Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2008

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

From the transition period from to

COMMISSION FILE NUMBER: 000-33221

NEWNAN COWETA BANCSHARES, INC.

(Name of Small Business Issuer in Its Charter)


Georgia		58-2655471
(State of Incorporation)		(I.R.S. Employer Identification No.)

145 MILLARD FARMER INDUSTRIAL BLVD.

NEWNAN, GEORGIA 30263

(Address of principal executive offices)(Zip Code)

(770) 683-6222

(Issuer’s telephone number)

N/A

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

Indicate by check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the 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 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-s of the Exchange Act.

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

Number of shares outstanding of the issuer’s sole class of common equity, as of November 14, 2008: 1,006,070; no par value.

NEWNAN COWETA BANCSHARES, INC.

AND SUBSIDIARY

INDEX


			Page
PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements

	Consolidated Balance Sheet – September 30, 2008 (unaudited) and December 31, 2007		1

	Consolidated Statements of Income and Comprehensive Income Three and Nine Months Ended September 30, 2008 and 2007 (unaudited)		2

	Consolidated Statements of Cash flow – Nine Months Ended September 30, 2008 and 2007 (unaudited)		3

	Notes to Consolidated Financial Statements (unaudited)		4

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

	Forward Looking Statements		9

	Critical Accounting Policies		9

	Liquidity and Capital Resources		10

	Off-Balance Sheet Risk		10

	Financial Condition		11

	Results of Operations for the Three and Nine Months Ended September 30, 2008 and 2007		13

Item 3.		Controls and Procedures	16

PART II. OTHER INFORMATION

Item 1		– Legal Proceedings	17

Item 2		– Unregistered Sales of Equity Securities and Use of Proceeds	17

Item 3		– Defaults Upon Senior Securities	17

Item 4		– Submission of Matters to a Vote of Security Holders	17

Item 5		– Other Information	17

Item 6		– Exhibits	17

Signatures			18

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

NEWNAN COWETA BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

SEPTEMBER 30, 2008 and DECEMBER 31, 2007

(Unaudited)

(Dollars in thousands)


	September 30, 2008 (Unaudited)			December 31, 2007
Assets
Cash and due from banks	$	2,198		$	5,076
Federal funds sold		13,229			6,059
Securities available-for-sale, at fair value		17,354			21,232

Loans, net		163,977			175,708

Premises and equipment		3,815			9,448

Other real estate		19,430			12,643

Other assets		10,581			7,803

Total assets	$	230,584		$	237,969


Liabilities and Stockholders’ Equity

Liabilities
Deposits
Noninterest-bearing	$	12,341		$	13,001
Interest bearing		182,275			182,538

Total deposits		194,616			195,539

Subordinated debentures		3,093			3,093
Other borrowed funds		14,000			18,000
Other liabilities		4,862			1,736

Total liabilities		216,571			218,368

Commitments and contingencies

Stockholders’ equity
Common stock, no par value; 5,000,000 shares authorized; 1,006,070 shares issued and outstanding		12,193			12,193
Retained earnings		1,920			7,320
Accumulated other comprehensive income(loss)		(100	)		88

Total stockholders’ equity		14,013			19,601

Total liabilities and stockholders’ equity	$	230,584		$	237,969

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

NEWNAN COWETA BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Dollars in thousands, except per share amounts)


	Three Months Ended September 30, 2008			Three Months Ended September 30, 2007		Nine Months Ended September 30, 2008			Nine Months Ended September 30, 2007
Interest income

Loans	$	2,042		$	4,103	$	7,964		$	13,016
Taxable securities		237			249		774			647
Federal funds sold		39			240		165			622

Total interest income		2,318			4,592		8,903			14,285

Interest expense
Deposits		1,843			2,544		6,029			7,372
Other borrowings		144			51		474			150

Total interest expense		1,987			2,595		6,503			7,522

Net interest income		331			1,997		2,400			6,763
Provision for loan losses		5,378			260		6,383			431

Net interest income (loss) after provision for loan losses		(5,047	)		1,737		(3,983	)		6,332

