- Amended Quarterly Report (10-Q/A)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 – Q/A

(Amendment No. 1)

(Mark One)

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

For the quarterly period ended June 30, 2011

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

For the transition period from to

Commission File No: 0 - 14535

CITIZENS BANCSHARES CORPORATION

(Exact name of registrant as specified in its charter)

Georgia		58 – 1631302
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

75 Piedmont Avenue, N.E., Atlanta, Georgia		30303
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (404) 659-5959

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

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

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

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller reporting company x

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

SEC 1296 (08-03) Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding for each of the issuer’s classes of common stock as of the latest practicable date: 2,018,284 shares of Common Stock, $1.00 par value and 90,000 shares of Non-Voting Common Stock, $1.00 par value were outstanding on November 8, 2011.

EXPLANATORY NOTE

Citizens Bancshares Corporation (the “Company”) is filing this Amendment No. 1 (“Amended Report”) to its Quarterly Report on Form 10-Q for the period ended June 30, 2011, which was originally filed with the Securities and Exchange Commission on August 15, 2011 (the “Original Report”), to restate the Company’s unaudited consolidated financial statements for the period ended June 30, 2011, as well as to update corresponding disclosures under the headings Management’s Discussion and Analysis of Financial Condition and in the Notes to the Consolidated Financial Statements .

The Company, as a result of a recently completed joint examination of Citizens Trust Bank, the wholly owned subsidiary of the Company (the “Bank”), by the Federal Reserve Bank and the Georgia Department of Banking and Finance, determined that the Company’s previously issued unaudited consolidated financial statements for the period ended June 30, 2011 contained in the Original Report should be restated to reflect an increase in its provision for losses on loans of approximately $747,000. Accordingly, the previously issued consolidated financial statements for such period could no longer be relied upon.

The Company hereby amends Part 1. Item 1. “Financial Statements” and Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” to reflect a restatement of the financial statements in connection with the following:

· The Company’s restated financial results for the three months ended June 30, 2011 is a net loss of $374,000 compared to net income of $119,000. Net loss available to common shareholders for the three month period is $433,000 compared to net income available to common shareholders of $60,000. Net loss per common share - basic for the second quarter of 2011 is $0.20, compared to the originally reported income per common share - basic of $0.03.

· Due to the $747,000 adjustment to the financial results for the second quarter of 2011, the Company’s net loss for the six months ended June 30, 2011, is $156,000 compared to net income of $337,000. Net loss available to common shareholders for the six month period is $274,000 compared to net income available to common shareholders of $219,000. Net loss per common share - basic for the second quarter of 2011 is $0.13, compared to the originally reported income per common share - basic of $0.10.

· The provision for losses on loans for the second quarter of 2011 increased from $731,000 to $1,478,000. As a result of the increased provision for loan losses, the allowance for loan losses as of June 30, 2011 increased to $3,434,000 or 1.76% of gross loans, compared to the originally reported amount of $2,687,000, or 1.37% of gross loans.

· Loans receivable, net declined to $192,098,000 from the previously reported level of $192,845,000 and total assets declined to $397,654,000 from the previously reported level of $398,147,000.

· Total stockholders’ equity at June 30, 2011 declined $493,000 to $47,072,000 from $47,565,000.

The Company has amended only certain portions of the Original Form 10-Q Report. For convenience and ease of future reference, the Company is filing the entire Quarterly Report for the quarter ended June 30, 2011, in this Amended Report. This Amended Report also includes currently-dated certifications from the Company’s Chief Executive Officer, Chief Operating Officer and Chief Financial Officer.

The Company has not modified or updated disclosures presented in the Original Report, except as required to specifically reflect the effects of the restatement in the Amended Report. Accordingly, this Amended Report does not reflect other events occurring after the Original Report, nor does it modify or update those disclosures affected by other subsequent events. Information not affected by the restatement is unchanged and reflects the disclosures made at the time of the Original Report.

PART 1.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2011 AND DECEMBER 31, 2010

(In thousands, except share data)

	(Restated)
	2011			2010
	(Unaudited)
ASSETS
Cash and due from banks	$	6,253		$	4,764
Interest-bearing deposits with banks	34,326			19,033
Certificates of deposit	100			150
Investment securities available for sale, at fair value	118,740			127,355
Investment securities held to maturity, at cost	3,304			3,311
Other investments	1,689			2,058
Loans receivable, net	192,098			191,994
Premises and equipment, net	7,384			7,520
Cash surrender value of life insurance	11,063			10,848
Foreclosed real estate	10,908			9,110
Other assets	11,789			11,663

Total assets	$	397,654		$	387,806

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Noninterest-bearing deposits	$	57,905		$	58,543
Interest-bearing deposits	287,653			279,061

Total deposits	345,558			337,604

Accrued expenses and other liabilities	4,705			4,057
Advances from Federal Home Loan Bank	319			328

Total liabilities	350,582			341,989

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Preferred stock - No par value; 10,000,000 shares authorized; Series B, 7,462 shares issued and outstanding	7,462			7,462
Preferred stock - No par value; 10,000,000 shares authorized; Series C, 4,379 shares issued and outstanding	4,379			4,379
Common stock - $1 par value; 20,000,000 shares authorized; 2,237,356 shares issued	2,237			2,233
Nonvoting common stock - $1 par value; 5,000,000 shares authorized; 90,000 issued and outstanding	90			90
Nonvested restricted common stock	(101		)	(107		)
Additional paid-in capital	7,809			7,813
Retained earnings	25,522			25,965
Treasury stock at cost, 219,072 and 217,531 shares at June 30, 2011 and December 31, 2010, respectively	(1,810		)	(1,805		)
Accumulated other comprehensive income (loss), net of income taxes	1,484			(213		)

Total stockholders’ equity	47,072			45,817

	$	397,654		$	387,806

See notes to consolidated financial statements.

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited - In thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(Restated)						(Restated)
Interest income:
Loans, including fees	$	3,065		$	3,163		$	5,992		$	6,511
Investment securities:
Taxable	603			645			1,218			1,326
Tax-exempt	455			455			910			910
Interest-bearing deposits	17			21			31			42
Total interest income	4,140			4,284			8,151			8,789

Interest expense:
Deposits	407			667			846			1,355
Other borrowings	—			3			—			17
Total interest expense	407			670			846			1,372

Net interest income	3,733			3,614			7,305			7,417

Provision for loan losses	1,478			860			1,953			1,490

Net interest income after provision for loan losses	2,255			2,754			5,352			5,927

Noninterest income:
Service charges on deposits	854			941			1,717			1,846
Gain on sales of securities	32			1			95			334
Gain on sales of assets	—			—			6			—
Other operating income	285			276			595			790

Total noninterest income	1,171			1,218			2,413			2,970

Noninterest expense:
Salaries and employee benefits	1,749			1,986			3,573			3,949
Net occupancy and equipment	622			648			1,206			1,272
Amortization of core deposit intangible	118			122			236			254
FDIC insurance	192			209			390			390
Other real estate owned, net	275			1,716			605			1,843
Other operating expenses	1,271			1,232			2,468			2,446

Total noninterest expense	4,227			5,913			8,478			10,154

Income (loss) before income taxes	(801		)	(1,941		)	(713		)	(1,257		)

Income tax expense (benefit)	(427		)	(837		)	(557		)	(778		)

Net income (loss)	$	(374	)	$	(1,104	)	$	(156	)	$	(479	)
Preferred dividends accrued	59			94			118			188

Net income (loss) available to common shareholders	$	(433	)	$	(1,198	)	$	(274	)	$	(667	)

Net income (loss) per common share - basic	$	(0.20	)	$	(0.57	)	$	(0.13	)	$	(0.32	)

Net income (loss) per common share - diluted	$	(0.20	)	$	(0.57	)	$	(0.13	)	$	(0.32	)

Weighted average common outstanding shares - basic	2,120			2,103			2,119			2,103

Weighted average common outstanding shares - diluted	2,120			2,103			2,119			2,103

Dividends per common share	$	0.08		$	0.08		$	0.08		$	0.08

See notes to consolidated financial statements.

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2011 (RESTATED) AND 2010

(Unaudited — In thousands, except parenthetical footnotes)

																								Accumulated
							Nonvoting			Nonvested			Additional											Other
	Preferred Stock			Common Stock			Common Stock			Restricted			Paid-in			Retained			Treasury Stock					Comprehensive
	Shares	Amount		Shares	Amount		Shares	Amount		Stock			Capital			Earnings			Shares		Amount			Income (Loss)			Total

Balance—December 31, 2009	7	$	7,462	2,230	$	2,230	90	$	90	$	(52	)	$	7,707		$	25,834		(218	)	$	(1,805	)	$	772		$	42,238

Net loss	—	—		—	—		—	—		—			—			(479		)	—		—			—			(479		)
Unrealized holding gains on investment securities available for sale—net of taxes of $492,134	—	—		—	—		—	—		—			—			—			—		—			955			955
Less reclassification adjustment for holding gains included in net income—net of taxes of $113,626	—	—		—	—		—	—		—			—			—			—		—			(221		)	(221		)

Comprehensive income																											255

Stock based compensation expense	—	—		—	—		—	—		—			13			—			—		—			—			13
Nonvested restricted stock	—	—		—	—		—	—		(55		)	67			—			—		—			—			12
Dividends declared - preferred	—	—		—	—		—	—		—			—			(188		)	—		—			—			(188		)
Dividends declared - common	—	—		—	—		—	—		—			—			(167		)	—		—			—			(167		)

Balance—June 30, 2010	7	$	7,462	2,230	$	2,230	90	$	90	$	(107	)	$	7,787		$	25,000		(218	)	$	(1,805	)	$	1,506		$	42,163

Balance—December 31, 2010	12	$	11,841	2,233	$	2,233	90	$	90	$	(107	)	$	7,813		$	25,965		(218	)	$	(1,805	)	$	(213	)	$	45,817

Net income	—	—		—	—		—	—		—			—			(156		)	—		—			—			(156		)
Unrealized holding gains on investment securities available for sale—net of taxes of $906,518	—	—		—	—		—	—		—			—			—			—		—			1,760			1,760
Less reclassification adjustment for holding gains included in net income—net of taxes of $32,227	—	—		—	—		—	—		—			—			—			—		—			(63		)	(63		)

Comprehensive income																											1,541

Issuance of common stock	—	—		4	4		—	—		—			12			—			—		—			—			16
Nonvested restricted stock	—	—		—	—		—	—		6			(16		)	—			—		—			—			(10		)
Purchase of treasury stock	—	—		—	—		—	—		—			—			—			(1	)	(5		)	—			(5		)
Dividends declared - preferred	—	—		—	—		—	—		—			—			(118		)	—		—			—			(118		)
Dividends declared - common	—	—		—	—		—	—		—			—			(169		)	—		—			—			(169		)

Balance—June 30, 2011	12	$	11,841	2,237	$	2,237	90	$	90	$	(101	)	$	7,809		$	25,522		(219	)	$	(1,810	)	$	1,484		$	47,072

See notes to consolidated financial statements.

