10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2011

OR

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

For transition period from             to             

Commission file number 000-22473

VOLUNTEER BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

Tennessee	62-1271025
(State of Incorporation)	(I.R.S. Employer Identification No.)

210 East Main Street

Rogersville, TN 37857

(Address of principal executive offices)(Zip Code)

(423) 272-2200

(Registrant’s telephone number, including area code)

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 and 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  ¨    No   x

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

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	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  ¨    No  x

As of the close of business on December 31, 2011, there were 496,277 shares of the Registrant’s common stock outstanding.

VOLUNTEER BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents

	PART I
ITEM 1.	FINANCIAL STATEMENTS – VOLUNTEER BANCORP INC.	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF     OPERATIONS OF VOLUNTEER BANCORP INC.	25
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29
ITEM 4.	CONTROLS AND PROCEDURES	29
	PART II
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 5.	OTHER INFORMATION	29
ITEM 6.	EXHIBITS	30

Explanatory Note

From April 24, 1997 (the date we registered our common stock pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”)) to December 3, 2004 (the date we filed Form 15 to terminate such registration) we filed with the United States Securities and Exchange Commission (“SEC”) our periodic reports pursuant to the Exchange Act. In December of 2004, we filed a Form 15, based on our belief that it satisfied the requirements under Rule 12g-4 to terminate the registration of the common stock, and thereby suspend our duty to file reports pursuant to the Exchange Act. In 2011, we discovered that the filing of the Form 15 was in error; that we remained subject to the reporting requirements under the Exchange Act. In connection with such requirements, we filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 on February 7, 2012, we are filing this Quarterly Report on Form 10-Q for the fiscal period ended September 30, 2011, and intend to file our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and to continue to make timely filing of our periodic reports thereafter, as required by the Exchange Act.

Item 1. Financial Statements

VOLUNTEER BANCORP, INC.

Consolidated Balance Sheets

September 30, 2011 (Unaudited) and December 31, 2010

	September 30,			December 31,
	2011			2010
	(Dollars In Thousands)
Assets
Cash and due from banks	$	5,753		$	5,273
Federal funds sold		600			890
Cash and cash equivalents		6,353			6,163
Securities available for sale		16,015			12,684
Securities held to maturity (fair value 2011—$36 and 2010—$59)		34			56
Loans receivable, net of allowance for loan losses of $2,678 and $3,723		95,748			101,706
Federal Home Loan Bank stock		494			494
Accrued interest receivable		512			555
Premises and equipment, net		3,097			3,234
Other real estate owned, net		5,107			4,925
Bank owned life insurance		2,665			2,603
Other assets		668			494
Total assets	$	130,693		$	132,914
Liabilities and Stockholders’ Equity
Deposits:
Non-interest-bearing	$	17,175		$	14,396
Interest-bearing		97,634			102,035
Total deposits		114,809			116,431
Accrued interest payable		504			617
Note payable—major stockholder		830			830
Securities sold under repurchase agreements		234			337
Federal Home Loan Bank advances		8,500			8,500
Subordinated debentures		3,093			3,093
Other liabilities		234			164
Total liabilities		128,204			129,972
Stockholders’ equity
Common stock, $0.01 par value; 1,000,000 shares authorized; 496,277 shares issued and outstanding		5			5
Additional paid-in capital		255			255
Retained earnings		2,367			2,496
Accumulated other comprehensive income (loss), net		(138	)		186
Total stockholders’ equity		2,489			2,942
Total liabilities and stockholders’ equity	$	130,693		$	132,914

See notes to consolidated financial statements.

1

VOLUNTEER BANCORP, INC.

Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2011 and 2010

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	(In Thousands, Except Per Share Amounts)
Interest income
Loans, including fees	$	1,329		$	1,391		$	3,948		$	4,185
Securities
Taxable		31			100			143			328
Tax exempt		41			54			167			161
Federal funds sold and other		8			7			24			22
		1,409			1,552			4,282			4,696
Interest expense
Deposits		280			469			939			1,536
Other borrowings		26			29			78			103
		306			498			1,017			1,639
Net interest income		1,103			1,054			3,265			3,057
Provision for loan losses		180			1,565			246			1,812
Net interest income (loss) after provision for loan losses		923			(511	)		3,019			1,245
Noninterest income
Service charges		55			59			172			195
Fees and commissions		10			10			37			40
Gain on sale of securities		190			—			528			—
Gain on sale of fixed assets		—			—			13			222
Other		62			31			169			88
		317			100			919			545
Noninterest expenses
Salaries and employee benefits		479			550			1,596			1,761
Occupancy expenses		70			73			210			216
Furniture and equipment		68			57			197			208
Data processing expense		65			61			193			184
Audit and professional fees		114			121			371			368
Insurance and bond expense		52			22			125			53
Other real estate and collection expense		293			495			714			683
FDIC assessment expense		100			100			298			276
Director fees		—			25			32			74
Other		97			122			331			343
		1,338			1,626			4,067			4,166
Income (loss) before income taxes		(98	)		(2,037	)		(129	)		(2,376	)
Income tax expense (benefit)		—			—			—			—
Net income (loss)	$	(98	)	$	(2,037	)	$	(129	)	$	(2,376	)
Basic and diluted earnings (loss) per common share	$	(0.20	)	$	(4.10	)	$	(0.26	)	$	(4.79	)

See notes to consolidated financial statements.

2

VOLUNTEER BANCORP, INC.

Consolidated Statements of Comprehensive Income (Loss)

Three and Nine Months Ended September 30, 2011 and 2010

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	(In Thousands)						(In Thousands)
Net income (loss)	$	(98	)	$	(2,037	)	$	(129	)	$	(2,376	)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities arising during period		171			(15	)		204			(21	)
Reclassification of realized amount		(190	)		—			(528	)		—
Other comprehensive income (loss)		(19	)		(15	)		(324	)		(21	)
Income taxes related to other comprehensive income (loss)		—			—			—			—
Other comprehensive income (loss), net of income taxes		(19	)		(15	)		(324	)		(21	)
Total comprehensive income (loss)	$	(117	)	$	(2,052	)	$	(453	)	$	(2,397	)

See notes to consolidated financial statements.

3

VOLUNTEER BANCORP, INC.

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2011 and 2010

(Unaudited)

	2011			2010
	(Dollars In Thousands)
Cash flows from operating activities:
Net income (loss)	$	(129	)	$	(2,376	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation expense		144			155
Premium amortization of securities, net		53			11
Provision for loan losses		246			1,812
Gain on sales of securities		(528	)		—
Gain on sale of fixed assets		(13	)		(222	)
Write downs of other real estate owned		387			532
Increase in bank owned life insurance		(63	)		(61	)
Changes in:
Accrued interest receivable		43			242
Other assets		(174	)		(52	)
Deferred taxes		—			(107	)
Accrued interest payable		(113	)		(53	)
Other liabilities		70			24
Net cash from operating activities		(77	)		(95	)
Cash flows from investing activities:
Activity in available for sale securities
Purchases		(20,424	)		(550	)
Proceeds from sales, calls, maturities and principal pay-downs		17,245			2,094
Activity in held to maturity securities
Proceeds from principal pay-downs		22			28
Net change in loans		4,685			524
Proceeds from sale of premises and equipment		13			237
Proceeds from sale of other real estate owned		458			39
Purchases of premises and equipment		(7	)		(11	)
Purchases of Federal Home Loan Bank stock		—			(3	)
Net cash from investing activities		1,992			2,358
Cash flows from financing activities
Net change in deposits		(1,622	)		(2,686	)
Net change in securities sold under repurchase agreements		(103	)		9
Repayment of Federal Home Loan Bank advances		(25,500	)		(1,700	)
Proceeds from Federal Home Loan Bank advances		25,500			1,500
Net cash from financing activities		(1,725	)		(2,877	)
Net change in cash and cash equivalents		190			(614	)
Cash and cash equivalents at beginning of period		6,163			6,101
Cash and cash equivalents at end of period	$	6,353		$	5,487
Supplemental Disclosures of Cash Flow Information:
Payments during the period for:
Interest paid	$	1,130		$	1,692
Income taxes paid		—			—
Supplemental Non-cash disclosures:
Transfers from loans to other real estate owned	$	1,027		$	4,411

See notes to consolidated financial statements.

4

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 1—Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Volunteer Bancorp, Inc. and its wholly-owned subsidiary, The Citizens Bank of East Tennessee (“the Bank”) (collectively “the Company,” “we,” “us,” or “our”) and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) and disclosures necessary to summarize fairly the consolidated financial position of the Company as of September 30, 2011 and December 31, 2010 and the related consolidated statements of operations, comprehensive income (loss) and cash flows for the three months and nine months ended September 30, 2011 and 2010. The interim financial statements should be read in conjunction with the notes to the financial statements presented in the Company’s latest annual report on Form 10-K as filed with the Securities and Exchange Commission. The results for interim periods are not necessarily indicative of results to be expected for the complete fiscal year.

Going Concern and Related Issues

A fundamental principle of the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and satisfaction of liabilities occurring in the ordinary course of business. In accordance with this requirement, the Company has prepared its consolidated financial statements on a going concern basis.

The Company experienced substantial losses in 2010 and 2009. Furthermore, non-performing assets are over 12% of total assets. As discussed in more detail in Note 9 to Notes to Consolidated Financial Statements, the Bank is not in compliance with minimum capital requirements set forth in the consent order with bank regulatory authorities.

Management has implemented plans to improve asset quality, credit risk management, earnings, and liquidity management. In addition, management has begun to implement a capital raising strategy, although management has not concluded the timing and certain other aspects of its strategy.

The vast majority of the Company’s losses are a result of loan losses and non-performing assets related to commercial real estate and development. Management believes it has identified the problems and properly provided for them. However, further declines in values will adversely affect those assets and could result in more losses.

At September 30, 2011, the Bank’s capital is above levels generally established for adequately capitalized under regulatory capital guidelines. However, in January 2010, the Bank agreed to a FDIC requirement to maintain a minimum Tier 1 capital to average assets ratio of 8%, Tier 1 capital to risk-weighted assets ratio of 10% and total capital to risk-weighted assets ratio of 12%. The Bank did not meet these capital requirements as of September 30, 2011 or December 31, 2010. See Note 9 to Notes to Consolidated Financial Statements for additional disclosures related to regulatory capital.

5

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 1—Basis of Presentation (continued)

The Company’s Board of Directors and management team have initiated specific plans to reduce credit risk, ensure adequate levels of liquidity, reduce overhead expenses and improve capital ratios. Key components of those plans involve shrinking targeted assets, improving asset quality while building a higher quality balance sheet. The Company has maintained adequate liquidity and is committed to maintaining and increasing liquidity as needed. The Company has reduced staff and other controllable expenses and will continue these efforts into the future. The Company continues to pursue additional sources of capital.

The Bank is also exploring the possibility of exiting some lines of business and expanding into others that do not require as much capital. Future growth is targeted on the traditional community bank model.

There can be no assurance that our plans, described above, will successfully resolve all of the concerns of the banking regulatory authorities. These events and uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties

Note 2—New Accounting Standards

In January 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.” The provisions of ASU No. 2010-20 required the disclosure of more granular information on the nature and extent of troubled debt restructurings and their effect on the allowance for loan and lease losses effective for our reporting period ended March 31, 2011. The amendments in ASU No. 2011-01 defer the effective date related to these disclosures, enabling creditors to provide such disclosures after the FASB completes its project clarifying the guidance for determining what constitutes a troubled debt restructuring. As the provisions of this ASU only defer the effective date of disclosure requirements related to troubled debt restructurings, the adoption of this ASU will have no impact on the Company’s consolidated financial statements.

