- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2010

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _________to_________

Commission File Number: 000-53249

AB&T FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

North Carolina	26-2588442
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

292 W. Main Avenue

Gastonia, North Carolina 28052

(Address of principal executive offices and zip code)

(704) 867-5828

(Registrant's telephone number, including area code)

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

________________________________________________

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

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

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

Large accelerated filer___ Accelerated filer_ ___

Non-accelerated filer___ (Do not check if a smaller reporting company) Smaller reporting company X

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

YES NO X

APPLICABLE ONLY TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

2,668,205 shares of common stock, $1.00 par value, as of November 12, 2010

AB&T FINANCIAL CORPORATION

INDEX

PART I – FINANCIAL INFORMATION	Page No.

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets – September 30, 2010 and December 31, 2009	3

Consolidated Statements of Operations – Nine months ended September 30, 2010 and 2009 and three months ended September 30, 2010 and 2009	4

Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income (Loss) -
Nine months ended September 30, 2010 and 2009	5

Consolidated Statements of Cash Flows – Nine months ended September 30, 2010 and 2009	6

Notes to Consolidated Financial Statements	7-14

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-21

Item 4T. Controls and Procedures	21

PART II – OTHER INFORMATION

Item 6. Exhibits	22

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

AB&T FINANCIAL CORPORATION

Consolidated Balance Sheets

	September 30, 2010			December 31, 2009
	(Unaudited)			(Audited)
Assets
Cash and cash equivalents
Cash and due from banks	$	5,171,415		$	4,701,944
Federal funds sold		5,177,936			16,729,661
Time deposits with other banks		1,053,660			1,296,527
Total cash and cash equivalents		11,403,011			22,728,132
Securities available for sale at fair value		15,969,398			5,031,414
Nonmarketable equity securities		1,315,080			1,413,180
Total investments		17,284,478			6,444,594
Loans receivable		133,801,358			139,974,913
Less allowance for loan losses		(2,451,315	)		(2,408,990	)
Loans, net		131,350,043			137,565,923
Premises, furniture and equipment, net		3,886,835			3,952,877
Accrued interest receivable		664,552			566,318
Deferred tax asset		2,020,521			1,937,482
Other real estate owned		4,675,490			2,050,272
Other assets		1,061,192			1,485,400
Total assets	$	172,346,122		$	176,730,998
Liabilities
Deposits
Noninterest-bearing transaction accounts	$	7,975,242		$	5,626,494
Interest-bearing transaction accounts		6,226,275			4,759,708
Savings and money market		31,169,040			24,279,357
Time deposits $100,000 and over		9,679,265			6,934,915
Other time deposits		81,026,616			102,069,318
Total deposits		136,076,438			143,669,792
Borrowed funds		77,097			-
FHLB advances		11,000,000			8,000,000
Accrued interest payable		59,723			55,169
Other liabilities		178,922			112,331
Total liabilities		147,392,180			151,837,292

Shareholders’ equity
Preferred stock, no par value, 1,000,000 shares authorized, issued and outstanding – 3,500 at September 30, 2010 and at December 31, 2009		3,404,142			3,385,908
Common stock, $1.00 par value; 11,000,000 shares authorized, 2,668,205 issued and outstanding at September 30, 2010 and December 31, 2009		2,678,205			2,678,205
Treasury stock, at cost (10,000 shares at September 30, 2010 and December 31, 2009)		(55,600	)		(55,600	)
Warrants		136,850			136,850
Capital surplus		21,774,620			21,734,686
Retained deficit		(3,003,217	)		(3,066,700	)
Accumulated other comprehensive income		18,942			80,357
Total shareholders’ equity		24,953,942			24,893,706
Total liabilities and shareholders’ equity	$	172,346,122		$	176,730,998

See notes to consolidated financial statements

AB&T FINANCIAL CORPORATION

Consolidated Statements of Operations

(Unaudited)

	For the three months ended September 30,						For the nine months ended September 30,
	2010			2009			2010			2009
Interest income:
Loans, including fees	$	1,582,034		$	1,740,062		$	4,920,922		$	5,099,541
Investment securities, taxable		104,652			59,535			294,467			189,466
FHLB, interest and dividends		1,501			2,865			3,309			2,865
Federal funds sold		4,568			119			20,043			4,623
Time deposits with other banks		5,132			19,112			13,283			56,640
Total		1,697,887			1,821,693			5,252,024			5,353,135

Interest expense:
Time deposits $100,000 and over		147,202			204,211			147,799			439,064
Other deposits		274,990			398,279			1,213,868			1,601,892
Other interest expense		80,006			153,062			237,746			560,120
Total		502,198			755,552			1,599,413			2,601,076

Net interest income		1,195,689			1,066,141			3,652,611			2,752,059
Provision for loan losses		105,199			1,711,572			541,727			2,358,646

Net interest income after provision
for loan losses		1,090,490			(645,431	)		3,110,884			393,413

Other operating income:
Service charges on deposit accounts		94,773			106,452			282,461			288,192
Residential mortgage application fees		-			-			-			12,405
Rental income		3,000			1,225			6,000			3,475
Gain on sale of investment securities		134,975			-			410,187			-
Other service charges, commissions and fees		12,998			7,848			35,955			39,198
Total		245,746			115,525			734,603			343,270

Other operating expenses:
Salaries and employee benefits		619,290			529,063			1,761,892			1,648,935
Occupancy expense		51,759			46,194			142,226			146,258
Furniture and equipment expense		42,883			51,023			133,659			147,090
Loss on sale of other real estate		-			-			9,016			51,783
Other operating expenses		708,189			405,668			1,675,822			1,222,757
Total		1,422,121			1,031,948			3,722,615			3,216,823