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010

(Unaudited - In thousands)

	2011			2010
	(Restated)
OPERATING ACTIVITIES:
Net income (loss)	$	(156	)	$	(479	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses	1,953			1,490
Depreciation	343			360
Amortization and accretion, net	460			523
Provision for deferred income tax benefit	(643		)	(430		)
Gains on sale of assets and investments, net	(101		)	(338		)
Stock based compensation expense	—			13
Restricted stock based compensation plan	(10		)	12
Decrease in carrying value of other real estate owned	505			—
Change in other assets	(808		)	176
Change in accrued expenses and other liabilities	648			241

Net cash provided by operating activities	2,191			1,568

INVESTING ACTIVITIES:
Net change in certificates of deposit	50			—
Proceeds from calls and maturities of investment securities held to maturity	6			397
Proceeds from sales and maturities of investment securities available for sale	20,077			23,835
Purchases of investment securities available for sale	(8,691		)	(26,318		)
Net change in loans receivable	(6,294		)	3,491
Proceeds from the sale of premises and equipment	10			—
Proceeds from the sale of other real estate owned	1,975			1,685
Purchases of premises and equipment, net	(211		)	(307		)

Net cash provided by investing activities	6,922			2,783

FINANCING ACTIVITIES:
Net change in deposits	7,954			20,479
Net change in advances from Federal Home Loan Bank	(9		)	(14,158		)
Proceeds from issuance of common stock	16			—
Purchase of treasury stock	(5		)	—
Dividends paid - preferred	(118		)	(188		)
Dividends paid - common	(169		)	(167		)

Net cash provided by financing activities	7,669			5,966

Net change in cash and cash equivalents	16,782			10,317

Cash and cash equivalents, beginning of period	23,797			27,070

Cash and cash equivalents at end of period	$	40,579		$	37,387

Supplemental disclosures of cash paid during the period for:
Interest	$	916		$	1,369

Income taxes	$	8		$	60

Supplemental disclosures of noncash transactions:
Real estate acquired through foreclosure	$	4,278		1,461

Change in unrealized gain on investment securities available for sale, net of taxes	$	1,697		$	734

See notes to consolidated financial statements.

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARY

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED)

Basis of Presentation

Citizens Bancshares Corporation (the “Company”) is a holding company that provides a full range of commercial and personal banking services to individual and corporate customers in metropolitan Atlanta and Columbus, Georgia, and in Birmingham and Eutaw, Alabama, through its wholly owned subsidiary, Citizens Trust Bank (the “Bank”). The Bank operates under a state charter and serves its customers through eight full-service financial centers in metropolitan Atlanta, Georgia, one full-service financial center in Columbus, Georgia, one full-service financial center in Birmingham, Alabama, and one full-service financial center in Eutaw, Alabama.

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by generally accepted accounting principles are not included herein. These interim statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2010. The results of operations for the interim periods reported herein are not necessarily representative of the results expected for the full 2011 fiscal year.

The consolidated financial statements of the Company for the three and six month periods ended June 30, 2011 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations and cash flows for the three and six month periods have been included. All adjustments are of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation.

As a result of a recently completed joint examination of Citizens Trust Bank, the wholly-owned subsidiary of the Company (the “Bank”), by the Federal Reserve Bank and the Georgia Department of Banking and Finance, the Company determined that its previously issued unaudited consolidated financial statement for the period ended June 30, 2011, contained in its Quarterly report on Form 10-Q for the period ended June 30, 2011 should be restated to reflect an increase in its provision for loan losses.

In preparing these restated financial statements, subsequent events were evaluated through the time the restated financial statements were issued. In conjunction with applicable accounting standards, all material subsequent events have been either recognized in the restated financial statements or disclosed in the notes to the financial statements.

Accounting Policies

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which often require the judgment of management in the selection and application of certain accounting principles and methods. Reference is made to the accounting policies of the Company described in the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The Company has followed those policies in preparing this report. Management believes that the quality and reasonableness of its most critical policies enable the fair presentation of its financial position and of its results of operations. The following policies were updated or added to supplement the accounting policies contained in the Company’s Annual Report on Form 10-K.

Loans Receivable and Allowance for Loan Losses —Loans are reported at principal amounts outstanding less unearned income and the allowance for loan losses. Interest income on loans is recognized on a level yield basis. Loan fees and certain direct origination costs are deferred and amortized over the estimated terms of the loans using the level yield method. Premiums and discounts on loans purchased are amortized and accreted using the level yield method over the estimated remaining life of the loan purchased. The accretion and amortization of loan fees, origination costs, and premiums and discounts are presented as a component of loan interest income on the Consolidated Statements of Income.

Management considers a loan to be impaired when, based on current information and events, there is a potential that all amounts due according to the contractual terms of the loan may not be collected. Impaired loans are measured based on the present value of expected future cash flows, discounted at

the loan’s effective interest rate, or at the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.

Loans are generally placed on nonaccrual status when the full and timely collection of principal or interest becomes uncertain or the loan becomes contractually in default for 90 days or more as to either principal or interest, unless the loan is well collateralized and in the process of collection. When a loan is placed on nonaccrual status, current period accrued and uncollected interest is charged-off against interest income on loans unless management believes the accrued interest is recoverable through the liquidation of collateral.

Interest collections on nonaccruing loans and leases for which the ultimate collectability of principal is uncertain are applied as principal reductions; otherwise, such collections are credited to income when received. Nonperforming loans may be restored to accrual status when all principal and interest is current and the full repayment of the remaining contractual principal and interest is expected, or when the loan becomes well-secured and is in the process of collection.

The Company provides for estimated losses on loans receivable when any significant and permanent decline in value occurs. These estimates for losses are based on individual assets and their related cash flow forecasts, sales values, independent appraisals, the volatility of certain real estate markets, and concern for disposing of real estate in distressed markets. For loans that are pooled for purposes of determining necessary provisions, estimates are based on loan types, history of charge-offs, and other delinquency analyses. Therefore, the value used to determine the provision for losses is subject to the reasonableness of these estimates. The adequacy of the allowance for loan losses is reviewed on a monthly basis by management and the Board of Directors. This assessment is made in the context of historical losses as well as existing economic conditions, performance trends within specific portfolio segments, and individual concentrations of credit.

Loans are charged-off against the allowance when, in the opinion of management, such loans are deemed to be uncollectible and subsequent recoveries are added to the allowance.

Troubled Debt Restructurings

Loans to be restructured are identified based on an assessment of the borrower’s credit status, which involves, but is not limited to, a review of financial statements, payment delinquency, non-accrual status, and risk rating. Determining the borrower’s credit status is a continual process that is performed by the Company’s staff with periodic participation from an independent external loan review group.

Troubled debt restructurings (“TDR”) generally occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near-term and it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Company seeks to assist these borrowers by working with them to prevent further difficulties, and ultimately to improve the likelihood of recovery on the loan while ensuring compliance with the Federal Financial Institutions Examination Council (FFIEC) guidelines. To facilitate this process, a formal concessionary modification that would not otherwise be considered may be granted resulting in classification of the loan as a TDR.

The modification may include a change in the interest rate or the payment amount or a combination of both. Substantially all modifications completed under a formal restructuring agreement are considered TDRs. Modifications can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accruing status, depending on the individual facts and circumstances of the borrower. These restructurings rarely result in the forgiveness of principal or interest.

TDRs may be returned to accrual status based on a current, well-documented credit evaluation of the borrower’s financial condition and prospects for repayment under the modified terms. This evaluation must include consideration of the borrower’s sustained historical repayment performance for a reasonable period (generally a minimum of six months) prior to the date on which the loan is returned to accrual status.

In connection with consumer loan TDRs, a nonperforming loan will be returned to accruing status when current as to principal and interest and upon a sustained historical repayment performance (generally a minimum of six months).

Troubled Asset Relief Program

On August 13, 2010, as part of the U.S. Department of the Treasury (the “Treasury”) Troubled Asset Relief Program (“TARP”) Community Development Capital Initiative, the Company entered into a Letter Agreement, and an Exchange Agreement—Standard Terms (“Exchange Agreement”), with the Treasury, pursuant to which the Company agreed to exchange 7,462 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Shares”), issued on March 6, 2009, pursuant to the Company’s participation in the TARP Capital Purchase Program, for 7,462 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B (“Series B Preferred Shares”), both of which have a liquidation preference of $1,000 (the “Exchange Transaction”). No new monetary consideration was exchanged in connection with the Exchange Transaction. The Exchange Transaction closed on August 13, 2010 (the “Closing Date”).

On September 17, 2010, the Company issued 4,379 shares of its Series C Preferred Shares to the Treasury as part of its TARP Community Development Capital Initiative for a total of 11,841 shares of Series B and C Preferred Shares issued to Treasury. The issuance of the Series B and Series C Preferred Shares was a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

The Series B and Series C Preferred Shares qualify as Tier 1 capital and will pay cumulative dividends at a rate of 2% per annum for the first eight years after the Closing Date and 9% per annum thereafter. The Company may, subject to consultation with the Federal Reserve Bank of Atlanta, redeem the Series B and Series C Preferred Shares at any time for its aggregate liquidation amount plus any accrued and unpaid dividends.

Acquisition

On March 27, 2009, the Company’s subsidiary, Citizens Trust Bank (“Citizens”), acquired the Lithonia branch (the “Branch”) of The Peoples Bank, a Georgia state bank (“Peoples”). Citizens acquired the in-market deposits of the Branch which totaled approximately $50 million. Under the Agreement, Citizens also acquired the branch office and related real estate and certain personal property at the Branch. The Company recorded a finite lived intangible asset related to the value of deposit accounts acquired of approximately $3,303,000 and is amortizing the amount over 7 years.

Recently Issued Accounting Standards

The following is a summary of recent authoritative pronouncements that could affect the accounting, reporting, and disclosure of financial information by the Company:

In July 2010, the Receivables topic of the Accounting Standards Codification (“ASC”) was amended by Accounting Standards Update (“ASU”) 2010-20 to require expanded disclosures related to a company’s allowance for credit losses and the credit quality of its financing receivables. The amendments require the allowance disclosures to be provided on a disaggregated basis. The Company is required to include these disclosures in their interim and annual financial statements.

Disclosures about Troubled Debt Restructurings (“TDRs”) required by ASU 2010-20 were deferred by the Financial Accounting Standards Board (“FASB”) in ASU 2011-01 issued in January 2011. In April 2011, FASB issued ASU 2011-02 to assist creditors with their determination of when a restructuring is a TDR. The determination is based on whether the restructuring constitutes a concession and whether the debtor is experiencing financial difficulties as both events must be present.

Disclosures related to TDRs under ASU 2010-20 will be effective for reporting periods beginning after June 15, 2011. This amendment had no impact on the Company’s financial statements.

In December 2010, the Intangibles topic of the ASC was amended to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings upon adoption. Impairments occurring subsequent to adoption should be included in earnings. The amendment was effective for the Company beginning January 1, 2011.

ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. The amendments will be effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financial statements.

