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EX-32.2 - American Patriot Financial Group, Inc.v222682_ex32-2.htm
EX-31.1 - American Patriot Financial Group, Inc.v222682_ex31-1.htm
EX-32.1 - American Patriot Financial Group, Inc.v222682_ex32-1.htm
EX-31.2 - American Patriot Financial Group, Inc.v222682_ex31-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2011
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________________ to ________________
 
Commission file number   000-50771
 
AMERICAN PATRIOT FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
 
Tennessee
 
20-0307691
 
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
 
incorporation or organization)
 
 
 
 
 
 
 
3095 East Andrew Johnson Highway
 Greeneville, Tennessee
 
 
37745
 
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
Registrant’s telephone number, including area code:  (423) 636-1555
 
 
 
 
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x  NO o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES o NO o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.   See the definitions of “large accelerated filer," "accelerated filer” and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o (Do not check if a small reporting company)
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) YES o NO x
 
As of May 1, 2011, there were 2,389,391 shares of common stock, $0.333 par value, issued and outstanding.

 
 

 
 
PART I - FINANCIAL INFORMATION
 
   
      
Item 1.
Financial Statements.
3
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
19
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
28
     
Item 4.
Controls and Procedures.
28
     
PART II - OTHER INFORMATION
 
     
Item 1.
Legal Proceedings.
29
     
Item 1A.
Risk Factors.
29
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
29
     
Item 3.
Defaults Upon Senior Securities.
29
     
Item 4.
(Removed and Reserved).
29
     
Item 5.
Other Information.
29
     
Item 6.
Exhibits.
29

 
2

 

AMERICAN PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY
Greeneville, Tennessee
CONSOLIDATED BALANCE SHEETS
 
Part I. FINANCIAL INFORMATION
 
Item 1.  Financial Statements
   
As of March 31,
2011 (Unaudited)
   
As of December
31, 2010
 
ASSETS
           
             
Cash and due from banks
  $ 6,646,359     $ 1,499,054  
Federal funds sold
    2,759,961       1,609,482  
Interest-bearing deposits in banks
     2,883,175       8,182,239  
Cash and cash equivalents
    12,289,495       11,290,775  
Securities available for sale
    2,914,771       2,916,717  
Federal Home Loan Bank stock, at cost
    296,500       296,500  
Loans, net of allowance for loan losses of $2,660,676 in 2011 and $2,956,010 in 2010
    68,388,201       73,759,525  
Premises and equipment, net
    4,750,550       4,807,200  
Accrued interest receivable
    259,397       358,298  
Deferred tax assets, net
    28,366       29,912  
Foreclosed assets
    6,374,565       3,885,396  
Cash surrender value of bank owned life insurance
    2,596,022       2,570,228  
Other assets
     180,662       174,415  
Total Assets
  $ 98,078,529     $ 100,088,966  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
LIABILITIES
               
Deposits:
               
Noninterest-bearing
               
Demand
  $ 4,766,125     $ 5,275,302  
Interest-bearing
               
Money market, interest checking and savings
    22,298,935       23,056,505  
Time deposits
    64,822,028       65,322,512  
Total Deposits
    91,887,088       93,654,319  
Accrued interest payable
    372,027       307,285  
Other liabilities
    410,057       438,612  
Federal Home Loan Bank and other borrowings
     3,545,906       3,545,906  
Total Liabilities
    96,215,078       97,946,122  
                 
STOCKHOLDERS’ EQUITY
               
Stock:
               
Preferred stock, no par value; authorized 1,000,000 shares; issued and outstanding 207 shares at March 31, 2011 and December 31, 2010
    177,863       174,220  
Common stock, $0.333 par value; authorized 6,000,000 shares; issued and outstanding 2,389,391 shares at March 31, 2011 and  December 31, 2010
    796,337       796,337  
Additional paid-in capital
    7,167,260       7,167,260  
Retained deficit
    (6,232,289 )     (5,946,761 )
Accumulated other comprehensive income
    (45,720 )     (48,212 )
Total Stockholders’ Equity
    1,863,451       2,142,844  
Total Liabilities and Stockholders’ Equity
  $ 98,078,529     $ 100,088,966  

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

 
3

 

AMERICAN PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY
Greeneville, Tennessee
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
Three Months Ended
 
   
March 31, 2011
   
March 31, 2010
 
             
Interest and dividend income:
           
Loans, including fees
  $ 954,022     $ 1,354,147  
Investment securities
    14,669       11,945  
Dividends on Federal Home Loan Bank stock
    3,363       3,363  
Federal funds sold and other
    17,731       6,568  
                 
  Total interest and dividend income
    989,785       1,376,023  
                 
Interest expense:
               
Deposits
    304,507       492,183  
Borrowed funds
    39,598       63,652  
                 
Total interest expense
    344,105       555,835  
                 
Net interest income before provision for loan losses
    645,680       820,188  
                 
Provision for loan losses
    4,260       839,167  
                 
Net interest income (loss) after provision for loan losses
    641,420       (18,979 )
                 
Noninterest income:
               
Service charges on deposit accounts
    74,386       91,684  
Fees from origination of mortgage loans sold
    4,235       2,203  
Other
    27,253       26,088  
                 
Total noninterest income
    105,874       119,975  
                 
Noninterest expense:
               
Salaries and employee benefits
    368,048       405,831  
Occupancy
    151,607       141,384  
Advertising
    5,163       6,676  
Data processing
    79,372       85,495  
Legal and professional
    103,731       116,003  
Depository insurance
    105,510       123,347  
Foreclosed real estate, net
    107,538       211,281  
Other operating
    108,210       109,783  
                 
Total noninterest expense
    1,029,179       1,199,800  
                 
Net loss before income taxes
    (281,885 )     (1,098,804 )
                 
Income taxes
    -       -  
                 
Net loss
    (281,885 )     (1,098,804 )
Preferred stock dividend requirement
    (12,199 )     -  
Accretion on preferred stock discount
    (3,643 )     -  
                 
Net Loss to Common Shareholders
  $ (297,727 )   $ (1,098,804 )
                 
Basic net loss per common share
  $ (.12 )   $ (.46 )
Diluted net loss per common share
  $ (.12 )   $ (.46 )
 
The accompanying notes are an integral part of these consolidated financial statements.
 