Income (loss) before income taxes		(85,885	)		(1,561,854	)		122,872			(2,480,140	)
Income tax expense (benefit)		(35,962	)		(605,599	)		40,548			(952,785	)

Net income (loss)	$	(49,923	)	$	(956,255	)	$	82,234		$	(1,527,355	)

Accretion of preferred stock to redemption value		6,078			6,078			18,234			16,680
Preferred stock dividends		43,750			43,750			131,250			131,250
Net loss available to
common shareholders	$	(99,751	)	$	(1,006,083	)	$	(67,250	)	$	(1,675,285	)
Loss per common share
Basic loss per common share	$	(0.04	)	$	(0.38	)	$	(0.03	)	$	(0.63	)
Diluted loss per common share	$	(0.04	)	$	(0.38	)	$	(0.03	)	$	(0.63	)

See notes to consolidated financial statements

AB&T FINANCIAL CORPORATION

Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income (Loss)

For the nine months ended September 30, 2010 and 2009

(dollars in thousands except for share data)

(Unaudited)

	Common Stock				Preferred Stock												Accumu- lated Other Compre- hensive			Retained
	Shares		Amount		Shares		Amount		Treasury Stock			Warrants		Capital Surplus			Income (Loss)			Earnings (Deficit)			Total

Balance, December 31, 2008		2,678,205	$	2,678		-	$	-	$	-		$	-	$	21,607		$	66		$	(157	)	$	24,194
Net loss																					(1,527	)		(1,527	)

Other comprehensive income, net of tax																		39						39

Comprehensive loss																								(1,488	)
Issuance of preferred stock						3,500		3,363																3,363

Issuance of common stock warrants													137											137

Accretion of preferred stock to redemption value								17													(17	)		-

Dividends, preferred															(98	)								(98	)

Purchase of Treasury stock (10,000 shares)										(56	)													(56	)
Stock-based employee compensation															201									201

Balance
September 30, 2009		2,678,205	$	2,678		3,500	$	3,380	$	(56	)	$	137	$	21,710		$	105		$	(1,701	)	$	26,253

Balance, December 31, 2009		2,678,205	$	2,678		3,500	$	3,386	$	(56	)	$	137	$	21,734		$	80		$	(3,067	)	$	24,893

Net income																					82			82

Other comprehensive loss, net of tax																		(61	)					(61	)

Comprehensive income																								21

Accretion of preferred stock to redemption value								18													(18	)		-

Dividends, preferred															(131	)								(131	)

Stock-based employee compensation															171									171

Balance
September 30, 2010		2,678,205	$	2,678		3,500	$	3,404	$	(56	)	$	137	$	21,774		$	19		$	(3,003	)	$	24,954

See notes to consolidated financial statements

AB&T FINANCIAL CORPORATION

Consolidated Statements of Cash Flows

For the nine months ended September 30, 2010 and 2009

(Unaudited)

	For the nine months ended September 30,
	2010			2009
Cash flows from operating activities:
Net income (loss)	$	82,234		$	(1,527,355	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Provision for loan losses		541,727			2,358,646
Loss on sale of other real estate		9,016			51,783
Loss on write down of other real estate		143,236			-
Gain on sale of investment securities		(410,187	)		-
Depreciation and amortization expense		131,699			162,166
Discount accretion and premium amortization		11,398			406,871
Deferred income tax benefit		(68,201	)		(977,942	)
Increase in interest receivable		(98,234	)		(44,127	)
Increase (decrease) in interest payable		4,554			(33,949	)
Decrease in other assets		424,208			23,823
Increase in other liabilities		66,074			102,194
Gain on sale of other assets		-			(13,656	)
Stock based compensation expense		171,184			200,587
Net cash provided by operating activities		1,008,708			709,041

Cash flows from investing activities:
Purchase of securities available for sale		(22,758,233	)		(1,045,600	)
Purchase of nonmarketable equity securities		-			(41,900	)
Calls and maturities of securities available for sale		1,091,244			72,870
Net decrease (increase) in loans receivable		2,575,842			(3,107,747	)
Proceeds from sale of available for sale securities		11,051,541			-
Proceeds from sale of nonmarketable equity securities		98,100			-
Proceeds from sale of other real estate		320,841			433,819
Proceeds from sale of premises, furniture and equipment		-			37,656
Purchases of premises, furniture, and equipment		(65,657	)		(23,963	)
Net cash used in investing activities		(7,686,322	)		(3,674,865	)

Cash flows from financing activities:
Net increase (decrease) in demand deposits, interest- bearing transaction accounts and savings accounts		10,704,998			(835,511	)
Net decrease in certificates of deposit and other time deposits		(18,298,352	)		(1,622,455	)
Net increase (decrease) in borrowed funds		77,097			13,714,730
Proceeds from issuance of preferred stock, net		-			3,363,150
Net increase (decrease) in advances from FHLB		3,000,000			(10,570,000	)
Dividends paid		(131,250	)		(98,195	)
Purchase of treasury stock		-			(55,600	)
Proceeds from issuance of stock warrants		-			136,850
Net cash provided by financing activities		(4,647,507	)		4,032,969

Net increase (decrease) in cash and cash equivalents	$	(11,325,121	)	$	1,067,145
Cash and cash equivalents, beginning of period	$	22,728,132		$	18,428,828
Cash and cash equivalents, end of period	$	11,403,011		$	19,495,973

Supplemental disclosure of cash flow information:

Transfer of loans to real estate acquired in settlement of loans	$	3,098,311	$	66,309
Interest paid	$	1,594,859	$	2,635,025
Taxes paid	$	-		-

See notes to consolidated financial statements

AB&T FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Organization

AB&T Financial Corporation (the “Company”), was incorporated under the laws of the State of North Carolina on June 25, 2007. On May 14, 2008, the Company became the sole owner of all the shares of the capital stock of Alliance Bank & Trust Company (the “Bank”). Alliance Bank & Trust Company is a state-chartered bank which was organized and incorporated under the laws of the State of North Carolina in September 2004. The Bank is not a member of the Federal Reserve System. The Bank commenced operations on September 8, 2004.