The Comprehensive Income topic of the ASC was amended in June 2011. The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity. The amendment requires consecutive presentation of the statement of net income and other comprehensive income and requires an entity to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The amendments will be applicable to the Company on January 1, 2012 and will be applied retrospectively.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

2. INVESTMENTS

Investment securities available for sale are summarized as follows (in thousands):

At June 30, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

State, county, and municipal securities	$	44,709	$	1,352	$	240	$	45,821
Mortgage-backed securities	62,128		1,283		150		63,261
Corporate securities	9,654		54		50		9,658
Totals	$	116,491	$	2,689	$	440	$	118,740

At December 31, 2010	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

State, county, and municipal securities	$	46,807	$	439	$	1,342	$	45,904
Mortgage-backed securities	72,343		1,257		631		72,969
Corporate securities	8,528		30		76		8,482
Totals	$	127,678	$	1,726	$	2,049	$	127,355

Investment securities held to maturity are summarized as follows (in thousands):

At June 30, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

State, county, and municipal securities	$	3,293	$	85	$	—	$	3,378
Mortgage-backed securities	11		1		—		12

Totals	$	3,304	$	86	$	—	$	3,390

At December 31, 2010	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

State, county, and municipal securities	$	3,294	$	86	$	5	$	3,375
Mortgage-backed securities	17		1		—		18

Totals	$	3,311	$	87	$	5	$	3,393

The amortized costs and fair values of investment securities at June 30, 2011, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with and without call or prepayment penalties (in thousands).

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

Due in one year or less	$	620	$	623	$	—	$	—
Due after one year through five years	4,699		4,673		1,142		1,162
Due after five years through ten years	28,680		29,233		2,162		2,228
Due after ten years	82,492		84,211		—		—

	$	116,491	$	118,740	$	3,304	$	3,390

Securities with carrying values of $85,859,000 and $70,239,000 at June 30, 2011 and December 31, 2010 were pledged to secure public deposits, FHLB advances and an $18 million line of credit at the Federal Reserve Bank discount window and for other purposes as required by law.

Gross realized gains on securities were $219,000 and $334,000 at June 30, 2011 and 2010, respectively. For the three month period ended June 30, 2011 and 2010, gross realized gains on

securities were $156,000 and $1,000, respectively. Gross realized losses on securities were $124,000 for the three and six month periods ended June 30, 2011. There were no gross realized losses on securities for the three and six month periods ended June 30, 2010.

The Company’s investment portfolio consists principally of obligations of the United States, its agencies or its corporations, general obligation and revenue municipals and corporate securities. In the opinion of management, there is no concentration of credit risk in its investment portfolio. The company places its deposits and correspondent accounts with and sells its federal funds to high quality institutions. Management believes credit risk associated with correspondent accounts is not significant.

The following tables show investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at June 30, 2011 and December 31, 2010. Except as explicitly identified below, all unrealized losses on investment securities are considered by management to be temporarily impaired given the credit ratings on these investment securities and the short duration of the unrealized loss (in thousands).

At June 30, 2011

Securities Available for Sale

	Securities in a loss position for					Securities in a loss position for
	less than twelve months					twelve months or more					Total
			Unrealized					Unrealized					Unrealized
	Fair value		losses			Fair value		losses			Fair value		losses
Mortgage-backed securities	$	12,285	$	(103	)	$	289	$	(47	)	$	12,574	$	(150	)

Municipal securities	7,878		(232		)	182		(8		)	8,060		(240		)

Corporate	5,950		(50		)	—		—			5,950		(50		)

Total	$	26,113	$	(385	)	$	471	$	(55	)	$	26,584	$	(440	)

Securities Held to Maturity

There were no securities classified as held to maturity in an unrealized loss position at June 30, 2011.

At December 31, 2010

Securities Available for Sale

	Securities in a loss position for					Securities in a loss position for
	less than twelve months					twelve months or more					Total
			Unrealized					Unrealized					Unrealized
	Fair value		losses			Fair value		losses			Fair value		losses

Mortgage-backed securities	$	23,830	$	(437	)	$	3,287	$	(193	)	$	27,117	$	(630	)

Municipal securities	29,021		(1,310		)	424		(32		)	29,445		(1,342		)

Corporate	6,184		(77		)	—		—			6,184		(77		)

Total	$	59,035	$	(1,824	)	$	3,711	$	(225	)	$	62,746	$	(2,049	)

Securities Held to Maturity

	Securities in a loss position for					Securities in a loss position for
	less than twelve months					twelve months or more				Total
			Unrealized					Unrealized				Unrealized
	Fair value		losses			Fair value		losses		Fair value		losses

Municipal securities	$	275	$	(5	)	$	—	$	—	$	275	$	(5	)

Total	$	275	$	(5	)	$	—	$	—	$	275	$	(5	)

The Company’s available for sale portfolio had two investment securities at June 30, 2011 and seven investment securities at December 31, 2010 that were in an unrealized loss position for longer than twelve months. At June 30, 2011, one of the investment securities in an unrealized loss position for more than 12 months was a private label collateralized mortgage obligation (CMO) security. At

December 31, 2010 there were four private label collateralized mortgage obligation (CMO) securities in an unrealized loss position for more than 12 months. The Company reviews these securities for other-than-temporary impairment on a quarterly basis by monitoring their credit support and coverage, constant payment of the contractual principal and interest, loan to value and delinquencies ratios.

We use prices from third party pricing services and, to a lesser extent, indicative (non-binding) quotes from third party brokers, to measure fair value of our investment securities. Fair values of the investment securities portfolio could decline in the future if the underlying performance of the collateral for collateralized mortgage obligations or other securities deteriorates and the levels do not provide sufficient protection for contractual principal and interest. As a result, there is risk that an other-than-temporary impairment may occur in the future particularly in light of the current economic environment.

As of the date of its evaluation, the Company did not intend to sell and has the ability to hold these securities and it is more likely than not that the Company will not be required to sell those securities before recovery of its amortized cost or the security matures. The Company believes, based on industry analyst reports and credit ratings, that it will continue to receive scheduled interest payments as well as the entire principal balance, and the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary.

3. LOANS

Loans outstanding, by classification, are summarized as follows (in thousands):

		June 30,		December 31,
		2011		2010

Commercial, financial, and agricultural		$	16,397	$	5,968
Installment		7,146		7,564
Real estate - commercial		130,140		131,083
Real estate - residential		38,010		40,148
Real estate - construction		4,033		11,603
	Loans receivable	195,726		196,366
Less:	Net deferred loan fees	194		184
	Allowance for loan losses	3,434		4,188

	Loans receivable, net	$	192,098	$	191,994

Activity in the allowance for loan losses by portfolio segment is summarized as follows (in thousands):

	For the Three Month Period Ended June 30, 2011
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Other		Unallocated		Total

Beginning balance	$	368		$	2,453		$	208		$	290		$	522		$	—	$	—	$	3,841
Provision for loan losses	(44		)	853			471			143			55			—		—		1,478
Loans charged-off	(15		)	(1,253		)	(204		)	(368		)	(84		)	—		—		(1,924		)
Recoveries on loans charged-off	2			1			3			—			33			—		—		39
Ending Balance	$	311		$	2,054		$	478		$	65		$	526		$	—	$	—	$	3,434

	For the Six Month Period Ended June 30, 2011
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Other		Unallocated		Total

Beginning balance	$	365		$	2,616		$	376		$	290		$	541		$	—	$	—	$	4,188
Provision for loan losses	(44		)	1,328			471			143			55			—		—		1,953
Loans charged-off	(15		)	(1,891		)	(375		)	(368		)	(134		)	—		—		(2,783		)
Recoveries on loans charged-off	5			1			6			—			64			—		—		76
Ending Balance	$	311		$	2,054		$	478		$	65		$	526		$	—	$	—	$	3,434

	For the Year Ended December, 2010
	Commercial			Commercial Real Estate			Single-family Residential			Construction & Development			Consumer			Other		Unallocated		Total

Beginning balance	$	358		$	2,654		$	440		$	290		$	352		$	—	$	—	$	4,094
Provision for loan losses	99			886			616			371			493			—		—		2,465
Loans charged-off	(100		)	(935		)	(697		)	(371		)	(419		)	—		—		(2,522		)
Recoveries on loans charged-off	8			11			17			—			115			—		—		151
Ending Balance	$	365		$	2,616		$	376		$	290		$	541		$	—	$	—	$	4,188

Portions of the allowance for loan losses may be allocated for specific loans or portfolio segments. However, the entire allowance for loan losses is available for any loan that, in the judgment of management, should be charged-off. In the second quarter of 2011, the Company began charging-off the specific allowance for loan losses allocated to collateral dependent impaired loans to bring them to their fair value. At June 30, 2011, $1.6 million of the allowance for loan losses that was specifically allocated for collateral dependent impaired loans was charged-off.

In determining our allowance for loan losses, we regularly review loans for specific reserves based on the appropriate impairment assessment methodology. General reserves are determined using historical loss trends measured over a rolling four quarter average for consumer loans, and a three year average loss factor for commercial loans which is applied to risk rated loans grouped by Federal Financial Examination Council (“FFIEC”) call code. For commercial loans, the general reserves are calculated by applying the appropriate historical loss factor to the loan pool. Impaired loans greater than a minimum threshold established by management are excluded from this analysis. The sum of all such amounts determines our total allowance for loan losses.

The allocation of the allowance for loan losses by portfolio segment was as follows (in thousands):

	At June 30, 2011
	Commercial		Commercial Real Estate		Single-family Residential		Construction & Development			Consumer		Other		Unallocated		Total
Specific Reserves:
Impaired loans	$	100	$	633	$	—	$	—		$	—	$	—	$	—	$	733
Total specific reserves	100		633		—		—			—		—		—		733
General reserves	211		1,421		478		65			526		—		—		2,701
Total	$	311	$	2,054	$	478	$	65		$	526	$	—	$	—	$	3,434

Loans individually evaluated for impairment	$	681	$	14,167	$	—	$	1,690		$	—	$	—	$	—	$	16,538
Loans collectively evaluated for impairment	15,793		115,686		38,010		2,343			7,162		—		—		178,994
Total	$	16,474	$	129,853	$	38,010	$	4,033		$	7,162	$	—	$	—	$	195,532

	At December 31, 2010
	Commercial		Commercial Real Estate		Single-family Residential		Construction & Development			Consumer		Other		Unallocated		Total
Specific Reserves:
Impaired loans	$	257	$	2,129	$	—	$	301		$	—	$	—	$	—	$	2,687
Total specific reserves	257		2,129		—		301			—		—		—		2,687
General reserves	108		487		376		(11		)	541		—		—		1,501
Total	$	365	$	2,616	$	376	$	290		$	541	$	—	$	—	$	4,188

Loans individually evaluated for impairment	$	257	$	28,645	$	—	$	1,649		$	—	$	—	$	—	$	30,551
Loans collectively evaluated for impairment	5,777		102,166		40,148		9,954			7,586		—		—		165,631
Total	$	6,034	$	130,811	$	40,148	$	11,603		$	7,586	$	—	$	—	$	196,182

The following table presents impaired loans by class of loan (in thousands):

