from banks              |                                            |      | 3,066,970  |             |  
|Other assets                         |                                            |      | 7,727,255  |             |  
|Allowance for loan losses            |                                            |      | (653,410   | )           |  
|                                     |                                            |      |            |             |  
|                                     | Total Assets                               |      | $          | 104,457,371 |  
|                                     |                                            |      |            |             |  
|Liabilities and Stockholder's Equity |                                            |      |            |             |  
|Interest-bearing liabilities:        |                                            |      |            |             |  
|Demand deposits                      |                                            | $    | 25,847,380 |             | $
|Savings deposits                     |                                            |      | 4,393,937  |             |  
|Time deposits                        |                                            |      | 52,420,766 |             |  
|FHLB advances                        |                                            |      | 2,090,324  |             |  
|                                     |                                            |      |            |             |  
|                                     | Total interest-bearing liabilities         |      |            | 84,752,407  |  
|                                     |                                            |      |            |             |  
|Non-interest bearing demand deposits |                                            |      | 9,737,015  |             |  
|Other liabilities                    |                                            |      | 929,319    |             |  
|Stockholder's equity                 |                                            |      | 9,038,630  |             |  
|                                     |                                            |      |            |             |  
|                                     | Total liabilities and stockholder's equity |      | $          | 104,457,371 |  
|                                     |                                            |      |            |             |  
|Net interest earnings                |                                            |      |            |             | $
|                                     |                                            |      |            |             |  
|Net interest spread                  |                                            |      |            |             |  
|Net interest margin                  |                                            |      |            |             |  

---

Note:    Average
loan balances include nonaccrual loans. Interest income collected on nonaccrual loans has been included.

33

---



The net interest margin for 2007 was 4.39% compared to a net interest margin of 4.78% for the same period in 2006, a decrease of 39 basis points. The net change in the net interest
margin was significant because the net increases in the yield on interest-earning assets was approximately 20 basis points compared to the increase in the rate paid on interest-bearing liabilities of
56 basis points. The net interest margin for 2005 was 4.24%, compared to the 4.78% margin in 2006, an increase of 54 basis points. Other matters related to the changes in net interest income, net
yields and rate, and net interest margin are presented below:



Net
interest income increased by $300,311 between the years ended December 31, 2007 and 2006 and increased by $463,345 between the years ended December 31, 2006 and 2005.

The
following is an analysis of the changes in our net interest income comparing the changes attributable to rates and those attributable to volumes:

|                              |                                    | 2007 Compared to 2006
Increase (Decrease) due to |          | 2006 Compared to 2005
Increase (Decrease) due to |  
|----------------------------- | ---------------------------------- | ------------------------------------------------ | -------- | ------------------------------------------------ | -
|
|Interest-earning assets:      |                                    |                                                  |          |                                                  |  
|Loans                         |                                    | $                                                | 73,497   |                                                  | $
|FHLB stock                    |                                    |                                                  | 2,003    |                                                  |  
|Deposits                      |                                    |                                                  | (1,743   | )                                                |  
|Federal funds sold            |                                    |                                                  | 6,382    |                                                  |  
|                              |                                    |                                                  |          |                                                  |  
|                              | Total interest-earning assets      |                                                  |          | 80,139                                           |  
|                              |                                    |                                                  |          |                                                  |  
|Interest-bearing liabilities: |                                    |                                                  |          |                                                  |  
|Demand deposits               |                                    |                                                  | 79,768   |                                                  |  
|Savings deposits              |                                    |                                                  | 5,525    |                                                  |  
|Other time deposits           |                                    |                                                  | 311,844  |                                                  |  
|FHLB advances                 |                                    |                                                  | 2,792    |                                                  |  
|                              |                                    |                                                  |          |                                                  |  
|                              | Total interest-bearing liabilities |                                                  |          | 399,929                                          |  
|                              |                                    |                                                  |          |                                                  |  
|Net interest income (loss)    |                                    | $                                                | (319,790 | )                                                | $
|                              |                                    |                                                  |          |                                                  |  

Changes
in net interest income are attributed to either changes in average balances (volume change) or changes in average rates (rate change) for earning assets and sources of funds on
which interest is received or paid. Volume changes have been determined by multiplying the prior years' average rate by the change in average balances outstanding. The rate change is the difference
between the net change and the volume change.

34

---



The
Company had no debt securities as of December 31, 2007 and 2006.



December 31
2007

December 31
2006Consumer installment

$
3,781,485

$
4,579,391Commercial


17,124,587


17,305,221Commercial real estate


56,192,105


38,504,482Residential mortgage


15,844,751


17,288,69092,942,928


77,677,784Less:Estimated allowance for loan losses


1,094,083


617,956Loans, net

$
91,848,845

$
77,059,828


35

---





The
following schedule details maturities and sensitivities to interest rate changes for loans and deposits as of December 31, 2007:

|                                                          |                                             | Within
1 year |             | 1 to 5
years |   | Over 5
years |            | Total |           
|--------------------------------------------------------- | ------------------------------------------- | ------------- | ----------- | ------------ | - | ------------ | ---------- | ----- | ----------
|Uses of Funds:                                            |                                             |               |             |              |   |              |            |       |           
|Loans                                                     |                                             |               |             |              |   |              |            |       |           
|                                                          | Installment                                 |               | $           | 1,451,991    |   | $            | 2,307,359  |       | $         
|                                                          | Commercial                                  |               |             | 10,346,839   |   |              | 6,742,754  |       |           
|                                                          | Commercial real estate                      |               |             | 23,410,329   |   |              | 28,595,399 |       |           
|                                                          | Mortgage                                    |               |             | 6,063,209    |   |              | 7,147,033  |       |           
|                                                          |                                             |               |             |              |   |              |            |       |           
|                                                          | Total Loans                                 |               |             | 41,272,368   |   |              | 44,792,545 |       |           
|FHLB stock                                                |                                             |               | 258,800     |              |   |             |            |       |          
|Deposits                                                  |                                             |               | 434,388     |              |   |             |            |       |          
|Federal funds sold                                        |                                             |               | 10,607,427  |              |   |             |            |       |          
|Bank owned life insurance                                 |                                             |               |            |              |   |             |            |       | 2,246,146 
|                                                          |                                             |               |             |              |   |              |            |       |           
|Total earning assets                                      |                                             | $             | 52,572,983  |              | $ | 44,792,545   |            | $     | 9,124,161 
|                                                          |                                             |               |             |              |   |              |            |       |           
|Sources of funds:                                         |                                             |               |             |              |   |              |            |       |           
|Deposits:                                                 |                                             |               |             |              |   |              |            |       |           
|                                                          | Interest-bearing                            |               |             |              |   |              |            |       |           
|                                                          | Money market, interest checking and savings |               | $           | 31,787,128   |   | $            |           |       | $         
|                                                          | Time deposits                               |               |             | 60,253,616   |   |              | 635,641    |       |           
|                                                          |                                             |               |             |              |   |              |            |       |           
|                                                          | Total Deposits                              |               |             | 92,040,744   |   |              | 635,641    |       |           
|Borrowings                                                |                                             |               | 839,677     |              |   | 1,086,349    |            |       |          
|                                                          |                                             |               |             |              |   |              |            |       |           
|Total interest-bearing liabilities                        |                                             | $             | 92,880,421  |              | $ | 1,721,990    |            | $     |          
|                                                          |                                             |               |             |              |   |              |            |       |           
|Net repricing gap                                         |                                             | $             | (40,307,438 | )            | $ | 43,070,555   |            | $     | 9,124,161 
|                                                          |                                             |               |             |              |   |              |            |       |           
|Rate sensitivity gap:                                     |                                             |               |             |              |   |              |            |       |           
|Net repricing gap as a percentage of total earning assets |                                             |               | (37.85      | )%           |   | 40.44        | %          |       | 8.57      
|                                                          |                                             |               |             |              |   |              |            |       |           
|Cumulative Gap                                            |                                             | $             | (40,307,438 | )            | $ | 2,763,117    |            | $     | 11,887,278
|                                                          |                                             |               |             |              |   |              |            |       |           
|Cumulative gap as a percentage of total earning assets    |                                             |               | (37.85      | )%           |   | 2.59         | %          |       | 11.16     
|                                                          |                                             |               |             |              |   |              |            |       |           
|Rate Risk:                                                |                                             |               |             |              |   |              |            |       |           
|Loans with fixed rates                                    |                                             | $             | 8,366,700   |              | $ | 17,666,163   |            | $     | 3,500     
|Loans with variable/adjusted rate                         |                                             |               | 32,905,668  |              |   | 27,126,382   |            |       | 6,874,515 
|                                                          |                                             |               |             |              |   |              |            |       |           
|                                                          |                                             | $             | 41,272,368  |              | $ | 44,792,545   |            | $     | 6,878,015 
|                                                          |                                             |               |             |              |   |              |            |       |           