4

 

AMERICAN PATRIOT FINANCIAL GROUP, INC. AND SUBSIDIARY
Greeneville, Tennessee
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED
Three Months Ended March 31, 2011

                                  
Accumulated
       
                     
Additional
         
Other
       
   
Comprehensive
   
Preferred
   
Common
   
Paid-In
   
Retained
   
Comprehensive
       
   
Loss
   
Stock
   
Stock
   
Capital
   
Deficit
   
Income
   
Total
 
                                           
Balance, December 31, 2010
        $ 174,220     $ 796,337     $ 7,167,260     $ (5,946,761 )   $ (48,212 )   $ 2,142,844  
                                                       
Comprehensive loss:
                                                     
Net loss
  $ (281,885 )     -       -       -       (281,885 )     -       (281,885 )
Other comprehensive income:
                                                       
Unrealized holding gains (losses) on securities available for sale, net of tax effect of $1,546
    2,492       -       -       -       -       2,492       2,492  
                                                         
Total comprehensive loss
  $ (279,393 )                                                
                                                         
Accretion of discount on preferred stock -
                                                       
Series A
            3,643       -       -       (3,643 )     -       -  
                                                         
Balance, March 31, 2011
          $ 177,863     $ 796,337     $ 7,167,260     $ (6,232,289 )   $ (45,720 )   $ 1,863,451  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
5

 

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

   
Three Months Ended
 
   
March 31, 2011
   
March 31, 2010
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (281,885 )   $ (1,098,804 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Provision for loan losses
    4,260       839,167  
Depreciation
    63,922       69,191  
Write-down of foreclosed assets
    37,084       73,478  
Realized loss on sales of foreclosed assets
    11,511       116,212  
Increase in cash surrender value of bank owned life insurance
    (25,794 )     (26,173 )
Net change in:
               
Accrued interest receivable
    98,901       (13,552 )
Other assets
    11,793       35,811  
Other liabilities
    (46,598 )     (11,049 )
Accrued interest payable
    64,742       (63,781 )
                 
Net cash used in operating activities
    (62,064 )     (79,500 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Securities available for sale:
               
Maturities, prepayments and calls
    5,987       1,499  
Proceeds from sale of foreclosed assets
    70,301       258,216  
Loan originations and principal collections, net
    2,758,999       3,235,694  
Additions to premises and equipment
    (7,272 )     (8,735 )
                 
Net cash provided by investing activities
    2,828,015       3,486,674  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net change in deposits (non-time deposits)
    (1,266,747 )     (1,299,437 )
Net change in time deposits
    (500,484 )     (1,109,770 )
Issuance of stock
    -       18,294  
Repayments of other borrowings
    -       (7,000 )
Federal Home Loan Bank repayments
    -       (143,914 )
                 
Net cash used in financing activities
    (1,767,231 )     (2,541,827 )
                 
Net change in cash and cash equivalents
    998,720       865,347  
                 
Cash and cash equivalents at beginning of period
    11,290,775       10,214,016  
                 
Cash and cash equivalents at end of period
  $ 12,289,495     $ 11,079,363  
                 
SUPPLEMENTARY CASH FLOW INFORMATION:
               
Interest paid on deposits and borrowed funds
  $ 279,363     $ 619,616  
                 
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
               
Loans moved to foreclosed/repossessed assets
  $ 2,608,065     $ 1,100,943  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
6

 

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

Note 1.  Summary of Significant Accounting Policies

Nature of Business:

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

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

Basis of Presentation:

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

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.  Operating results for the three months ended March 31, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.  For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.  Certain amounts from prior period financial statements have been reclassified to conform to current period’s presentation.

Preferred Stock Issuance:

In accordance with its charter, the Company has authorized and began offering and issuing up to 5,000 shares of series A Preferred Stock (preferred stock) at a price of $1,000 per share.  The preferred stock will accrue cumulative dividends at a rate of 6% per annum.  Dividends will be payable quarterly in arrears.  However, the Bank and Company are currently prohibited from paying dividends.  The shares have a liquidation preference of $1,000 per share.  The shares may be converted to common stock after three years at a $5.00 per share conversion rate.  The preferred stock is redeemable only at the option of the Company, subject to regulatory approval, after the third anniversary date of the investment at 100% of the issuance price of $1,000 per share plus any accrued and unpaid dividends.  The preferred stock ranks senior to the Company's common stock, and no dividends on common stock may be declared or paid until all accrued and unpaid dividends for all past dividend periods have been paid on the preferred stock.  The preferred stock is non-voting, other than certain class voting rights.  No shares of preferred stock have been issued for the three months ended March 31, 2011.

 
7

 

Going Concern:

The Company continues to prepare its consolidated financial statements on a going concern basis. For further information regarding this issue, refer to Note 2 “Regulatory Actions & Going Concern Considerations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission on March 31, 2011. The consolidated financial statements and notes thereto are presented in accordance with the instructions for Form 10-K.

Use of Estimates:

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  The most significant management accounting estimate is the allowance for loan losses.  The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

Note 2.
Stock Options and Awards

 
No options were granted during the three months ended March 31, 2011, and no compensation cost related to options is recognized in the consolidated statements of income for the three months ended March 31, 2011 or 2010.  No intrinsic value exists at March 31, 2011, as the market price of the Company's common stock of $1.50 per common share is below the exercise price of the outstanding options.

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

 
Basic earnings (loss) per share (EPS) of common stock is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings (loss) per share of common stock is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares and potential dilutive common shares outstanding during the period.  Stock options are regarded as potential common shares.  Potential common shares are computed using the treasury stock method.  For the three months ended March 31, 2011, 31,550 options are excluded from the effect of dilutive securities because they are anti-dilutive; 71,050 options are similarly excluded from the effect of dilutive securities for the three months ended March 31, 2010.

 
8

 

 
The following is a reconciliation of the numerators and denominators used in the basic and diluted earnings (loss) per share computations for the three months ended March 31, 2011 and 2010.

   
Three Months Ended March 31,
 
   
2011
   
2010
 
   
Income (Loss)
   
Shares
   
Income (Loss)
   
Shares
 
   
(Numerator)
   
(Denominator)
   
(Numerator)
   
(Denominator)
 
                         
Basic EPS
                       
Income (loss) available to common stockholders
  $ (297,727 )     2,389,391     $ (1,098,804 )     2,389,391  
                                 
Effect of dilutive securities                                
Stock options outstanding
    -       -       -       -  
                                 
Diluted EPS
                               
Income (loss) available to common shareholders plus assumed conversions
  $ (297,727 )     2,389,391     $ (1,098,804 )     2,389,391  

Note 4.
Fair Value Disclosures

 
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  In accordance with the Fair Value Measurements and Disclosures ASC Topic 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value is best determined based upon quoted market prices.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

 
ASC Topic 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction between market participants at the measurement date under current market conditions.  If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate.  In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment.  The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

 
ASC Topic 820 also establishes a three-tier fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, as follows:

 
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

 
9

 

 
Level 2 - Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data.

 
Level 3 - Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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

 
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments.  There have been no changes in the methodologies used at March 31, 2011 and December 31, 2010.

 
Cash and cash equivalents:

 
The carrying amounts of cash and due from banks, interest-bearing deposits in banks, and federal funds sold approximate fair values based on the short-term nature of the assets.

 
Securities:

Fair values are estimated using pricing models and discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, and credit spreads.  Securities classified as available for sale are reported at fair value utilizing Level 2 inputs.

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

 
Loans:

 
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.  Fair values for fixed-rate loans are estimated usingdiscounted cash flow analyses, using market interest rates for comparable loans.  Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired.  Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310, Accounting by Creditors for Impairment of a Loan.  The fair value of impaired loans is estimated using several methods including collateral value, liquidation value and discounted cash flows.  Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.  At March 31, 2011, substantially all of the total impaired loans were evaluated based on the fair value of collateral.  In accordance with ASC Topic 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.  When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2.  When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

 
Accrued interest:

 
The carrying amounts of accrued interest approximate fair value.