	At June 30, 2011
								Impaired Loans - With
	Impaired Loans - With Allowance							no Allowance
	Unpaid Principal		Recorded Investment		Allowance for Loan Losses Allocated			Unpaid Principal			Recorded Investment			Average Recorded Investment			Interest Income Recognized
Residential:
First mortgages	$	—	$	—	$	—		$	—		$	—		$	—		$	—
HELOC’s and equity	—		—		—			—			—			—			—
Commercial
Secured	—		—		—			433			433			446			10
Unsecured	247		247		100			—			—			—			—
Commercial Real Estate:
Owner occupied	6,290		6,194		185			—			—			6,752			2
Non-owner occupied	7,949		7,949		448			—			—			8,031			653
Multi-family	120		25		—			—			—			82			24
Construction and Development:																	.
Construction	—		—		—			1,584			1,341			1,366			28
Improved Land	—		—		—			709			349			636			17
Unimproved Land	—		—		—			—			—			—			—
Consumer and Other	—		—					—			—			—			—
Total	$	14,606	$	14,415	$	733		$	2,726		$	2,123		$	17,313		$	734

	At December 31, 2010
								Impaired Loans - With
	Impaired Loans - With Allowance							no Allowance
	Unpaid Principal		Recorded Investment		Allowance for Loan Losses Allocated			Unpaid Principal			Recorded Investment			Average Recorded Investment			Interest Income Recognized
Residential:
First mortgages	$	—	$	—	$	—		$	—		$	—		$	—		$	—
HELOC’s and equity	—		—		—			—			—			—			—
Commercial
Secured	—		—		—			—			—			—			—
Unsecured	257		257		257			—			—			301			18
Commercial Real Estate:
Owner occupied	4,097		4,097		509			11,903			11,780			14,456			1,419
Non-owner occupied	10,484		10,484		1,620			2,634			1,872			11,726			110
Multi-family	—		—		—			412			412			311			181
Construction and Development																	.
Construction	1,649		1,649		301			—			—			1,564			95
Improved Land	—		—		—			—			—			—			—
Unimproved Land	—		—		—			—			—			—			—
Consumer and Other	—		—				—			—			—			—
Total	$	16,487	$	16,487	$	2,687		$	14,949		$	14,064		$	28,358		$	1,823

Included in the tables above, there were 30 and 37 loans restructured or otherwise impaired totaling $7,149,000 and $9,799,000 with a valuation allowance of $131,000 and $271,000 at June 30, 2011 and December 31, 2010, respectively.

The following table is an aging analysis of our loan portfolio (in thousands):

	At June 30, 2011
	30- 59 Days Past Due		60- 89 Days Past Due		Over 90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing		Nonaccrual
Residential:
First mortgages	$	—	$	339	$	2,259	$	2,598	$	26,113	$	28,711	$	—	$	3,983
HELOC’s and equity	169		68		389		626		8,673		9,299		—		389
Commercial:
Secured	17		—		11		28		14,281		14,309		—		11
Unsecured	—		—		—		—		2,165		2,165		—		—
Commercial Real Estate:
Owner occupied	—		56		275		331		13,254		13,585		—		275
Non-owner occupied	427		561		3,428		4,416		102,834		107,250		—		4,694
Multi-family	—		—		—		—		9,018		9,018		—		—
Construction and Development:
Construction	—		—		1,341		1,341		667		2,008		—		1,341
Improved Land	—		—		71		71		1,477		1,548		—		71
Unimproved Land	—		—		—		—		477		477		—		—
Consumer and Other	22		12		213		247		6,915		7,162		—		215
Total	$	635	$	1,036	$	7,987	$	9,658	$	185,874	$	195,532	$	—	$	10,979

	At December 31, 2010
	30- 59 Days Past Due		60- 89 Days Past Due		Over 90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing		Nonaccrual
Residential:
First mortgages	$	4,243	$	1,325	$	2,234	$	7,802	$	22,123	$	29,925	$	—	$	3,135
HELOC’s and equity	260		218		788		1,266		8,957		10,223		—		788
Commercial:
Secured	—		—		15		15		3,609		3,624		—		80
Unsecured	—		—		—		—		2,410		2,410		—		—
Commercial Real Estate:
Owner occupied	179		212		62		453		16,656		17,109		—		62
Non-owner occupied	903		2,583		6,761		10,247		94,155		104,402		—		8,099
Multi-family	—		—		257		257		9,043		9,300		—		257
Construction and Development:
Construction	4,504		—		389		4,893		4,491		9,384		—		389
Improved Land	3		146		201		350		1,431		1,781		—		201
Unimproved Land	—		—		—		—		438		438		—		—
Consumer and Other	117		48		242		407		7,179		7,586		—		229
Total	$	10,209	$	4,532	$	10,949	$	25,690	$	170,492	$	196,182	$	—	$	13,240

Each of our portfolio segments and the classes within those segments are subject to risks that could have an adverse impact on the credit quality of our loan and lease portfolio. Management has identified the most significant risks as described below which are generally similar among our segments and classes. While the list in not exhaustive, it provides a description of the risks that management has determined are the most significant.

Commercial, financial and agricultural loans —We centrally underwrite each of our commercial loans based primarily upon the customer’s ability to generate the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. We endeavor to gain a

complete understanding of our borrower’s businesses including the experience and background of the principals. To the extent that the loan is secured by collateral, which is a predominant feature of the majority of our commercial loans, we gain an understanding of the likely value of the collateral and what level of strength the collateral brings to the loan transaction. To the extent that the principals or other parties provide personal guarantees, we analyze the relative financial strength and liquidity of each guarantor. Common risks to each class of commercial loans include risks that are not specific to individual transactions such as general economic conditions within our markets, as well as risks that are specific to each transaction including demand for products and services, personal events such as disability or change in marital status, and reductions in the value of our collateral. Due to the concentration of loans in the metro Atlanta and Birmingham areas, we are susceptible to changes in market and economic conditions of these areas.

Installment —The installment loan portfolio includes loans secured by personal property such as automobiles, marketable securities, other titled recreational vehicles and motorcycles, as well as unsecured consumer debt. The value of underlying collateral within this class is especially volatile due to potential rapid depreciation in values since date of loan origination in excess of principal repayment.

Real estate commercial loans —Real estate commercial loans consist of loans secured by multifamily housing, commercial non-owner and owner occupied and other commercial real estate loans. The primary risk associated with multifamily loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. High unemployment or generally weak economic conditions may result in our customer having to provide rental rate concessions to achieve adequate occupancy rates. Commercial owner-occupied and other commercial real estate loans are primarily dependent on the ability of our customers to achieve business results consistent with those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a customer’s business results are significantly unfavorable versus the original projections, the ability for our loan to be serviced on a basis consistent with the contractual terms may be at risk. These loans are primarily secured by real property and can include other collateral such as personal guarantees, personal property, or business assets such as inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation. Also, due to the concentration of loans in the metro Atlanta and Birmingham areas, we are susceptible to changes in market and economic conditions of these areas.

Real estate residential — Real estate residential loans are to individuals and are secured by 1-4 family residential property. Significant and rapid declines in real estate values can result in residential mortgage loan borrowers having debt levels in excess of the current market value of the collateral. Such a decline in values has led to unprecedented levels of foreclosures and losses during 2008-2010 within the banking industry.

Real estate construction —Real estate construction loans are highly dependent on the supply and demand for residential and commercial real estate in the markets we serve as well as the demand for newly constructed commercial space and residential homes and lots that our customers are developing. Continuing deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for our customers. Real estate construction loans can experience delays in completion and cost overruns that exceed the borrower’s financial ability to complete the project. Such cost overruns can routinely result in foreclosure of partially completed and unmarketable collateral.

Other —Other loans are non-commercial loans evaluated for factors such as payment history, credit utilization, length of credit history, types of credit currently in use, and recent credit inquiries. To the extent that the loan is secured by collateral we also evaluate the likely value of that collateral. Common risks to other loans include risks that are not specific to individual transactions such as general economic conditions within our markets, particularly unemployment and potential declines in real estate values. Personal events such as disability or change in marital status also add risk to other loans.

Risk categories —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. Loans classified as substandard or special mention are reviewed quarterly by the Company for further deterioration or improvement to determine if appropriately classified and impairment, if any. All other loan relationships greater than $750,000 are reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as if a loan becomes past due, the Company will evaluate the loan grade.

Loans excluded from the scope of the annual review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or even charged off. 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 payment 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.

The following table presents our loan portfolio by risk rating (in thousands):

	At June 30, 2011
	Total		Pass Credits		Special Mention		Substandard		Doubtful
Residential:
First mortgages	$	28,711	$	26,113	$	—	$	2,598	$	—
HELOC’s and equity	9,299		8,011		218		1,070		—
Commercial:
Secured	14,309		14,173		—		136		—
Unsecured	2,165		1,877		—		288		—
Commercial Real Estate:
Owner occupied	13,585		12,254		—		1,331		—
Non-owner occupied	107,250		90,134		1,268		14,580		1,268
Multi-family	9,018		8,608		410		—		—
Construction and Development:
Construction	2,008		325		—		1,683		—
Improved Land	1,548		1,199		—		349		—
Unimproved Land	477		477		—		—		—
Consumer and Other	7,162		6,943		—		209		10
Total	$	195,532	$	170,114	$	1,896	$	22,244	$	1,278

	At December 31, 2010
	Total		Pass Credits		Special Mention		Substandard		Doubtful
Residential:
First mortgages	$	29,925	$	26,066	$	234	$	3,625	$	—
HELOC’s and equity	10,223		8,759		134		1,330		—
Commercial:
Secured	3,624		3,543		1		80		—
Unsecured	2,410		2,104		—		306		—
Commercial Real Estate:
Owner occupied	17,109		14,118		1,263		1,728		—
Non-owner occupied	104,402		83,495		4,024		16,883		—
Multi-family	9,300		8,758		411		131		—
Construction and Development:
Construction	9,384		4,517		—		4,867		—
Improved Land	1,781		1,220		—		561		—
Unimproved Land	438		438		—		—		—
Consumer and Other	7,586		7,297		27		262		—
Total	$	196,182	$	160,315	$	6,094	$	29,773	$	—

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures or monitors certain of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities that are elected to be accounted for under ASC guidance as well as certain assets and liabilities in which fair value is the primary basis of accounting. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value, which are in accordance with the guidance for determining the fair value of a financial asset when the market for that asset is not active.

In accordance with ASC guidance, the Company applied the following fair value hierarchy:

Level 1—Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury and other highly liquid investments that are actively traded in over-the-counter markets.

Level 2—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 for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. Government and agency mortgage-backed debt securities, certain derivative contracts and impaired loans.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

Investment Securities Available for Sale —Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the counter markets and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Other Real Estate Owned —Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charges to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

Loans —The Company does not record loans at fair value on a recurring basis, however, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired. Once a loan is identified as individually impaired, management measures impairment. The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At June 30, 2011 and December 31, 2010, substantially all of the impaired loans were evaluated based upon the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral

require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3.

Goodwill and Other Intangible Assets—Goodwill and other intangible assets are measured for impairment on an annual basis or more frequently if there is a change in circumstances. If the goodwill or other intangibles exceed the fair value, an impairment charge is recorded in an amount equal to the excess. Impairment is tested utilizing accepted valuation techniques utilizing discounted cash flows of the business unit, and implied fair value based on a multiple of earnings and tangible book value for merger transactions. The measurement of these fair values is considered a Level 3 measurement.

The following tables present financial assets measured at fair value on a recurring and nonrecurring basis and the change in fair value for those specific financial instruments in which fair value has been elected. There were no financial liabilities measured at fair value for the periods being reported (in thousands).