36

---





The
following table presents information regarding nonaccrual, past due and restructured loans at December 31, 2007 and 2006:

2007

2006Loans accounted for on a non-accrual basis:Number


8


19Amount

$
149,244

$
1,526,880Accruing loans (including consumer loans) which are contractually past due 90 days or more as to principal or interest payments:Number


0


0Amount

$


$
Loans defined as "troubled debt restructurings"Number


0


0Amount

$


$



Accrual
of interest is discontinued on a loan when management of the Company determines upon consideration of economic and business factors affecting collection efforts that collection
of interest is doubtful.

The
Bank has specifically identified and evaluated $4,035,939 and $1,155,496 in impaired loans at December 31, 2007 and 2006, respectively. The Bank has reserved $438,069 and
$54,428 related to these specifically evaluated loans as of December 31, 2007 and 2006, respectively.

The
Bank collectively evaluates large groups of smaller balance homogeneous loans for impairment. Loans collectively evaluated for impairment, with a classification of substandard or
doubtful, as of December 31, 2007 and 2006, were $2,233,949 and $270,068, respectively. The Bank has reserved $96,422 and $82,742 related to these loans as of December 31, 2007 and 2006,
respectively.

There
are no other loans which are not disclosed above, but where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability
of such borrowers to comply with the present loan repayment terms.

37

---





The
following schedule details selected information related to the estimated allowance for loan loss account of the Company at December 31, 2007 and 2006:

December 312007

2006Balance at beginning of year

$
617,956

$
697,013Provision charged to expense


930,963


(23,758
)Charge offs:Installment loans


(39,985
)

(37,039
)Commercial


(342,789
)

(18,660
)Mortgage


(49,335
)

Overdrafts


(66,788
)

Total Charge Offs


(498,897
)

(55,699
)Recoveries:Installment loans


16,420


Commercial


14,941


400Mortgage


1,342


Overdrafts


11,358


Total Loan Recoveries


44,061


400Net Charge Offs


(454,836
)

(55,299
)Balance at end of year

$
1,094,083

$
617,956Ratio of net charge offs during the period to average loans outstanding during the period


0.54
%

0.08
%Allowance for loan losses as a percent of year end loans


1.18
%

0.80
%


At
December 31, 2007 and 2006, the allowance for loan losses was allocated as follows:

December 31, 2007

December 31, 2006Amount

Percentage of loan
in each category
to total loans

Amount

Percentage of loan
in each category
to total loansInstallment

$
33,695

4.04
%
$
43,811

5.84
%Commercial


371,871

18.42
%

182,610

22.28
%Commercial real estate


584,675

60.46
%

304,864

49.57
%Mortgage


88,027

17.05
%

86,671

22.26
%Overdrafts


15,815

0.03
%



0.05
%$
1,094,083

100.00
%
$
617,956

100.00
%


38

---



Nonaccrual
and Past Due Loans:

2007

2006Principal:Nonaccrual loans

$
149,244

$
1,526,880Loans past due 90 days or more and still accruing





$
149,244

$
1,526,880


The
estimated 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.

The
average amounts and average interest rates for deposits for 2007 and 2006 are detailed in the following schedule:

Years Ended December 31,2007

2006Deposit Category

Average Amount

Average Rate Paid

Average Amount

Average Rate PaidNoninterest-bearing demand

$
9,737,015

N/A

$
8,269,520

N/ANOW deposits


25,847,380

4.04
%

23,018,915

3.73
%Savings deposits


4,393,937

2.09
%

4,978,901

1.97
%Time deposits


52,420,766

5.10
%

39,417,361

4.50
%


The
following schedule details the amount outstanding of time certificates of deposit of $100,000 or more and respective maturities for the year ended December 31, 2007:

Certificates of Deposit3 months or less

$
7,840,3053-6 months


6,370,9896-12 months


6,522,558Over 12 months


100,391Total

$
20,834,243


Returns
on average consolidated assets and average consolidated equity for the periods indicated are as follows:

Year Ended December 31,2007

2006Return on average assets

-0.18
%
0.56
%Return on average equity

-2.11
%
5.79
%Average equity to average assets ratio

8.65
%
9.70
%Dividend payout ratio

N/A

N/A


39

---





Pursuant to collateral agreements with Federal Home Loan Bank (FHLB), the advances are collateralized by specific first mortgage loans. The FHLB's required unpaid
principal balance of eligible mortgages was $3,568,683 and $3,192,605 at December 31, 2007 and 2006, respectively. The advances at December 31, 2007 and 2006, have the maturity dates as
follows:

Maturity Date

Interest Rate

December 31, 200701/01/08

3.50
%
$
14,55904/01/10

3.56


591,34905/01/08

2.64


7,79206/01/08

3.28


637,24008/01/08

2.85


30,06708/01/08

2.99


56,66411/01/08

3.54


93,35503/20/09

5.18


75,00001/01/11

4.37


420,000$
1,926,026


|
|

Maturity Date

Interest Rate

December 31, 200612/01/07

3.11
%
$
8,93012/01/07

3.83


456,25001/01/08

3.50


15,74312/20/07

3.60


30,00004/01/10

3.56


637,87705/01/08

2.64


26,49206/01/08

3.28


687,26608/01/08

2.85


34,88708/01/08

2.99


61,10811/01/08

3.54


100,24003/01/07

2.91


234,36603/20/09

5.18


75,000$
2,368,159


40

---



ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth on pages 22 through 36 of Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
is incorporated herein by reference.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Reports of Independent Registered Public Accounting Firms, Consolidated Financial Statements and supplementary data required by Item 8 are set forth on
pages F-1 through F-24 of this Report and are incorporated herein by reference.

Index to Financial Statements

|Financial Statements                                       |  | Page
|---------------------------------------------------------- |  | ----
|Consolidated Balance Sheets                                |  | F-3 
|Consolidated Statements of Income                          |  | F-4 
|Consolidated Statements of Changes in Stockholders' Equity |  | F-5 
|Consolidated Statements of Cash Flows                      |  | F-6 
|Notes to Consolidated Financial Statements                 |  | F-7 

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

a)Evaluation of Disclosure Controls and Procedures.The Corporation maintains disclosure controls and
procedures, as defined in Rule 13a-15(a) 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 Corporation's management, including its Chief Executive Officer and Chief Financial Officer. The Corporation 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 Corporation's disclosure control and procedures were effective.

b)Changes in Internal Controls and Procedures.There were no changes in the Corporation's internal control over
financial reporting during the Corporation's fiscal quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, its internal control over
financial reporting.

ITEM 9A(T).    CONTROLS AND PROCEDURES.



The management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation's internal
control system was designed to provide reasonable assurance to the Corporation's management and Board of Directors regarding the preparation and fair presentation of published financial statements.

41

---



All
internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.

Management
assessed the effectiveness of the Corporation's internal control over financial reporting as of December 31, 2007. In making this assessment, management used the
criteria set forth in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management
believes that, as of December 31, 2007, the Corporation's internal control over financial reporting is effective based on those criteria.

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

ITEM 9B.    OTHER INFORMATION

None.