Other income
Service charges on deposit accounts		76			68		210			191
Gain (loss) on sale of securities AFS		(4	)		—		1			(7	)
Gain on sale of other assets		76			—		248			—
Other operating income		153			138		534			442

Total other income		301			206		993			626

Other expenses
Salaries and employee benefits		898			973		2,829			2,890
Equipment and occupancy expenses		333			185		1,034			542
Data processing expenses		132			137		422			416
Loss on foreclosed property		81			—		208			—
Other operating expenses		458			368		1,164			882

Total other expenses		1,902			1,663		5,657			4,730

Income (loss) before income taxes		(6,648	)		280		(8,647	)		2,228
Income tax expense (benefit)		(2,410	)		107		(3,247	)		859

Net income (loss)		(4,238	)		173		(5,400	)		1,369

Other comprehensive income (loss):
Unrealized loss on securities available for sale arising during period		(48	)		74		(188	)		39

Comprehensive income (loss)		(4,286	)		247		(5,588	)		1,408

Basic earnings (loss) per share	$	(4.21	)	$	0.17	$	(5.37	)	$	1.37

Diluted earnings (loss) per share	$	(4.21	)	$	0.16	$	(5.37	)	$	1.31

Cash dividends per share	$	—		$	—	$	—		$	0.18

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

NEWNAN COWETA BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Dollars in thousands)


	Nine Months Ended September 30, 2008			Nine Months Ended September 30, 2007
OPERATING ACTIVITIES
Net income (loss)	$	(5,400	)	$	1,369
Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities:
Depreciation		189			231
Provision for loan losses		6,383			431
Amortization and accretion		(11	)		(11	)
Gain on sale of securities		(1	)		—
Gain on disposal of other real estate		(248	)		—
Loss on foreclosed properties		208			—
Decrease (increase) in interest receivable		712			(504	)
Decrease in interest payable		(382	)		(81	)
Increase (decrease) in income taxes payable		(2,846	)		107
Net other operating activities		(392	)		228

Net cash provided by (used by) operating activities		(1,788	)		1,770

INVESTING ACTIVITIES
Purchase of securities available for sale or restricted stocks		(10	)		(10,390	)
Proceeds from paydown of securities available for sale		1,249			2,032
Proceeds from sale of restricted stocks or investment securities		2,347			86
Net increase (decrease) in loans		(5,759	)		2,320
Proceeds from sale of premises and equipment		8,776			—
Purchase of land, premises and equipment		(43	)		(3,716	)
Proceeds from sale of other real estate and repossessed assets		4,444			1,810

Net cash used in investing activities		11,004			(7,858	)

FINANCING ACTIVITIES
Cash dividends paid		—			(181	)
Decrease in FHLB borrowing		(5,000	)		—
Net increase (decrease) in deposits		(924	)		5.338
Increase in Federal funds purchased		1,000			—
Proceeds for the sale of stock		—			609
Exercise of options		—			215

Net cash provided by (used by) financing activities		(4,924	)		5,981

Net increase (decrease) in cash and cash equivalents		4,292			(107	)

Cash and cash equivalents at beginning of period		11,135			12,907

Cash and cash equivalents at end of period	$	15,427		$	12,800

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

NEWNAN COWETA BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1.

BASIS OF PRESENTATION

The consolidated financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) and eliminations of inter-company accounts and transactions, which are, in the opinion of management, necessary for a fair statement of results for the interim period.

The results of operations for the period ended September 30, 2008 are not necessarily indicative of the results to be expected for the full year.

NOTE 2.