	Fair Value Measurements at June 30, 2011
			Quoted Prices
			In Active		Significant
			Markets for		Other		Significant
	Assets		Identical		Observable		Unobservable
	Measured at		Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Recurring Basis:
Assets
Securities available for sale:
State, county, and municipal securities	$	45,821	$	—	$	45,821	$	—
Mortgage-backed securities	63,261		—		63,261		—
Corporate securities	9,658		—		9,658		—
	118,740				118,740

Nonrecurring Basis:
Assets
Impaired loans	$	15,805	$	—	$	15,805	$	—
Other real estate owned	10,908		—		10,908		—

	Fair Value Measurements at December 31, 2010
			Quoted Prices
			In Active		Significant
			Markets for		Other		Significant
	Assets		Identical		Observable		Unobservable
	Measured at		Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Recurring Basis:
Assets
Securities available for sale:
State, county, and municipal securities	$	45,904	$	—	$	45,904	$	—
Mortgage-backed securities	72,969		—		72,969		—
Corporate securities	8,482		—		8,482		—
	127,355				127,355

Nonrecurring Basis:
Assets
Impaired loans	$	27,864	$	—	$	27,864	$	—
Other real estate owned	9,110		—		9,110		—

Following are disclosures of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered an estimate of the liquidation value of the Company, but rather a good-faith estimate of the increase or decrease in the value of financial instruments held by the Company since purchase, origination, or issuance.

Cash, Due from Banks, Federal Funds Sold, Interest-Bearing Deposits with Banks and Certificates of Deposits —Carrying amount is a reasonable estimate of fair value due to the short-term nature of such items.

Investment Securities —Fair value of investment securities are based on quoted market prices.

Other Investments —The carrying amount of other investments approximates its fair value.

Loans —The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For variable rate loans, the carrying amount is a reasonable estimate of fair value.

Cash Surrender Value of Life Insurance —Cash values of life insurance policies are carried at the value for which such policies may be redeemed for cash.

Deposits —The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed rate certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

Advances from Federal Home Loan Bank —The fair values of advances from the Federal Home Loan Bank are estimated by discounting the future cash flows using the rates currently available to the Bank for debt with similar remaining maturities and terms.

Commitments to Extend Credit and Commercial Letters of Credit —Because commitments to extend credit and commercial letters of credit are made using variable rates, or are recently executed, the contract value is a reasonable estimate of fair value.

Limitations — Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments; for example, premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The carrying values and estimated fair values of the Company’s financial instruments at June 30, 2011 and December 31, 2010 are as follows:

	2011				2010
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
	(in thousands)				(in thousands)
Financial assets:
Cash and due from banks	$	6,253	$	6,253	$	4,764	$	4,764
Interest-bearing deposits with banks	34,326		34,326		19,033		19,033
Cetificates of deposit	100		100		150		150
Investment securities	122,044		122,130		130,666		130,748
Other investments	1,689		1,689		2,058		2,058
Loans—net	192,098		193,862		191,994		192,893
Cash surrender value of life insurance	11,063		11,063		10,848		10,848

Financial liabilities:
Deposits	345,558		334,914		337,604		325,744
Advances from Federal Home Loan Bank	319		319		328		328

	Notional		Estimated		Notional		Estimated
	amount		fair value		amount		fair value
Off-balance-sheet financial instruments:
Commitments to extend credit	$	23,145	$	—	$	20,072	$	—
Commercial letters of credit	2,389		—		2,499		—

5. OTHER REAL ESTATE OWNED

Other real estate owned is reported at the lower of cost or fair value less estimated disposal costs, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources. Any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is treated as a charge-off against the allowance for loan losses. Any subsequent declines in value are charged to earnings. Transactions in other real estate owned are summarized below (in thousands):

	June 30,			December 31,
	2011			2010

Balance—beginning of period	$	9,110		$	10,837
Additions	4,278			3,340
Sales	(1,975		)	(3,089		)
Write downs	(505		)	(1,978		)

Balance—end of period	$	10,908		$	9,110

6. INTANGIBLE ASSETS

Finite lived intangible assets of the Company represent deposit assumption premiums recorded upon the purchase of certain assets and liabilities from other financial institutions. Deposit assumption premiums are amortized over seven years, the estimated average lives of the deposit bases acquired, using the straight-line method and are included within other assets on the Consolidated Balance Sheets.

The Company applies a fair value-based impairment test to the carrying value of goodwill on an annual basis and on an interim basis if certain events or circumstances indicate that an impairment loss may have been incurred.

The following table presents information about the Company’s intangible assets (in thousands):

	June 30, 2011				December 31, 2010
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization

Unamortized intangible asset:
Goodwill	$	362	$	—	$	362	$	—

Amortized intangible assets:
Core deposit intangibles	$	3,676	$	1,435	$	3,676	$	1,199

The following table presents information about aggregate amortization expense (in thousands):

	Three months ended June 30, 2011				Six months ended June 30, 2011
	2011		2010		2011		2010
Aggregate amortization expense of core deposit intangibles:	$	118	$	122	$	236	$	253

Estimated aggregate amortization expense of core deposit intangibles for the years ending December 31:

2011	$	472
2012	$	472
2013	$	472
2014	$	472
2015 and thereafter	$	471

7. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes: (1) reported net income (loss) and (2) unrealized gains and losses on marketable securities. The following table shows our comprehensive income (loss) (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010

Net Income (loss)	$	(374	)	$	(1,104	)	$	(156	)	$	(479	)

Other comprehensive income	1,056			852			1,697			734

Comprehensive income (loss)	$	682		$	(252	)	$	1,541		$	255

8. NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE

Basic and diluted net income (loss) per share available to common and potential common stockholders has been calculated based on the weighted average number of shares outstanding. The following schedule reconciles the numerator and denominator of the basic and diluted net income (loss) per share available to common and potential common stockholders for the three and six month periods ended June 30, 2011 and 2010 (in thousands, except per share data):

	Net Income			Shares	Per Share
	(Numerator)			(Denominator)	Amount

Three Months ended June 30, 2011

Basic earnings (loss) per share available to common stockholders	$	(433	)	2,120	$	(0.20	)
Nonvested restricted stock grant	—			—	—
Effect of dilutive securities: options to purchase common shares	—			—	—

Diluted earnings per share	$	(433	)	2,120	$	(0.20	)

Three Months ended June 30, 2010

Basic earnings (loss) per share available to common stockholders	$	(1,198	)	2,103	$	(0.57	)
Nonvested restricted stock grant	—			—	—
Effect of dilutive securities: options to purchase common shares	—			—	—

Diluted earnings per share	$	(1,198	)	2,103	$	(0.57	)

Six Months ended June 30, 2011

Basic earnings (loss) per share available to common stockholders	$	(274	)	2,119	$	(0.13	)
Nonvested restricted stock grant	—			—	—
Effect of dilutive securities: options to purchase common shares	—			—	—

Diluted earnings per share	$	(274	)	2,119	$	(0.13	)

Six Months ended June 30, 2010

Basic earnings (loss) per share available to common stockholders	$	(667	)	2,103	$	(0.32	)
Nonvested restricted stock grant	—			—	—
Effect of dilutive securities: options to purchase common shares	—			—	—

Diluted earnings per share	$	(667	)	2,103	$	(0.32	)

9. SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date its financial statements were issued.

10. RECLASSIFICATIONS

Certain amounts in the 2010 consolidated financial statements were reclassified to conform to the 2011 presentation. These reclassifications had no effect on shareholders’ equity or the results of operations as previously presented.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

INTRODUCTION

Citizens Bancshares Corporation (the “Company”) is a holding company that provides a full range of commercial and personal banking services to individuals and corporate customers in its primary market areas, metropolitan Atlanta and Columbus, Georgia, and Birmingham and Eutaw, Alabama through its wholly owned subsidiary, Citizens Trust Bank (the “Bank”). The Bank is a member of the Federal Reserve System and operates under a state charter. The Company serves its customers through 11 full-service financial centers in Georgia and Alabama.

Forward Looking Statements

In addition to historical information, this report on Form 10-Q may contain forward-looking statements. For this purpose, any statements contained herein, including documents incorporated by reference, that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are subject to numerous assumptions, risks and uncertainties. Without limiting the foregoing, the words “believe,” “anticipates,” “plan,” expects,” and similar expressions are intended to identify forward-looking statements.

Forward-looking statements are based on current management expectations and, by their nature, are subject to risk and uncertainties because of the possibility of changes in underlying factors and assumptions. Actual conditions, events or results could differ materially from those contained in or implied by such forward-looking statements for a variety of reasons, including: sharp and/or rapid changes in interest rates; significant changes in the economic scenario from the current anticipated scenario which could materially change anticipated credit quality trends and the ability to generate loans and gather deposits; significant delay in or inability to execute strategic initiatives designed to grow revenues and/or control expenses; unanticipated issues during the integration of acquisitions; and significant changes in accounting, tax or regulatory practices or requirements. The Company undertakes no obligation to, nor does it intend to, update forward-looking statements to reflect circumstances or events that occur after the date hereof or to reflect the occurrence of unanticipated events.

The following discussion is of the Company’s financial condition as of June 30, 2011 and December 31, 2010, and the changes in the financial condition and results of operations for the three and six month periods ended June 30, 2011 and 2010.

Critical Accounting Policies

In response to the Securities and Exchange Commission’s (“SEC”) Release No. 33-8040, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, the Company has identified the following as the most critical accounting policies upon which its financial status depends. The critical policies were determined by considering accounting policies that involve the most complex or subjective decisions or assessments. The Company’s most critical accounting policies relate to:

Investment Securities - The Company classifies investments in one of three categories based on management’s intent upon purchase: held to maturity securities which are reported at amortized cost, trading securities which are reported at fair value with unrealized holding gains and losses included in earnings, and available for sale securities which are recorded at fair value with unrealized holding gains and losses included as a component of accumulated other comprehensive income. The Company had no investment securities classified as trading securities during 2011 or 2010.

Premiums and discounts on available for sale and held to maturity securities are amortized or accreted using a method which approximates a level yield.

Gains and losses on sales of investment securities are recognized upon disposition, based on the adjusted cost of the specific security. A decline in market value of any security below cost that is deemed other than temporary is charged to earnings or OCI resulting in the establishment of a new cost basis for the security.

Loans — Loans are reported at principal amounts outstanding less unearned income and the allowance for loan losses. Interest income on loans is recognized on a level-yield basis. Loan fees and certain direct origination costs are deferred and amortized over the estimated terms of the loans using the level-yield method. Discounts on loans purchased are accreted using the level-yield method over the estimated remaining life of the loan purchased.

Allowance for Loan Losses - The Company provides for estimated losses on loans receivable when any significant and permanent decline in value occurs. These estimates for losses are based, not only on individual assets and their related cash flow forecasts, sales values, and independent appraisals, but also on the volatility of certain real estate markets, and the concern for disposing of real estate in distressed markets. For loans that are pooled for purposes of determining the necessary provisions, estimates are based on loan types, history of charge-offs, and other delinquency analyses. Therefore, the value used to determine the provision for losses is subject to the reasonableness of these estimates. The adequacy of the allowance for loan losses is reviewed on a monthly basis by management and the Board of Directors. On a semi-annual basis an independent comprehensive review of the methodology and allocation of the allowance for loan losses is performed. This assessment is made in the context of historical losses as well as existing economic conditions, and individual concentrations of credit. Loans are charged against the allowance when, in the opinion of management, such loans are deemed uncollectible and subsequent recoveries are added to the allowance.