The Bank is headquartered in Gastonia, North Carolina and currently conducts business in two North Carolina counties through four full service branch offices. The principal business activity of the Bank is to provide commercial banking services to domestic markets, principally in Gaston and Cleveland counties. As a state-chartered bank, the Bank is subject to regulation by the North Carolina Office of the Commissioner of Banks and the Federal Deposit Insurance Corporation. The Company is also regulated, supervised and examined by the Federal Reserve. The consolidated financial statements include the accounts of the parent company and its wholly-owned subsidiary after elimination of all significant intercompany balances and transactions.

Note 2 – Basis of Presentation

The accompanying financial statements have been prepared in accordance with the requirements for interim financial statements and, accordingly, they are consolidated to omit disclosures, which would substantially duplicate those contained in the Company’s 2009 Annual Report on Form 10-K. The financial statements as of September 30, 2010 and for the interim periods ended September 30, 2010 and 2009 are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The financial information as of December 31, 2009 has been derived from the audited financial statements as of that date. For further information, refer to the financial statements and the notes included in the Company’s 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2010.

The preparation of the consolidated financial statements are in conformity with accounting principles generally accepted in the United States of America (GAAP) which requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. In addition, they affect the reported amounts of income and expense during the reporting period. Actual results could differ from these estimates and assumptions.

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

Note 3 – Recently Issued Accounting Pronouncements

Income Tax guidance was amended in April 2010 to reflect an SEC Staff Announcement after the President signed the Health Care and Education Reconciliation Act of 2010 on March 30, 2010, which amended the Patient Protection and Affordable Care Act signed on March 23, 2010. According to the announcement, although the bills were signed on separate dates, regulatory bodies would not object if the two Acts were considered together for accounting purposes. This view is based on the SEC staff's understanding that the two Acts together represent the current health care reforms as passed by Congress and signed by the President. The amendment had no impact on the financial statements.

In July 2010, the Receivables topic of the ASC was amended to require expanded disclosures related to a company’s allowance for credit losses and the credit quality of its financing receivables. The amendments will require the allowance disclosures to be provided on a disaggregated basis. The Company is required to begin to comply with the disclosures in its financial statements for the year ended December 31, 2010.

AB&T FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

Note 3 – Recently Issued Accounting Pronouncements - continued

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which significantly changes the regulation of financial institutions and the financial services industry. The Dodd-Frank Act includes several provisions that will affect how community banks, thrifts, and small bank and thrift holding companies will be regulated in the future. Among other things, these provisions abolish the Office of Thrift Supervision and transfer its functions to the other federal banking agencies, relax rules regarding interstate branching, allow financial institutions to pay interest on business checking accounts, change the scope of federal deposit insurance coverage, and impose new capital requirements on bank and thrift holding companies. The Dodd-Frank Act also establishes the Bureau of Consumer Financial Protection as an independent entity within the Federal Reserve, which will be given the authority to promulgate consumer protection regulations applicable to all entities offering consumer financial services or products, including banks. Additionally, the Dodd-Frank Act includes a series of provisions covering mortgage loan origination standards affecting originator compensation, minimum repayment standards, and pre-payments. Management is actively reviewing the provisions of the Dodd-Frank Act and assessing its probable impact on our business, financial condition, and results of operations.

In August 2010, two updates were issued to amend various SEC rules and schedules pursuant to Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies and based on the issuance of SEC Staff Accounting Bulletin 112. The amendments related primarily to business combinations and removed references to “minority interest” and added references to “controlling” and “noncontrolling interests(s)”. The updates were effective upon issuance but had no impact on the Company’s financial statements.

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.

Note 4 – Comprehensive Income (Loss)

Comprehensive income includes net income and other comprehensive income, which is defined as nonowner related transactions in equity. The following table sets forth the amounts of other comprehensive income included in equity along with the related tax effect for the three and nine month periods ended September 30, 2010 and 2009:

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Unrealized gains (losses) on securities available for sale	$	115,051		$	96,429		$	309,590		$	64,526
Reclassification of (gains) losses recognized in net income		(134,975	)		-			(410,187	)		-
Income tax expense (benefit)		(16,394	)		(37,559	)		39,182			(25,133	)

Other comprehensive income (loss)	$	3,530		$	58,870		$	(61,415	)	$	39,393

Note 5 – Income (loss) per common share

Basic income per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding. Diluted income per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding and dilutive common share equivalents using the treasury stock method. No dilutive common share equivalents were included in the calculation because their effect would be anti-dilutive.