42

---





PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information relating to our directors and executive officers will be contained in a definitive Proxy Statement involving the election of directors at the annual
meeting of shareholders to be May 20, 2008 and such information is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

Information relating to executive compensation will be contained in the Proxy Statement referred to above in Item 10, and such information is incorporated
herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information relating to security ownership of certain beneficial owners and management will be contained in the Proxy Statement referred to above in
Item 10, and such information is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information relating to certain relationships and related transactions will be contained in the Proxy Statement referred to above in Item 10, and such
information is incorporated herein by reference.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

Information relating to the principal accountant fees and services will be contained in the Proxy Statement referred to above in Item 10, and such
information is incorporated herein by reference.

43

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PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1)

Financial Statements:(2)

Schedules required by Article 12 of Regulation S-X are either omitted because they are not applicable or because the required information is shown in the financial statements or the notes thereto.(3)

Exhibits:


|Exhibit No. |  | Description                                                                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1*        |  | Charter of American Patriot Financial Group, Inc.                                                                                                                                         
|3.2*        |  | Bylaws of American Patriot Financial Group, Inc.                                                                                                                                          
|10.1*       |  | Share Exchange Agreement between American Patriot Financial Group, Inc. (F/K/A BG Financial Group, Inc.) and American Patriot Bank (F/K/A Bank of Greeneville), effective January 23, 2004
|10.2**      |  | Stock Option Agreement between American Patriot Bank and J. Robert Grubbs                                                                                                                 
|10.3**      |  | Stock Option Agreement between American Patriot Bank and T. Don Waddell                                                                                                                   
|10.4**      |  | Purchase and Assumption Agreement between American Patriot Bank (F/K/A Bank of Greeneville) and First Community Bank of East Tennessee, dated July 6, 2001                                
|21.1        |  | Subsidiaries 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 USC Section 1350-Sarbanes-Oxley Act of 2002                                                                                                             
|32.2        |  | Certification pursuant to Rule 18 USC Section 1350-Sarbanes-Oxley Act of 2002                                                                                                             

---

44

---





Signatures

Pursuant to the requirements of Section 13(a) or 15(d) 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.
| |  | --------------------------------------
| |  | By:                                   
| |  | Date: March 31, 2008                  

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in their capacities as
directors.

|By:                  |  | /s/LEONARD B. LAWSONLeonard B. Lawson |  | By: |  | /s/WENDY C. WARNERWendy C. Warner  
|-------------------- |  | ------------------------------------- |  | --- |  | -----------------------------------
|Date: March 31, 2008 |  | Date: March 31, 2008                 
|By:                  |  | /s/JERRY A. SIMMERLYJerry A. Simmerly |  | By: |  | /s/ROGER A. WOOLSEYRoger A. Woolsey
|Date: March 31, 2008 |  | Date: March 31, 2008                 
|By:                  |  | /s/WILLIAM J. SMEADWilliam J. Smead   |  |     |  |                                    
|Date: March 31, 2008 |  |                                       |  |    

45

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
American Patriot Financial Group, Inc.
Greeneville, Tennessee

We
have audited the consolidated balance sheet of American Patriot Financial Group, Inc. and subsidiary (the Company) as of December 31, 2007, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Patriot Financial Group, Inc.
and subsidiary as of December 31, 2007, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

We
were not engaged to examine management's assertion about the effectiveness of American Patriot Financial Group, Inc.'s internal control over financial reporting as of
December 31, 2007, included inManagement's Report on Internal Control Over Financial Reportingfound in Item 9A(T) of
Form 10-K for fiscal year ended December 31, 2007, and, accordingly, we do not express an opinion thereon.

| |  | /s/ HAZLETT, LEWIS & BIETER, PLLC
| |  | ---------------------------------

Chattanooga, Tennessee
March 26, 2008

F-1

---



GRAPHIC

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Boards of Directors of
BG Financial Group, Inc.:

We
have audited the accompanying consolidated balance sheets of BG Financial Group, Inc. and Subsidiary (the Company) as of December 31, 2006 and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each of the two years in the period then ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BG Financial Group, Inc. and Subsidiary
as of December 31, 2006 and the results of their operations and their cash flows for each of the two years in the period then ended in conformity with U.S. generally accepted accounting
principles.

| |  | /s/PERSHING YOAKLEY & ASSOCIATES, P.C.
| |  | --------------------------------------

Knoxville, Tennessee
April 10, 2007

GRAPHIC

F-2

---





AMERICAN PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY  Greeneville, Tennessee        CONSOLIDATED BALANCE SHEETS

|                                                                                   |                                 | December 31,                                                                                                                                                       
|---------------------------------------------------------------------------------- | ------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|ASSETS                                                                             |                                 |                                                                                                                                                                    
|Cash and due from banks                                                            |                                 | $                                                                                                                                                                  
|Federal funds sold                                                                 |                                 |                                                                                                                                                                    
|                                                                                   |                                 |                                                                                                                                                                    
|                                                                                   | Cash and cash equivalents       |                                                                                                                                                                    
|Federal Home Loan Bank stock, at cost                                              |                                 |                                                                                                                                                                    
|Loans, net of allowance for loan losses of $1,094,083 in 2007 and $617,956 in 2006 |                                 |                                                                                                                                                                    
|Premises and equipment, net                                                        |                                 |                                                                                                                                                                    
|Accrued interest receivable                                                        |                                 |                                                                                                                                                                    
|Deferred tax assets, net                                                           |                                 |                                                                                                                                                                    
|Foreclosed assets                                                                  |                                 |                                                                                                                                                                    
|Cash surrender value of bank owned life insurance                                  |                                 |                                                                                                                                                                    
|Other assets                                                                       |                                 |                                                                                                                                                                    
|                                                                                   |                                 |                                                                                                                                                                    
|                                                                                   |                                 | Total Assets                                                                                                                                                       
|                                                                                   |                                 |                                                                                                                                                                    
|LIABILITIES AND STOCKHOLDERS' EQUITY                                               |                                 |                                                                                                                                                                    
|LIABILITIES                                                                        |                                 |                                                                                                                                                                    
|                                                                                   | Deposits:                       |                                                                                                                                                                    
|                                                                                   |                                 | Noninterest-bearing                                                                                                                                                
|                                                                                   |                                 |                                                                                                                                                                    
|                                                                                   |                                 | Interest-bearing                                                                                                                                                   
|                                                                                   |                                 |                                                                                                                                                                    
|                                                                                   |                                 |                                                                                                                                                                    
|                                                                                   |                                 |                                                                                                                                                                    
|                                                                                   |                                 |                                                                                                                                                                    
|                                                                                   | Accrued interest payable        |                                                                                                                                                                    
|                                                                                   | Other liabilities               |                                                                                                                                                                    
|                                                                                   | Securitized borrowings          |                                                                                                                                                                    
|                                                                                   | Federal Home Loan Bank advances |                                                                                                                                                                    
|                                                                                   |                                 |                                                                                                                                                                    
|                                                                                   |                                 |                                                                                                                                                                    
|                                                                                   |                                 |                                                                                                                                                                    
|Commitments and Contingencies (Note 10 and 16)                                     |                                 |                                                                                                                                                                    
|STOCKHOLDERS' EQUITY                                                               |                                 |                                                                                                                                                                    
|                                                                                   | Stock:                          |                                                                                                                                                                    
|                                                                                   |                                 | Preferred stock, no par value; authorized 1,000,000 shares; none issued and outstanding                                                                            
|                                                                                   |                                 | Common stock, $0.333 par value; authorized 6,000,000 shares; issued and outstanding 2,314,391 shares at December 31, 2007 and 2,311,071 shares at December 31, 2006
|                                                                                   | Additional paid-in capital      |                                                                                                                                                                    
|                                                                                   | Retained earnings               |                                                                                                                                                                    
|                                                                                   |                                 |                                                                                                                                                                    
|                                                                                   |                                 |                                                                                                                                                                    
|                                                                                   |                                 |                                                                                                                                                                    
|                                                                                   |                                 |                                                                                                                                                                    
|                                                                                   |                                 |                                                                                                                                                                    