 
10

 

 
Foreclosed assets:

 
Foreclosed assets, consisting of properties obtained through foreclosure or in satisfaction of loans, is initially recorded at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs.  At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses.  Gains or losses on sale and any subsequent adjustment to the fair value are recorded as a component of foreclosed real estate expense.  Foreclosed assets are included in Level 2 of the valuation hierarchy when the fair value is based on an observable market price or a current appraised value.  When an appraised value is not available or management determines the foreclosed asset is impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

 
Cash surrender value of bank owned life insurance:

 
The carrying amounts of cash surrender value of bank owned life insurance approximate their fair value.  The carrying amount is based on information received from the insurance carriers indicating the financial performance of the policies and the amount the Company would receive should the policies be surrendered.  The Company reflects these assets within Level 2 of the valuation hierarchy.

 
Deposits:

 
The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits and NOW, money market, and savings accounts, is equal to the amount payable on demand at the reporting date.  The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date.  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits.

 
Federal Home Loan Bank and other borrowings:

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

 
11

 

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

         
Quoted Prices in
   
Significant
   
Significant
 
   
Balance as
   
Active Markets
   
Other
   
Other
 
   
of
   
for Identical
   
Observable
   
Unobservable
 
   
March 31,
   
Assets
   
Inputs
   
Inputs
 
   
2011
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                         
Securities available for sale:
                       
Securities of U.S. Government agencies and corporations
  $ 2,441,600     $ -     $ 2,441,600     $ -  
Mortgage-backed securities
    473,171       -       473,171       -  
                                 
    $ 2,914,771     $ -     $ 2,914,771     $ -  
                                 
Cash surrender value of life insurance
  $ 2,596,022     $ -     $ 2,596,022     $ -  

         
Quoted Prices in
   
Significant
   
Significant
 
   
Balance as
   
Active Markets
   
Other
   
Other
 
   
of
   
for Identical
   
Observable
   
Unobservable
 
   
December 31,
   
Assets
   
Inputs
   
Inputs
 
   
2010
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                         
Securities available for sale:
                       
Securities of U.S. Government agencies and corporations
  $ 2,445,450     $ -     $ 2,445,450     $ -  
Mortgage-backed securities
    471,267       -       471,267       -  
                                 
    $ 2,916,717     $ -     $ 2,916,717     $ -  
                                 
Cash surrender value of life insurance
  $ 2,570,228     $ -     $ 2,570,228     $ -  

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

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

         
Quoted Prices in
   
Significant
   
Significant
 
   
Balance as
   
Active Markets
   
Other
   
Other
 
   
of
   
for Identical
   
Observable
   
Unobservable
 
   
March 31,
   
Assets
   
Inputs
   
Inputs
 
   
2011
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                         
Impaired loans
  $ 2,919,930     $ -     $ 2,919,930     $ -  
Foreclosed real estate
    6,374,565       -       6,233,336       141,229  

 
12

 

         
Quoted Prices in
   
Significant
   
Significant
 
   
Balance as
   
Active Markets
   
Other
   
Other
 
   
of
   
for Identical
   
Observable
   
Unobservable
 
   
December 31,
   
Assets
   
Inputs
   
Inputs
 
   
2010
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                         
Impaired loans
  $ 4,434,890     $ -     $ 4,434,890     $ -  
Foreclosed real estate
    3,885,396       -       3,498,552       386,844  

 
Impaired loans include impaired loans held for investment for which an allowance for loan losses has been calculated based upon the fair value of the loans at March 31, 2011 and December 31, 2010.

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

    
March 31, 2011
   
December 31, 2010
 
   
Carrying
   
Fair
   
Carrying
   
Fair
 
   
Amount
   
Value
   
Amount
   
Value
 
Financial Assets:
                       
Cash and cash equivalents
  $ 12,289,495     $ 12,289,495     $ 11,290,775     $ 11,290,775  
Securities available for sale
    2,914,771       2,914,771       2,916,717       2,916,717  
Federal Home Loan Bank stock
    296,500       296,500       296,500       296,500  
Loans, net
    68,388,201       68,504,582       73,759,525       73,740,093  
Accrued interest receivable
    259,397       259,397       358,298       358,298  
Cash surrender value of life insurance
    2,596,022       2,596,022       2,570,228       2,570,228  
                                 
Financial Liabilities:
                               
Deposits
    91,887,088       92,160,497       93,654,319       93,842,636  
Accrued interest payable
    372,027       372,027       307,285       307,285  
Federal Home Loan Bank and other borrowings
    3,545,906       3,561,166       3,545,906       3,582,568  

Note 5.
Securities Available for Sale

 
The amortized cost and estimated fair value of securities classified as available for sale and held to maturity at March 31, 2011 and December 31, 2010 are as follows:

          
March 31, 2011
 
   
 
   
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
                         
Securities Available for Sale:
                       
                         
Securities of U.S. Government agencies and corporations
  $ 2,500,000     $ -     $ (58,400 )   $ 2,441,600  
                                 
Mortgage-backed and related securities (1)
    488,857       -       (15,686 )     473,171  
                                 
    $ 2,988,857     $ -     $ (74,086 )   $ 2,914,771  

 
13

 

         
December 31, 2010
 
   
 
   
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
                         
Securities Available for Sale:
                       
                         
Securities of U.S. Government agencies and corporations
  $ 2,500,000     $ -     $ (54,550 )   $ 2,445,450  
                                 
Mortgage-backed and related securities (1)
    494,841       -       (23,574 )     471,267  
                                 
    $ 2,994,841     $ -     $ (78,124 )   $ 2,916,717  

(1) Collateralized by residential mortgages and guaranteed by U.S. Government sponsored entities.

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

The securities have maturity dates of one to five years.

The Bank has pledged securities with carrying values of approximately $2,915,000 and $2,423,000 (which approximates market values) to secure deposits of public funds and our federal funds line of credit as of March 31, 2011 and December 31, 2010.

Upon acquisition of a security, the Company determines the appropriate impairment model that is applicable.  If the security is a beneficial interest in securitized financial assets, the Company uses the beneficial interests in securitized financial assets impairment model.  If the security is not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities impairment model.  The Company conducts periodic reviews to evaluate each security to determine whether an other-than-temporary impairment has occurred.  The Company does not have any securities that have been classified as other-than-temporarily-impaired at March 31, 2011.

 
14

 
 
Note 6.
Loans and Allowance for Loan Losses

A summary of the balances of loans follows:

   
March 31,
   
December 31,
 
   
2011
   
2010
 
             
Mortgage loans on real estate:
           
Residential 1-4 family
  $ 37,484,240     $ 37,907,120  
Nonresidential & multifamily
    18,211,340       21,222,784  
Construction and development
    5,136,191       5,415,167  
      60,831,771       64,545,071  
                 
Commercial loans
    8,969,723       10,805,289  
                 
Consumer loans
    1,247,383       1,365,175  
                 
Total loans
    71,048,877       76,715,535  
                 
Less:
               
Estimated allowance for loan losses
    (2,660,676 )     (2,956,010 )
                 
Loans, net
  $ 68,388,201     $ 73,759,525  

 
An analysis of the allowance for loan losses follows:

   
Three Months
   
Year Ended
 
   
Ended March 31,
   
December 31,
 
   
2011
   
2010
 
             
Balance, beginning
  $ 2,956,010     $ 3,082,659  
Provision for loan losses
    4,260       1,382,685  
Recoveries of loans previously charged-off
    21,111       133,795  
                 