AB&T FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

Note 5 – Income (loss) per common share - continued

Three months ended September 30, 2010

	Income (Numerator)			Shares (Denominator)		Per Share Amount
Basic loss per share
Loss available to common shareholders	$	(99,751	)		2,668,205	$	(0.04	)
Effect of dilutive securities
Stock options		-			-
Dilutive income per share
Loss available to common shareholders plus assumed conversions	$	(99,751	)		2,668,205	$	(0.04	)

Three months ended September 30, 2009

	Income (Numerator)			Shares (Denominator)		Per Share Amount
Basic loss per share
Loss available to common shareholders	$	(1,006,083	)		2,668,205	$	(0.38	)
Effect of dilutive securities
Stock options		-			-
Dilutive loss per share
Loss available to common shareholders plus assumed conversions	$	(1,006,083	)		2,668,205	$	(0.38	)

Nine months ended September 30, 2010

	Income (Numerator)			Shares (Denominator)		Per Share Amount
Basic loss per share
Loss available to common shareholders	$	(67,250	)		2,668,205	$	(0.03	)
Effect of dilutive securities
Stock options		-			-
Dilutive income per share
Loss available to common shareholders plus assumed conversions	$	(67,250	)		2,668,205	$	(0.03	)

Nine months ended September 30, 2009

	Income (Numerator)			Shares (Denominator)		Per Share Amount
Basic loss per share
Loss available to common shareholders	$	(1,675,285	)		2,668,205	$	(0.63	)
Effect of dilutive securities
Stock options		-			-
Dilutive loss per share
Loss available to common shareholders plus assumed conversions	$	(1,675,285	)		2,668,205	$	(0.63	)

AB&T FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

Note 6 – Fair Value Measurements

Effective January 1, 2008, the Company adopted ASC Topic 820, Fair Value Measurements and Disclosures, which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. ASC Topic 820 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available for sale investment securities) or on a nonrecurring basis (for example, impaired loans).

ASC Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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. Treasuries, other securities that are highly liquid and are actively traded in over-the-counter markets and money market funds.
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, mortgage-backed securities, municipal bond, corporate debt securities, 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 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.

Assets measured at fair value on a recurring basis are as follows as of September 30, 2010:

	Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Available for sale investments:
Mortgage-backed securities	$	-	$	15,969,398	$	-

Total	$	-	$	15,969,398	$	-

AB&T FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

Note 6 – Fair Value Measurements - continued

Assets measured at fair value on a recurring basis are as follows as of December 31, 2009:

	Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Available for sale investments:
Mortgage-backed securities			$	3,991,823
Agencies	$	-		1,039,591	$	-

Total	$	-	$	5,031,414	$	-

The Company had no liabilities carried at fair value or measured at fair value on a recurring basis at September 30, 2010 or December 31, 2009.

Assets measured at fair value on a non-recurring basis are as follows as of September 30, 2010:

	Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Impaired loans	$	-	$	9,486,920	$	-
Real estate acquired through foreclosure		-		4,675,490		-

Total	$	-	$	14,162,410	$	-

Assets measured at fair value on a non-recurring basis are as follows as of December 31, 2009:

	Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Impaired loans	$	-	$	5,202,336	$	-
Real estate acquired through foreclosure		-		2,050,272		-

Total	$	-	$	7,252,608	$	-

The Company had no liabilities carried at fair value or measured at fair value on a non-recurring basis at September 30, 2010 or December 31, 2009.

The Company is predominantly an asset based lender with real estate serving as collateral on a substantial majority of loans. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be Level 2 inputs.

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

AB&T FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

Note 6 – Fair Value Measurements - continued

The following table summarizes fair value estimates as of September 30, 2010 and December 31, 2009 for financial instruments, as defined by ASC Topic 825, excluding short-term financial assets and liabilities, for which carrying amounts approximate fair value, and financial instruments recorded at fair value on a recurring basis at September 30, 2010 and December 31, 2009.

In accordance with ASC Topic 825, the Company has not included assets and liabilities that are not financial instruments in its disclosure, such as the value of the long-term relationships with the Company’s deposit, net premises and equipment, net core deposit intangibles, deferred taxes and other assets and liabilities. Additionally, the amounts in the table have not been updated since the date indicated; therefore the valuations may have changed since that point in time. For these reasons, the total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.

The following disclosures represent financial instruments in which the ending balance at September 30, 2010, and December 31, 2009 are not carried at fair value in its entirety on the Company’s Consolidated Balance Sheet.

Short-term Financial Instruments - The carrying value of short-term financial instruments, including cash and cash equivalents, time deposits placed, federal funds purchased, repurchase agreements, and other short-term investments and borrowings, approximates the fair value of these instruments. These financial instruments generally expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market.

Loans - Fair values were generally determined by discounting both principal and interest cash flows expected to be collected using an observable discount rate for similar instruments with adjustments that the Company believes a market participant would consider in determining fair value. The Company estimates the cash flows expected to be collected using internal credit risk, interest rate and prepayment risk models that incorporate the Company’s best estimate of current key assumptions, such as default rates, loss severity and prepayment speeds for the life of the loan.

Deposits - The fair value for certain deposits with stated maturities was calculated by discounting contractual cash flows using current market rates for instruments with similar maturities. For deposits with no stated maturities, the carrying amount was considered to approximate fair value and does not take into account the significant value of the cost advantage and stability of the Company’s long-term relationships with depositors.

Federal Home Loan Bank Advances - The Company estimates fair value based on discounted cash flows using current market rates for borrowings with similar terms.

The carrying and fair values of certain financial instruments at September 30, 2010 and December 31, 2009 were as follows:

	September 30, 2010				December 31, 2009
	Carrying		Estimated		Carrying		Estimated
Dollars in thousands	Amount		Fair Value		Amount		Fair Value
Financial Assets:
Loans receivable, net	$	133,801	$	131,908	$	139,975	$	135,119

Financial Liabilities:
Total deposits	$	136,076	$	133,706	$	143,670	$	140,169
FHLB advances	$	11,000	$	11,445	$	8,000	$	8,004

AB&T FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

Note 7 – Investment Securities

The amortized cost and estimated fair values of securities available for sale were:

			Gross Unrealized
	Amortized Cost		Gains		Losses		Estimated Fair Value
September 30, 2010
Mortgage-backed securities	$	15,938,371	$	53,201	$	22,174	$	15,969,398
Total	$	15,938,371	$	53,201	$	22,174	$	15,969,398

December 31, 2009
Mortgage-backed securities	$	3,857,417	$	155,987	$	21,581	$	3,991,823
Agencies		1,042,373		-		2,782		1,039,591
Total	$	4,899,790	$	155,987	$	24,363	$	5,031,414

The following is a summary of maturities of securities available for sale as of September 30, 2010. The amortized cost and estimated fair values are based on the contractual maturity dates. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

	Securities Available-for-Sale
	Amortized Cost		Estimated Fair Value
Due in one year or less	$	144,113	$	143,133
Due after one year but within five years		6,967,632		6,992,241
Due after five years but within ten years		4,615,182		4,625,404
Due after ten years		4,211,444		4,208,620
	$	15,938,371	$	15,969,398

The following table shows gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2010 and December 31, 2009.