Other Real Estate Owned - Other real estate owned is reported at the lower of cost or fair value less estimated disposal costs, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources. Any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is treated as a charge-off against the allowance for loan losses. Any subsequent declines in value are charged to earnings.

Income Taxes - Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities result in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such assets is required. A valuation allowance is provided for the portion of a deferred tax asset when it is more likely than not that some portion or all of the deferred tax asset will not be realized. In assessing the realizability of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.

The Company believes that its income tax filing positions taken or expected to be taken in its tax returns will more likely than not be sustained upon audit by the taxing authorities and does not anticipate any adjustments that will result in a material adverse impact on the Company’s financial

condition, results of operations, or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded.

A description of other accounting policies are summarized in Note 1, Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The Company has followed those policies in preparing this report.

FINANCIAL CONDITION

At June 30, 2011, the Company had total assets of $397,654,000 compared to $387,806,000 at December 31, 2010. Total assets consisted primarily of $122,044,000 in investments securities and $192,098,000 in net loans representing 31% and 48% of total assets, respectively. Investment securities and net loans represented 34% and 50% of total assets at December 31, 2010.

Interest-bearing deposits with banks increased by $15,293,000 to $34,326,000 for the six month period ended June 30, 2011 compared to December 31, 2010. Interest-bearing deposits with banks primarily represent funds maintained on deposit at the Federal Reserve Bank (FRB) and the Federal Home Loan Bank (FHLB). These funds fluctuate daily and are used to manage the Company’s liquidity position. The Company monitors its short-term liquidity position daily and closely manages its overnight cash positions in light of the current economic environment.

Loans typically provide higher interest yields than other types of interest-earning assets and, therefore, continue to be the largest component of the Company’s assets. Net loans receivable increased by $3,809,000 for the three month period in the second quarter of 2011. The Company, in its efforts to increase loan volume, is participating in a leasing arrangement with a Fortune 500 company and joined a cooperative of small and mid-sized banks working together to locate and direct commercial loans for independent underwriting, evaluation and approval by member banks. Although the Company has experienced some improvement in its lending volume, we expect loan demand to continue to be weak due to the ongoing challenging economic conditions and high unemployment.

At June 30, 2011, other real estate owned increased by $1,798,000 to $10,908,000 compared to the year-end of 2010. The increase is primarily due to the addition of properties totaling $4,278,000 during the six month period, partially offset by sales of $1,975,000 and write-downs totaling $505,000. The Company realized a loss of $34,000 on the sale of OREO for the six month period ended June 30, 2011 compared to a gain of $4,000 for the same period last year. For the three month period ended June 30, 2011, the Company realized a loss on the sale of OREO of $20,000. There were no gain or loss realized on the sale of OREO for the three month period ended June 30, 2010.

Cash value of life insurance, a comprehensive compensation program for directors and certain senior managers of the Company, increased $215,000 to $11,063,000 at June 30, 2011. The increase primarily represents the earnings on the premiums paid over the life of the insurance contract.

The Company’s liabilities at June 30, 2011 totaled $350,582,000 and consisted primarily of $345,558,000 in deposits, representing an increase of $7,954,000 compared to total deposits of $337,604,000 at December 31, 2010. The remaining liabilities were FHLB advances totaling $319,000 compared to $328,000 at December 31, 2010.

The Company’s asset/liability management program, which monitors the Company’s interest rate sensitivity as well as volume and mix changes in earning assets and interest bearing liabilities, may impact the growth of the Company’s balance sheet as it seeks to maximize net interest income.

INVESTMENT SECURITIES

The composition of the Company’s investment securities portfolio reflects the Company’s investment strategy of maximizing portfolio yields commensurate with risk and liquidity considerations. The primary objective of the Company’s investment strategy is to maintain an appropriate level of liquidity and provide a tool to assist in controlling the Company’s interest rate sensitivity position, while at the same time producing adequate levels of interest income.

At June 30, 2011 and December 31, 2010, the investment securities portfolio represented approximately 31% and 34%, respectively, of the Company’s total assets.

Other investments consist of Federal Home Loan Bank and Federal Reserve Bank stock which are restricted and have no readily determined market value. The Company is required to maintain an investment in the FHLB and the FRB as part of its membership conditions. The level of investments at the FHLB is primarily determined by the amount of outstanding advances. The FRB investment level is 6 percent of the par value of the bank’s common stock outstanding and paid-in-capital. These investments are carried at cost.

LOANS

Loans outstanding, by classification, are summarized as follows (in thousands):

		June 30,		December 31,
		2011		2010

Commercial, financial, and agricultural		$	16,397	$	5,968
Installment		7,146		7,564
Real estate - commercial		130,140		131,083
Real estate - residential		38,010		40,148
Real estate - construction		4,033		11,603
	Loans receivable	195,726		196,366
Less:	Net deferred loan fees	194		184
	Allowance for loan losses	3,434		4,188

	Loans receivable, net	$	192,098	$	191,994

The Company does not have any concentrations of loans exceeding 10% of total loans of which management is aware and which are not otherwise disclosed as a category of loans in the table above or in other sections of this Annual Report on Form 10-K. A substantial portion of the Company’s loan portfolio is secured by real estate in metropolitan Atlanta and Birmingham.

The largest component of loans in the Company’s loan portfolio is real estate commercial loans. At June 30, 2011 and December 31, 2010, real estate commercial loans, which represent commercial and industrial real estate and other loans secured by multi-family properties, totaled $130 million and $131 million, respectively, and represented 67% of loans, net of unearned income for the periods reported.

As stated above, a substantial portion of the Company’s loan portfolio is collateralized by real estate in metropolitan Atlanta and Birmingham markets. Accordingly, the ultimate collectibility of a substantial portion of the Company’s loan portfolio is susceptible to changes in market conditions in the metropolitan Atlanta and Birmingham areas.

· The Company’s loans to area churches were approximately $42 million and $44 million at June 30, 2011 and December 31, 2010, respectively, which are generally secured by real estate.

· The Company’s loans to area convenience stores were approximately $11 million and $12 million at June 30, 2011 and December 31, 2010, respectively. Loans to convenience stores are generally secured by real estate.

· The Company’s loans to area hotels were approximately $27 million and $21 million at June 30, 2011 and December 31, 2010, respectively, which are generally secured by real estate.

NONPERFORMING ASSETS

Nonperforming assets include nonperforming loans, real estate acquired through foreclosure, and repossessed assets. Nonperforming loans generally include loans and leases, and loans whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties that are past due with respect to principal or interest more than 90 days and have been placed on nonaccrual status.

Accrued interest income is reversed when a loan is placed on nonaccrual status. Interest collections on nonaccruing loans and leases for which the ultimate collectability of principal is uncertain are applied as principal reductions; otherwise, such collections are credited to income when received. Nonperforming loans may be restored to accrual status when all principal and interest is current and the full repayment of the remaining contractual principal and interest is expected, or when the loan becomes well-secured and is in the process of collection.

With the exception of the loans included within nonperforming assets in the table below, management is not aware of any loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been disclosed which (1) represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources, or (2) represent any information on material credits of which management is aware that causes management to have serious doubts as to the abilities of such borrowers to comply with the loan repayment terms.

The financial and credit conditions in our local markets continued to experience difficulty during 2011. While there appeared to be some positive signs of recovery earlier in the year, our local markets continue to be impacted by recessionary conditions which continue to influence the levels of our nonperforming assets. Metro Atlanta, Georgia, our largest market, saw its unemployment rate increased to 10.5% in June 2011 from a revised 9.7% in May 2011.

For the year, there was a nominal decrease in nonperforming assets of $463,000 to $21,887,000 compared to December 31, 2010; however, for the three month period ending June 30, 2011, nonperforming assets decreased by $3,151,000 from $25,038,000 reported at March 31, 2011. The Company charged-off $2,783,000 in nonperforming loans during the first six months of 2011 compared to $1,081,000 for the same period last year. A significant portion of the loans charged-off, $1,926,000, represents the excess value over the appraised value of the property of four properties the Company foreclosed or is in the process of foreclosing in order to liquidate the properties. OREO increased by $1,798,000 to $10,908,000 for the year and decreased by $1,272,000 for the three month period compared to the first quarter of 2011 as the Company liquidated several properties during the second quarter of 2011. At June 30, 2011, nonperforming assets represent 5.50% of total assets compared to 5.76% at December 31, 2010. There were no loans greater than 90 days past due and still accruing interest at the end of the second quarter of 2011 or at December 31, 2010.

The table below presents a summary of the Company’s nonperforming assets at June 30, 2011 and December 31, 2010.

	June 30,			December 31,
	2011			2010
	(in thousands, except
	financial ratios)
Nonperforming assets:
Nonperforming loans:
Restructured nonperforming loans (TDRs)	$	1,975		$	2,757
Other nonaccrual loans	9,004			10,483
Past-due loans of 90 days or more and still accruing	—			—
Nonperforming loans	10,979			13,240

Real estate acquired through foreclosure	10,908			9,110
Total nonperforming assets	$	21,887		$	22,350

Ratios:
Nonperforming loans to loans, net of unearned income	5.61		%	6.75		%

Nonperforming assets to loans, net of unearned income, and real estate acquired through foreclosure	10.60		%	10.89		%

Nonperforming assets to total assets	5.50		%	5.76		%

Allowance for loan losses to nonperforming loans	31.28		%	31.63		%

Allowance for loan losses to nonperforming assets	15.69		%	18.74		%

TROUBLED DEBT RESTRUCTURINGS

With respect to commercial TDRs, an analysis of the credit evaluation, in conjunction with an evaluation of the borrower’s performance prior to the restructuring, are considered when evaluating the borrower’s ability to meet the restructured terms of the loan agreement. Nonperforming commercial TDRs may be returned to accrual status based on a current, well-documented credit evaluation of the borrower’s financial condition and prospects for repayment under the modified terms. This evaluation must include consideration of the borrower’s sustained historical repayment performance for a

reasonable period (generally a minimum of six months) prior to the date on which the loan is returned to accrual status.

The following table summarizes the Company’s TDRs and loans modifications (in thousands):

	June 30, 2011		December 31, 2010

Troubled Debt Restructured Loans:
Restructured loans still accruing	$	5,174	$	7,042
Restructured loans nonaccruing	1,975		2,757
Other Loan Modifications	—		—
Total restructured and modified loans	$	7,149	$	9,799

Troubled debt restructured loans that have performed in accordance with the restructured terms of the agreement for one year and for which an interest rate concession was not granted are removed from the TDR classification.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is primarily available to absorb losses inherent in the loan portfolio. Credit exposures deemed uncollectible are charged against the allowance for loan losses.