In April 2011, the FASB issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibit creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and add factors for creditors to use in determining whether a borrower is experiencing financial difficulties. A provision in ASU No. 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2010-20. The provisions of ASU No. 2011-02 are effective for our reporting period ending September 30, 2011. The adoption of ASU No. 2011-02 did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholder’s equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The adoption of this amendment will have no impact on the consolidated financial statements as the current presentation of comprehensive income is in compliance with this amendment.

6

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 3—Securities

The amortized cost and fair value of securities available for sale and held to maturity securities at September 30, 2011 and December 31, 2010 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2011
Available for sale
U.S. government sponsored entities and agencies	$	2,415	$	1	$	(2	)	$	2,414
State and political subdivision		6,309		8		(21	)		6,296
Mortgage-backed: residential		327		32		—			359
Collateralized mortgage obligations		6,870		76		—			6,946
Total available for sale	$	15,921	$	117	$	(23	)	$	16,015
Held to maturity
Mortgage-backed: residential	$	34	$	2	$	—		$	36
December 31, 2010
Available for sale
U.S. government sponsored entities and agencies	$	613	$	1	$	—		$	614
State and political subdivision		5,153		99		(16	)		5,236
Mortgage-backed: residential		4,334		303		—			4,637
Collateralized mortgage obligations		2,166		50		(19	)		2,197
Total available for sale	$	12,266	$	453	$	(35	)	$	12,684
Held to maturity
Mortgage-backed: residential	$	56	$	3	$	—		$	59

The proceeds from sales of securities and the associated gross gains and losses for the nine months ended September 30, 2011 and September 30, 2010 are listed below:

	Sept. 30, 2011		Sept. 30, 2010
Proceeds	$	13,893	$	—
Gross gains		528		—
Gross losses		—		—

7

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 3—Securities (continued)

The amortized cost and fair value of securities are shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2011
	Amortized Cost		Fair Value
Available for sale
One to five years	$	1,968	$	1,966
Five to ten years		998		980
Beyond ten years		5,758		5,764
Mortgage backed: residential		327		359
Collateralized mortgage obligations		6,870		6,946
Total	$	15,921	$	16,015
Held to maturity
One to five years	$	34	$	36
Five to ten years		—		—
Total	$	34	$	36

Securities pledged at September 30, 2011 and December 31, 2010 had a carrying amount of $7.2 million and $10.0 million, respectively, and were pledged to secure public deposits, federal funds lines of credit, and securities sold under repurchase agreements.

The following table summarizes the investment securities with unrealized losses at September 30, 2011 and December 31, 2010 aggregated by major security type and length of time in a continuous unrealized loss position:

	Less Than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2011
Available for sale
U.S. gov’t sponsored entities and agencies		723		(2	)		17		—		740		(2	)
State and political subdivisions	$	1,237	$	(21	)	$	—	$	—	$	1,237	$	(21	)
Total temporarily impaired	$	1,960	$	(23	)	$	17	$	—	$	1,977	$	(23	)

8

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 3—Securities (continued)

	Less Than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2010
Available for sale
U.S. government-sponsored entities and agencies	$	709	$	(16	)	$	—	$	—	$	709	$	(16	)
State and political subdivisions		—		—			18		—		18		—
Mortgage-backed: Residential		490		(19	)		—		—		490		(19	)
Total temporarily impaired	$	1,199	$	(35	)	$	18	$	—	$	1,217	$	(35	)

Unrealized losses on securities have not been recognized into income because the issuers are of high credit quality (rated AA or higher), management does not intend to sell the securities and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the securities approach maturity.

Note 4—Loans and Allowance for Loan Losses

Categories of loans include:

	September 30, 2011			December 31, 2010
Construction & Development	$	9,197		$	11,986
Commercial real estate		28,056			29,640
Residential real estate		50,963			51,674
Other real estate		3,430			3,406
Commercial		4,247			4,893
Consumer		2,533			3,830
Total loans		98,426			105,429
Less allowance for loan losses		(2,678	)		(3,723	)
Net loans	$	95,748		$	101,706

9

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 4—Loans and Allowance for Loan Losses (continued)

The following table sets forth an analysis of our allowance for loan losses for the three months ending September 30, 2011 and 2010.

	September 30,
	2011		2010
Balance at beginning of period	$	2,812	$	2,941
Provision for loan losses		180		1,565
Amounts charged off:
Construction & Development		213		904
Commercial real estate		112		61
Residential real estate		26		—
Other real estate		—		42
Commercial		—		570
Consumer		11		27
Total loans charged off		362		1,604
Recoveries of amounts previously charged off:
Construction & Development		34		—
Commercial real estate		—		—
Residential real estate		—		—
Other real estate		—		—
Commercial		2		2
Consumer		12		4
Total recoveries		48		6
Net charge-offs		314		1,598
Balance at end of period	$	2,678	$	2,908

The following table sets forth an analysis of our allowance for loan losses for the nine months ending September 30, 2011 and 2010.

	September 30,
	2011		2010
Balance at beginning of period	$	3,723	$	3,032
Provision for loan losses		246		1,812
Amounts charged off:
Construction & Development		219		1,247
Commercial real estate		1,070		69
Residential real estate		51		—
Other real estate		—		42
Commercial		—		570
Consumer		14		60
Total loans charged off		1,354		1,988
Recoveries of amounts previously charged off:
Construction & Development		34		—
Commercial real estate		5		36
Residential real estate		—		—
Other real estate		—		—
Commercial		4		3
Consumer		20		13
Total recoveries		63		52
Net charge-offs		1,291		1,936
Balance at end of period	$	2,678	$	2,908

10

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 4—Loans and Allowance for Loan Losses (continued)

The following table sets forth an analysis of our provision for loan losses for the three months and nine months ending September 30, 2011.

	Three months ending September 30, 2011			Nine months ending September 30, 2011
Provision for loan losses
Construction & Development		(76	)		(85	)
Commercial real estate		690			568
Residential real estate		(137	)		(99	)
Other real estate		(46	)		(28	)
Commercial		(249	)		(97	)
Consumer		(2	)		(13	)
Total provision for loan losses		180			246

As of September 30, 2011 and December 31, 2010, accrued interest receivable of $512,000 and $555,000, respectively, are not considered significant and therefore not included in the recorded investment in loans presented in the following tables.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on the impairment method as of September 30, 2011 and December 31, 2010.

	Construction & Development		Commercial Real  Estate		Residential Real  Estate		Other Real Estate		Commercial		Consumer		Total
September 30, 2011
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	445	$	1,170	$	103	$	78	$	—	$	—	$	1,796
Collectively evaluated		38		584		57		21		177		5		882
Total ending allowance balance	$	483	$	1,754	$	160	$	99	$	177	$	5	$	2,678
Loans:
Individually evaluated for impairment	$	5,429	$	4,793	$	1,327	$	1,867	$	—	$	—	$	13,416
Collectively evaluated		3,768		23,263		49,636		1,563		4,247		2,533		85,010
Total ending loans balance	$	9,197	$	28,056	$	50,963	$	3,430	$	4,247	$	2,533	$	98,426

11

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 4—Loans and Allowance for Loan Losses (continued)

	Construction & Development		Commercial Real  Estate		Residential Real  Estate		Other Real Estate		Commercial		Consumer		Total
December 31, 2010
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	714	$	1,942	$	96	$	82	$	46	$	—	$	2,880
Collectively evaluated		39		309		214		45		224		12		843
Total ending allowance balance	$	753	$	2,251	$	310	$	127	$	270	$	12	$	3,723
December 31, 2010
Loans:
Individually evaluated for impairment	$	5,833	$	10,272	$	1,522	$	1,871	$	46	$	—	$	19,544
Collectively evaluated		6,153		19,368		50,152		1,535		4,847		3,830		85,885
Total ending loans balance	$	11,986	$	29,640	$	51,674	$	3,406	$	4,893	$	3,830	$	105,429

Information on impaired loans for the three months ending September 30, 2011 and September 30, 2010 is as follows:

	September 30, 2011		September 30, 2010
Average of individually impaired loans during the period:
Construction & Development	$	5,698	$	5,651
Commercial real estate		4,413		10,957
Residential real estate		1,085		1,980
Other real estate		1,866		1,463
Commercial		—		—
Consumer		—		—
Total		13,062		20,051

12

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 4—Loans and Allowance for Loan Losses (continued)

Year to date information on impaired loans is as follows:

	September 30, 2011		September 30, 2010
Average of individually impaired loans during the period:
Construction & Development	$	5,802	$	5,109
Commercial real estate		5,828		10,232
Residential real estate		1,215		2,530
Other real estate		1,869		1,544
Commercial		11		823
Consumer		—		—
Total		14,725		20,238
Interest income recognized during impairment (three months ending September 30, 2011 and September 30, 2010):
Construction & Development		11		12
Commercial real estate		8		78
Residential real estate		9		26
Other real estate		10		3
Commercial		—		2
Consumer		—		—
Total		38		121

	September 30, 2011		September 30, 2010
Interest income recognized during impairment (nine months ending September 30, 2011 and September 30, 2010):
Construction & Development		10		91
Commercial real estate		37		161
Residential real estate		35		78
Other real estate		29		—
Commercial		—		—
Consumer		—		—
Total	$	111	$	330

For the three and nine months ended September 30, 2011 and 2010, the Company did not recognize any interest income under the cash-basis method of accounting.

13

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 4—Loans and Allowance for Loan Losses (continued)

The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2011 and December 31, 2010:

	As of September 30, 2011
	Recorded Investment		Allowance For Loan  Losses Allocated
With no related allowance recorded:
Construction & Development	$	2,240	$	—
Commercial real estate		2,394		—
Residential real estate		89		—
Other real estate		—		—
Commercial		—		—
Consumer		—		—
With an allowance recorded:
Construction & Development		3,189		445
Commercial real estate		2,399		1,170
Residential real estate		1,238		103
Other real estate		1,867		78
Commercial		—		—
Consumer		—		—
Total	$	13,416	$	1,796

	As of December 31, 2010
	Recorded Investment		Allowance For Loan  Losses Allocated
With no related allowance recorded:
Construction & Development	$	3,481	$	—
Commercial real estate		4,0444		—
Residential real estate		1,060		—
Other real estate		—		—
Commercial		—		—
Consumer		—		—
With an allowance recorded:
Construction & Development		2,352		714
Commercial real estate		6,228		1,942
Residential real estate		462		96
Other real estate		1,871		82
Commercial		46		46
Consumer		—		—
Total	$	19,544	$	2,880

14

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 4—Loans and Allowance for Loan Losses (continued)

The recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans are summarized below:

	As of September 30, 2011
	Nonaccrual		Loans Past Due Over  90 Days and Still Accruing
Construction & Development	$	4,573	$	—
Commercial real estate		4,327		—
Residential real estate		964		—
Other real estate		1,255		—
Commercial		—		—
Consumer		13		—
Total	$	11,132	$	—

	As of December 31, 2010
	Nonaccrual		Loans Past Due Over  90 Days and Still Accruing
Construction & Development	$	3,576	$	—
Commercial real estate		6,740		—
Residential real estate		614		—
Other real estate		1,251		—
Commercial		—		26
Consumer		16		4
Total	$	12,197	$	30

Nonaccrual loans and loans past due 90 days still on accrual include individually classified impaired loans.