	Less than twelve months				Twelve months or more				Total
	Fair Value		Unrealized losses		Fair Value		Unrealized losses		Fair Value		Unrealized losses
September 30, 2010
Mortgage-backed securities	$	1,820,362	$	22,174	$	-	$	-	$	1,820,362	$	22,174

Total	$	1,820,362	$	22,174	$	-	$	-	$	1,820,362	$	22,174

During the nine months ended September 30, 2010, the Company received proceeds of $11.1 million from the sale of investment securities available for sale. Gross realized gains amounted to $410,187 for the nine months ended September 30, 2010. For the nine months ended September 30, 2009, there were no sales of investment securities available for sale.

AB&T FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

Note 7 – Investment Securities - continued

	Less than twelve months				Twelve months or more				Total
	Fair Value		Unrealized losses		Fair Value		Unrealized losses		Fair Value		Unrealized losses
December 31, 2009
Mortgage-backed securities	$	1,229,796	$	21,581	$	-	$	-	$	1,229,796	$	21,581
Agencies		1,039,591		2,782		-		-		1,039,591		2,782

Total	$	2,269,387	$	24,363	$	-	$	-	$	2,269,387	$	24,363

Note 8 – United States Department of the Treasury Capital Purchase Program

On January 23, 2009, the Company entered into a Letter Agreement, with the United States Department of the Treasury (the “Treasury”), pursuant to which the Company issued and sold to the Treasury (1) 3,500 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Preferred Stock”) and (2) a warrant to purchase 80,153 shares of the Company’s common stock, $1.00 par value per share, for an aggregate purchase price of $3,500,000 in cash. The Preferred Stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The Company may redeem the Preferred Stock subject to consultation with the appropriate federal banking agency. The Preferred Stock is generally nonvoting. The warrant has a 10-year term and is immediately exercisable upon its issuance, with an initial per share exercise price of $6.55. The warrant has anti-dilution protections, registration rights, and certain other protections for the holder. Pursuant to the Purchase Agreement, the Treasury has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the Warrant.

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of the Company’s financial condition as of September 30, 2010 compared to December 31, 2009, and the results of operations for the three and nine month periods ended September 30, 2010 and 2009. This discussion should be read in conjunction with the Company’s consolidated financial statements and accompanying notes appearing in this report and in conjunction with the financial statements and related notes and disclosures in the Company’s 2009 Annual Report on Form 10-K. This report contains “forward-looking statements” relating to, without limitation, future economic performance, plans and objectives of management for future operations, and projections of revenues and other financial items that are based on the beliefs of the Company's management, as well as assumptions made by and information currently available to the Company’s management. The words “expect,” “estimate,” “anticipate,” "plan," and “believe,” as well as similar expressions, are intended to identify forward-looking statements. The Company’s actual results may differ materially from the results discussed in the forward-looking statements, and the Company’s operating performance each quarter is subject to various risks and uncertainties that are discussed in detail in the Company’s filings with the Securities and Exchange Commission.

Impact of Dodd-Frank Act

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) into law. The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry in the United States. The Dodd-Frank Act includes, among other things:

·	the creation of a Financial Stability Oversight Council to identify emerging systemic risks posed by financial firms, activities and practices, and to improve cooperation between federal agencies;

AB&T FINANCIAL CORPORATION

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations - continued

·	the creation of a Bureau of Consumer Financial Protection authorized to promulgate and enforce consumer protection regulations relating to financial products, which would affect both banks and non-bank financial companies;

·	the establishment of strengthened capital and prudential standards for banks and bank holding companies;

·	enhanced regulation of financial markets, including derivatives and securitization markets;

·	the elimination of certain trading activities by banks;

a permanent increase of the previously implemented temporary increase of FDIC deposit insurance to $250,000 per account, an extension of unlimited deposit insurance on qualifying noninterest-bearing transaction accounts, and an increase in the minimum deposit insurance fund reserve requirement from 1.15% to 1.35%, with assessments to be based on assets as opposed to deposits;

·	amendments to the Truth in Lending Act aimed at improving consumer protections with respect to mortgage originations, including originator compensation, minimum repayment standards, and prepayment considerations; and

·	new disclosure and other requirements relating to executive compensation and corporate governance.

The Company is unable to predict the extent to which the Dodd-Frank Act or the forthcoming rules and regulations will impact the Company’s business. However, the Company believes that certain aspects of the new legislation, including, without limitation, the additional cost of higher deposit insurance coverage and the costs of compliance with disclosure and reporting requirements and examinations could have a significant impact on the Company’s business, financial condition, and results of operations. Additionally, the Company cannot predict whether there will be additional proposed laws or reforms that would affect the U.S. financial system or financial institutions, whether or when such changes may be adopted, how such changes may be interpreted and enforced, or how such changes may affect the Company.