      2,981,381       4,599,139  
Loans charged-off
    320,705       1,643,129  
                 
Balance, ending
  $ 2,660,676     $ 2,956,010  

The following table details the changes in the allowance for loan losses during the three months ended March 31, 2011 by class of loans:

          
Nonresidential
   
Construction
                   
   
Residential
   
and
   
and
                         
   
1-4 Family
   
Multifamily
   
Development
   
Commercial
   
Consumer
   
Unallocated
   
Total
 
                                           
Balance, beginning of period
  $ 948,868     $ 460,801     $ 853,849     $ 651,319     $ 41,173     $ -     $ 2,956,010  
Charge-offs
    (10,512 )     (264,563 )     -       (31,511 )     (14,119 )     -       (320,705 )
Recoveries
    10,941       937       320       1,969       6,944       -       21,111  
Provision charged to operations
    (100,663 )     (6,971 )     42,783       29,918       (11,383 )     50,576       4,260  
                                                         
Balance, net of period
  $ 848,634     $ 190,204     $ 896,952     $ 651,695     $ 22,615     $ 50,576     $ 2,660,676  
 
 
15

 

The allocation of the allowance for loan losses and recorded investment in loans by portfolio segment are as follows:
    
March 31, 2011
 
         
Nonresidential
   
Construction
                   
   
Residential
   
and
   
and
                         
   
1-4 Family
   
Multifamily
   
Development
   
Commercial
   
Consumer
   
Unallocated
   
Total
 
                                           
Specified reserves impaired loans
  $ 202,835     $ -     $ 369,275     $ 560,687     $ -     $ -     $ 1,132,797  
                                                         
General reserves
    645,799       190,204       527,677       91,008       22,615       50,576       1,527,879  
                                                         
Total
  $ 848,634     $ 190,204     $ 896,952     $ 651,695     $ 22,615     $ 50,576     $ 2,660,676  
                                                         
Loans individually evaluated for impairment:
                                                       
With a valuation allowance
  $ 2,426,254     $ -     $ 824,890     $ 801,583     $ -     $ -     $ 4,052,727  
Without a valuation allowance
    3,675,070       2,889,934       383,695       540,972       165,799       -       7,655,470  
                                                         
Total loans individually evaluated for impairment
    6,101,324       2,889,934       1,208,585       1,342,555       165,799       -       11,708,197  
Loans collectively evaluated for impairment
    31,382,916       15,321,406       3,927,606       7,627,168       1,081,584       -       59,340,680  
                                                         
Total
  $ 37,484,240     $ 18,211,340     $ 5,136,191     $ 8,969,723     $ 1,247,383     $ -     $ 71,048,877  
                                                         
Valuation allowance related to impaired loans
  $ 202,835     $ -     $ 369,275     $ 560,687     $ -     $ -     $ 1,132,797  
                                                         
Average investment in impaired loans
  $ 6,098,794     $ 2,886,747     $ 1,210,301     $ 1,169,830     $ 7,294     $ -     $ 11,372,966  
                                                         
Interest income recognized on impaired loans
  $ 17,482     $ 6,312     $ 2,933     $ -     $ -     $ -     $ 26,727  

    
December 31, 2010
 
         
Nonresidential
   
Construction
                   
   
Residential
   
and
   
and
                         
   
1-4 Family
   
Multifamily
   
Development
   
Commercial
   
Consumer
   
Unallocated
   
Total
 
                                           
Specified reserves impaired loans
  $ 198,774     $ 271,500     $ 422,771     $ 487,294     $ -     $ -     $ 1,380,339  
                                                         
General reserves
    750,094       189,301       431,078       164,025       41,173       -       1,575,671  
                                                         
Total
  $ 948,868     $ 460,801     $ 853,849     $ 651,319     $ 41,173     $ -     $ 2,956,010  
                                                         
Loans individually evaluated for impairment:
                                                       
With a valuation allowance
  $ 1,941,917     $ 2,063,412     $ 1,008,317     $ 801,583     $ -     $ -     $ 5,815,229  
Without a valuation allowance
    3,031,169       2,753,053       241,842       835,902       144,336       -       7,006,302  
                                                         
Total loans individually evaluated for impairment
    4,973,086       4,816,465       1,250,159       1,637,485       144,336       -       12,821,531  
Loans collectively evaluated for impairment
    32,934,034       16,406,319       4,165,008       9,167,804       1,220,839       -       63,894,004  
                                                         
Total
  $ 37,907,120     $ 21,222,784     $ 5,415,167     $ 10,805,289     $ 1,365,175     $ -     $ 76,715,535  
                                                         
Valuation allowance related to impaired loans
  $ 198,774     $ 271,500     $ 422,771     $ 487,294     $ -     $ -     $ 1,380,339  

 
16

 

The following is a summary of information pertaining to average investment and interest income recognized on impaired loans as of December 31, 2010:

Average investment in impaired loans
  $ 12,882,436  
Interest income recognized on impaired loans
  $ 291,023  

The Company follows the loan impairment accounting guidance in ASC Topic 310.  A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.  Impaired loans include nonperforming commercial loans and loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.  These concessions could include a reduction in interest rates, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collections.

The following is a summary of non-performing loans evaluated by class as follows:

   
March 31,
2011
   
December 31,
2010
 
             
Non Accrual Loans:
           
Residential 1-4 family
  $ 5,034,025     $ 3,464,994  
Nonresidential and multifamily
    2,624,437       4,528,590  
Construction and land development
    1,041,680       1,080,586  
Commercial
    1,198,605       1,182,141  
Consumer
    17,055       13,383  
                 
Total
  $ 9,915,802     $ 10,269,694  

The following table presents an aged analysis of past due financing receivables as follows:

    
March 31, 2011
 
         
Past Due
                         
   
30-89 Days
   
90 Days
                         
   
Past Due and
   
Or More
         
Total
   
Current
   
Total
 
   
Accruing
   
and Accruing
   
Non-Accrual
   
Past Due
   
Loans
   
Loans
 
                                     
Residential 1-4 family
  $ 1,997,062     $ 47,076     $ 5,034,025     $ 7,078,163     $ 30,406,077     $ 37,484,240  
Nonresidential and multifamily
    274,591       -       2,624,437       2,899,028       15,312,312       18,211,340  
Construction and land development
    -       14,892       1,041,680       1,056,572       4,079,619       5,136,191  
Commercial
    23,492       8,840       1,198,605       1,230,937       7,738,786       8,969,723  
Consumer
    22,333       3,078       17,055       42,466       1,204,917       1,247,383  
                                                 
Total
  $ 2,317,478     $ 73,886     $ 9,915,802     $ 12,307,166     $ 58,741,711     $ 71,048,877  

 
17

 

    
December 31, 2010
 
         
Past Due
                         
   
30-89 Days
   
90 Days
                         
   
Past Due and
   
Or More
         
Total
   
Current
   
Total
 
   
Accruing
   
and Accruing
   
Non-Accrual
   
Past Due
   
Loans
   
Loans
 
                                     
Residential 1-4 family
  $ 1,757,199     $ 679,036     $ 3,464,994     $ 5,901,229     $ 32,005,891     $ 37,907,120  
Nonresidential and multifamily
    99,091       346,479       4,528,590       4,974,160       16,248,624       21,222,784  
Construction and land development
    207,985       362,251       1,080,586       1,650,822       3,764,345       5,415,167  
Commercial
    172,853       493,778       1,182,141       1,848,772       8,956,517       10,805,289  
Consumer
    31,403       14,077       13,383       58,863       1,306,312       1,365,175  
                                                 
Total
  $ 2,268,531     $ 1,895,621     $ 10,269,694     $ 14,433,846     $ 62,281,689     $ 76,715,535  

Credit quality indicators:

Federal regulations require us to review and classify our assets on a regular basis.  There are three classifications for problem assets: substandard, doubtful, and loss.  “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.  “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss.  An asset classified “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted.  The regulations also provide for a “special mention” category, described as assets which do not currently expose an institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving close attention.  When we classify an asset as substandard or doubtful, we may establish a specific allowance for loan losses.
 