The following tables present the aging of the recorded investment in past due loans by class of loans. Non-accrual loans are included and have been categorized based on their payment status:

	30-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Loans Not Past  Due		Total
September 30, 2011
Construction & Development	$	791	$	44	$	835	$	8,362	$	9,197
Commercial real estate		1,025		280		1,305		26,751		28,056
Residential real estate		414		133		547		50,416		50,963
Other real estate		—		1,255		1,255		2,175		3,430
Commercial		—		—		—		4,247		4,247
Consumer		7		—		7		2,526		2,533
Total	$	2,237	$	1,712	$	3,949	$	94,477	$	98,426

15

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 4—Loans and Allowance for Loan Losses (continued)

	30-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Loans Not Past  Due		Total
December 31, 2010
Construction & Development	$	511	$	—	$	511	$	11,475	$	11,986
Commercial real estate		431		2,361		2,792		26,848		29,640
Residential real estate		1,250		41		1,291		50,383		51,674
Other real estate		—		1,251		1,251		2,155		3,406
Commercial		—		26		26		4,867		4,893
Consumer		68		4		72		3,758		3,830
Total	$	2,260	$	3,683	$	5,943	$	99,486	$	105,429

Troubled Debt Restructurings:

The Company reported total troubled debt restructurings of $8.5 million as of September 30, 2011 and $5.8 million as of December 31, 2010. The Company has no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings. Troubled debt restructurings are included in impaired loans.

During the period ending September 30, 2011, $3.1 million in additional loans were modified as troubled debt restructurings. The modification of the terms of such loans would include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

These modified loans included three construction and development loans totaling $2.4 million and one commercial real estate loan totaling $651,000 at September 30, 2011.

Specific allocations of $1.2 million and $1.4 million were reported for the troubled debt restructurings as of September 30, 2011 and December 31, 2010, respectively. No payment defaults or charge-offs were reported for troubled debt restructurings during the three and nine month periods ending September 30, 2011. A default is when a loan is past due by greater than 90 days.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $100,000 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

16

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 4—Loans and Allowance for Loan Losses (continued)

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans. All loans in all loan categories are assigned risk ratings. Based on the most recent analyses performed, the risk category of loans by class of loans is as follows:

	September 30, 2011
	Pass		Special Mention		Substandard		Doubtful		Total
Construction & Development	$	3,620	$	104	$	5,429		44	$	9,197
Commercial real estate		23,166		—		4,890		—		28,056
Residential real estate		48,994		—		1,969		—		50,963
Other real estate		1,512		—		1,918		—		3,430
Commercial		4,172		—		75		—		4,247
Consumer		2,515		—		18		—		2,533
Total	$	83,979	$	104	$	14,299	$	44	$	98,426

	December 31, 2010
	Pass		Special Mention		Substandard		Doubtful		Total
Construction & Development	$	5,992	$	110	$	5,411	$	473	$	11,986
Commercial real estate		19,171		336		10,133		—		29,640
Residential real estate		49,019		350		2,305		—		51,674
Other real estate		1,484		—		1,922		—		3,406
Commercial		4,729		—		164		—		4,893
Consumer		3,782		—		48		—		3,830
Total	$	84,177	$	796	$	19,983	$	473	$	105,429

Note 5—Subsequent Events

During October 2011, certain Directors loaned the Company $160,000 to cover the costs of filing our periodic reports as a public company with the Securities and Exchange Commission. The amount of principal plus accrued interest at 10% is payable one year from the date of the note or 10 days after we receive net proceeds from an offering of our Common Stock, whichever is earlier.

17

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 6—Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

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

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

The fair values of securities available for sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (“OREO”) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

18

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 6—Fair Value (continued)

Assets measured at fair value on a recurring basis are summarized below.

	Fair Value Measurements at September 30, 2011
	Quoted Prices in  Active Markets for Identical  Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Securities available-for-sale
U.S. government sponsored entities and agencies	$	—	$	2,414	$	—
State and political subdivision		—		6,296		—
Mortgage-backed: residential		—		359		—
Collateralized mortgage obligations		—		6,946		—
Total investment securities	$	—	$	16,015	$	—

	Fair Value Measurements at December 31, 2010
	Quoted Prices in  Active Markets for Identical  Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Securities available-for-sale
U.S. government sponsored entities and agencies	$	—	$	614	$	—
State and political subdivision		—		5,236		—
Mortgage-backed: residential		—		4,637		—
Collateralized mortgage obligations		—		2,197		—
Total investment securities	$	—	$	12,684	$	—

Assets measured at fair value on a non-recurring basis are summarized below:

	Fair Value Measurements at September 30, 2011
	Quoted Prices in  Active Markets for Identical  Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Impaired loans with specific allocations:
Construction & Development	$	—	$	—	$	2,744
Commercial real estate		—		—		1,229
Residential real estate		—		—		1,135
Other real estate		—		—		1,789
Commercial		—		—		—
Consumer		—		—		—
Other real estate owned:
Construction & Development	$	—	$	—	$	2,461
Commercial real estate		—		—		912
Residential real estate		—		—		853
Commercial		—		—		466

19

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 6—Fair Value (continued)

	Fair Value Measurements at December 31, 2010
	Quoted Prices in  Active Markets for Identical  Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Impaired loans with specific allocations:
Construction & Development	$	—	$	—	$	1,638
Commercial real estate		—		—		4,286
Residential real estate		—		—		366
Other real estate		—		—		1,789
Commercial		—		—		—
Consumer		—		—		—
Other real estate owned:
Construction & Development	$	—	$	—	$	1,942
Commercial real estate		—		—		567
Residential real estate		—		—		998

Impaired loans with specific allowance for loan losses allocations, which are measured for impairment using the fair value of collateral for collateral dependent loans, had a principal balance of $8.7 million at September 30, 2011 with a valuation allowance of $1.8 million, resulting in $46,000 and $252,000 additional provision for loan losses for the three and nine months ended September 30, 2011. Impaired loans with specific allowance for loan loss allocations, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $10.9 million at December 31, 2010, with a valuation allowance of $2.9 million. Impaired loans measured at fair value resulted in $544,000 and $604,000 additional provision for loan losses for the three and nine months ended September 30, 2010.

Other real estate owned, with a valuation allowance, had a net carrying value of $4.7 million at September 30, 2011 and $3.5 million at December 31, 2010. Total writedowns of other real estate owned for the nine months ended September 30, 2011 and September 30, 2010, were $387,000 and $532,000 respectively. Total writedowns of other real estate owned for the three months ended September 30, 2011 and 2010 were $172,000 and $3,000, respectively.

The carrying amounts and estimated fair values of financial instruments, not previously presented, were as follows:

	September 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets
Cash and cash equivalents	$	6,353	$	6,353	$	6,163	$	6,163
Securities held to maturity		34		36		56		59
Loans, net of allowance		95,748		95,199		101,706		101,304
Accrued interest receivable		512		512		555		555
Federal Home Loan Bank stock		494		N/A		494		N/A

20

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 6—Fair Value (continued)

	September 30, 2011						December 31, 2010
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial Liabilities
Deposits	$	(114,809	)	$	(115,013	)	$	(116,431	)	$	(116,828	)
Securities sold under repurchase agreements		(234	)		(234	)		(337	)		(337	)
Federal Home Loan Bank advances		(8,500	)		(8,500	)		(8,500	)		(8,500	)
Subordinated debentures		(3,093	)		(1,688	)		(3,093	)		(1,693	)
Accrued interest payable		(504	)		(504	)		(617	)		(617	)
Note payable		(830	)		(830	)		(830	)		(830	)

Carrying amount is the estimated fair value for cash and cash equivalents, short-term borrowings, accrued interest receivable and payable, demand deposits, short-term debt, and loans and deposits that reprice frequently and fully. Security fair values are as stated previously. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. For loans or deposits and for deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are as stated previously. The fair value of subordinated debentures was determined based on current rates for similar financing. The fair value of commitments to extend credit and standby letters of credit is not considered material.

Note 7—Subordinated Debentures

The Company began deferring the interest payments on its subordinated debentures during the third quarter of 2010. These payments may be deferred a total of five years. As of September 30, 2011, there was approximately $107,000 of accrued and unpaid interest on the debentures. For more information on these debentures, see the notes to the consolidated financial statements filed with the Company’s annual report on Form 10-K.

Note 8—Action Plans

On January 28, 2010, the Bank entered into a Consent Order (the “Consent Order”) with the Federal Deposit Insurance Corporation (“FDIC”). As is customary for orders of this type, and pursuant to the terms of the Consent Order, the Bank entered into the Consent Order without admitting or denying any charges of unsafe or unsound banking practices or violations of law or regulations. On June 22, 2011, the Bank also executed a written agreement (the “Agreement”) with the Tennessee Department of Financial Institutions (“TDFI”).

On May 26, 2010, the Company entered into an Agreement (“FRB Agreement”) with the Federal Reserve Bank (“FRB”). The Company is to act as a source of financial strength for the Bank. Accordingly, in this FRB Agreement the Company is required to obtain written permission before any of the following actions are taken: payment or receipt of any dividends from the Bank, payments on the subordinated debt (see Note 7) or Trust Preferred Securities, or the purchase or redemption of any stock. In addition, under the FRB Agreement the Company may not incur, increase, or guarantee any debt without prior written approval of the FRB.

The Consent Order, the Agreement, and the FRB Agreement (collectively, the “Action Plans”) contain substantially similar terms and are based on the findings of the FDIC and TDFI during their joint examination of the Bank that commenced on September 14, 2009. The Action Plans represent agreements between the Bank, on the one hand, and the FDIC, the TDFI and the FRB, respectively, on the other hand, as to areas of the Bank’s or Company’s operations that warrant improvement and present plans for making those improvements. The Action Plans impose no fines or penalties on the Bank or Company.

21

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 8—Action Plans (continued)

Under the terms of each Action Plan, the Bank cannot declare or pay cash dividends without the prior written consent of certain officials of the FDIC and the TDFI (the “Joint Officials”). In addition, the Bank is restricted from extending additional credit to certain borrowers whose existing credit has been classified as “loss,” “doubtful” or “substandard” or has been charged off the books of the Bank and, in each case, is uncollected. The Action Plans also require the Bank to provide the Joint Officials 60 days prior written notice of any proposed changes in the Bank’s management, along with background information for any proposed new management officials. The Action Plans also contain requirements ranging from a capital directive, which requires us to achieve and maintain minimum regulatory capital levels in excess of the statutory minimums to be well-capitalized, to developing a liquidity risk management and contingency funding plan, in connection with which we will be subject to limitations on the maximum interest rates we can pay on deposit accounts. The Bank is also restricted from using brokered deposits. The Action Plans require the development of various programs and procedures to improve our asset quality as well as routine reporting on our progress toward compliance with the Action Plans to the Board of Directors, the FDIC, the TDFI, and the FRB.

Finally, as of January 28, 2010, the date of the Consent Order, the Bank was deemed to be “adequately capitalized”. The “adequately capitalized” classification is the result of the Bank receiving a formal enforcement action which prohibits the Bank from being classified as “well-capitalized” regardless of its capital ratios. Therefore, the Bank can not be classified as “well capitalized” until the Action Plans are lifted by the FDIC and the TDFI. The Action Plans require the Bank to maintain Tier 1 capital to average total assets of 8%, Tier 1 risk based capital to risk-weighted assets of 10% and total risk based capital to total risk weighted assets of 12%.

Management believes the Bank is in substantial compliance with the terms of the Action Plans as of September 30, 2011, with the exception of the capital requirements. The Bank has provided quarterly written progress reports to the Joint Officials through the fourth quarter of 2011. Management plans to conform to all conditions of the Action Plans, and is implementing its plan to return capital ratios to prescribed levels.

Management and the Board have carefully considered the impact of the Action Plans on the Bank’s current and future operations. Areas that have received additional attention as a result of the Action Plans include the Bank’s liquidity position, overall balance sheet structure, capital and earnings. The Bank has considered the impact of deposit interest rate restrictions that may impair the Bank’s ability to raise local certificates of deposit. The Bank’s earnings have been impacted negatively due to the recent regulatory criticism. One example of the negative impact on earnings is that increased FDIC insurance premiums have been incurred and will continue to be at an elevated level until the Bank’s overall condition improves.

Noncompliance with the Action Plans could subject the Bank to an array of penalties, ranging from the assessment of civil money penalties against the Bank and/or any or all of its officers or directors contributing to the violation, to a termination of the Bank’s deposit insurance for more egregious violations of applicable bank rules and regulations. The Bank’s management is not aware of any penalties that were the result of any noncompliance with the Action Plans.