Results of Operations

Net Interest Income

For the three months ended September 30, 2010, net interest income was $1,195,689 as compared to $1,066,141 for the same period in 2009. The average rate paid on interest-bearing liabilities for the three months ended September 30, 2010 and 2009 was 1.44% and 2.22%, respectively. The average rate realized on interest-earning assets was 4.24% and 4.69% for the three months ended September 30, 2010 and 2009, respectively. This increase in the net interest income was primarily due to the reduction in interest rates paid by the Bank as liabilities repriced over the remainder of 2009 and the first three quarters of 2010.

The net interest margin was 2.99% and 2.76% for the three month periods ended September 30, 2010 and 2009, respectively.

For the nine months ended September 30, 2010, net interest income was $3,652,611 as compared to $2,752,059 for the same period in 2009. The annualized average rate paid on interest-bearing liabilities for the nine months ended September 30, 2010 and 2009 was 1.51% and 2.56%, respectively. The annualized average rate realized on interest-earning assets was 4.30% and 4.59% for the nine months ended September 30, 2010 and 2009, respectively. This increase in the net interest income was primarily due to the reduction in interest rates paid by the Bank as liabilities continued to reprice over the first nine months of 2010.

The net interest margin was 3.00% and 2.37% for the nine month periods ended September 30, 2010 and 2009, respectively.

AB&T FINANCIAL CORPORATION

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations – continued

Provision and Allowance for Loan Losses

The provision for loan losses is the charge to operating earnings that in management’s judgment is necessary to maintain the allowance for loan losses at an adequate level in relation to the risk of future losses inherent in the loan portfolio. For the three month periods ended September 30, 2010 and 2009 the provision was $105,199 and $1,711,572 respectively. For the nine month periods ended September 30, 2010 and 2009 the provision was $541,727 and $2,358,646, respectively. On September 30, 2010, there were $9,374,955 in loans in nonaccrual status. On September 30, 2009, there were $4,987,036 in loans in nonaccrual status. Based on present information, management believes the allowance for loan losses is adequate at September 30, 2010 to meet presently known and inherent risks in the loan portfolio. The allowance for loan losses is 1.83% and 2.58% of total loans at September 30, 2010 and 2009, respectively. The decrease in the allowance from prior year (as a percentage of total loans) is a result of the net write down of $3.0 million of impaired loans balances from the period beginning September 30, 2009 through September 30, 2010. There are risks inherent in making all loans, including risks with respect to the period of time over which loans may be repaid, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers, and, in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral. The Company maintains an allowance for loan losses based on, among other things, historical experience, including management’s experience at other institutions, an evaluation of economic conditions, and regular reviews of delinquencies and loan portfolio quality. Management’s judgment about the adequacy of the allowance is based upon a number of assumptions about future events, which it believes to be reasonable, but which may not prove to be accurate. Thus, there is a risk that charge-offs in future periods could exceed the allowance for loan losses or that substantial additional increases in the allowance for loan losses could be required. Additions to the allowance for loan losses would result in a decrease in the Company’s net income and, possibly, a reduction of its capital.

Noninterest Income

Total noninterest income for the three months ended September 30, 2010 was $245,746 or 112.72% more than total noninterest income for the same period last year. The largest component of noninterest income for the three month period ended September 30, 2010 was a gain on the sale of investment securities, which totaled $134,975. There was no gain on the sale of investment securities for the three month period ended September 30, 2009. Service charges on deposit accounts for the three month period ended September 30, 2010 were $94,773 or 10.97% lower than the same period last year. Rental income for the three months ended September 30, 2010 was $3,000 or 144.90% more than the three month period ended September 30, 2009.

Total noninterest income for the nine months ended September 30, 2010 was $734,603 or 114.00% more than total noninterest income for the same period last year. The largest component of noninterest income for the nine month period ended September 30, 2010 was a gain on the sale of investment securities, which totaled $410,187. Service charges on deposit accounts for the nine month period ended September 30, 2010, totaled $282,461 or 1.99% less than those for the nine month period ended September 30, 2009. Rental income for the nine months ended September 30, 2010 was $6,000 or 72.66% higher than the nine month period ended September 30, 2009.

Noninterest Expense

Total noninterest expense for the three months ended September 30, 2010 was $1,422,121 or 37.81% more than total noninterest expense for the same period last year. The primary component of noninterest expense is salaries and benefits, which were $619,290 and $529,063 for the three months ended September 30, 2010 and 2009, respectively. Salaries and benefits increased due to the increase in the number of active employees. Other operating expenses were $708,189 and $405,668 for the three months ended September 30, 2010 and 2009, respectively. The increase in other operating expense for the three months ended September 30, 2010 was primarily the result of effects of the additional deposit insurance assessments imposed by the FDIC during 2009.

Total noninterest expense for the nine months ended September 30, 2010 was $3,722,615 or 15.72% more than total noninterest expense for the same period last year. The primary component of noninterest expense is salaries and benefits, which were $1,761,892 and $1,648,935 for the nine months ended September 30, 2010 and 2009, respectively. Salaries and benefits increased due to the increase in the number of active employees. Other operating expenses were $1,675,822 and $1,222,757 for the nine months ended September 30, 2010 and 2009, respectively. The increase in other operating expense for the nine months ended September 30, 2010 was primarily the result of effects of the additional deposit insurance assessments imposed by the FDIC during 2009.

AB&T FINANCIAL CORPORATION

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations – continued

Income Taxes

For the three months ended September 30, 2010 and 2009, the effective income tax rate was 41.87% and 38.77%, respectively. The income tax benefit was $35,962, for the three months ended September 30, 2010 compared to an income tax benefit of $605,599 for the three months ended September 30, 2009.

For the nine months ended September 30, 2010 and 2009, the effective income tax rate was 33.00% and 38.42%, respectively. The income tax expense was $40,548, for the nine months ended September 30, 2010 compared to an income tax benefit of $952,785 for the nine months ended September 30, 2009.