The following table shows the aggregate amount of our classified loans as follows:

    
March 31, 2011
 
         
Special
                         
   
Pass
   
Mention
   
Substandard
   
Doubtful
   
Loss
   
Total
 
                                     
Residential 1-4 family
  $ 30,003,111     $ 1,282,593     $ 6,198,536     $ -     $ -     $ 37,484,240  
Nonresidential and multifamily
    15,321,402       -       2,889,938       -       -       18,211,340  
Construction and development
    3,927,605       -       1,208,586       -       -       5,136,191  
Commercial
    7,755,224       15,963       1,198,536       -       -       8,969,723  
Consumer
    1,231,914       1,678       13,791       -       -       1,247,383  
                                                 
Total
  $ 58,239,256     $ 1,300,234     $ 11,509,387     $ -     $ -     $ 71,048,877  

    
December 31, 2010
 
         
Special
                         
   
Pass
   
Mention
   
Substandard
   
Doubtful
   
Loss
   
Total
 
                                     
Residential 1-4 family
  $ 31,712,951     $ 723,775     $ 5,470,394     $ -     $ -     $ 37,907,120  
Nonresidential and multifamily
    16,230,470       -       4,992,314       -       -       21,222,784  
Construction and development
    4,007,095       157,913       1,250,159       -       -       5,415,167  
Commercial
    9,006,658       117,831       1,680,800       -       -       10,805,289  
Consumer
    1,340,535       8,620       16,020       -       -       1,365,175  
                                                 
Total
  $ 62,297,709     $ 1,008,139     $ 13,409,687     $ -     $ -     $ 76,715,535  

 
18

 

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

Impact of Inflation

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

Critical Accounting Estimates

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

Recent Accounting Pronouncements

In January 2011, the FASB issued Accounting Standards Update 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in ASU 2010-20. This update defers the effective date of reporting Troubled Debt Restructuring (“TDR”) credit quality disclosures until the additional guidance is issued that clarifies what constitutes a TDR.

In April 2011, the FASB issued Accounting Standards Update 2011-02, The Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This update provides additional guidance in determining what is considered a TDR. The update clarifies the two criteria that are required in determining a TDR. The update is effective for interim or annual periods beginning after June 15, 2011. We are currently evaluating the impact of this update to our consolidated financial statements.

Other than disclosures contained within these statements, the Company has determined that all other recently issued accounting pronouncements will not have a material impact on its consolidated financial statements or do not apply to its operations.

 
19

 

Forward-Looking Statements

Management’s discussion of the Company and management’s analysis of the Company’s operations and prospects, and other matters, may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of federal and state securities laws.  Although the Company believes that the assumptions underlying such forward-looking statements contained in this Report are reasonable, any of the assumptions could be inaccurate and, accordingly, there can be no assurance that the forward-looking statements included herein will prove to be accurate.  The use of such words as “may”, “will”, “anticipate”, “assume”, “should”, “indicate”, “attempt”, “would”, “believe”, “contemplate”, “expect”, “seek”, “estimate”, “continue”, “plan”, “point to”, “project”, “predict”, “could”, “intend”, “target”, “potential”, “forecast,” and comparable terms should be understood by the reader to indicate that the statement is “forward-looking” and thus subject to change in a manner that can be unpredictable.  Factors that could cause actual results to differ materially from the results anticipated, but not guaranteed, in this Report, include those factors included in Part I Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, and include (without limitation) deterioration in the financial condition of borrowers resulting in significant increases in loan losses, and provisions for those losses, economic and social conditions, competition for loans, mortgages, and other financial services and products, results of regulatory examinations and/or efforts to comply with the requirements of regulatory proceedings, including the obligation to raise additional capital, changes in interest rates, unforeseen changes in liquidity, results of operations, and financial conditions affecting the Company’s customers, and other risks that cannot be accurately quantified or completely identified.  Many factors affecting the Company’s financial condition and profitability, including changes in economic conditions, the volatility of interest rates, political events and competition from other providers of financial services simply cannot be predicted.  Because these factors are unpredictable and beyond the Company’s control, earnings may fluctuate from period to period.  The purpose of this type of information is to provide readers with information relevant to understanding and assessing the financial condition and results of operations of the Company, and not to predict the future or to guarantee results.  The Company is unable to predict the types of circumstances, conditions and factors that can cause anticipated results to change.  The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of changed or unanticipated events, circumstances or results.

General

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

Liquidity

At March 31, 2011, the Company had liquid assets of approximately $15.5 million in the form of cash, federal funds sold, securities available for sale, and FHLB stock compared to approximately $14.5 million at December 31, 2010.  Management believes that the liquid assets are adequate at March 31, 2011. Additional liquidity should be provided by loan repayments; however, the restrictions on the Bank’s ability to accept, rollover or renew brokered deposits and the rates that the Bank may pay on other deposits may negatively impact the Bank’s ability to grow or retain its deposits.  The Company also has the ability to purchase federal funds and is a member of the Federal Home Loan Bank of Cincinnati that could provide a credit line if necessary.

 
20

 

Results of Operations

The Company had a net loss of $281,885 (or a negative $.12 per common share loss) for the quarter ended March 31, 2011, compared to a net loss of $1,098,804 (or a negative $.46 per share loss) for the quarter ended March 31, 2010.  During the quarter ended March 31, 2011, the Company recorded a provision for loan losses of $4,260, compared to $839,167 for the same period in 2010 (See additional discussion at Provision for Loan Losses).

Net Interest Income/Margin

Net interest income represents the amount by which interest earned on various assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of the Company’s earnings.  Interest income for the quarter ended March 31, 2011, was $989,785 compared to $1,376,023 for the same period in 2010. Total interest expense was $344,105 for the quarter ended March 31, 2011, compared to $555,835 for the same period in 2010. Net interest margin was 3.06% for the first three months of 2011 compared to 3.25% for the comparable period in 2010, or a 19 basis point decrease.  The net change in the net interest margin was a result of the net decrease in the yield on interest-earning assets of approximately 78 basis points compared to the decrease in the rate paid on interest-bearing liabilities of 59 basis points, which is attributable to the impact from increasing levels of nonperforming loans in conjunction with the extended low interest rate environment.  Further, net interest income was negatively impacted as the Company continued to reduce its loan portfolio at a faster pace than the reduction in deposits.  Based on the Company’s mix of interest earning assets and interest bearing liabilities, management believes there will continue to be downward pressure on net interest income/margin for the remainder of 2011.