22

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 8—Action Plans (continued)

The Bank’s current regulatory status also subjects it to certain other requirements of law apart from the Action Plans. For example, the Bank and the Company are subject to restrictions under the FDIC’s regulations governing golden parachute payments, which generally prohibit entering into and paying certain severance payments to directors and senior executive officers, without prior FDIC approval in the case of the Bank, and Federal Reserve Board and FDIC approval in the case of the Company. We made no such payments during the five preceding years even without the restrictions. In addition, the Bank is currently unable to submit bids to the FDIC for the acquisition of any failed banks.

For additional information regarding the Action Plans, see Item 1 in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010.

Note 9—Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’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 classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined).

As of February 9, 2012, the most recent notification from the Federal Deposit Insurance Corporation (FDIC) categorized the Bank as under capitalized under the regulatory framework for prompt corrective action. 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.

Failure to meet statutorily mandated capital guidelines or more restrictive ratios separately established for a financial institution (such as those to which the Bank is subject under the Action Plans) could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting or renewing brokered deposits, limitations on the rates of interest that the institution may pay on its deposits and other restrictions on its business. As described below, significant additional restrictions can be imposed on FDIC-insured depository institutions that fail to meet applicable capital requirements.

The Action Plans the Bank was issued by regulators requires the Bank to maintain Tier 1 capital to average total assets of 8%, Tier 1 risk based capital to risk-weighted assets of 10% and total risk based capital to total risk weighted assets of 12%. As of September 30, 2011, the Bank was not in compliance with these capital requirements. The Bank’s actual capital amounts, ratios and minimum capital requirements per the Action Plans are presented in the table below.

23

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

Note 9—Capital Requirements (continued)

						To Comply With Minimum Capital Requirements					Excess (Deficit) To Comply With Requirements
	Actual					Per Action Plans					Per Action Plans
	Amount		Ratio			Amount		Ratio			Amount			Ratio
September 30, 2011
Total Capital to Risk Weighted Assets	$	7,791		8.52	%	$	10,967		12.00	%	$	(3,176	)		(3.48	)%
Tier 1 Capital to Risk Weighted Assets	$	6,630		7.25	%	$	9,139		10.00	%	$	(2,509	)		(2.75	)%
Tier 1 Capital to Average Assets—Leverage	$	6,630		5.02	%	$	10,564		8.00	%	$	(3,934	)		(2.98	)%

						To Comply With Minimum Capital Requirements					Excess (Deficit) To Comply With Requirements
	Actual					Per Action Plans					Per Action Plans
	Amount		Ratio			Amount		Ratio			Amount			Ratio
December 31, 2010
Total Capital to Risk Weighted Assets	$	7,905		8.35	%	$	11,363		12.00	%	$	(3,458	)		(3.65	)%
Tier 1 Capital to Risk Weighted Assets	$	6,690		7.07	%	$	9,469		10.00	%	$	(2,779	)		(2.93	)%
Tier 1 Capital to Average Assets—Leverage	$	6,690		4.92	%	$	10,875		8.00	%	$	(4,185	)		(3.08	)%

No cash dividends were paid to shareholders in either 2011 or 2010. The Company’s Board of Directors will continue to evaluate the amount of future dividends, if any, after capital needs required for compliance with the Action Plans are evaluated. The payment of dividends is within the discretion of the Board of Directors, considering the Company’s expenses, the maintenance of reasonable capital levels and the applicable capitalization requirements for the Bank in accordance with the Action Plans. The Company’s principal source of funds is dividends received from the Bank. In accordance with the Action Plans with the FDIC and TDFI, no dividend can be paid from the Bank to the holding company without prior approval by the FDIC. In addition, the Company is restricted from paying dividends while deferring interest payments on the subordinated debt.

24

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain various forward-looking statements and includes assumptions concerning the Company’s operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides this cautionary statement identifying important factors, among others, the absence or effect of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. For a list of these factors, please refer to “Cautionary Notice Regarding Forward-Looking Statements” in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010.

Comparison of Financial Condition at September 30, 2011 and December 31, 2010

Our total assets decreased to $130.7 million at September 30, 2011 from $132.9 million at December 31, 2010. The decrease was due to a decrease in net loans of $6.0 million, or 5.85%, to $95.7 million at September 30, 2011 from $101.7 million at December 31, 2010. This decrease in net loans was partially offset by an increase in securities of $3.3 million, or 26.3%, to $16.0 million at September 30, 2011 from $12.7 million at December 31, 2010. The increase in securities was primarily due to a desire to earn more on the funds generated from declining loan balances than to place the money in overnight funds.

The decrease in our loan portfolio during the period ended September 30, 2011 was primarily due to principal paydowns of $4.9 million and a decrease of $1.0 million from loans being placed in foreclosure. The decreases in our loan segments were in Construction and Land Development loans of $2.8 million, to $9.2 million at September 30, 2011 from $12.0 million at December 31, 2010, as well as a decrease of $1.6 million of Commercial Real Estate loans to $28.0 million at September 30, 2011 from $29.6 million at December 31, 2010. In addition, consumer loans declined $1.3 million to $2.5 million at September 30, 2011 from $3.8 million at December 31, 2010.

By decreasing our loan balances, we were able to increase our investment securities by $3.3 million. This increase, with an increase in cash and equivalents of $190,000 has improved the Company’s liquid assets. In the opinion of management, our liquidity levels are adequate.

The allowance for loan losses was $2.7 million, or 2.72% of total loans at September 30, 2011, compared to $3.7 million, or 3.53% of total loans at December 31, 2010. Total impaired loans were $13.4 million at September 30, 2011, a decrease of $6.1 million, or 31.2%, compared to $19.5 million at December 31, 2010. The impaired loans with an allocated allowance decreased to $8.7 million at September 30, 2010 from $11.0 million at December 31, 2010. While our impaired loan trends have improved, the values of the real estate supporting the recorded amounts for impaired loans that are collateral dependent have declined during the period.

Deposits decreased $1.6 million, or 1.4%, to $114.8 million at September 30, 2011 from $116.4 million at December 31, 2010. The decrease was primarily attributable to a decrease in public fund deposits of $2.3 million, or 38%, to 3.8 million at September 30, 2011 from $6.1 million at December 31, 2010.

We had advances from the Federal Home Loan Bank of Cincinnati of $8.5 million as of September 30, 2011 and December 31, 2010. We have additional credit available under a blanket pledge of one to four family loans with the Federal Home Loan Bank of Cincinnati of approximately $6.1 million at September 30, 2011.

Total equity equaled $2.7 million at September 30, 2011; compared to $2.9 million at December 31, 2010. The decrease resulted from a decline in other comprehensive income of $324,000 from $186,000 at December 31, 2010 to ($138,000) at September 30, 2011. This was partially offset by net income of $95,000 for the nine months ending September 30, 2011. For a discussion of capital requirements, see Note 9 to Notes to Consolidated Financial Statements.

25

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

Comparison of Operating Results for the Three Months Ended September 30, 2011 and September 30, 2010

General. Net loss decreased to $98,000 for the three months ended September 30, 2011 from $2,037,000 for the three months ended September 30, 2010. The decrease reflected a decline in the provision for loan losses of $1.4 million to $180,000 at September 30, 2011 from $1.6 million for the three months ended September 30, 2010. In addition, noninterest income increased $217,000 to $317,000 at September 30, 2011, from $100,000 for the three months ended September 30, 2010. Noninterest expense decreased $288,000 to $1.3 million at September 30, 2011 from $1.6 million for the three months ended September 30, 2010.

Interest Income. Interest income decreased $143,000, or 9.2%, to $1.4 million for the three months ended September 30, 2011 from $1.6 million for the three months ended September 30, 2010. The decrease was largely due to a decrease in the average balance of loans for the three months ended September 30, 2011 to $100.4 million from $111.7 million for the three months ended September 30, 2010, which was partially offset by an increase in the yield on loans to 5.29% for the three months ended September 30, 2011, compared to 4.98% for the three months ended September 30, 2010.

Interest income on loans decreased $62,000, or 4.5%, to $1.3 million for the three months ended September 30, 2011 from $1.4 million for the three months ended September 30, 2010, reflecting shrinkage in our loan portfolio as noted above. Interest income on investment securities decreased to $72,000 for the three months ended September 30, 2011 from $154,000 for the three months ended September 30, 2010, reflecting a decrease in the average balance of such securities to $10.0 million in 2011 from $12.8 million in 2010, as well as a decrease in the average yield on such securities to 2.87% from 4.83%.

Interest Expense. Interest expense decreased $192,000, or 38.6%, to $306,000 for the three months ended September 30, 2011 from $498,000 for the three months ended September 30, 2010. The decrease reflected a decrease in the average rate paid on deposits in the three months ended September 30, 2011 to 1.14% from 1.82% in the three months ended September 30, 2010 as well as a decrease in the average balance of such deposits to $98.7 million at September 30, 2011 from $103.1 million for the three months ending September 30, 2010. The decrease in average interest bearing deposits resulted primarily from declines in public fund deposits. Decreases in average rate paid on deposits is attributed to lower market rates as well as a decline in higher priced public fund deposits.

Net Interest Income. Net interest income increased $49,000 for the three months ended September 30, 2011. The increase resulted from an increase in our interest rate spread from 3.11% for the three months ended September 30, 2010 to 3.95% for the three months ended September 30, 2011. Our net interest margin increased to 3.80% for the three months ended September 30, 2011 from 3.28%, for the three months ended September 30, 2010. The increases in our interest rate spread and net interest margin were largely due to our declining cost of funds, which reflected the continuing decline across the U.S. Treasury yield curve.

Provision for Loan Losses. We recorded a provision for loan losses of $180,000 for the three months ended September 30, 2011, compared to $1,565,000 for the three months ended September 30, 2010. The provision for loan losses in 2011 reflected net charge-offs of $314,000 for the three months ended September 30, 2011, compared to $1,598,000 for the three months ended September 30, 2010. In the period ended September 30, 2010, the amount of provision was related to large charge-offs that occurred due to deteriorating credit quality on commercial loans not secured by real estate and real estate valuations that declined during the period. The decrease in the provision for our loan classes are indicative of the declining loan balances. The exception to this is the Commercial Real Estate class which has had continued losses.

26

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

Noninterest Income. Noninterest income increased $217,000 to $317,000 for the three months ended September 30, 2011 from $100,000 for the three months ended September 30, 2010. The increase in noninterest income was primarily attributable to gains of $190,000 on sale of securities for the three months ended September 30, 2011 while none were recorded for the three months ended September 30, 2010. We also recognized income from other real estate of $26,000 for the three months ended September 30, 2011, while there was only $1,000 for the same period in 2010.

Noninterest Expense. Noninterest expense decreased $288,000, or 17.7%, to $1,338,000 for the three months ended September 30, 2011, compared to $1,626,000 for the three months ended September 30, 2010. The decrease was due to a decrease in other real estate expenses of $202,000 because of significant writedowns of other real estate for the three months ended September 30, 2010. We also experienced a decrease in salaries and employee benefits of $71,000 due to the reduction in the number of employees undertaken in the first quarter 2011. The Directors also waived their fees for services to the Company which amounted to a savings of $25,000 for the three months ended September 30, 2011.

Income Tax Expense. No income tax expense was recorded for the period. We have established a full valuation allowance, therefore, no tax benefit is being recognized.

Comparison of Operating Results for the Nine Months Ended September 30, 2011 and September 30, 2010

General. Net loss decreased to $129,000 for the nine months ended September 30, 2011 from a net loss of $2.4 million for the nine months ended September 30, 2010. The increase reflected a decline in the provision for loan losses of $1.6 million to $246,000 at September 30, 2011 from $1.8 million for the nine months ended September 30, 2010. In addition, noninterest income increased $374,000 to $919,000 at September 30, 2011, from $545,000 for the nine months ended September 30, 2010. Noninterest expense decreased $99,000 to $4.1 million at September 30, 2011 from $4.2 million for the nine months ended September 30, 2010.