Net Income (loss)

The combination of the above factors resulted in net loss of $49,923 for the three months ended September 30, 2010 compared to net loss of $956,255 for the comparable period in 2009.

For the nine months ended September 30, 2010 and 2009, there was a net income of $82,324 and net loss of $1,527,355, respectively.

Assets and Liabilities

During the first nine months of 2010, total assets decreased $4,384,876 or 2.48% when compared to December 31, 2009. The decrease is primarily due to a decrease in loans outstanding due to decreased loan demand in our market. In addition, we experienced a decrease in federal funds sold of $11,551,725, or 69.05% during the nine months ended September 30, 2010. This is primarily a result of investing excess liquidity in investment securities in order to increase our net interest margin.

Investment Securities

Investment securities totaled $17,284,478 as of September 30, 2010 as compared to $6,444,594 at December 31, 2009. Of this amount, $15,969,398 was designated as available for sale as of September 30, 2010. The other investments were nonmarketable equity securities consisting of $1,269,900 in Federal Home Loan Bank stock and a $45,180 investment in Community Bankers Bank stock as of September 30, 2010.

Loans

Loans decreased $6,173,555, or 4.41%, during the period. As shown below, the largest decrease was in real estate – construction loans which decreased $5,371,000 or 18.24%, to $24,073,000 at September 30, 2010. Real estate – mortgage loans decreased $1,782,000, or 1.87%, to $92,657,000. Commercial and industrial loans increased $388,000 or 2.55% to $15,608,000 at September 30, 2010. Consumer and other loans increased $591,445 or 67.83%, to $1,463,358. Balances within the major loans receivable categories as of September 30, 2010 and December 31, 2009 are as follows:

	September 30, 2010		December 31, 2009
Real estate – construction	$	24,073,000	$	29,444,000
Real estate – mortgage		92,657,000		94,439,000
Commercial and industrial		15,608,000		15,220,000
Consumer and other		1,463,358		871,913
Total gross loans	$	133,801,358	$	139,974,913

AB&T FINANCIAL CORPORATION

Item 2 - Management's Discussion And Analysis of Financial Condition and Results of Operations – continued

Risk Elements in the Loan Portfolio

Criticized loans are loans that have potential weaknesses that deserve close attention and which could, if uncorrected, result in deterioration of the prospects for repayment of the Company’s credit position at a future date. Classified loans are loans that are inadequately protected by the sound worth and paying capacity of the borrower or any collateral and as to which there is a distinct possibility or probability that we will sustain a loss if the deficiencies are not corrected. At September 30, 2010 and December 31, 2009, the Company had criticized loans totaling $11,376,704 and $8,742,720, respectively. At September 30, 2010 and December 31, 2009, the Company had classified loans totaling $7,638,892 and $9,112,635, respectively. At September 30, 2010, the Company had $9,374,955 or 7.01% of total gross loans in nonaccrual status and $674,560 in loans that were 90 days or more past due and still accruing. At September 30, 2010, the Company had approximately $5,373,000 in loans restructured that were in compliance with the modified terms. The Company had $4,675,490 in other real estate owned at September 30, 2010 compared to $2,050,272 at December 31, 2009. This increase is due to an increase in foreclosed properties and the Bank's desire to avoid short sale losses by holding properties until reasonable sales prices can be obtained.

The following table depicts the activity in the allowance for loan losses for the nine months ended September 30, 2010 and 2009:

	September 30, 2010			September 30, 2009
Balance, January 1	$	2,408,990		$	1,935,702
Provision for loan losses for the period		541,727			2,358,646
Net loans (charged-off) recovered during the period		(499,402	)		(654,509	)
Balance, September 30,	$	2,451,315		$	3,639,839
Gross loans outstanding, September 30,	$	133,801,358		$	140,881,088
Allowance for loan losses to loans outstanding		1.83	%		2.58	%

Deposits

Total deposits decreased $7,593,354 or 5.29%, from December 31, 2009 to $136,076,438 at September 30, 2010. Total time deposits decreased $18,298,352, or 16.79% to $90,705,881 at September 30, 2010. This decrease was due to the decision of management to decrease the concentration of brokered deposits and focus on increasing our local market penetration of core deposit accounts. The decrease in time deposits was partially offset by increases in interest-bearing and non-interest bearing transaction accounts which, in total, increased $3,815,315 or 56.73% since December 31, 2009. There was an increase in savings and money market accounts as well, which increased $6,889,683 or 28.38%, to $31,169,040 at September 30, 2010. This increase in non time deposit accounts is a combination of the Bank instituting a revised market pricing strategy to attract new deposit accounts and implementing a retail initiative focusing on growing the core deposits of the Bank. Brokered deposits represent a source of fixed rate funds priced competitively with Federal Home Loan Bank (“FHLB”) but do not require collateralization like FHLB borrowings.

Balances within the major deposit categories as of September 30, 2010 and December 31, 2009 are as follows:

	September 30 2010		December 31, 2009
Noninterest-bearing transaction accounts	$	7,975,242	$	5,626,494
Interest-bearing transaction accounts		6,226,275		4,759,708
Savings and money market		31,169,040		24,279,357
Time deposits $100,000 and over		9,679,265		6,934,915
Other time deposits		81,026,616		102,069,318
Total deposits	$	136,076,438	$	143,669,792

AB&T FINANCIAL CORPORATION

Item 2 - Management's Discussion And Analysis of Financial Condition and Results of Operations – continued

Advances from Federal Home Loan Bank

The Bank borrowed an additional $3,000,000 from the Federal Home Loan Bank of Atlanta (FHLB) during the first nine months of 2010. The advances from the FHLB total $11,000,000 as of September 30, 2010 and $8,000,000 at December 31, 2009. The Bank utilizes the advances to fund loans and for general liquidity purposes. Advances from the Federal Home Loan Bank consisted of the following at September 30, 2010:

Description	Interest Rate			Amount
Daily Rate Credit	variable			$	3,000,000
Convertible rate advances maturing:
September 20, 2012		3.86	%		8,000,000
				$	11,000,000

Scheduled principal reductions of Federal Home Loan Bank advances are as follows:

2010		-
2011	$	3,000,000
2012		8,000,000
	$	11,000,000

Liquidity

Liquidity needs are met by the Company through cash and short-term investments, and scheduled maturities of loans on the asset side and through pricing policies on the liability side for interest-bearing deposit accounts. The Company also has the capacity to pledge certain loans as collateral for additional borrowings from FHLB during times when the comparable interest rate is favorable to the interest rate on deposit products. As of September 30, 2010, the Company’s primary sources of liquidity included cash and due from banks of $5,171,415, federal funds sold totaling $5,177,936, time deposits with other banks of $1,053,660 and securities available-for-sale totaling $15,969,398, credit availability with the Federal Home Loan Bank of $14,800,000 and unused lines of credit with correspondent banks to purchase federal funds totaling $16,000,000 at September 30, 2010.

Capital Resources

Total shareholders' equity increased $60,236 to $24,953,942 for the nine month period ended September 30, 2010. This is primarily the result of the net income for the period of $82,234, and stock based compensation expense of $170,577 offset by $131,250 in dividends paid on preferred stock.

The Federal Reserve Board and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk-weights ranging from 0% to 100%. Under the risk-based standard, capital is classified into two tiers. Tier 1 capital consists of common shareholders' equity, excluding the unrealized gain (loss) on available-for-sale securities, minus certain intangible assets. Tier 2 capital consists of the general reserve for loan losses subject to certain limitations. An institution's qualifying capital base for purposes of its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based capital.

Banks and bank holding companies are also required to maintain capital at a minimum level based on total assets, which is known as the leverage ratio. The minimum requirement for the leverage ratio is 3%; however all but the highest rated institutions are required to maintain ratios 100 to 200 basis points above the minimum. Both the Company and the Bank exceeded their minimum regulatory capital ratios as of September 30, 2010 as well as the ratios to be considered "well capitalized."

AB&T FINANCIAL CORPORATION

Item 2 - Management's Discussion And Analysis of Financial Condition and Results of Operations – continued

The following table summarizes the Company's risk-based capital at September 30, 2010 (dollars in thousands):

S hareholders' equity	$	24,954
Plus – unrealized (gain) loss on available-for-sale securities		(19	)
Less – disallowed deferred tax assets		(2	)
Tier 1 capital	$	24,933
Plus - allowance for loan losses (1)		1,669
Total capital	$	26,602
Risk-weighted assets	$	132,776
Risk-based capital ratios:
Tier 1 capital (to risk-weighted assets)		17.56	%
Total capital (to risk-weighted assets)		18.82	%
Leverage ratio		13.78	%

(1) Limited to 1.25% of risk-weighted assets

Off-Balance Sheet Risk

Through its operations, the Company has made contractual commitments to extend credit in the ordinary course of its business activities. These commitments are legally binding agreements to lend money to the Company’s customers at predetermined interest rates for a specified period of time. At September 30, 2010, the Company had issued commitments to extend credit of $10,555,231 through various types of commercial lending arrangements. All of these commitments to extend credit had variable rates.

The following table sets forth the length of time until maturity for unused commitments to extend credit and standby letters of credit at September 30, 2010:

	Within One Month		After One Through Three Months		After Three Through Twelve Months		Greater Than One Year		Total
Unused commitments to extend credit	$	655,027	$	1,236,361	$	3,081,511	$	5,402,637	$	10,375,536
Standby letters of credit		179,695		-		-		-		179,695
Totals	$	834,722	$	1,236,361	$	3,081,511	$	5,402,637	$	10,555,231

Based on historical experience, many of the commitments and letters of credit will expire unfunded. Accordingly, the amounts shown in the table above do not necessarily reflect the Company's need for funds in the periods shown.

The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on its credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate.

AB&T FINANCIAL CORPORATION

Item 2 - Management's Discussion And Analysis of Financial Condition and Results of Operations – continued

Critical Accounting Policies

We have adopted various accounting policies which govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements. Our significant accounting policies are described in the notes to the financial statements at December 31, 2009 as contained in our 2009 Annual Report on Form 10-K. Certain accounting policies involve significant judgments and assumptions by us which have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations.

We believe the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of our financial statements. Refer to the portions of the discussion in this report on Form 10-Q and in our 2009 Annual Report on Form 10-K that address our allowance for loan losses for a description of our processes and methodology for determining our allowance for loan losses.

Item 4T. Controls and Procedures

(a)	Based on their evaluation of the Company’s disclosure controls and procedures (as defined in 17 C.F.R. Sections 240.13a-15(e) and 240.15d-15(e)) as of September 30, 2010, our chief executive officer and chief financial officer concluded that such controls and procedures were effective.

(b)

There was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting subsequent to the date of its evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II - OTHER INFORMATION

Item 6. Exhibits

Exhibit Number	Description of Exhibit
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a)
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a)
32	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 USC 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

AB&T FINANCIAL CORPORATION

SIGNATURES

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

AB&T FINANCIAL CORPORATION

(Registrant)

By: /s/ Daniel C. Ayscue

Daniel C. Ayscue

President and Chief Executive Officer

(Principal Executive Officer)

Date: November 15 , 2010

EXHIBIT INDEX

Exhibit

Number Description of Exhibit

31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a)
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a)
32	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 USC 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002