Provision for Loan Losses

The provision for loan losses represents a charge to operations necessary to establish an allowance for possible loan losses, which in management’s evaluation, is adequate to provide coverage for estimated losses on outstanding loans and to provide for uncertainties in the economy. The provision for loan losses during the three-month period ended March 31, 2011, was $4,260 as compared to $839,167 for the same three-month period ended March 31, 2010.  During the three months ended March 31, 2011, loan charge-offs were $320,705, compared to $1,334,334 for the three months ended March 31, 2010.  The recoveries for the three-month periods ended March 31, 2011 and 2010, were $21,111 and $27,712, respectively.  Loans individually evaluated for impairment and loans collectively evaluated for impairment have decreased for the three-month period ended March 31, 2011, resulting in a decline in the provision for loan losses.  However, the Company’s construction and development loan portfolio continues to experience weakness due to continuing decreased real estate sales in the Company’s markets, particularly the Blount County market, which has led to falling appraisal values of the collateral which secures the Company’s construction and development loan portfolio.  The Company’s collateral, for substantially all construction and development loans, is its primary source of repayment and as the value of the collateral deteriorates, ultimate repayment by the borrower becomes increasingly unlikely and the Bank is required to charge off the loan down to the new collateral value. The allowance for loan losses was $2,660,676 at March 31, 2011, as compared to $2,956,010 at December 31, 2010, a decrease of 10.0%.  The allowance for loan losses at March 31, 2010, was $2,615,204, or 2.9% of total loans at that date.  The allowance was approximately 3.7% of loans at March 31, 2011.

Management feels that the allowance for loan losses is adequate at March 31, 2011. However, there can be no assurance that additional provisions for loan losses will not be required in the future, including as a result of possible changes in the economic assumptions underlying management’s estimates and judgments, adverse developments in the economy, and the residential real estate market in particular, or changes in the circumstances of particular borrowers.  Management intends to continue to pursue aggressive strategies for problem loan resolution, and is committed to maintain loan loss reserves at levels sufficient to absorb losses recognized in the pursuit of this strategy.

 
21

 

Provision for / Benefit from Income Taxes

The Company had no expense or benefit from income taxes for the three months ended March 31, 2011 and 2010. The tax benefit created by the net loss during the quarter was offset by additional deferred tax asset valuation.

Noninterest Income

The Company’s noninterest income consists of service charges on deposit accounts and other fees and commissions.  Total noninterest income for the three months ended March 31, 2011, was $105,874, compared to $119,975 for the same period in 2010. Service charges on deposit accounts decreased $17,298 to $74,386 for the three months ended March 31, 2011, from $91,684 for the same period in 2010. Most of the $17,298 decrease was related to declines in NSF and overdraft fees.  In addition, a reduction in NSF charges is being noted nationwide as a result of the current economy and reduced consumer spending. These fees are primarily activity driven and relate to transaction based checking accounts.  The Bank noted a decline in checking account customers when comparing the first quarter of 2011 to the first quarter of 2010, and a corresponding decrease in NSF and overdraft transactions during the first quarter of 2011 as compared to the first quarter of 2010.  Fees from origination of mortgage loans sold increased $2,032 from $2,203 in the first quarter of 2010 to $4,235 in the first quarter of 2011.

Noninterest Expense

Noninterest expenses totaled $1,029,179 for the three months ended March 31, 2011, as compared to $1,199,800 for the three months ended March 31, 2010, and consisted of employee costs, occupancy expense, legal and professional expenses and other operating expenses.  Salaries and wages decreased $37,783 from $405,831 for the three months ended March 31, 2010, when compared to $368,048 for the three months ended March 31, 2011. Occupancy expenses increased $10,223 from $141,384 for the three months ended March 31, 2010, when compared to $151,607 for the three months ended March 31, 2011.  Most of the decrease in employee costs is attributable to a focused effort by management and the Board to improve its personnel efficiency and reduce headcount and related costs in this tough economic period. Legal and professional expenses decreased $12,272 from $116,003 for the three months ended March 31, 2010, when compared to $103,731 for the three months ended March 31, 2011.  Other noninterest expenses decreased $130,789 from $536,582 for the three months ended March 31, 2010, compared to $405,793 for the three months ended March 31, 2011.  Most of the decrease in other noninterest expense can be attributed to lower FDIC premiums, less foreclosed real estate expenses and a reduction in losses on sales of foreclosed assets. Foreclosed real estate expense was $107,538 for the first three months of 2011 compared to $211,281 for the comparable period in 2010. Foreclosed real estate expense is composed of three types of charges: maintenance costs, valuation adjustments based on new appraisal values and gains or losses on disposition. At March 31, 2011, the Company had $6.4 million in foreclosed assets compared to $4.1 million at March 31, 2010 and $3.9 million at December 31, 2010. The Company anticipates that foreclosed real estate charges will remain at elevated levels throughout 2011 as it anticipates that balances of foreclosed assets will remain at elevated levels for the remainder of 2011.
 
 
22

 
 
Financial Condition

Total assets at March 31, 2011, were $98,078,529, a decrease of $2,010,437 or 2.0% compared to 2010 year-end assets of $100,088,966.  Deposits decreased to $91,887,088 at March 31, 2011, a decrease of $1,767,231 or 1.9% from $93,654,319 at December 31, 2010. The Company is taking measures to maintain liquidity by offering attractive rates to customers as possible given our market rate cap limitation currently imposed on us. Premises and equipment decreased to $4,750,550 at March 31, 2011, a decrease of $56,650 or 1.2% from $4,807,200 at December 31, 2010, primarily as a result of minimal fixed asset purchases coupled with normal depreciation charges.  Other significant additions noted as of March 31, 2011, when compared to December 31, 2010 relate to foreclosed assets.  Foreclosed assets increased $2,489,169 from $3,885,396 at December 31, 2010 to $6,374,565, or 64.1%, at March 31, 2011.

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

Loans

Net loans outstanding totaled $68,388,201 at March 31, 2011, compared to $73,759,525 at December 31, 2010.  The decrease in loan volume is largely attributable to management’s strategy to decrease concentrations in certain loan types, particularly residential real estate construction and development loans, and the movement of one large real estate loan to OREO following completion of foreclosure.  Management is monitoring the portfolio closely and believes it has identified and properly reserved for all major problem credits in the portfolio.  In the event that a loan is ninety days or more past due, the accrual of income is generally discontinued when the full collection of principal and interest is in doubt unless the obligations are both well secured and in the process of collection.  At March 31, 2011, there was $9,915,802 in loans not accruing interest. The continued elevated levels of  nonaccrual loans and non-performing asset balances that the Company experienced in the first three months of 2011 is primarily related to a weakened real estate market in the Company’s market areas, particularly its Blount County market.  Within this segment of the loan portfolio, the Company makes loans to home builders and developers and sub-dividers of land.  These borrowers have experienced stress due to a combination of declining residential real estate demand and resulting price and collateral value declines.  Further, housing starts in the Company’s market areas continue to lag historical levels.

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

   
March 31,
   
December 31,
 
   
2011
   
2010
 
             
Impaired loans without a specific valuation allowance
  $ 7,655,470     $ 7,006,302  
Impaired loans with a specific valuation allowance
    4,052,727       5,815,229  
Total specifically evaluated impaired loans
  $ 11,708,197     $ 12,821,531  
Specific valuation allowance related to impaired loans
  $ 1,132,797     $ 1,380,339  

In addition to the specifically evaluated impaired loans above, the Bank collectively evaluates large groups of smaller balance homogeneous loans for impairment.  Loans collectively evaluated for impairment with a classification of special mention, substandard and doubtful, as of March 31, 2011 and December 31, 2010, were $207,156 and $634,001, respectively.  The Bank has reserved $38,155 and $69,621 related to these loans as of March 31, 2011 and December 31, 2010, respectively.