Interest Income. Interest income decreased $414,000, or 8.8%, to $4.3 million for the nine months ended September 30, 2011 from $4.7 million for the nine months ended September 30, 2010. The decrease was largely due to a decrease in the average balance of loans for the nine months ended September 30, 2011 to $101.8 million from $109.8 million for the nine months ended September 30, 2010, which was partially offset by an increase in the yield on loans to 5.17% for the nine months ended September 30, 2011, compared to 5.08% for the nine months ended September 30, 2010.

Interest income on loans decreased $237,000, or 5.67%, to $3.9 million for the nine months ended September 30, 2011 from $4.2 million for the nine months ended September 30, 2010, reflecting shrinkage in our loan portfolio as noted above. Interest income on investment securities decreased to $310,000 for the nine months ended September 30, 2011 from $489,000 for the nine months ended September 30, 2010, reflecting a decrease in the average balance of such securities to $11.7 million in 2011 from $13.3 million in 2010, as well as a decrease in the average yield on such securities to 3.53% from 4.89%.

Interest Expense. Interest expense decreased $622,000, or 37.9%, to $1.0 for the nine months ended September 30, 2011 from $1.6 million for the nine months ended September 30, 2010. The decrease reflected a decrease in the average rate paid on deposits in the nine months ended September 30, 2011 to 1.25% from 1.96% in the nine months ended September 30, 2010 as well as a decrease in the average balance of such deposits to $100.4 million at September 30, 2011 from $104.7 million for the nine months ending September 30, 2010. The decrease in average interest bearing deposits resulted primarily from declines in public fund deposits. Decreases in average rate paid on deposits is attributed to lower market rates as well as a decline in higher priced public fund deposits.

Net Interest Income. Net interest income increased to $3.3 million for the nine months ended September 30, 2011 from $3.1 million for the nine months ended September 30, 2010. The increase resulted from an increase in our interest rate spread to 3.60% for September 30, 2011 from 3.05% for the nine months ending September 30, 2010.

27

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

Our net interest margin increased to 3.66 % for the nine months ended September 30, 2011 from 3.20%, for the nine months ended September 30, 2010. The increases in our interest rate spread and net interest margin were largely due to our declining cost of funds, which reflected the continuing decline across the U.S. Treasury yield curve.

Provision for Loan Losses. We recorded a provision for loan losses of $246,000 for the nine months ended September 30, 2011, compared to $1.8 million for the nine months ended September 30, 2010. The provision for loan losses in 2011 reflected net charge-offs of $1.3 million for the nine months ended September 30, 2011, compared to $1.9 million for the nine months ended September 30, 2010. In the period ended September 30, 2011, the provision for loan losses decreased primarily due to increased charge-offs in 2010 that occurred due to real estate valuations that declined during the period. The majority of charge-offs in the period were previously reserved for in our allowance calculation. The decrease in the provision for our loan classes are indicative of the declining loan balances and decreases in impaired loans. The exception to this is the Commercial Real Estate class which has had continued losses.

Noninterest Income. Noninterest income increased $374,000 to $919,000 for the nine months ended September 30, 2011 from $545,000 for the nine months ended September 30, 2010. The increase in noninterest income was primarily attributable to gains of $528,000 on sale of securities for the nine months ended September 30, 2011 while none were recorded for the nine months ended September 30, 2010. We also recognized income from other real estate of $73,000 for the nine months ended September 30, 2011, while there was only $3,000 for the same period in 2010.

Noninterest Expense. Noninterest expense decreased $99,000, or 2.8%, to $4.1 million for the nine months ended September 30, 2011, compared to $4.2 million for the nine months ended September 30, 2010. We experienced a decrease in salaries and employee benefits of $165,000 due to the reduction in the number of employees undertaken in the first quarter 2011. The Directors also waived their fees for services to the Company which amounted to a savings of $42,000 for the nine months ended September 30, 2011.

Income Tax Expense. No income tax expense was recorded for the period. We have established a full valuation allowance, therefore, no tax benefit is being recognized.

28

Volunteer Bancorp, Inc.

Part II. Other Information

Item 3 Quantitative And Qualitative Disclosures About Market Risk

Disclosures of quantitative and qualitative market risk are not required by smaller reporting companies, such as the Company.

Item 4. Controls and Procedures

As defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported on a timely basis, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s disclosure controls and procedures include components of the Company’s internal control over financial reporting. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As disclosed in Item 9A to our annual report on Form 10-K for the fiscal year ended December 31, 2010, because we did not believe we were subject to the reporting requirements under the Securities Exchange Act of 1934, a full evaluation was not conducted under the supervision and with the participation of the Company’s management of the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2010. An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) as of September 30, 2011. Based on that evaluation, other than the omission of applicable filings with the Securities and Exchange Commission, as referred to above, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, believe that the Company’s disclosure controls and procedures are effective.

During the quarter ended September 30, 2011, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

Item 1. Legal Proceedings

Other than as discussed in Note 8 to Notes to Consolidated Financial Statements, in the opinion of management, there is no proceeding pending or, to the knowledge of management, threatened, in which an adverse decision could result in a material adverse change in the consolidated financial condition or results of operations of the Company.

Item 1A. Risk Factors

Disclosures of risk factors are not required by smaller reporting companies, such as the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 5. Other Information

None.

29

Volunteer Bancorp, Inc.

Part II. Other Information

Item 6. Exhibits

The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q or are referenced to a prior filing and are listed on the “Index to Exhibits” immediately following the Signatures page.

Exhibit Index

Exhibit Number	Description of Document
3.1*	Articles of Incorporation of Volunteer Bancorp, Inc., as amended, filed as Exhibit 3.1 of the Company’s Form 10-K dated December 31, 2010 and incorporated herein by reference
3.2*	Bylaws of Volunteer Bancorp, Inc., filed as Exhibit 3.2 of the Company’s Form 10-K dated December 31, 2010 and incorporated herein by reference
10.1*	Stock Purchase Agreement, dated April 13, 2006, among Ralph T. Hurley, Willa Dean Hurley and Volunteer Bancorp, Inc., filed as Exhibit 10.1 of the Company’s Form 10-K dated December 31, 2010 and incorporated herein by reference
10.2*	Amended Stock Purchase Agreement, dated June 16, 2008, among Ralph T. Hurley, Willa Dean Hurley and Volunteer Bancorp, Inc., filed as Exhibit 10.2 of the Company’s Form 10-K dated December 31, 2010 and incorporated herein by reference
10.3*	Second Amended Stock Purchase and Trust Agreement, dated November 10, 2010, among Ralph T. Hurley, Willa Dean Hurley and Volunteer Bancorp, Inc., filed as Exhibit 10.3 of the Company’s Form 10-K dated December 31, 2010 and incorporated herein by reference
10.4*	Consent Order, dated January 28, 2010, issued by Federal Deposit Insurance Corporation to The Citizens Bank of East Tennessee, filed as Exhibit 10.4 of the Company’s Form 10-K dated December 31, 2010 and incorporated herein by reference
10.5*	Written Agreement, dated June 22, 2011, between Tennessee Department of Financial Institutions and The Citizens Bank of East Tennessee, filed as Exhibit 10.5 of the Company’s Form 10-K dated December 31, 2010 and incorporated herein by reference
10.6*	Written Agreement, dated May 26, 2010, between Federal Reserve Bank of Atlanta and Volunteer Bancorp, Inc., filed as Exhibit 10.6 of the Company’s Form 10-K dated December 31, 2010 and incorporated herein by reference
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101	The following financial information from Volunteer Bancorp, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 filed with the SEC on February 29, 2012, formatted in XBRL includes: (i) Consolidated Balance Sheets at September 30, 2011 and December 31, 2010, (ii) Consolidated Statements of Operations for the fiscal periods ended September 30, 2011 and 2010, (iii) Consolidated Statements of Comprehensive Income (Loss) for the fiscal periods ended September 30, 2011 and 2010, (iv) Consolidated Statements of Cash Flows for the fiscal periods ended September 30, 2011 and 2010, and (v) Notes to Consolidated Financial Statements.

* Filed previously

30

Volunteer Bancorp, Inc.

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.

            Volunteer Bancorp, Inc.            

(Registrant)

DATE: 3/1/2012	/s/ Douglas E. Rehm
	Douglas E. Rehm
	President and Chief Executive Officer

DATE: 3/1/2012	/s/ Benjamin R. Lindley
	Benjamin R. Lindley
	Chief Financial Officer

31

EX-31.1

Exhibit 31.1

CERTIFICATION OF THE

CHIEF EXECUTIVE OFFICER

RULE 13A-14(A)/15D-14(A)

I, Douglas E. Rehm, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Volunteer Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: 3/1/2012	/s/ Douglas E. Rehm
	Douglas E. Rehm President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF THE

CHIEF FINANCIAL OFFICER

RULE 13A-14(A)/15D-14(A)

I, Benjamin R. Lindley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Volunteer Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: 3/1/2012	/s/ Benjamin R. Lindley
	Benjamin R. Lindley Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Volunteer Bancorp, Inc. (“Company”) on Form 10-Q for the quarter ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (“Report”), the undersigned officer of the Company, certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: 3/1/2012	/s/ Douglas E. Rehm
	Douglas E. Rehm President and Chief Executive Officer

This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by Volunteer Bancorp, Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Volunteer Bancorp, Inc. specifically incorporates it by reference.

A signed original of this written statement required by Section 906 has been provided to Volunteer Bancorp, Inc. and will be retained by Volunteer Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Volunteer Bancorp, Inc. (“Company”) on Form 10-Q for the quarter ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (“Report”), the undersigned officer of the Company, certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: 3/1/2012	/s/ Benjamin R. Lindley
	Benjamin R. Lindley
	Senior Vice President and Chief Financial Officer

This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by Volunteer Bancorp, Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Volunteer Bancorp, Inc. specifically incorporates it by reference.

A signed original of this written statement required by Section 906 has been provided to Volunteer Bancorp, Inc. and will be retained by Volunteer Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Securities

9 Months Ended

Sep. 30, 2011

Securities [Abstract]

Securities

Note 3—Securities

The amortized cost and fair value of securities available for sale and held to maturity securities at September 30, 2011 and December 31, 2010 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2011
Available for sale
U.S. government sponsored entities and agencies	$	2,415	$	1	$	(2	)	$	2,414
State and political subdivision		6,309		8		(21	)		6,296
Mortgage-backed: residential		327		32		—			359
Collateralized mortgage obligations		6,870		76		—			6,946
Total available for sale	$	15,921	$	117	$	(23	)	$	16,015
Held to maturity
Mortgage-backed: residential	$	34	$	2	$	—		$	36
December 31, 2010
Available for sale
U.S. government sponsored entities and agencies	$	613	$	1	$	—		$	614
State and political subdivision		5,153		99		(16	)		5,236
Mortgage-backed: residential		4,334		303		—			4,637
Collateralized mortgage obligations		2,166		50		(19	)		2,197
Total available for sale	$	12,266	$	453	$	(35	)	$	12,684
Held to maturity
Mortgage-backed: residential	$	56	$	3	$	—		$	59

The proceeds from sales of securities and the associated gross gains and losses for the nine months ended September 30, 2011 and September 30, 2010 are listed below:

	Sept. 30, 2011		Sept. 30, 2010
Proceeds	$	13,893	$	—
Gross gains		528		—
Gross losses		—		—

The amortized cost and fair value of securities are shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2011
	Amortized Cost		Fair Value
Available for sale
One to five years	$	1,968	$	1,966
Five to ten years		998		980
Beyond ten years		5,758		5,764
Mortgage backed: residential		327		359
Collateralized mortgage obligations		6,870		6,946
Total	$	15,921	$	16,015
Held to maturity
One to five years	$	34	$	36
Five to ten years		—		—
Total	$	34	$	36

Securities pledged at September 30, 2011 and December 31, 2010 had a carrying amount of $7.2 million and $10.0 million, respectively, and were pledged to secure public deposits, federal funds lines of credit, and securities sold under repurchase agreements.