The Company provides for estimated losses on loans receivable when any significant and permanent decline in value occurs. These estimates for losses are based on individual assets and their cash flow forecasts, sales values, independent appraisals, the volatility of certain real estate markets, and concern for disposing of real estate in distressed markets. For loans that are pooled for purposes of determining the necessary provisions, estimates are based on loan types, history of charge-offs, and other delinquency analyses. Therefore, the value used to determine the provision for losses is subject to the reasonableness of these estimates. The adequacy of the allowance for loan losses is reviewed on a monthly basis by management and the Board of Directors. On a semi-annual basis an independent review of the adequacy of allowance for loan losses is performed. This assessment is made in the context of historical losses as well as existing economic conditions, and individual concentrations of credit.

The Company maintains an allowance for estimated loan losses that it believes is adequate for absorbing any probable losses in the loan portfolio. As an integral part of their supervisory function, federal banking regulators periodically review the allowance for estimated loan losses and may require the Company to increase the allowance for estimated loan losses. Based on a recent review by the Company’s federal regulators, the FRB determined that the Company’s allowance for estimated loan

losses was not adequate, resulting in a net addition of $747,000 to be recorded to the loan loss provision. As a result, the second quarter of 2011 provision for loan losses charged against operating earnings increased by $618,000 to $1,478,000 compared to $860,000 for the same three month period last year. For the first six months of 2011, a provision for loan losses of $1,953,000 was charged against operating earnings compared to $1,490,000 for the same period last year. Approximately $733,000 of the allowance for loan losses was allocated to loans management considered impaired at June 30, 2011.

At June 30, 2011, management believes the allowance for loan losses is adequate. Management uses available information to recognize losses on loans; however, future additions to the allowance may be necessary based on changes in economic conditions, particularly in the metropolitan Atlanta, Georgia and Birmingham, Alabama areas. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

The following table summarizes loans, changes in the allowance for loan losses arising from loans charged off, recoveries on loans previously charged off by loan category, and additions to the allowance which have been charged to operating expense as of and for the six month periods ended June 30, 2011 and 2010 (amount in thousands, except financial ratios):

	2011			2010

Loans, net of unearned income	$	195,532		$	198,376

Average loans, net of unearned income and the allowance for loan losses	$	190,807		$	197,742

Allowance for loan losses at the beginning of period	$	4,188		$	4,094

Loans charged-off:
Commercial, financial, and agricultural	15			100
Real estate - loans	2,634			516
Installment loans to individuals	134			465
Total loans charged-off	2,783			1,081

Recoveries of loans previously charged off:
Commercial, financial, and agricultural	5			6
Real estate - loans	7			8
Installment loans to individuals	64			71
Total loans recovered	76			85

Net loans charged-off	2,707			996

Additions to allowance for loan losses charged to operating expense	1,953			1,490

Allowance for loan losses at period end	$	3,434		$	4,588

Ratio of net loans charged-off to average loans, net of unearned income and the allowance for loan losses	1.42		%	0.50		%

Ratio of allowance for loan losses to loans, net of unearned income	1.76		%	2.31		%

The following table presents the allocation of the allowance for loan losses. The allocation is based on an evaluation of defined loans problems, historical ratios of loan losses, and other factors that may affect future loan losses in the categories of loans shown (amount in thousands):

	June 30, 2011				December 31, 2010
			Percent of				Percent of
	Amount		Total Loans		Amount		Total Loans

Commercial, financial, and agricultural	$	311	8	%	$	365	3	%
Installment	526		4	%	541		4	%
Real estate - commercial	2,054		67	%	2,616		67	%
Real estate - residential	478		19	%	376		20	%
Real estate - construction	65		2	%	290		6	%

Total allowance for loan losses	$	3,434	100	%	$	4,188	100	%

DEPOSITS

Deposits are the Company’s primary source of funding loan growth. Total deposits at June 30, 2011 increased by 2% or $7,954,000 to $345,558,000 compared to December 31, 2010. The bank has a stable core deposit base with a high percentage of non-interest bearing deposits. Noninterest-bearing deposits decreased slightly by $638,000 to $57,905,000 and interest-bearing deposits increased by $8,592,000, or 3%, to $287,653,000 for the six month period ending June 30, 2011. On an average basis, noninterest-bearing deposits were consistent for the first six months of the year at $62,655,000 compared to $62,799,000 at December 31, 2010. Average interest-bearing deposits decreased by $6,818,000 to $276,304,000 at June 30, 2011 compared to $283,122,000 at December 31, 2010. As a result of the high level of low cost core deposits, the Company maintained a net interest margin of 4.26% at June 30, 2011 compared to 4.17% reported for the same period last year.

The Company is participating in the Temporary Liquidity Guarantee Program’s full coverage of noninterest-bearing deposit transaction accounts. In addition, the Company participates in Certificate of Deposit Account Registry Services (“CDARS”), a program that allows its customers the ability to benefit from full FDIC insurance on CD investments. At June 30, 2011 and December 31, 2010, the Company had $15,080,000 and $14,813,000 in CDARS deposits. Participation in these programs has enhanced the Company’s ability to retain Corporate and Governmental customers’ deposits that make sizeable deposits and withdrawals based on their budgetary needs.

The following is a summary of interest-bearing deposits (in thousands):

	June 30		December 31,
	2011		2010

NOW and money market accounts	$	93,379	$	96,412
Savings accounts	31,569		31,841
Time deposits of $100,000 or more	108,576		94,572
Other time deposits	54,129		56,236
	$	287,653	$	279,061

OTHER BORROWED FUNDS

The Company continues to emphasize funding earning asset growth through core deposits; however, the Company has relied on other borrowings as a supplemental funding source. Other borrowings consist of Federal funds purchased, short-term borrowings and FHLB advances.

The Bank had outstanding advances from the FHLB of $319,000 at June 30, 2011 and $328,000 at December 31, 2010. These advances are collateralized by FHLB stock, a blanket lien on 1-4 family and multifamily mortgage loans, certain commercial real estate loans and investment securities. As of June 30, 2011 and December 31, 2010, total loans pledged as collateral was $37,970,000 and $43,477,000, respectively.

Maturity	Callable	Type		June 30, 2011				December 31, 2010
						(in thousands)

August 2026			(1)	—		319		—		328

Total Principal Outstanding						$	319			$	328

Weighted Average Rate at Period End				—	%			—	%

(1)	Represents an Affordable Housing Program (AHP) award used to subsidize loans for homeownership or rental initiatives. The AHP is a principal reducing credit, scheduled to mature on August 17, 2026 with an interest rate of zero.

At June 30, 2011, the Company had a $78.6 million line of credit facility at the FHLB of which $20.3 million was committed consisting of an advance of $319,000 and a letter of credit to secure public deposits in the amount of $20 million. The Company also had $18.6 million of borrowing capacity at the Federal Reserve Bank discount window.

RESULTS OF OPERATIONS

Net Interest Income:

Net interest income is the principal component of a financial institution’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates as well as volume and mix changes in earning assets and interest bearing liabilities can materially impact net interest income.

For the three-month period ended June 30, 2011, net interest income increased by $119,000 to $3,733,000 compared to $3,614,000 reported for the same period last year. This increase is due to the Company’s low cost of funds which were approximately 0.49% at June 30, 2011 compared to 0.77% for the same period last year. Total interest expense for the period decreased by $263,000 or 39% compared to the same three month period in 2010. Total interest income declined by $144,000 compared to the same three month period in 2010 primarily due to a $98,000 decrease in interest income on loans and a $46,000 decrease in investment interest income. Despite the quarter over quarter improvements in the net interest margin, the Company continues to experience lower loan volume as well as lower loan and investment yields as the economic environment remains sluggish.

For the six month period ended June 30, 2011, net interest income decreased by $112,000 or 2% to $7,305,000 compared to $7,417,000 reported for the same period last year. Total interest income declined by $638,000 to $8,151,000 compared to the same six month period in 2010 primarily due to a $519,000 decrease in interest income on loans. The decline in interest income on loans is caused by

continued weakness in loan demand and lower loan yields. Similarly, interest income on investment securities declined by $119,000 due to lower yields earned on investment securities compared to the second quarter of 2010. Total interest expense for the period decreased by $526,000 or 38% compared to the same six month period in 2010. Interest expense on interest-bearing deposits decreased by $509,000 or 38%, as the Company continues to lower its funding cost and improved its deposit mix. Also, interest expense on other borrowings decreased by $17,000 or 100% as the Company had no outstanding interest bearing advances from the FHLB during the second quarter of 2011. At June 30, 2011, the Company maintained a net interest margin of 4.26%, an increase of 0.09% compared to 4.17% reported in the first quarter of the year and at June 30, 2010.

The Company has an asset/liability management program which monitors the Company’s interest rate sensitivity and ensures the Company is competitive in the loan and deposit market. The Company continues to monitor its asset/liability mix and will make changes as appropriate to ensure it is properly positioned to react to changing interest rates and inflationary trends.

Provision for loan losses

In the second quarter, the Company’s provision for loan losses increased by $1,003,000 to $1,478,000 compared to the first quarter of 2011. This increase was driven by several commercial real estate properties placed on nonaccrual status during the second quarter and an additional provision of $747,000 required by a joint examination of Citizens Trust Bank, the wholly owned subsidiary of the Company (the “Bank”), by the Federal Reserve Bank and the Georgia Department of Banking and Finance. Compared to the same three month period last year, the second quarter 2011 provision for loan losses represents an increase of $618,000. For the first six months of 2011, the Company recognized a provision for loan losses of $1,953,000, a $463,000 or 31% increase, compared to $1,490,000 for the same period in 2010. The allowance for loan losses was $3,434,000 at June 30, 2011 compared to $4,188,000 at December 31, 2010. At June 30, 2011, the allowance for loan losses was 31% of nonperforming loans compared to 32% at December 31, 2010. The provision for loan losses and the resulting allowance for loan losses are based on changes in the size and character of the Company’s loan portfolio, changes in nonperforming and past due loans, the existing risk of individual loans, concentrations of loans to specific borrowers or industries, and economic conditions. At June 30, 2011, the Company considered its allowance for loan losses to be adequate.

Noninterest income:

Noninterest income consists of revenues generated from a broad range of financial services and activities, including fee-based services and commissions earned through insurance sales. In addition, gains and losses realized from the sale of investment portfolio securities and sales of assets are included in noninterest income.

Noninterest income totaled $1,171,000 for the three month period ended June 30, 2011, a nominal decrease of $47,000 or 3% compared with the same period last year. The decline in the second quarter of 2011 is primarily attributed to lower service charges on deposits which decreased by $87,000 primarily due to lower NSF and overdraft fees, partially offset by a $31,000 increase in gains on the sale of securities compared to the same period last year.

Year-to-date, noninterest income decreased by $557,000 or 19% to $2,413,000 compared to the same period last year. This decrease is partially attributed to gains on the sale of securities which totaled $95,000 for the first six month of 2011 compared to $334,000 reported last year. In addition, in the first six months of 2010, the Company received a $259,000 award for its participation in the U.S. Department of Treasury Bank Enterprise Award (BEA) which provides financial incentives for lending and investment activities within economically distressed communities. As of June 30, 2011, the Company has not received a BEA and may not be awarded the BEA in 2011. As a result, other

operating income for the first six month of 2011 declined by $195,000 or 25%.

Noninterest expense:

Noninterest expense includes compensation and benefits, occupancy expenses, advertising and marketing, professional fees, office supplies, data processing, telephone expenses, miscellaneous items and other losses.