 
23

 

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

As of March 31, 2011, the Company has identified loans aggregating $11,915,353 as being impaired of which $9,915,802 are non-performing as it relates to payment of interest.  The increase in impaired loans between March 31, 2010 and March 31, 2011, was primarily related to the weakened residential and commercial real estate market in the Company’s market areas as well as the impact of continued high unemployment levels in those areas.  Within the residential and commercial real estate segment of the portfolio, the Company makes loans to, among other borrowers, home builders and developers of land.  These borrowers have experienced stress during the current economic climate due to a combination of declining demand for residential real estate and the resulting price and collateral value declines.  In addition, housing starts in the Company’s market areas continue to lag historical levels.  Continuation of the current challenging economic environment will likely cause the Company’s real estate construction and land development loans to continue to underperform and such underperformance, along with continued stress on individual borrowers, particularly those impacted by the elevated unemployment rates in the Greene and Blount County markets, has resulted, and may continue to result, in increased levels of impaired loans which may negatively impact the Company’s results of operations.

Nonperforming Assets

At March 31, 2011, the Company had $16.3 million in nonperforming assets compared to $14.2 million at December 31, 2010 and $11.9 million at March 31, 2010. Included in nonperforming assets at March 31, 2011, were $9.9 million in nonperforming loans and $6.4 million in other real estate owned. The continued elevated levels of nonperforming asset balances that the Company continues to experience is primarily related to a weakened residential real estate market in the Company’s primary markets. Home builders and developers and sub-dividers of land have continued to experience stress due to a combination of declining residential demand for new housing and resulting price and collateral value declines in the Company’s market areas. The Company believes that its nonperforming asset levels will remain elevated throughout the remainder of 2011 as it works diligently to remediate these assets.

Restricted Equity Investments

Federal Home Loan Bank (“FHLB”) stock at March 31, 2011, had an amortized cost and market value of $296,500 as compared to an amortized cost and market value of $296,500 at December 31, 2010.   As a member of the FHLB, the Company is required to maintain stock in an amount equal to a minimum of .15% of total assets and 4% of outstanding FHLB advances.  Federal Home Loan Bank stock is carried at cost.  Federal Home Loan Bank stock is maintained by the Company at par value of one hundred dollars per share.

 
24

 

Securities Available for Sale

Securities have been classified in the balance sheet according to management’s intent as securities available for sale.  The amortized cost and approximate fair value of securities at March 31, 2011, are as follows:

         
March 31, 2011
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
                         
Securities Available for Sale:
                       
                         
Securities of U.S. Government agencies and corporations
  $ 2,500,000     $ -     $ (58,400 )   $ 2,441,600  
                                 
Mortgage-backed and related securities
    488,857       -       (15,686 )     473,171  
                                 
    $ 2,988,857     $ -     $ (74,086 )   $ 2,914,771  

At March 31, 2011, securities with a carrying value of approximately $2,321,000 were pledged to secure a federal funds line of credit with the First National Bankers Bank, Alabama.

Deposits and Other Funding

Total deposits, which are the principal source of funds for the Company, were $91,887,088 at March 31, 2011, compared to $93,654,319 at December 31, 2010, representing a decrease of 1.9%.  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 established a line of credit with the Federal Home Loan Bank secured by a blanket-pledge of 1-4 family residential mortgage loans. At March 31, 2011, the Company had outstanding advances of $2,624,906 at the Federal Home Loan Bank compared with $2,624,906 at December 31, 2010. At December 31, 2010 and March 31, 2011, the Company also had $900,000 in short-term borrowings from Jefferson Federal Bank which matured on February 28, 2011, and is now in default and is secured by 100% of the Bank’s common stock.  Because the loan is now in default, the lender could foreclose on its collateral, the stock of the Bank, and accordingly acquire the Bank at any time. Further, there are $21,000 in loans due to two directors and one former director that are due on demand.

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

Capital and Regulatory Matters

Equity capital at March 31, 2011, was $1,863,451 a decrease of $279,393 from $2,142,844 at December 31, 2010, due to a net loss of $281,885, offset in part by a decrease in the unrealized holding losses on available for sale securities of $2,492.

 
25

 

Pursuant to the terms of the Cease and Desist Order (the “Order”) that the Bank entered into with the FDIC during the second quarter of 2009, as more fully described below, the Bank is required to develop and implement a capital plan that increases the Bank’s Tier 1 capital ratio, Tier 1 risk-based capital ratio and Total risk-based capital ratio to 8%, 10% and 11%, respectively.  The Bank has submitted numerous capital plans to the FDIC and the Tennessee Department of Financial Institutions (the “TDFI”) since the Order was issued and none of those have been accepted.  The most recent capital restoration plan proposed by the Bank was submitted to the FDIC and TDFI for approval on April 28, 2011, and following receipt of any comments to the plan from the FDIC or TDFI, the Bank must immediately initiate measures to effect compliance with the capital plan within 30 days after the FDIC and the TDFI respond to the capital plan.

As a result of the Bank’s capital ratios following below minimum regulatory amounts, the Bank is considered “significantly undercapitalized” and it is subject to the provisions of Section 38 of the Federal Deposit Insurance Act, which among other things: (i) restricts payment of capital distributions and management fees; (ii) requires that the FDIC monitor the condition of the Bank; (iii) requires submission of a capital restoration plan within 45 days; (iv) restricts the growth of the Bank's assets; and (v) requires prior approval of certain expansion proposals, many of which restrictions or obligations, including the requirement to submit a capital restoration plan, the Bank was already subject to as a result of the Order.

In order to secure the approval of the FDIC of the Bank’s capital restoration plan each time the Bank submits such plan (with the latest submission April 28, 2011), the Company executed a Capital Maintenance Commitment and Guaranty (the “Commitment”) with the FDIC, which remains subject to the FDIC’s approval and execution.  Pursuant to the Commitment, the Company is required to provide the FDIC assurance in the form of a financial commitment and guaranty that the Bank will comply with the Bank’s capital restoration plan until the Bank has been adequately capitalized on average during each of four consecutive quarters and, in the event the Bank fails to so comply, to pay to the Bank the lesser of five percent of the Bank's total assets at the time the Bank was undercapitalized, or the amount which is necessary to bring the Bank into compliance with all capital standards applicable to the Bank at the time it failed to comply.