The following table summarizes the investment securities with unrealized losses at September 30, 2011 and December 31, 2010 aggregated by major security type and length of time in a continuous unrealized loss position:

	Less Than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2011
Available for sale
U.S. gov’t sponsored entities and agencies		723		(2	)		17		—		740		(2	)
State and political subdivisions	$	1,237	$	(21	)	$	—	$	—	$	1,237	$	(21	)
Total temporarily impaired	$	1,960	$	(23	)	$	17	$	—	$	1,977	$	(23	)

	Less Than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2010
Available for sale
U.S. government-sponsored entities and agencies	$	709	$	(16	)	$	—	$	—	$	709	$	(16	)
State and political subdivisions		—		—			18		—		18		—
Mortgage-backed: Residential		490		(19	)		—		—		490		(19	)
Total temporarily impaired	$	1,199	$	(35	)	$	18	$	—	$	1,217	$	(35	)

Unrealized losses on securities have not been recognized into income because the issuers are of high credit quality (rated AA or higher), management does not intend to sell the securities and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the securities approach maturity.

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New Accounting Standards

9 Months Ended

Sep. 30, 2011

New Accounting Standards [Abstract]

New Accounting Standards

Note 2—New Accounting Standards

In January 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.” The provisions of ASU No. 2010-20 required the disclosure of more granular information on the nature and extent of troubled debt restructurings and their effect on the allowance for loan and lease losses effective for our reporting period ended March 31, 2011. The amendments in ASU No. 2011-01 defer the effective date related to these disclosures, enabling creditors to provide such disclosures after the FASB completes its project clarifying the guidance for determining what constitutes a troubled debt restructuring. As the provisions of this ASU only defer the effective date of disclosure requirements related to troubled debt restructurings, the adoption of this ASU will have no impact on the Company’s consolidated financial statements.

In April 2011, the FASB issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibit creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and add factors for creditors to use in determining whether a borrower is experiencing financial difficulties. A provision in ASU No. 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2010-20. The provisions of ASU No. 2011-02 are effective for our reporting period ending September 30, 2011. The adoption of ASU No. 2011-02 did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholder’s equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The adoption of this amendment will have no impact on the consolidated financial statements as the current presentation of comprehensive income is in compliance with this amendment.

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Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2011	Dec. 31, 2010
Assets
Cash and due from banks	$ 5,753	$ 5,273
Federal funds sold	600	890
Cash and cash equivalents	6,353	6,163
Securities available for sale	16,015	12,684
Securities held to maturity (fair value 2011--$36 and 2010--$59)	34	56
Loans receivable, net of allowance for loan losses of $2,678 and $3,723	95,748	101,706
Federal Home Loan Bank stock	494	494
Accrued interest receivable	512	555
Premises and equipment, net	3,097	3,234
Other real estate owned, net	5,107	4,925
Bank owned life insurance	2,665	2,603
Other assets	668	494
Total assets	130,693	132,914
Deposits:
Non-interest-bearing	17,175	14,396
Interest-bearing	97,634	102,035
Total deposits	114,809	116,431
Accrued interest payable	504	617
Note payable--major stockholder	830	830
Securities sold under repurchase agreements	234	337
Federal Home Loan Bank advances	8,500	8,500
Subordinated debentures	3,093	3,093
Other liabilities	234	164
Total liabilities	128,204	129,972
Stockholders' equity
Common stock, $0.01 par value; 1,000,000 shares authorized; 496,277 shares issued and outstanding	5	5
Additional paid-in capital	255	255
Retained earnings	2,367	2,496
Accumulated other comprehensive income (loss), net	(138)	186
Total stockholders' equity	2,489	2,942
Total liabilities and stockholders' equity	$ 130,693	$ 132,914

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities:
Net income (loss)	$ (129)	$ (2,376)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation expense	144	155
Premium amortization of securities, net	53	11
Provision for loan losses	246	1,812
Gain on sales of securities	(528)
Gain on sale of fixed assets	(13)	(222)
Write downs of other real estate owned	387	532
Increase in bank owned life insurance	(63)	(61)
Changes in:
Accrued interest receivable	43	242
Other assets	(174)	(52)
Deferred taxes		(107)
Accrued interest payable	(113)	(53)
Other liabilities	70	24
Net cash from operating activities	(77)	(95)
Activity in available for sale securities
Purchases	(20,424)	(550)
Proceeds from sales, calls, maturities and principal pay-downs	17,245	2,094
Activity in held to maturity securities
Proceeds from principal pay-downs	22	28
Net change in loans	4,685	524
Proceeds from sale of premises and equipment	13	237
Proceeds from sale of other real estate owned	458	39
Purchases of premises and equipment	(7)	(11)
Purchases of Federal Home Loan Bank stock		(3)
Net cash from investing activities	1,992	2,358
Cash flows from financing activities
Net change in deposits	(1,622)	(2,686)
Net change in securities sold under repurchase agreements	(103)	9
Repayment of Federal Home Loan Bank advances	(25,500)	(1,700)
Proceeds from Federal Home Loan Bank advances	25,500	1,500
Net cash from financing activities	(1,725)	(2,877)
Net change in cash and cash equivalents	190	(614)
Cash and cash equivalents at beginning of period	6,163	6,101
Cash and cash equivalents at end of period	6,353	5,487
Payments during the period for:
Interest paid	1,130	1,692
Income taxes paid	0	0
Supplemental Non-cash disclosures:
Transfers from loans to other real estate owned	$ 1,027	$ 4,411

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Basis of Presentation

9 Months Ended

Sep. 30, 2011

Basis of Presentation [Abstract]

Basis of Presentation

Note 1—Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Volunteer Bancorp, Inc. and its wholly-owned subsidiary, The Citizens Bank of East Tennessee (“the Bank”) (collectively “the Company,” “we,” “us,” or “our”) and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) and disclosures necessary to summarize fairly the consolidated financial position of the Company as of September 30, 2011 and December 31, 2010 and the related consolidated statements of operations, comprehensive income (loss) and cash flows for the three months and nine months ended September 30, 2011 and 2010. The interim financial statements should be read in conjunction with the notes to the financial statements presented in the Company’s latest annual report on Form 10-K as filed with the Securities and Exchange Commission. The results for interim periods are not necessarily indicative of results to be expected for the complete fiscal year.

Going Concern and Related Issues

A fundamental principle of the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and satisfaction of liabilities occurring in the ordinary course of business. In accordance with this requirement, the Company has prepared its consolidated financial statements on a going concern basis.

The Company experienced substantial losses in 2010 and 2009. Furthermore, non-performing assets are over 12% of total assets. As discussed in more detail in Note 9 to Notes to Consolidated Financial Statements, the Bank is not in compliance with minimum capital requirements set forth in the consent order with bank regulatory authorities.

Management has implemented plans to improve asset quality, credit risk management, earnings, and liquidity management. In addition, management has begun to implement a capital raising strategy, although management has not concluded the timing and certain other aspects of its strategy.

The vast majority of the Company’s losses are a result of loan losses and non-performing assets related to commercial real estate and development. Management believes it has identified the problems and properly provided for them. However, further declines in values will adversely affect those assets and could result in more losses.

At September 30, 2011, the Bank’s capital is above levels generally established for adequately capitalized under regulatory capital guidelines. However, in January 2010, the Bank agreed to a FDIC requirement to maintain a minimum Tier 1 capital to average assets ratio of 8%, Tier 1 capital to risk-weighted assets ratio of 10% and total capital to risk-weighted assets ratio of 12%. The Bank did not meet these capital requirements as of September 30, 2011 or December 31, 2010. See Note 9 to Notes to Consolidated Financial Statements for additional disclosures related to regulatory capital.

The Company’s Board of Directors and management team have initiated specific plans to reduce credit risk, ensure adequate levels of liquidity, reduce overhead expenses and improve capital ratios. Key components of those plans involve shrinking targeted assets, improving asset quality while building a higher quality balance sheet. The Company has maintained adequate liquidity and is committed to maintaining and increasing liquidity as needed. The Company has reduced staff and other controllable expenses and will continue these efforts into the future. The Company continues to pursue additional sources of capital.

The Bank is also exploring the possibility of exiting some lines of business and expanding into others that do not require as much capital. Future growth is targeted on the traditional community bank model.

There can be no assurance that our plans, described above, will successfully resolve all of the concerns of the banking regulatory authorities. These events and uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties

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Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2011	Dec. 31, 2010
Consolidated Balance Sheets [Abstract]
Securities held to maturity, fair value	$ 36	$ 59
Loans receivable, net of allowance for loan losses	$ 2,678	$ 3,723
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	1,000,000	1,000,000
Common stock, shares issued	496,277	496,277
Common stock, shares outstanding	496,277	496,277

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Document and Entity Information	9 Months Ended
	Sep. 30, 2011	Dec. 31, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	VOLUNTEER BANCORP INC
Entity Central Index Key	0000947440
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		496,277

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Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Interest income
Loans, including fees	$ 1,329	$ 1,391	$ 3,948	$ 4,185
Securities
Taxable	31	100	143	328
Tax exempt	41	54	167	161
Federal funds sold and other	8	7	24	22
Total securities	1,409	1,552	4,282	4,696
Interest expense
Deposits	280	469	939	1,536
Other borrowings	26	29	78	103
Total interest expense	306	498	1,017	1,639
Net interest income	1,103	1,054	3,265	3,057
Provision for loan losses	180	1,565	246	1,812
Net interest income (loss) after provision for loan losses	923	(511)	3,019	1,245
Noninterest income
Service charges	55	59	172	195
Fees and commissions	10	10	37	40
Gain on sale of securities	190		528
Gain on sale of fixed assets			13	222
Other	62	31	169	88
Total noninterest income	317	100	919	545
Noninterest expenses
Salaries and employee benefits	479	550	1,596	1,761
Occupancy expenses	70	73	210	216
Furniture and equipment	68	57	197	208
Data processing expense	65	61	193	184
Audit and professional fees	114	121	371	368
Insurance and bond expense	52	22	125	53
Other real estate and collection expense	293	495	714	683
FDIC assessment expense	100	100	298	276
Director fees		25	32	74
Other	97	122	331	343
Total noninterest expenses	1,338	1,626	4,067	4,166
Income (loss) before income taxes	(98)	(2,037)	(129)	(2,376)
Income tax expense (benefit)
Net income (loss)	$ (98)	$ (2,037)	$ (129)	$ (2,376)
Basic and diluted earnings (loss) per common share	$ (0.20)	$ (4.10)	$ (0.26)	$ (4.79)

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Fair Value

9 Months Ended

Sep. 30, 2011

Fair Value [Abstract]

Fair Value

Note 6—Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

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

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

The fair values of securities available for sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (“OREO”) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Assets measured at fair value on a recurring basis are summarized below.