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

F-3

---





AMERICAN PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY  Greeneville, Tennessee        CONSOLIDATED STATEMENTS OF INCOME

|                                         |                                             | Year Ended December 31,                      |                                   
|---------------------------------------- | ------------------------------------------- | -------------------------------------------- | ----------------------------------
|
|Interest and dividend income:            |                                             |                                              |                                   
|                                         |                                             | Loans, including fees                        |                                   
|                                         |                                             | Dividends on Federal Home Loan Bank stock    |                                   
|                                         |                                             | Federal funds sold and other                 |                                   
|                                         |                                             |                                              |                                   
|                                         |                                             |                                              | Total interest and dividend income
|                                         |                                             |                                              |                                   
|Interest expense:                        |                                             |                                              |                                   
|                                         |                                             | Deposits                                     |                                   
|                                         |                                             | Borrowed funds                               |                                   
|                                         |                                             |                                              |                                   
|                                         |                                             |                                              | Total interest expense            
|                                         |                                             |                                              |                                   
|                                         |                                             |                                              |                                   
|Provision for (benefit from) loan losses |                                             |                                              | 930,963                           
|                                         |                                             |                                              |                                   
|                                         |                                             |                                              |                                   
|                                         |                                             |                                              |                                   
|Noninterest income:                      |                                             |                                              |                                   
|                                         |                                             | Service charges on deposit accounts          |                                   
|                                         |                                             | Fees from origination of mortgage loans sold |                                   
|                                         |                                             | Investment sales commissions                 |                                   
|                                         |                                             | Other                                        |                                   
|                                         |                                             |                                              |                                   
|                                         |                                             |                                              |                                   
|                                         |                                             |                                              |                                   
|Noninterest expenses:                    |                                             |                                              |                                   
|                                         |                                             | Salaries and employee benefits               |                                   
|                                         |                                             | Occupancy                                    |                                   
|                                         |                                             | Advertising                                  |                                   
|                                         |                                             | Data processing                              |                                   
|                                         |                                             | Legal and professional                       |                                   
|                                         |                                             | Other operating                              |                                   
|                                         |                                             |                                              |                                   
|                                         |                                             |                                              |                                   
|                                         |                                             |                                              |                                   
|                                         |                                             |                                              |                                   
|Income tax expense (benefit)             |                                             |                                              | (166,441                          
|                                         |                                             |                                              |                                   
|                                         |                                             |                                              |                                   
|                                         |                                             |                                              |                                   
|Per share information:                   |                                             |                                              |                                   
|                                         | Basic net income (loss) per common share    |                                              | $                                 
|                                         | Diluted net income (loss) per common share  |                                              | $                                 
|                                         | Weighted average basic shares outstanding   |                                              |                                   
|                                         | Weighted average diluted shares outstanding |                                              |                                   

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

F-4

---





AMERICAN PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY
Greeneville, Tennessee

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY  Years Ended December 31, 2007, 2006 and 2005

|                                                                 |                       | Number of Shares |                            | Common Stock |         | Additional Paid-In Capital |   | Retained Earnings |  | Total |          
|---------------------------------------------------------------- | --------------------- | ---------------- | -------------------------- | ------------ | ------- | -------------------------- | - | ----------------- |  | ----- | ---------
|Balance, December 31, 2004                                       |                       | 2,307,075        |                            | $            | 768,925 |                            | $ | 6,920,322         |  | $     | 53,850   
|                                                                 | Comprehensive income: |                  |                            |              |         |                            |   |                   |  |       |          
|                                                                 |                       | Net income       |                            |              |         |                            |  |                   |  |      |          
|                                                                 |                       |                  |                            |              |         |                            |   |                   |  |       |          
|                                                                 |                       |                  | Total comprehensive income |              |         |                            |   |                   |  |       |          
|                                                                 |                       |                  |                            |              |         |                            |   |                   |  |       |          
|Issuance of 3,996 shares of common stock under stock option plan |                       | 3,996            |                            |              | 1,331   |                            |   | 11,985            |  |       |         
|                                                                 |                       |                  |                            |              |         |                            |   |                   |  |       |          
|Balance, December 31, 2005                                       |                       | 2,311,071        |                            |              | 770,256 |                            |   | 6,932,307         |  |       | 638,260  
|                                                                 | Comprehensive income: |                  |                            |              |         |                            |   |                   |  |       |          
|                                                                 |                       | Net income       |                            |              |         |                            |  |                   |  |      |          
|                                                                 |                       |                  |                            |              |         |                            |   |                   |  |       |          
|                                                                 |                       |                  | Total comprehensive income |              |         |                            |   |                   |  |       |          
|                                                                 |                       |                  |                            |              |         |                            |   |                   |  |       |          
|Balance, December 31, 2006                                       |                       | 2,311,071        |                            |              | 770,256 |                            |   | 6,932,307         |  |       | 1,133,965
|                                                                 | Comprehensive income: |                  |                            |              |         |                            |   |                   |  |       |          
|                                                                 |                       | Net loss         |                            |              |         |                            |  |                   |  |      |          
|                                                                 |                       |                  |                            |              |         |                            |   |                   |  |       |          
|                                                                 |                       |                  | Total comprehensive loss   |              |         |                            |   |                   |  |       |          
|                                                                 |                       |                  |                            |              |         |                            |   |                   |  |       |          
|Issuance of 3,320 shares of common stock under stock option plan |                       | 3,320            |                            |              | 1,106   |                            |   | 9,953             |  |       |         
|                                                                 |                       |                  |                            |              |         |                            |   |                   |  |       |          
|Balance, December 31, 2007                                       |                       | 2,314,391        |                            | $            | 771,362 |                            | $ | 6,942,260         |  | $     | 943,380  
|                                                                 |                       |                  |                            |              |         |                            |   |                   |  |       |          

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

F-5

---





AMERICAN PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY  Greeneville, Tennessee        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                               |                                                                                         | Year Ended December 31,                                       |                            
|---------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ---------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:          |                                                                                         |                                                               |                            
|                                               | Net income (loss)                                                                       |                                                               | $                          
|                                               | Adjustments to reconcile net income(loss) to net cash provided by operating activities: |                                                               |                            
|                                               |                                                                                         | Provision for (benefit from) loan losses                      |                            
|                                               |                                                                                         | Write-down of foreclosed assets                               |                            
|                                               |                                                                                         | Depreciation                                                  |                            
|                                               |                                                                                         | Realized loss on sales of premises and equipment              |                            
|                                               |                                                                                         | Realized loss on sales of foreclosed assets                   |                            
|                                               |                                                                                         | Deferred income tax expense (benefit)                         |                            
|                                               |                                                                                         | Federal Home Loan Bank stock dividends                        |                            
|                                               |                                                                                         | Increase in cash surrender value of bank owned life insurance |                            
|                                               |                                                                                         | Net change in:                                                |                            
|                                               |                                                                                         |                                                               | Accrued interest receivable
|                                               |                                                                                         |                                                               | Other assets               
|                                               |                                                                                         |                                                               | Other liabilities          
|                                               |                                                                                         |                                                               | Accrued interest payable   
|                                               |                                                                                         |                                                               |                            
|                                               |                                                                                         |                                                               |                            
|                                               |                                                                                         |                                                               |                            
|CASH FLOWS FROM INVESTING ACTIVITIES:          |                                                                                         |                                                               |                            
|                                               | Purchase of bank owned life insurance                                                   |                                                               |                            
|                                               | Proceeds from sales of foreclosed assets                                                |                                                               |                            
|                                               | Loan originations and principal collections, net                                        |                                                               |                            
|                                               | Additions to premises and equipment                                                     |                                                               |                            
|                                               |                                                                                         |                                                               |                            
|                                               |                                                                                         |                                                               |                            
|                                               |                                                                                         |                                                               |                            
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                                                         |                                                               |                            
|                                               | Net change in deposits (non-time deposits)                                              |                                                               |                            
|                                               | Net change in time deposits                                                             |                                                               |                            
|                                               | Net increase (decrease) in securitized borrowings                                       |                                                               |                            
|                                               | Federal Home Loan Bank advances                                                         |                                                               |                            
|                                               | Federal Home Loan Bank repayments                                                       |                                                               |                            
|                                               | Issuance of common stock                                                                |                                                               |                            
|                                               |                                                                                         |                                                               |                            
|                                               |                                                                                         |                                                               |                            
|                                               |                                                                                         |                                                               |                            
|Net change in cash and cash equivalents        |                                                                                         |                                                               | (418,970                   
|Cash and cash equivalents at beginning of year |                                                                                         |                                                               | 15,488,412                 
|                                               |                                                                                         |                                                               |                            
|Cash and cash equivalents at end of year       |                                                                                         | $                                                             | 15,069,442                 
|                                               |                                                                                         |                                                               |                            
|SUPPLEMENTARY CASH FLOW INFORMATION:           |                                                                                         |                                                               |                            
|                                               | Interest paid on deposits and borrowed funds                                            |                                                               | $                          
|                                               | Income taxes paid                                                                       |                                                               | $                          
|SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:  |                                                                                         |                                                               |                            
|                                               | Foreclosed/repossessed assets sold during the period and financed through loans         |                                                               | $                          
|                                               | Loans moved to foreclosed/repossessed assets                                            |                                                               | $                          