Non-interest expense in the second quarter of 2011 decreased by $1,686,000, or 29%, compared to the same quarter last year as OREO related expenses and write-downs decreased by $1,441,000. Also, the Company continues to benefit from several savings initiatives it has implemented. For the three month period ended June 30, 2011, salaries and employee benefits decreased by $237,000. This decrease is due to a reduction of full time employees and a change in the Company’s medical benefit plan to control cost. Net occupancy cost, amortization of core deposits intangible and FDIC insurance expenses decreased by $26,000, $4,000 and $17,000, respectively, compared to the same period last year. Offsetting these declines were an increase in other operating expenses of $39,000 compared to the same period last year.

For the six month period ended June 30, 2011, noninterest expense decreased by $1,676,000 or 17%. The same factors in the quarterly year-over-year comparison also contributed to the six month decrease in total noninterest expense. Total OREO expenses decreased by $1,238,000 or 67% as appraised value of OREO properties show some stabilization. Salaries and employee benefits, net occupancy cost and, amortization of core deposits decreased by $376,000, $66,000 and $18,000, respectively, compared to the same period last year due to the same factors stated in the quarterly year-over-year comparison. Offsetting these decreases were a nominal increase of $22,000 in other operating expenses.

INTEREST RATE SENSITIVITY MANAGEMENT

Interest rate sensitivity management involves managing the potential impact of interest rate movements on net interest income within acceptable levels of risk. The Company seeks to accomplish this by structuring the balance sheet so that repricing opportunities exist for both assets and liabilities in equivalent amounts and time intervals. Imbalances in these repricing opportunities at any point in time constitute a financial institution’s interest rate risk. The Company’s ability to reprice assets and liabilities in the same dollar amounts and at the same time minimizes interest rate risk.

One method of measuring the impact of interest rate sensitivity is the cumulative gap analysis. The difference between interest rate sensitive assets and interest rate sensitive liabilities at various time intervals is referred to as the gap. The Company is liability sensitive on a short-term basis as reflected in the following table. Generally, a net liability sensitive position indicates that there would be a negative impact on net interest income in an increasing rate environment. However, interest rate sensitivity gap does not necessarily indicate the impact of general interest rate movements on the net interest margin, since all interest rates and yields do not adjust at the same velocity and the repricing of various categories of assets and liabilities is subject to competitive pressures and the needs of the Company’s customers. In addition, various assets and liabilities indicated as repricing within the same period may in fact reprice at different times within such period and at different rates. The following table shows the contractual maturities of all interest rate sensitive assets and liabilities at June 30, 2011. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Taking a conservative approach, the Company has included demand deposits such as NOW, money market, and savings accounts in the three month category. However, the actual repricing of these accounts may extend beyond twelve months. The interest rate sensitivity gap is only a general indicator of potential effects of interest rate changes on net interest income.

The following table sets forth the distribution of the repricing of the Company’s interest rate sensitive assets and interest rate sensitive liabilities as of June 30, 2011.

	Cumulative amounts as of June 30, 2011
	Maturing and repricing within
	3			3 to 12			1 to 5			Over
	Months			Months			Years			5 Years			Total
	(amounts in thousands, except ratios)
Interest-sensitive assets:
Interest-bearing deposits with other banks	$	34,326		$	—		$	—		$	—		$	34,326
Certificates of deposit	—			100			—			—			100
Investments	—			623			5,815			115,606			122,044
Loans	42,124			25,066			94,017			34,325			195,532
Total interest-sensitive assets	$	76,450		$	25,789		$	99,832		$	149,931		$	352,002

Interest-sensitive liabilities:
Deposits (a)	$	161,558		$	107,965		$	18,130		$	—		$	287,653
Other borrowings	—			—			—			319			319
Total interest-sensitive liabilities	$	161,558		$	107,965		$	18,130		$	319		$	287,972

Interest-sensitivity gap	$	(85,108	)	$	(82,176	)	$	81,702		$	149,612		$	64,030

Cumulative interest-sensitivity gap to total interest-sensitive assets	(24.18		)%	(47.52		)%	(24.31		)%	18.19		%	18.19		%

(a)	Savings, Now, and money market deposits totaling $124,947 are included in the maturing in 3 months classification.

LIQUIDITY

Liquidity is the ability of the Company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining the Company’s ability to meet the day-to-day cash flow requirements of its customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs. Without proper liquidity management, the Company would not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the needs of the communities it serves. Additionally, the Company requires cash for various operating needs including: dividends to shareholders; business combinations; capital injections to its subsidiary; the servicing of debt; and the payment of general corporate expenses. The Company has access to various capital markets and on March 6, 2009, the Company issued 7,462 shares of a Fixed Rate Cumulative Perpetual Preferred Stock, Series A, to the U.S. Department of the Treasury (“Treasury”) under the TARP Program for an investment of $7,462,000. On August 13, 2010, the Company exchanged the outstanding 7,462 shares of Series A Preferred Stock for 7,462 shares of Series B Preferred Stock. No monetary consideration was given in connection with this exchange. The Company also issued 4,379 shares of Series C Preferred Stock for $4,379,000 to the Treasury on September 17, 2010. However, the primary source of liquidity for the Company is dividends from its bank subsidiary. Statutory and regulatory limitations apply to the Bank’s payment of dividends to the Company as well as the Company’s payment of dividends to its stockholders. The Georgia Department of Banking and Finance regulates the Bank’s dividend payments and must approve dividend payments that exceed 50 percent of the Bank’s prior year net income. The payment of dividends may also be affected or limited by other factors, such as the requirement by federal agencies to maintain adequate capital above regulatory

guidelines and that bank holding companies and insured banks pay dividends out of current earnings. Currently, the Bank must receive approval from the Georgia Department of Banking and Finance and the Company must receive approval from the Federal Reserve Bank of Atlanta prior to the payment of dividends.

Asset and liability management functions not only serve to assure adequate liquidity in order to meet the needs of the Company’s customers, but also to maintain an appropriate balance between interest-sensitive assets and interest-sensitive liabilities so that the Company can earn a return that meets the investment requirements of its shareholders. Daily monitoring of the sources and uses of funds is necessary to maintain an acceptable cash position that meets both requirements.

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, maturities of investment securities and, to a lesser extent, sales or paydowns of investment securities available for sale and held to maturity. Other short-term investments such as federal funds sold and maturing interest bearing deposits with other banks are additional sources of liquidity funding.

The liability portion of the balance sheet provides liquidity through various customers’ interest bearing and noninterest bearing deposit accounts. Federal funds purchased and other short-term borrowings from the Federal Reserve Bank Discount Window and the Federal Home Loan Bank are additional sources of liquidity and, basically, represent the Company’s incremental borrowing capacity. These sources of liquidity are short-term in nature and are used as necessary to fund asset growth and meet short-term liquidity needs. The Company does not anticipate any liquidity requirements in the near future that it will not be able to meet.

CAPITAL RESOURCES

Stockholders’ equity increased by $1.3 million for the six month period ended June 30, 2011. This increase is primarily due to accumulated other comprehensive income, net of taxes positively impacting the Company’s capital, increasing by $1.7 million to an unrealized gain of $1.5 million from an unrealized loss of $213,000 at December 31, 2010. This increase is attributed to the rapid movements in the Treasury markets and swings in volatility and credit spreads, and their impact on the Company’s available for sale securities portfolio. Retained earnings decreased by a net of $443,000 due to a net loss for the six month period of $156,000, an $118,000 preferred dividend accrued to the Treasury under the TARP CDCI Program and a $169,000 dividend paid to common stockholders.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier 1 capital to risk weighted assets, and Tier 1 capital to average assets. The Company’s total and Tier 1 capital to risk weighted assets and Tier 1 to average assets were 18%, 17% and 11% at June 30, 2011 and at December 31, 2010, respectively. The Bank’s total and Tier 1 capital to risk weighted assets and Tier 1 to average assets were 18%, 17% and 11% at June 30, 2011 and 18%, 16% and 10% at December 31, 2010, respectively. At June 30, 2011, the Company and the Bank met all capital adequacy requirements to which it is subject and is considered to be ‘‘well capitalized” under regulatory standards.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is not required since the Company qualifies as a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we conducted, under the supervision of and with the participation of our management, including the Company’s Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on this evaluation, the Company’s Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2011 in accumulating and communicating information to management, including the Chief Executive Officer, the Chief Operating Officer, and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures of that information under the SEC’s rules and forms and that the Company’s disclosure controls and procedures are designed to ensure that the information required to be disclosed in reports filed or submitted by the Company under the Securities Exchange Act is recorded, processed, summarized and reported within the specified time periods. During the quarter ended June 30, 2011, there have been no changes in the Company’s internal controls over financial reporting or, to the Company’s knowledge, in other factors that could significantly change those internal controls subsequent to the date the Company carried out its evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Reevaluation

In connection with the revision to the financial statements as described in this Amended Report, management reevaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2011. Based upon that evaluation, the management of the Company has concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2011.

The changes to the Bank’s call report and the Company’s Form 10-Q for the period ended June 30, 2011 were related to the Federal Reserve Bank’s and the Georgia Department of Banking and Finance’s view on the adequacy of the Bank’s allowance for loan losses. Their determination of probable loss rates and other factors differed from the Bank’s interpretation for specific loan pools. The Bank’s loan pools, loss rates and other relevant factors were more comprehensively defined than those used by the Bank’s regulators which were based on call report classifications.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company and the Bank are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, based in part on the advice of counsel, the ultimate disposition of these matters will not have a material adverse impact on the Company’s consolidated financial position.

On May 20, 2010, the Bank filed an action against its former insurance brokers and the third party administrator of the Bank’s medical insurance plan. The lawsuit alleged negligent misrepresentation, breach of fiduciary duty, fraud, and civil conspiracy against the defendants based on allegations that the defendants misrepresented the coverage provided under the Bank’s 2009 and 2010 medical insurance plan, and concealed the actual coverage to induce the Bank to continue with the same plan. The Bank sought

compensatory damages in the amount of at least $268,013.15, punitive damages, and reimbursement of its attorney’s fees. One of the defendants filed a counterclaim alleging indemnification and abusive litigation and was seeking its attorney’s fees.

The parties entered into mediation and a settlement was reached on June 22, 2011. The terms of the settlement provide that Defendants pay the Bank $616,000 representing unreimbursed medical claims and attorney’s fees of which $426,000 were accrued for in the financial statements.

ITEM 1A. RISK FACTORS

We believe there have been no material changes from the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010. You should carefully consider the factors discussed in our Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibit 31

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101

Interactive data files providing financial information from the Registrant’s Amended Report on Form 10-Q for the quarter ended June 30, 2011 in XBRL. Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.

CITIZENS BANCSHARES CORPORATION

Date: November 8, 2011	By:	/s/ James E. Young
	James E. Young
	President and Chief Executive Officer


Date: November 8, 2011	By:	/s/ Cynthia N. Day
	Cynthia N. Day
	Senior Executive Vice President and
	Chief Operating Officer


Date: November 8, 2011	By:	/s/ Samuel J. Cox
	Samuel J. Cox
	Executive Vice President and
	Chief Financial Officer

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