	Fair Value Measurements at September 30, 2011
	Quoted Prices in  Active Markets for Identical  Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Securities available-for-sale
U.S. government sponsored entities and agencies	$	—	$	2,414	$	—
State and political subdivision		—		6,296		—
Mortgage-backed: residential		—		359		—
Collateralized mortgage obligations		—		6,946		—
Total investment securities	$	—	$	16,015	$	—

	Fair Value Measurements at December 31, 2010
	Quoted Prices in  Active Markets for Identical  Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Securities available-for-sale
U.S. government sponsored entities and agencies	$	—	$	614	$	—
State and political subdivision		—		5,236		—
Mortgage-backed: residential		—		4,637		—
Collateralized mortgage obligations		—		2,197		—
Total investment securities	$	—	$	12,684	$	—

Assets measured at fair value on a non-recurring basis are summarized below:

	Fair Value Measurements at September 30, 2011
	Quoted Prices in  Active Markets for Identical  Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Impaired loans with specific allocations:
Construction & Development	$	—	$	—	$	2,744
Commercial real estate		—		—		1,229
Residential real estate		—		—		1,135
Other real estate		—		—		1,789
Commercial		—		—		—
Consumer		—		—		—
Other real estate owned:
Construction & Development	$	—	$	—	$	2,461
Commercial real estate		—		—		912
Residential real estate		—		—		853
Commercial		—		—		466

	Fair Value Measurements at December 31, 2010
	Quoted Prices in  Active Markets for Identical  Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Impaired loans with specific allocations:
Construction & Development	$	—	$	—	$	1,638
Commercial real estate		—		—		4,286
Residential real estate		—		—		366
Other real estate		—		—		1,789
Commercial		—		—		—
Consumer		—		—		—
Other real estate owned:
Construction & Development	$	—	$	—	$	1,942
Commercial real estate		—		—		567
Residential real estate		—		—		998

Impaired loans with specific allowance for loan losses allocations, which are measured for impairment using the fair value of collateral for collateral dependent loans, had a principal balance of $8.7 million at September 30, 2011 with a valuation allowance of $1.8 million, resulting in $46,000 and $252,000 additional provision for loan losses for the three and nine months ended September 30, 2011. Impaired loans with specific allowance for loan loss allocations, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $10.9 million at December 31, 2010, with a valuation allowance of $2.9 million. Impaired loans measured at fair value resulted in $544,000 and $604,000 additional provision for loan losses for the three and nine months ended September 30, 2010.

Other real estate owned, with a valuation allowance, had a net carrying value of $4.7 million at September 30, 2011 and $3.5 million at December 31, 2010. Total writedowns of other real estate owned for the nine months ended September 30, 2011 and September 30, 2010, were $387,000 and $532,000 respectively. Total writedowns of other real estate owned for the three months ended September 30, 2011 and 2010 were $172,000 and $3,000, respectively.

The carrying amounts and estimated fair values of financial instruments, not previously presented, were as follows:

	September 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets
Cash and cash equivalents	$	6,353	$	6,353	$	6,163	$	6,163
Securities held to maturity		34		36		56		59
Loans, net of allowance		95,748		95,199		101,706		101,304
Accrued interest receivable		512		512		555		555
Federal Home Loan Bank stock		494		N/A		494		N/A

	September 30, 2011						December 31, 2010
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial Liabilities
Deposits	$	(114,809	)	$	(115,013	)	$	(116,431	)	$	(116,828	)
Securities sold under repurchase agreements		(234	)		(234	)		(337	)		(337	)
Federal Home Loan Bank advances		(8,500	)		(8,500	)		(8,500	)		(8,500	)
Subordinated debentures		(3,093	)		(1,688	)		(3,093	)		(1,693	)
Accrued interest payable		(504	)		(504	)		(617	)		(617	)
Note payable		(830	)		(830	)		(830	)		(830	)

Carrying amount is the estimated fair value for cash and cash equivalents, short-term borrowings, accrued interest receivable and payable, demand deposits, short-term debt, and loans and deposits that reprice frequently and fully. Security fair values are as stated previously. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. For loans or deposits and for deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are as stated previously. The fair value of subordinated debentures was determined based on current rates for similar financing. The fair value of commitments to extend credit and standby letters of credit is not considered material.

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Subsequent Events

9 Months Ended

Sep. 30, 2011

Subsequent Events [Abstract]

Subsequent Events

Note 5—Subsequent Events

During October 2011, certain Directors loaned the Company $160,000 to cover the costs of filing our periodic reports as a public company with the Securities and Exchange Commission. The amount of principal plus accrued interest at 10% is payable one year from the date of the note or 10 days after we receive net proceeds from an offering of our Common Stock, whichever is earlier.

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Capital Requirements

9 Months Ended

Sep. 30, 2011

Capital Requirements [Abstract]

Capital Requirements

Note 9—Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’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 classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined).

As of February 9, 2012, the most recent notification from the Federal Deposit Insurance Corporation (FDIC) categorized the Bank as under capitalized under the regulatory framework for prompt corrective action. 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.

Failure to meet statutorily mandated capital guidelines or more restrictive ratios separately established for a financial institution (such as those to which the Bank is subject under the Action Plans) could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting or renewing brokered deposits, limitations on the rates of interest that the institution may pay on its deposits and other restrictions on its business. As described below, significant additional restrictions can be imposed on FDIC-insured depository institutions that fail to meet applicable capital requirements.

The Action Plans the Bank was issued by regulators requires the Bank to maintain Tier 1 capital to average total assets of 8%, Tier 1 risk based capital to risk-weighted assets of 10% and total risk based capital to total risk weighted assets of 12%. As of September 30, 2011, the Bank was not in compliance with these capital requirements. The Bank’s actual capital amounts, ratios and minimum capital requirements per the Action Plans are presented in the table below.

						To Comply With Minimum Capital Requirements					Excess (Deficit) To Comply With Requirements
	Actual					Per Action Plans					Per Action Plans
	Amount		Ratio			Amount		Ratio			Amount			Ratio
September 30, 2011
Total Capital to Risk Weighted Assets	$	7,791		8.52	%	$	10,967		12.00	%	$	(3,176	)		(3.48	)%
Tier 1 Capital to Risk Weighted Assets	$	6,630		7.25	%	$	9,139		10.00	%	$	(2,509	)		(2.75	)%
Tier 1 Capital to Average Assets—Leverage	$	6,630		5.02	%	$	10,564		8.00	%	$	(3,934	)		(2.98	)%

						To Comply With Minimum Capital Requirements					Excess (Deficit) To Comply With Requirements
	Actual					Per Action Plans					Per Action Plans
	Amount		Ratio			Amount		Ratio			Amount			Ratio
December 31, 2010
Total Capital to Risk Weighted Assets	$	7,905		8.35	%	$	11,363		12.00	%	$	(3,458	)		(3.65	)%
Tier 1 Capital to Risk Weighted Assets	$	6,690		7.07	%	$	9,469		10.00	%	$	(2,779	)		(2.93	)%
Tier 1 Capital to Average Assets—Leverage	$	6,690		4.92	%	$	10,875		8.00	%	$	(4,185	)		(3.08	)%

No cash dividends were paid to shareholders in either 2011 or 2010. The Company’s Board of Directors will continue to evaluate the amount of future dividends, if any, after capital needs required for compliance with the Action Plans are evaluated. The payment of dividends is within the discretion of the Board of Directors, considering the Company’s expenses, the maintenance of reasonable capital levels and the applicable capitalization requirements for the Bank in accordance with the Action Plans. The Company’s principal source of funds is dividends received from the Bank. In accordance with the Action Plans with the FDIC and TDFI, no dividend can be paid from the Bank to the holding company without prior approval by the FDIC. In addition, the Company is restricted from paying dividends while deferring interest payments on the subordinated debt.

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Subordinated Debentures

9 Months Ended

Sep. 30, 2011

Subordinated Debentures [Abstract]

Subordinated Debentures

Note 7—Subordinated Debentures

The Company began deferring the interest payments on its subordinated debentures during the third quarter of 2010. These payments may be deferred a total of five years. As of September 30, 2011, there was approximately $107,000 of accrued and unpaid interest on the debentures. For more information on these debentures, see the notes to the consolidated financial statements filed with the Company’s annual report on Form 10-K.

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Action Plans

9 Months Ended

Sep. 30, 2011

Action Plans [Abstract]

Action Plans

Note 8—Action Plans

On January 28, 2010, the Bank entered into a Consent Order (the “Consent Order”) with the Federal Deposit Insurance Corporation (“FDIC”). As is customary for orders of this type, and pursuant to the terms of the Consent Order, the Bank entered into the Consent Order without admitting or denying any charges of unsafe or unsound banking practices or violations of law or regulations. On June 22, 2011, the Bank also executed a written agreement (the “Agreement”) with the Tennessee Department of Financial Institutions (“TDFI”).

On May 26, 2010, the Company entered into an Agreement (“FRB Agreement”) with the Federal Reserve Bank (“FRB”). The Company is to act as a source of financial strength for the Bank. Accordingly, in this FRB Agreement the Company is required to obtain written permission before any of the following actions are taken: payment or receipt of any dividends from the Bank, payments on the subordinated debt (see Note 7) or Trust Preferred Securities, or the purchase or redemption of any stock. In addition, under the FRB Agreement the Company may not incur, increase, or guarantee any debt without prior written approval of the FRB.

The Consent Order, the Agreement, and the FRB Agreement (collectively, the “Action Plans”) contain substantially similar terms and are based on the findings of the FDIC and TDFI during their joint examination of the Bank that commenced on September 14, 2009. The Action Plans represent agreements between the Bank, on the one hand, and the FDIC, the TDFI and the FRB, respectively, on the other hand, as to areas of the Bank’s or Company’s operations that warrant improvement and present plans for making those improvements. The Action Plans impose no fines or penalties on the Bank or Company.

Under the terms of each Action Plan, the Bank cannot declare or pay cash dividends without the prior written consent of certain officials of the FDIC and the TDFI (the “Joint Officials”). In addition, the Bank is restricted from extending additional credit to certain borrowers whose existing credit has been classified as “loss,” “doubtful” or “substandard” or has been charged off the books of the Bank and, in each case, is uncollected. The Action Plans also require the Bank to provide the Joint Officials 60 days prior written notice of any proposed changes in the Bank’s management, along with background information for any proposed new management officials. The Action Plans also contain requirements ranging from a capital directive, which requires us to achieve and maintain minimum regulatory capital levels in excess of the statutory minimums to be well-capitalized, to developing a liquidity risk management and contingency funding plan, in connection with which we will be subject to limitations on the maximum interest rates we can pay on deposit accounts. The Bank is also restricted from using brokered deposits. The Action Plans require the development of various programs and procedures to improve our asset quality as well as routine reporting on our progress toward compliance with the Action Plans to the Board of Directors, the FDIC, the TDFI, and the FRB.

Finally, as of January 28, 2010, the date of the Consent Order, the Bank was deemed to be “adequately capitalized”. The “adequately capitalized” classification is the result of the Bank receiving a formal enforcement action which prohibits the Bank from being classified as “well-capitalized” regardless of its capital ratios. Therefore, the Bank can not be classified as “well capitalized” until the Action Plans are lifted by the FDIC and the TDFI. The Action Plans require the Bank to maintain Tier 1 capital to average total assets of 8%, Tier 1 risk based capital to risk-weighted assets of 10% and total risk based capital to total risk weighted assets of 12%.

Management believes the Bank is in substantial compliance with the terms of the Action Plans as of September 30, 2011, with the exception of the capital requirements. The Bank has provided quarterly written progress reports to the Joint Officials through the fourth quarter of 2011. Management plans to conform to all conditions of the Action Plans, and is implementing its plan to return capital ratios to prescribed levels.

Management and the Board have carefully considered the impact of the Action Plans on the Bank’s current and future operations. Areas that have received additional attention as a result of the Action Plans include the Bank’s liquidity position, overall balance sheet structure, capital and earnings. The Bank has considered the impact of deposit interest rate restrictions that may impair the Bank’s ability to raise local certificates of deposit. The Bank’s earnings have been impacted negatively due to the recent regulatory criticism. One example of the negative impact on earnings is that increased FDIC insurance premiums have been incurred and will continue to be at an elevated level until the Bank’s overall condition improves.

Noncompliance with the Action Plans could subject the Bank to an array of penalties, ranging from the assessment of civil money penalties against the Bank and/or any or all of its officers or directors contributing to the violation, to a termination of the Bank’s deposit insurance for more egregious violations of applicable bank rules and regulations. The Bank’s management is not aware of any penalties that were the result of any noncompliance with the Action Plans.