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

F-6

---





AMERICAN PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY  Greeneville, Tennessee        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.    Summary of Significant Accounting Policies

The accounting and reporting policies of American Patriot Financial Group, Inc. and subsidiary (Company) conform with generally accepted accounting
principles and practices within the banking industry. The policies that materially affect financial position and results of operations are summarized as follows:

Principles of Consolidation

The consolidated financial statements include the accounts of American Patriot Financial Group, Inc.formerly BG Financial Group, Inc.
and its wholly-owned subsidiary, American Patriot Bank (Bank)formerly Bank of Greeneville. All significant intercompany balances and transactions have been eliminated in consolidation.

Nature of Operations

The Company is a bank-holding company which owns all of the outstanding common stock of American Patriot Bank (Bank). The Bank provides a variety of
financial services through their 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.

Use of Estimates

In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required
to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for
loan losses and the valuation of deferred tax assets.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks and federal funds sold, all of which
mature within ninety days.

Loans

The Company grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout
Greeneville and Maryville, Tennessee and surrounding areas. The ability of the Company's debtors to honor their contracts is dependent upon the real estate and general economic conditions in this
area.

Loans
that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal
balances adjusted for charge-offs and the allowance for loan losses. Interest income is accrued on the unpaid principal balance. The Bank does not defer loan fees and related loan
origination costs. Based on management's assessments, the difference between deferral and immediate recognition of such fees and related costs is not material.

F-7

---



The
accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of
collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest
is considered doubtful.

All
interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the
cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due
are brought current and future payments are reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are
charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The
allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical
experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The
allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either doubtful, substandard or special mention.
For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the
carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is
maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying
assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A
loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of
collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable
market price, or the fair value of the collateral if the loan is collateral dependent.

Large
groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential
loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

F-8

---



Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to
sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.

Premises and Equipment

Land is carried at cost. Buildings and equipment are carried at cost, less accumulated depreciation and amortization computed on the straight-line
method over the estimated useful lives of the assets or the expected terms of the leases, if shorter. Expected terms include lease option periods to the extent that the exercise of such options is
reasonably assured. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are included in current operations.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to
pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Advertising Costs

Advertising costs are expensed as incurred.

Stock Option Plan

In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement 123 (revised 2004),Share-Based
Payment. SFAS No. 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost is measured
based on the fair value of the equity or liability instruments issued. SFAS 123(R) covers a wide range of share-based compensation arrangements including stock options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase plans. SFAS 123(R) is a replacement of SFAS No. 123,Accounting for Stock-Based
Compensation,and supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees,and its related interpretive
guidance. The effect of the Statement is to require entities to measure the cost of employee services received in exchange for stock options based on the grant-date fair value of the
award, and to recognize the cost over the period the employee is required to provide services for the award. SFAS 123(R) permits entities to use any option-pricing model that meets the fair
value objective in the Statement.

The
Company elected to adopt SFAS 123(R) on July 1, 2005 under the modified prospective method. Prior to adopting SFAS 123 (R), the Board of Directors
approved that all non-vested employee stock options granted to become fully vested and exercisable as of May 17, 2005. Accordingly, no compensation cost was recognized prior to the
adoption of SFAS 123 (R). No additional options have been granted after July 1, 2005; therefore, no compensation cost is recognized in the consolidated statements of income.

F-9

---



The
Company had applied APB Opinion No. 25 and related Interpretations, in accounting for the stock option plan prior to July 1, 2005. Under APB No. 25, stock
options issued under the Company's stock option plan have no intrinsic value at the grant date, and therefore, no compensation cost is recognized for them.

Income Taxes

Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred income
taxes related primarily to differences between the tax basis and the financial statement carrying amounts of the allowance for loan losses and accumulated depreciation. The deferred tax assets and
liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets
and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Segment Reporting

Statement of Financial Accounting Standards No. 131,Disclosures about Segments of an Enterprise and Related
Informationprovides for the identification of reportable segments on the basis of discreet business units and their financial information to the extent such units are reviewed
by an entity's chief decision maker (which can be an individual or group of management persons). The Statement permits aggregation or combination of segments that have similar characteristics. In the
Company's operations, each bank branch is viewed by management as being a separately identifiable business or segment from the perspective of monitoring performance and allocation of financial
resources. Although the branches operate independently and are managed and monitored separately, each is substantially similar in terms of business focus, type of customers, products and services.
Accordingly, the Company's consolidated financial statements reflect the presentation of segment information on an aggregated basis in one reportable segment.

Earnings Per Share

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period.
Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result
from the assumed issuance. The effects of outstanding antidilutive stock options are excluded from the computation of diluted earnings per share. There were 35,900, 18,200 and 17,300 antidilutive
stock options for 2007, 2006 and 2005 respectively. Potential common shares that may be issued by the Company relate solely to outstanding stock options, and are determined using the treasury stock
method.

Recent Accounting Pronouncements

In March 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 156,Accounting for Servicing of Financial
Assets, ("SFAS 156") an Amendment of FASB Statement No. 140,Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, ("SFAS 140") which requires that all separately recognized servicing assets and liabilities be initially measured at fair value, if
practicable, and requires entities to elect either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of Statement 140 for
subsequent measurement. SFAS 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006. The Company adopted SFAS 156 on
January 1, 2007. The adoption of SFAS 156 did not have any material impact on the Company's consolidated financial condition or results of operation.

F-10

---



In
July 2006, FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes, ("FIN 48"). FIN 48
became effective for fiscal years beginning after December 15, 2006. FIN 48 applies to all income tax positions subject to FASB Statement No. 109, Accounting for Income Tax("SFAS 109"), including tax positions considered to be routine and those with a high degree of uncertainty.
FIN 48 did not have a material impact on the Company's consolidated financial statements.

In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements("SFAS" 157"). SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 will be applied prospectively and is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. SFAS 157 is not expected to have a material impact on the Company's consolidated financial statements.

In
September 2006, the Financial Accounting Standards Board ratified a consensus opinion reached by the Emerging Issues Task Force on Issue 06-04, Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements,("EITF 06-04") which requires employers that enter into endorsement split-dollar life insurance arrangements that provide an employee with a postretirement benefit to recognize a
liability for the future benefits promised based on the substantive agreement made with the employer. Whether the accrual is based on a death benefit or on the future cost of maintaining the insurance
would depend on what the employer has effectively agreed to provide during the employee's retirement. The purchase of an endorsement-type life insurance policy does not qualify as a
settlement of the liability. The consensus in EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The Company intends to adopt
EITF 06-4 effective January 1, 2008. The Company is currently evaluating the impact this guidance will have on the Company's financial position and results of operation.

In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities,("SFAS 159"). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of this standard is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions. This statement is effective as of the beginning of fiscal years beginning after November 15, 2007, with early adoption permitted under certain circumstances. The Company
did not choose to early adopt this standard and does not expect the implementation of SFAS 159 to have a material impact on its financial position or results of operations.