In August 2010, the FDIC notified the Bank that, due to the Bank’s “significantly undercapitalized” status, it intended to issue the Bank a prompt corrective action directive requiring the Bank to submit an acceptable capital restoration plan on or before August 31, 2010 providing that, among other things, at a minimum the Bank shall restore and maintain its capital to the level of “adequately capitalized.”  This directive was issued on August 17, 2010.  In the event that the Bank does not increase its Tier 1 capital in accordance with the requirements of this directive, the Bank will be required under the directive to take any necessary action to result in the Bank’s acquisition by another depository institution holding company or merge with another insured depository institution.  Numerous capital restoration plans have been submitted, however none of these plans have yet been accepted by the FDIC. A revised plan has been submitted and the Company will be required to guarantee this capital restoration plan submitted pursuant to the directive to the same extent described in the immediately preceding paragraph. In our most recent capital restoration plan, we have stated that our primary focus regarding improving our capital is on the sale or merger of our Company or the Bank. Secondarily, we are trying to raise sufficient amounts of capital necessary to capitalize the Bank at or above those levels required in the Order. If we are unable to find a merger partner or anyone to buy us, and we are also unable to raise sufficient capital to meet the capital commitments the Bank has made to the TDFI and the FDIC, we may be closed by the FDIC.  The directive also imposes certain limitations on the Bank’s operations, many of which the Bank is already subject to under the terms of the Order or as a result of the Bank falling below “adequately capitalized” at June 30, 2009, including limitations on the Bank’s ability to pay dividends, to pay management fees to the Company, to grow the Bank’s asset base, to make acquisitions, establish new branches or engage in new lines of business, to pay board and committee fees, to accept, renew or rollover brokered deposits and to pay interest rates on deposits above prescribed national rates.  The terms of the directive require that the directive shall remain effective until the Bank has been “adequately capitalized” on average for four consecutive quarters.

 
26

 

The Bank and the Company are currently evaluating their respective capital options and the Company is actively seeking another company with which to merge or by which to be acquired.

At March 31, 2011, the Bank’s required minimum ratios were less than the required regulatory minimum ratios. The Bank, accordingly, falls within the category of “significantly undercapitalized” within the FDIC’s prompt corrective action provisions. In addition to the limitations on the Bank’s activities mandated by the Order and the prompt corrective action directive, the Bank, because it is significantly undercapitalized, is also now subject to determinations by the FDIC to require the Bank to be recapitalized, to restrict transactions with affiliates, and restrict interest paid on deposits. The Bank’s actual capital ratios at March 31, 2011 and required ratios under the Order, follow:

   
Required
Minimum
Ratio
   
To be
Well
Capitalized
   
Requirements
Under the
Order
   
Bank
 
                         
Tier 1 leverage ratio
    4.00 %     5.00 %     8.00 %     2.92 %
Tier 1 risk-based capital ratio
    4.00 %     6.00 %     10.00 %     3.81 %
Total risk-based capital ratio
    8.00 %     10.00 %     11.00 %     5.09 %

Liability and Asset Management

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

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

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

At March 31, 2011, approximately 65% of the institution’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 institution.  Because the majority of the institution’s liabilities are 12 months and under and the gap in repricing is asset sensitive, management believes that a rising rate environment would have a positive impact on the Company’s net interest margin.  Floors in the majority of the institution’s adjustable rate assets also mitigate interest rate sensitivity in a decreasing rate environment.

 
27

 

Off-Balance Sheet Arrangements

The Company, at March 31, 2011, had outstanding unused lines of credit and standby letters of credit that totaled approximately $6,600,000.  These commitments have fixed maturity dates and many will mature without being drawn upon, meaning that the total commitment does not necessarily represent the future cash requirements.  The Company has the ability to liquidate federal funds sold and available for sale securities, or, on a short-term basis, to purchase federal funds from a correspondent bank. At March 31, 2011, the Company had established with a correspondent bank the ability to purchase federal funds if needed up to $1,600,000.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk
 
The information set forth on pages 19 through 28 of Item 2, “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”, is incorporated herein by reference.
 
Item 4.  Controls and Procedures
 
 a)        Evaluation of Disclosure Controls and Procedures
 
The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by it in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer.  The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report.  Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure control and procedures were effective.

 b)        Changes in Internal Controls and Procedures
 
There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 
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PART II - OTHER INFORMATION

Item 1. 
LEGAL PROCEEDINGS

At March 31, 2011, the Company and the Bank were defendants in a complaint filed in the Blount County Chancery Court. The plaintiffs have alleged breach of contract, promissory estoppels and negligent misrepresentation relating to commitments to fund various loans to certain plaintiffs. The plaintiffs are seeking compensatory damages of $3,600,000, punitive damages of $14,400,000 and treble damages. The case is in the discovery phase and the Company’s legal counsel is not able to provide an assessment regarding the potential outcome of the case or an estimate, or range of estimates, of potential damages; therefore the Bank has not accrued a liability with respect to this lawsuit. The Company and the Bank have aggregate insurance coverage of $3,000,000 which management believes is adequate to cover potential awards. Further, management believes they have strong defenses to all claims and intends to vigorously defend this lawsuit.

At March 31, 2011, the Company and the Bank were also defendants in a complaint filed in the Blount County Circuit Court. The plaintiffs have alleged breach of contract, negligent misrepresentation, intentional misrepresentation and violations of the Tennessee Consumer Protection Act relating to a commitment to fund a loan to the plaintiffs. The plaintiffs are seeking compensatory damages of $500,000, punitive damages of $1,000,000 and treble damages. The case is in the discovery phase and the Company’s legal counsel is not able to provide an assessment regarding the potential outcome of the case or an estimate, or range of estimates, of potential damages; therefore the Bank has not accrued a liability with respect to this lawsuit. The Company and the Bank have aggregate insurance coverage of $3,000,000 which management believes is adequate to cover potential awards. Further, management believes they have strong defenses to all claims and intends to vigorously defend this lawsuit.
 
Item 1A. 
RISK FACTORS

There were no material changes to the Company’s risk factors as previously disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

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

 
(a)
None.
 
 
(b)
Not applicable.
 
 
(c)
No repurchases of Company securities were made during the quarter ended March 31, 2011.
 
The Company's ability to pay dividends is derived from the income of the Bank.  The Bank's ability to declare and pay dividends is limited by its obligations to maintain sufficient capital by the terms of the Order and by other general restrictions on its dividends that are applicable to banks that are regulated by the FDIC and the TDFI.  In addition, the Federal Reserve Board may impose restrictions on the Company's ability to pay dividends on its common stock.  As a result, the Company cannot assure its shareholders that it will declare or pay dividends on shares of its common stock in the future and the Company has never paid dividends in the past.
 
Item 3. 
DEFAULTS UPON SENIOR SECURITIES

 
(a)
None.
 
 
(b)
None.
 
Item 4. 
(REMOVED AND RESERVED)
 
Item 5. 
OTHER INFORMATION

 
(a)
None.
 
 
(b)
None.

Item 6. 
EXHIBITS.

Index to Exhibits.

 
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Exhibit No.
   
Description
  3.1*
 
Charter of American Patriot Financial Group, Inc.
  3.2*
 
Bylaws of American Patriot Financial Group, Inc.
31.1
 
Certification pursuant to Rule 13a-14a/15d-14(a)
31.2
 
Certification pursuant to Rule 13a-14a/15d-14(a)
32.1
 
Certification pursuant to Rule 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
 
Certification pursuant to Rule 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

 
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SIGNATURES

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

AMERICAN PATRIOT FINANCIAL GROUP, INC.
(Registrant)

DATE:
May 16, 2011
 
/s/ John D. Belew
   
    
John D. Belew
     
Chief Executive Officer
       
DATE:
May 16, 2011
 
/s/ T. Don Waddell
     
T. Don Waddell
     
Chief Financial Officer

 
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