The Bank’s current regulatory status also subjects it to certain other requirements of law apart from the Action Plans. For example, the Bank and the Company are subject to restrictions under the FDIC’s regulations governing golden parachute payments, which generally prohibit entering into and paying certain severance payments to directors and senior executive officers, without prior FDIC approval in the case of the Bank, and Federal Reserve Board and FDIC approval in the case of the Company. We made no such payments during the five preceding years even without the restrictions. In addition, the Bank is currently unable to submit bids to the FDIC for the acquisition of any failed banks.

For additional information regarding the Action Plans, see Item 1 in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010.

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Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Consolidated Statements of Comprehensive Income (Loss) [Abstract]
Net income (loss)	$ (98)	$ (2,037)	$ (129)	$ (2,376)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities arising during period	171	(15)	204	(21)
Reclassification of realized amount	(190)		(528)
Other comprehensive income (loss)	(19)	(15)	(324)	(21)
Income taxes related to other comprehensive income (loss)
Other comprehensive income (loss), net of income taxes	(19)	(15)	(324)	(21)
Total comprehensive income (loss)	$ (117)	$ (2,052)	$ (453)	$ (2,397)

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Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2011

Loans and Allowance for Loan Losses [Abstract]

Loans and Allowance for Loan Losses

Note 4—Loans and Allowance for Loan Losses

Categories of loans include:

	September 30, 2011			December 31, 2010
Construction & Development	$	9,197		$	11,986
Commercial real estate		28,056			29,640
Residential real estate		50,963			51,674
Other real estate		3,430			3,406
Commercial		4,247			4,893
Consumer		2,533			3,830
Total loans		98,426			105,429
Less allowance for loan losses		(2,678	)		(3,723	)
Net loans	$	95,748		$	101,706

The following table sets forth an analysis of our allowance for loan losses for the three months ending September 30, 2011 and 2010.

	September 30,
	2011		2010
Balance at beginning of period	$	2,812	$	2,941
Provision for loan losses		180		1,565
Amounts charged off:
Construction & Development		213		904
Commercial real estate		112		61
Residential real estate		26		—
Other real estate		—		42
Commercial		—		570
Consumer		11		27
Total loans charged off		362		1,604
Recoveries of amounts previously charged off:
Construction & Development		34		—
Commercial real estate		—		—
Residential real estate		—		—
Other real estate		—		—
Commercial		2		2
Consumer		12		4
Total recoveries		48		6
Net charge-offs		314		1,598
Balance at end of period	$	2,678	$	2,908

The following table sets forth an analysis of our allowance for loan losses for the nine months ending September 30, 2011 and 2010.

	September 30,
	2011		2010
Balance at beginning of period	$	3,723	$	3,032
Provision for loan losses		246		1,812
Amounts charged off:
Construction & Development		219		1,247
Commercial real estate		1,070		69
Residential real estate		51		—
Other real estate		—		42
Commercial		—		570
Consumer		14		60
Total loans charged off		1,354		1,988
Recoveries of amounts previously charged off:
Construction & Development		34		—
Commercial real estate		5		36
Residential real estate		—		—
Other real estate		—		—
Commercial		4		3
Consumer		20		13
Total recoveries		63		52
Net charge-offs		1,291		1,936
Balance at end of period	$	2,678	$	2,908

The following table sets forth an analysis of our provision for loan losses for the three months and nine months ending September 30, 2011.

	Three months ending September 30, 2011			Nine months ending September 30, 2011
Provision for loan losses
Construction & Development		(76	)		(85	)
Commercial real estate		690			568
Residential real estate		(137	)		(99	)
Other real estate		(46	)		(28	)
Commercial		(249	)		(97	)
Consumer		(2	)		(13	)
Total provision for loan losses		180			246

As of September 30, 2011 and December 31, 2010, accrued interest receivable of $512,000 and $555,000, respectively, are not considered significant and therefore not included in the recorded investment in loans presented in the following tables.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on the impairment method as of September 30, 2011 and December 31, 2010.

	Construction & Development		Commercial Real  Estate		Residential Real  Estate		Other Real Estate		Commercial		Consumer		Total
September 30, 2011
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	445	$	1,170	$	103	$	78	$	—	$	—	$	1,796
Collectively evaluated		38		584		57		21		177		5		882
Total ending allowance balance	$	483	$	1,754	$	160	$	99	$	177	$	5	$	2,678
Loans:
Individually evaluated for impairment	$	5,429	$	4,793	$	1,327	$	1,867	$	—	$	—	$	13,416
Collectively evaluated		3,768		23,263		49,636		1,563		4,247		2,533		85,010
Total ending loans balance	$	9,197	$	28,056	$	50,963	$	3,430	$	4,247	$	2,533	$	98,426

	Construction & Development		Commercial Real  Estate		Residential Real  Estate		Other Real Estate		Commercial		Consumer		Total
December 31, 2010
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	714	$	1,942	$	96	$	82	$	46	$	—	$	2,880
Collectively evaluated		39		309		214		45		224		12		843
Total ending allowance balance	$	753	$	2,251	$	310	$	127	$	270	$	12	$	3,723
December 31, 2010
Loans:
Individually evaluated for impairment	$	5,833	$	10,272	$	1,522	$	1,871	$	46	$	—	$	19,544
Collectively evaluated		6,153		19,368		50,152		1,535		4,847		3,830		85,885
Total ending loans balance	$	11,986	$	29,640	$	51,674	$	3,406	$	4,893	$	3,830	$	105,429

Information on impaired loans for the three months ending September 30, 2011 and September 30, 2010 is as follows:

	September 30, 2011		September 30, 2010
Average of individually impaired loans during the period:
Construction & Development	$	5,698	$	5,651
Commercial real estate		4,413		10,957
Residential real estate		1,085		1,980
Other real estate		1,866		1,463
Commercial		—		—
Consumer		—		—
Total		13,062		20,051

Year to date information on impaired loans is as follows:

	September 30, 2011		September 30, 2010
Average of individually impaired loans during the period:
Construction & Development	$	5,802	$	5,109
Commercial real estate		5,828		10,232
Residential real estate		1,215		2,530
Other real estate		1,869		1,544
Commercial		11		823
Consumer		—		—
Total		14,725		20,238
Interest income recognized during impairment (three months ending September 30, 2011 and September 30, 2010):
Construction & Development		11		12
Commercial real estate		8		78
Residential real estate		9		26
Other real estate		10		3
Commercial		—		2
Consumer		—		—
Total		38		121

	September 30, 2011		September 30, 2010
Interest income recognized during impairment (nine months ending September 30, 2011 and September 30, 2010):
Construction & Development		10		91
Commercial real estate		37		161
Residential real estate		35		78
Other real estate		29		—
Commercial		—		—
Consumer		—		—
Total	$	111	$	330

For the three and nine months ended September 30, 2011 and 2010, the Company did not recognize any interest income under the cash-basis method of accounting.

The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2011 and December 31, 2010:

	As of September 30, 2011
	Recorded Investment		Allowance For Loan  Losses Allocated
With no related allowance recorded:
Construction & Development	$	2,240	$	—
Commercial real estate		2,394		—
Residential real estate		89		—
Other real estate		—		—
Commercial		—		—
Consumer		—		—
With an allowance recorded:
Construction & Development		3,189		445
Commercial real estate		2,399		1,170
Residential real estate		1,238		103
Other real estate		1,867		78
Commercial		—		—
Consumer		—		—
Total	$	13,416	$	1,796

	As of December 31, 2010
	Recorded Investment		Allowance For Loan  Losses Allocated
With no related allowance recorded:
Construction & Development	$	3,481	$	—
Commercial real estate		4,0444		—
Residential real estate		1,060		—
Other real estate		—		—
Commercial		—		—
Consumer		—		—
With an allowance recorded:
Construction & Development		2,352		714
Commercial real estate		6,228		1,942
Residential real estate		462		96
Other real estate		1,871		82
Commercial		46		46
Consumer		—		—
Total	$	19,544	$	2,880

The recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans are summarized below:

	As of September 30, 2011
	Nonaccrual		Loans Past Due Over  90 Days and Still Accruing
Construction & Development	$	4,573	$	—
Commercial real estate		4,327		—
Residential real estate		964		—
Other real estate		1,255		—
Commercial		—		—
Consumer		13		—
Total	$	11,132	$	—

	As of December 31, 2010
	Nonaccrual		Loans Past Due Over  90 Days and Still Accruing
Construction & Development	$	3,576	$	—
Commercial real estate		6,740		—
Residential real estate		614		—
Other real estate		1,251		—
Commercial		—		26
Consumer		16		4
Total	$	12,197	$	30

Nonaccrual loans and loans past due 90 days still on accrual include individually classified impaired loans.

The following tables present the aging of the recorded investment in past due loans by class of loans. Non-accrual loans are included and have been categorized based on their payment status:

	30-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Loans Not Past  Due		Total
September 30, 2011
Construction & Development	$	791	$	44	$	835	$	8,362	$	9,197
Commercial real estate		1,025		280		1,305		26,751		28,056
Residential real estate		414		133		547		50,416		50,963
Other real estate		—		1,255		1,255		2,175		3,430
Commercial		—		—		—		4,247		4,247
Consumer		7		—		7		2,526		2,533
Total	$	2,237	$	1,712	$	3,949	$	94,477	$	98,426

	30-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Loans Not Past  Due		Total
December 31, 2010
Construction & Development	$	511	$	—	$	511	$	11,475	$	11,986
Commercial real estate		431		2,361		2,792		26,848		29,640
Residential real estate		1,250		41		1,291		50,383		51,674
Other real estate		—		1,251		1,251		2,155		3,406
Commercial		—		26		26		4,867		4,893
Consumer		68		4		72		3,758		3,830
Total	$	2,260	$	3,683	$	5,943	$	99,486	$	105,429

Troubled Debt Restructurings:

The Company reported total troubled debt restructurings of $8.5 million as of September 30, 2011 and $5.8 million as of December 31, 2010. The Company has no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings. Troubled debt restructurings are included in impaired loans.

During the period ending September 30, 2011, $3.1 million in additional loans were modified as troubled debt restructurings. The modification of the terms of such loans would include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

These modified loans included three construction and development loans totaling $2.4 million and one commercial real estate loan totaling $651,000 at September 30, 2011.

Specific allocations of $1.2 million and $1.4 million were reported for the troubled debt restructurings as of September 30, 2011 and December 31, 2010, respectively. No payment defaults or charge-offs were reported for troubled debt restructurings during the three and nine month periods ending September 30, 2011. A default is when a loan is past due by greater than 90 days.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $100,000 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans. All loans in all loan categories are assigned risk ratings. Based on the most recent analyses performed, the risk category of loans by class of loans is as follows:

	September 30, 2011
	Pass		Special Mention		Substandard		Doubtful		Total
Construction & Development	$	3,620	$	104	$	5,429		44	$	9,197
Commercial real estate		23,166		—		4,890		—		28,056
Residential real estate		48,994		—		1,969		—		50,963
Other real estate		1,512		—		1,918		—		3,430
Commercial		4,172		—		75		—		4,247
Consumer		2,515		—		18		—		2,533
Total	$	83,979	$	104	$	14,299	$	44	$	98,426

	December 31, 2010
	Pass		Special Mention		Substandard		Doubtful		Total
Construction & Development	$	5,992	$	110	$	5,411	$	473	$	11,986
Commercial real estate		19,171		336		10,133		—		29,640
Residential real estate		49,019		350		2,305		—		51,674
Other real estate		1,484		—		1,922		—		3,406
Commercial		4,729		—		164		—		4,893
Consumer		3,782		—		48		—		3,830
Total	$	84,177	$	796	$	19,983	$	473	$	105,429