In
March 2007, the EITF reached a final consensus on Issue No. 06-10,Accounting for Deferred Compensation and Postretirement Benefit Aspects
of Collateral Assignment Split-Dollar Life Insurance Arrangements, ("EITF 06-10"). EITF 06-10 requires employers to recognize a liability
for the post-retirement benefit related to collateral assignment split-dollar life insurance arrangements in accordance with SFAS No. 106 or APB Opinion No. 12.
EITF 06-10 also requires employers to recognize and measure an asset based on the nature and substance of the collateral assignment split-dollar life insurance arrangement. The
provisions of EITF 06-10 are effective for the Company on January 1, 2008, with earlier application permitted, and are to be applied as a change in accounting principle
either through a cumulative-effect adjustment to retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the year of adoption; or as
a change in accounting principle through retrospective application to all prior periods. The Company does not expect adoption of EITF 06-10 to have a significant impact on its
consolidated financial statements, results of operations or liquidity.

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.

F-11

---



Reclassification

Certain amounts in the 2006 and 2005 consolidated financial statements have been reclassified to conform to the 2007 presentation.

Note 2.    Restrictions On Cash and Due From Banks

The Bank is required to maintain average balances on hand or with the Federal Reserve Bank. At December 31, 2007 and 2006, these reserve balances amounted
to $25,000 and $25,000, respectively.

Note 3.    Federal Home Loan Bank Stock

As a member of the Federal Home Loan Bank (FHLB), the Bank is required to maintain stock in an amount equal to at least .15% of total assets and 4% of outstanding
FHLB advances. Federal Home Loan Bank stock is carried at cost and maintained by the Bank at par value of $100 per share.

Note 4.    Loans

A summary of the balances of loans follows:

December 31, 2007

December 31, 2006Consumer installment

$
3,781,485

$
4,579,391Commercial


17,124,587


17,305,221Commercial real estate


56,192,105


38,504,482Residential mortgage


15,844,751


17,288,69092,942,928


77,677,784Less:Allowance for loan losses


(1,094,083
)

(617,956
)Loans, net

$
91,848,845

$
77,059,828


An
analysis of the allowance for loan losses follows:

Year Ended
December 31,
2007

Year Ended
December 31,
2006

Year Ended
December 31,
2005Balance, beginning

$
617,956

$
697,013

$
1,607,559Provision for (benefit from) loan losses


930,963


(23,758
)

(555,222
)Recoveries of loans previously charged-off


44,061


400


9,8551,592,980


673,655


1,062,192Loans charged-off


498,897


55,699


365,179Balance, ending

$
1,094,083

$
617,956

$
697,013


The
following is a summary of information pertaining to impaired and non-accrual loans:

December 31,
2007

December 31,
2006Impaired loans with a specific valuation allowance

$
4,035,939

$
1,155,496Total specifically evaluated impaired loans

$
4,035,939

$
1,155,496Specific valuation allowance related to impaired loans

$
438,069

$
54,428Past-due loans ninety days or more and still accruing

$


$
Total non-accrual loans

$
149,244

$
1,526,880


F-12

---



|
|

Years Ended December 31,2007

2006

2005Average investment in specifically evaluated impaired loans

$
3,920,969

$
1,209,424

$
1,685,714Interest income recognized on impaired loans

$
230,007

$
27,556

$
27,344Interest income recognized on a cash basis on impaired loans

$
219,914

$
27,556

$
27,344


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 substandard or doubtful, as of December 31, 2007 and 2006, were $2,233,949 and $270,068, respectively. The Bank has reserved $96,422 and
$82,742 related to these loans as of December 31, 2007 and 2006, respectively.

No
additional funds are committed to be advanced in connection with impaired loans.

The
Bank's only significant concentration of credit at December 31, 2007, occurred in real estate loans which totaled approximately $72 million. While real estate loans
accounted for 78 percent of total loans, these loans were primarily residential development and construction loans, residential mortgage loans, and commercial loans secured by commercial
properties. Substantially all real estate loans are secured by properties located in Tennessee.

The
amounts of loans due directly from officers and directors of the Company or indirectly from corporations, partnerships or ventures in which these individuals have an interest were
$3,780,866 and $847,430 at December 31, 2007 and 2006, respectively. During the years ended December 31, 2007 and 2006, total principal additions were $3,920,857 and $2,377,740,
respectively, and total principal payments were $987,421 and $2,535,599, respectively.

Note 5.    Premises and Equipment

The major classes of premises and equipment and the total accumulated depreciation are as follows:

December 31, 2006

December 31, 2007Land

$
1,670,363

$
1,170,363Land for future development


564,712


564,712Premises and improvements


2,575,058


1,420,548Furniture and equipment


2,274,731


1,827,363Construction in process


22,186


78,7637,107,050


5,061,749Less: Accumulated depreciation


(1,535,536
)

(1,262,230
)$
5,571,514

$
3,799,519


Depreciation
and amortization expense of premises and equipment for 2007, 2006, and 2005 was $273,306, $255,904 and $304,513, respectively.

Rental
expense under operating leases for 2007, 2006 and 2005 was $48,308, $40,952 and $23,599, respectively.

F-13

---



Future
minimum rental payments required under noncancelable operating leases for equipment and data processing fees under operating agreements were as follows:

2008

$
27,8952009


25,6632010


22,5372011


19,1292012


9,173$
104,397


Note 6.    Federal Home Loan Bank Advances

Pursuant to collateral agreements with Federal Home Loan Bank (FHLB), the advances are collateralized by specific first mortgage loans. The FHLB's required unpaid
principal balance of eligible mortgages was $3,568,683 at December 31, 2007. The advances at December 31, 2007, have maturity dates as follows:

Maturity Date

Interest Rate

December 31, 200701/01/08

3.50

$
14,55904/01/10

3.56


591,34905/01/08

2.64


7,79206/01/08

3.28


637,24008/01/08

2.85


30,06708/01/08

2.99


56,66411/01/08

3.54


93,35503/20/09

5.18


75,00001/01/11

4.37


420,000$
1,926,026


As
of December 31, 2007, the Company had $250,000 available in unfunded letters of credit with the FHLB.

Note 7.    Securitized Borrowings

Securitized borrowings amounted to $3,099,091 at December 31, 2006. Pursuant to SFAS No. 140, certain loan participation agreements did not qualify
for sale accounting due to buyback provisions included within the agreement, thus the Company had not surrendered control over the transferred loans and had accounted for the transfers as securitized
borrowings. During 2007, the Company amended all participation loan agreements. As a result, all loan participation agreements became eligible for sale accounting in accordance with SFAS
No. 140 and were short-term in nature.

F-14

---



Note 8.    Income Tax Matters

Net deferred tax assets consist of the following components as of December 31, 2007 and 2006:

2007

2006Deferred Tax Assets:Allowance for loan losses

$
418,925

$
236,616Amortization of intangibles, start-up cost and organizational costs


22,209


25,374Interest on non-accrual loans


8,415


53,913Other


34,436


17,001483,985


332,904Deferred Tax Liabilities:Depreciable assets


164,688


166,359Net deferred tax assets

$
319,297

$
166,545


The
provision for income taxes charged to income for the years ended December 31, 2007, 2006, and 2005 consists of the following:

2007

2006

2005Current tax expense (benefit)

$
(13,689
)
$
248,433

$
(21,583
)Deferred tax expense (benefit)


(152,752
)

70,198


364,564Total income tax expense (benefit)

$
(166,441
)
$
318,631

$
342,981


The
income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the years ended December 31,
2007, 2006, and 2005, due to the following:

2007

2006

2005Computed "expected" tax expense (benefit)

$
(121,389
)
$
276,874

$
315,313State income tax, net of federal benefits


(15,316
)

34,935


39,785Other, net


(29,736
)

6,822


(12,117
)$
(166,441
)
$
318,631

$
342,981


Note 9.    Deposits

The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2007 and 2006 was $20,834,243 and $15,314,271, respectively.

At
December 31, 2007, the scheduled maturities of time deposits are as follows:

2008

$
60,245,2822009


417,5482010


216,4272011


10,000$
60,889,257


Deposits
from related parties held by the Bank at December 31, 2007 and 2006, amounted to approximately $683,647 and $984,626 respectively.

F-15

---



Note 10.    Financial Instruments With Off-Balance-Sheet Risk

In the normal course of business, the Bank has outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of
credit, which are not included in the accompanying financial statements. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instruments for
commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making such commitments
as it does for instruments that are included in the balance sheet. At December 31, 2007 and 2006, undisbursed loan commitments aggregated $13,853,961 and $12,102,294 respectively. In addition,
there were outstanding standby letters of credit totaling $144,978 and $466,000 respectively.

Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-
producing commercial properties.

Standby
letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed
expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank's policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.

Note 11.    Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material affect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative
measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes,
as of December 31, 2007 and 2006, that the Bank meets all capital adequacy requirements to which it is subject.

As
of December 31, 2007, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action according to the most recent notification from
the Federal Deposit Insurance Corporation. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table below. There are no conditions or events since the notification that management believes have changed the Bank's category.

F-16

---



The Company's and the Bank's actual capital amounts and ratios are as follows:

|                                          |                       | Actual |   | For Capital
Adequacy Purposes |  | To Be Well
Capitalized Under
Prompt Corrective
Action Provisions |   
|----------------------------------------- | --------------------- | ------ | - | ----------------------------- |  | ---------------------------------------------------------------- | --
|
|As of December 31, 2007 (in Thousands)    |                       |        |   |                               |  |                                                                  |   
|Tier 1 Capital (To Average assets):       |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 8,657                         |  | 7.71                                                             | %3
|                                          | American Patriot Bank |        | $ | 8,610                         |  | 7.66                                                             | %3
|Tier 1 Capital (To Risk Weighted Assets): |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 8,657                         |  | 9.06                                                             | %3
|                                          | American Patriot Bank |        | $ | 8,610                         |  | 9.01                                                             | %3
|Total Capital (To Risk Weighted Assets):  |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 9,751                         |  | 10.20                                                            | %3
|                                          | American Patriot Bank |        | $ | 9,704                         |  | 10.16                                                            | %3
|As of December 31, 2006 (in Thousands)    |                       |        |   |                               |  |                                                                  |   
|Tier 1 Capital (To Average assets):       |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 8,837                         |  | 9.80                                                             | %3
|                                          | American Patriot Bank |        | $ | 8,803                         |  | 9.76                                                             | %3
|Tier 1 Capital (To Risk Weighted Assets): |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 8,837                         |  | 11.69                                                            | %3
|                                          | American Patriot Bank |        | $ | 8,803                         |  | 11.65                                                            | %3
|Total Capital (To Risk Weighted Assets):  |                       |        |   |                               |  |                                                                  |   
|                                          | Consolidated          |        | $ | 9,454                         |  | 12.51                                                            | %3
|                                          | American Patriot Bank |        | $ | 9,420                         |  | 12.46                                                            | %3

Note 12.    Fair Value of Financial Instruments

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is
best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Statement of Financial Accounting Standards No. 107
excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily
represent the underlying fair value of the Company.

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 federal funds sold approximate fair values.

Federal Home Bank Loan Stock

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

F-17

---



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 (including non-performing loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.

Accrued Interest Receivable

The carrying amounts of accrued interest receivable approximate fair value.

Cash Surrender Value of Bank-Owned Life Insurance

The carrying value of bank-owned life insurance approximates fair value because this investment is carried at cash surrender value, as determined by
the insurer.

Deposits

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). 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 interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal Home Loan Bank Advances

The fair values of the Company's Federal Home Loan Bank advances are estimated using discounted cash flow analyses based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.

Securitized Borrowings

The carrying amounts of securitized borrowings approximate fair value.

Accrued Interest Payable

The carrying amounts of accrued interest payable approximate fair value.

Off-Balance Sheet Credit-Related Instruments

Commitments to extend credit and standby letters of credit do not represent a significant value to the Company until such commitments are funded.

F-18

---



The
estimated fair values of the Company's financial instruments are as follows at December 31:

|                       |                                 | 2007 |   | 2006       
|---------------------- | ------------------------------- | ---- | - | -----------
|
|Financial Assets:      |                                 |      |   |            
|                       | Cash and cash equivalents       |      | $ | 15,069,442 
|                       | Federal Home Loan Bank stock    |      |   | 258,800    
|                       | Loans, net                      |      |   | 91,848,845 
|                       | Accrued interest receivable     |      |   | 548,410    
|                       | Cash surrender value of BOLI    |      |   | 2,246,146  
|Financial Liabilities: |                                 |      |   |            
|                       | Deposits                        |      |   | 105,029,339
|                       | Accrued interest payable        |      |   | 813,069    
|                       | Securitized borrowings          |      |   |           
|                       | Federal Home Loan Bank advances |      |   | 1,926,026  

Note 13.    Employee Benefit Plans

The Company has a retirement savings 401(k) plan in which all employees may participate. To be eligible, an employee must complete six (6) months of
service and reach their entry date. An entry date is the first day of the Plan Year quarter coinciding with or following the date that satisfies the Plan's eligibility requirements. For 2007,
employees may make pretax, voluntary contributions in amounts up to $15,500 (age 49 or less) and $20,500 (age 50 and older). The Company may make discretionary matching contributions equal to a
uniform percentage of tiered salary deferrals. This percentage will be determined each year. The Company's expense for the plan was $3,484, $31,328 and $46,144 for the years ended December 31,
2007, 2006 and 2005, respectively.

Note 14.    Stock Option Plan

The Company has an employee Stock Option Plan (the Plan) under which certain employees may be granted options to purchase shares of the Company's authorized but
unissued common stock. The maximum number of shares of the Company's common stock available for issuance under the Plan is 375,000 shares. The maximum number of shares available for future grants
under the Plan was 106,390 shares for the year ended December 31, 2007, and 73,700 shares for the year ended December 31, 2006. Under the Plan, the option exercise price is equal to the
fair market value of the Company's common stock at the date of the grant. The options expire on the tenth anniversary of the date of the option. As discussed in Note 1, management elected to
vest all remaining stock options during 2005. Proceeds received by the Company from exercises of the stock options are credited to common stock and additional paid-in capital.

F-19

---



The
following table illustrates the effect on the Company's net income and earnings per share if the Company had applied the fair value recognition provision of SFAS No. 123 to
stock-based employee compensation prior to the adoption of SFAS No. 123(R):

2005Net earnings (loss):As reported

$
584,410Pro forma, net of related taxes

$
458,735Basic earnings (loss) per share:As reported

$
0.25Pro forma, net of related taxes

$
0.20Diluted earnings (loss) per share:As reported

$
0.24Pro forma, net of related taxes

$
0.18


The
fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

2005Risk-free interest rate

4.21
%Expected volatility of common stock

27.40
%Dividend yield

0.00
%Expected life of options

10.0 years


The
expected volatility is based on historical volatility. The risk-free interest rates for periods within the contractual life of the awards are based on the
U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience. The dividend yield assumption is based on the Company's history and
expectation of dividend payouts.

F-20

---



A
summary of the status of the Company's stock option plan is presented below:

Years Ended December 31,2007

2006

2005Shares

Average
Exercise
Price

Aggregate
Intrinsic
Value(1)

Shares

Average
Exercise
Price

Shares

Average
Exercise
PriceOutstanding at beginning of year


242,629

$
5.12




242,629

$
5.12


246,125

$
5.06Granted
















700


17.00Exercised


(3,320
)

3.33










(3,996
)

3.33Forfeited


(32,690
)

5.95










(200
)

17.00Outstanding at end of year


206,619

$
5.01

$
596,539

242,629

$
5.12


242,629

$
5.12Options exercisable at year-end


206,619

$
5.01

$
596,539

242,629

$
5.12


242,629

$
5.12Weighted-average fair value of options granted during the year

$





$







$
8.12


---

The
following tables summarize the information about the stock options outstanding and exercisable at December 31, 2007:

Stock Options OutstandingExercise Price

Number of
Options
Outstanding

Weighted Average
Remaining
Contractual
Life in Years$  3.33

155,719

3.5$  5.33

15,000

4.0$  7.33

15,300

4.7$  7.67

2,400

4.8$13.00

900

5.8$17.00

1,000

6.6$17.00

700

6.7$17.00

15,000

6.7$19.00

600

7.3206,619

3.9


Note 15.    Salary Deferral Plan

During 2007, the Company adopted a nonqualified salary deferral plan for certain directors and key officers. As a result, the Company is the owner of single
premium life insurance policies on the life of each participant and is the beneficiary of the policy values, which have an aggregate face value amount of $6,244,029. The cash surrender value of the
policies as of December 31, 2007 is $2,246,146, which is reflected in the accompanying consolidated balance sheet. Additionally, the associated net non-cash income, of which is
included in the cash surrender value, is $46,146 for the year ended December 31, 2007.

F-21

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The
Company recognized $30,536 in compensation expense related to the salary deferral plan for the year ended December 31, 2007, which is included in salaries and employee
benefits in the accompanying consolidated statements of income. At December 31, 2007, included in other liabilities in the accompanying consolidated balance sheet is $30,536 which represents
the net present value of future obligations owed the participants in the salary deferral plan.

Note 16.    Contingencies

The Bank is involved in certain claims arising from normal business activities. Management believes that those claims are without merit and that the ultimate
liability, if any, resulting from them will not materially affect the Bank's financial condition or the Company's consolidated financial position.

Note 17.    Liquidity and Capital Resources

The Company's primary source of funds with which to pay its future obligations is the receipt of dividends from its subsidiary bank. Banking regulations provide
that the Bank must maintain capital sufficient to enable it to operate as a viable institution and, as a result, may limit the amount of dividends the Bank may pay without prior approval. It is
management's intention to limit the amount of dividends paid in order to maintain compliance with capital guidelines and to maintain a strong capital position in the Bank.

Note 18.    Capital Structure

Common Stock

The Board of Directors of the Holding Company is authorized to issue up to 6,000,000 shares of common stock. Holders of common stock have unlimited voting rights
and are entitled to receive the net assets of the Holding Company upon dissolution.

Preferred Stock

The Board of Directors of the Holding Company is authorized to issue up to 1,000,000 shares of preferred stock. Shares of the preferred stock may be issued from
time to time in one or more series, each such series to be so designated as to distinguish the shares thereof from the shares of all other series and classes. The Board of Directors has the authority
to divide any or all classes of preferred stock into series and to fix and determine the relative rights and preferences of the shares of any series so established. The preferred stock is not
redeemable.

F-22

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Note 19. Condensed Financial Statements of Parent Company

Financial information pertaining only to American Patriot Financial Group, Inc. is as follows:

Balance Sheets

|                                     |                                                                                                                                        | December 31,
2007                          |           | December 31,
2006
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | -----------------
|Assets                               |                                                                                                                                        |                                            |           |                  
|Cash and due from banks              |                                                                                                                                        | $                                          | 2,042     |                  
|Investment in American Patriot Bank  |                                                                                                                                        |                                            | 8,610,321 |                  
|Other assets                         |                                                                                                                                        |                                            | 47,140    |                  
|                                     |                                                                                                                                        |                                            |           |                  
|                                     |                                                                                                                                        | Total assets                               |           | $                
|                                     |                                                                                                                                        |                                            |           |                  
|Liabilities and Stockholders' Equity |                                                                                                                                        |                                            |           |                  
|Accrued expenses                     |                                                                                                                                        | $                                          | 2,501     |                  
|                                     |                                                                                                                                        |                                            |           |                  
|                                     |                                                                                                                                        | Total liabilities                          |           |                  
|                                     |                                                                                                                                        |                                            |           |                  
|Stockholders' Equity                 |                                                                                                                                        |                                            |           |                  
|Stock:                               |                                                                                                                                        |                                            |           |                  
|                                     | Preferred stock, no par value; authorized 1,000,000 shares; none issued and outstanding                                                |                                            |           |                  
|                                     | Common stock, $0.333 par value; authorized 6,000,000 shares; issued and outstanding 2,314,391 shares in 2007; 2,311,071 shares in 2006 |                                            |           | 771,362          
|                                     | Additional paid-in capital                                                                                                             |                                            |           | 6,942,260        
|                                     | Retained earnings                                                                                                                      |                                            |           | 943,380          
|                                     |                                                                                                                                        |                                            |           |                  
|                                     |                                                                                                                                        | Total Stockholders' Equity                 |           |                  
|                                     |                                                                                                                                        |                                            |           |                  
|                                     |                                                                                                                                        | Total Liabilities and Stockholders' Equity |           | $                
|                                     |                                                                                                                                        |                                            |           |                  

Statement of Income

|                                                                                       |              | Year Ended
December 31,
2007 |          | Year Ended
December 31,
2006 |  
|-------------------------------------------------------------------------------------- | ------------ | ---------------------------- | -------- | ---------------------------- | -
|Income                                                                                 |              |                              |          |                              |  
|Dividends from American Patriot Bank                                                   |              | $                            | 80,000   |                              | $
|                                                                                       |              |                              |          |                              |  
|                                                                                       | Total income |                              |          | 80,000                       |  
|Operating expenses                                                                     |              |                              | 101,908  |                              |  
|                                                                                       |              |                              |          |                              |  
|Loss before income taxes and equity in undistributed earnings of American Patriot Bank |              |                              | (21,908  | )                            |  
|Applicable income tax benefit                                                          |              |                              | (46,017  | )                            |  
|                                                                                       |              |                              |          |                              |  
|                                                                                       |              |                              | 24,109   |                              |  
|Equity in undistributed net income(loss)                                               |              |                              | (214,694 | )                            |  
|                                                                                       |              |                              |          |                              |  
|Net income (loss)                                                                      |              | $                            | (190,585 | )                            | $
|                                                                                       |              |                              |          |                              |  

F-23

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Statement of Cash Flows

|                                                                                                  |                                                         | Year Ended
December 31,
2007        |       | Year Ended
December 31,
2006 |        
|------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----------------------------------- | ----- | ---------------------------- | -------
|Cash flows from operating activities:                                                             |                                                         |                                     |       |                              |        
|                                                                                                  | Net income (loss)                                       |                                     | $     | (190,585                     | )      
|Adjustments to reconcile net income(loss) to net cash provided by (used in) operating activities: |                                                         |                                     |       |                              |        
|                                                                                                  | Equity in undistributed income of American Patriot Bank |                                     |       | 214,694                      |        
|                                                                                                  | Depreciation                                            |                                     |       | 98                           |        
|                                                                                                  | Deferred income tax expense                             |                                     |       | 459                          |        
|                                                                                                  | Increase (decrease) in other liabilities                |                                     |       | 2,401                        |        
|                                                                                                  |                                                         | (Increase) decrease in other assets |       |                              | (38,700
|                                                                                                  |                                                         |                                     |       |                              |        
|                                                                                                  | Net cash provided by (used in) operating activities     |                                     |       | (11,633                      | )      
|                                                                                                  |                                                         |                                     |       |                              |        
|Cash flows from financing activities:                                                             |                                                         |                                     |       |                              |        
|                                                                                                  | Issuance of common stock                                |                                     |       | 11,059                       |        
|                                                                                                  |                                                         |                                     |       |                              |        
|                                                                                                  | Net cash provided by financing activities               |                                     |       | 11,059                       |        
|                                                                                                  |                                                         |                                     |       |                              |        
|Net increase (decrease) in cash and cash equivalents                                              |                                                         |                                     | (574  | )                            |        
|Cash and cash equivalents at beginning of year                                                    |                                                         |                                     | 2,616 |                              |        
|                                                                                                  |                                                         |                                     |       |                              |        
|Cash and cash equivalents at end of year                                                          |                                                         | $                                   | 2,042 |                              | $      
|                                                                                                  |                                                         |                                     |       |                              |        

F-24

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