CURRENT ACCOUNTING DEVELOPMENTS

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 enhances existing guidance for measuring assets and liabilities using fair value. Prior to the issuance of SFAS 157, guidance for applying fair value was incorporated in several accounting pronouncements. SFAS 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS 157, fair value measurements are disclosed by level within that hierarchy. While SFAS 157 does not add any new fair value measurements, it does change current practice. Changes to practice include: (1) a requirement for an entity to include its own credit standing in the measurement of its liabilities; (2) a modification of the transaction price presumption; (3) a prohibition on the use of block discounts when valuing large blocks of securities for broker-dealers and investment companies; and (4) a requirement to adjust the value of restricted stock for the effect of the restriction even if the restriction lapses within one year. The Company adopted SFAS 157 on January 1, 2008 which did not impact the Company’s financial condition, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment to FASB Statement No. 115. This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement requires a business entity to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. An entity may decide whether to elect the fair value option for each eligible item on its election date, subject to certain requirements described in the statement. The Company adopted SFAS 159 on January 1, 2008. The Company elected not to use the fair value option on any of its eligible items; therefore, the adoption of SFAS 159 did not have an impact on the Company’s financial condition, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB Statement No. 51. SFAS No. 160 amends Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, SFAS No. 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statements of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS No. 160 is effective for the Company on January 1, 2009 and is not expected to have a significant impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141, Business Combinations (Revised 2007). SFAS No. 141R replaces SFAS No. 141, Business Combinations, and applies to all transactions and other events in which one entity obtains control over one or more other businesses. SFAS No. 141R requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any noncontrolling interest in the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. This fair value approach replaces the cost-allocation process required under SFAS No. 141 whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. SFAS No. 141R requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under SFAS No. 141. Under SFAS No. 141R, the requirements of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, would have to be met in order to accrue for a restructuring plan in purchase accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is a noncontractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria of SFAS No. 5, Accounting for Contingencies. SFAS No. 141R is expected to have an impact on the Company’s accounting for business combinations closing on or after January 1, 2009.

NOTE 3.

PREMISES AND EQUIPMENT

On February 28, 2008, the Bank completed a sale/leaseback transaction on the main office located in Newnan and the branches located in Peachtree City and Tyrone. The purchaser/lessor is Out-Med, IV LLC, whose members and board of managers include three of the Company’s board of directors: Mr. Theo D. Mann, Mr. James Van S. Mottola, and Mr. David LaGuardia. In total, the Bank sold and concurrently leased back land and buildings/improvements with a carrying amount of $5.47 million. Net proceeds of the sale to the Bank were $8.51 million, resulting in a gain, net of transaction cost, of $3.04 million. The Bank will recognize the gain ratable over the ten year expected term of the leases.

NOTE 4.

EARNINGS (LOSS) PER SHARE

Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share are computed by dividing net income by the sum of the weighted average number of common shares outstanding and common stock equivalents. Common stock equivalents consist of stock options and stock warrants. Below is a calculation of diluted earnings per common share for the three and nine month periods ended September 30, 2008 and 2007.


	Three Months Ended September 30,					Nine Months Ended September 30,
	2008			2007		2008			2007
	(Dollars in thousands, except per share amounts)
Net income (loss)	$	(4,238	)	$	173	$	(5,400	)	$	1,369

Weighted average common shares outstanding		1,006			1,006		1,006			1,000
Net effect of the assumed exercise of stock options and warrants based on the treasury stock method using average market price for the period.		—			45		—			46

Total weighted average common shares and common stock equivalents outstanding		1,006			1,051		1,006			1,046

Diluted earnings (loss) per common share	$	(4.21	)	$	0.16	$	(5.37	)	$	1.31

NOTE 5.

LOANS

The composition of loans as of September 30, 2008 is summarized as follows:


Commercial and Financial	$	32,584
Real Estate – Acquisition and Development		53,744
Real Estate – Construction		71,780
Real Estate – Mortgage		10,091
Consumer Installment and Other		1,846

		170,045
Deferred Loan Fees		(64	)
Allowance for Loan Losses		(6,004	)

	$	163,977

The Company originates primarily commercial, residential, and consumer loans to customers in Coweta County and surrounding counties. The ability of the majority of the Company’s customers to honor their contractual loan obligations is dependent on the economy in these areas. Eighty percent of the Company’s loan portfolio is secured by real estate, of which a substantial portion is secured by real estate in the Company’s market area.

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


	Nine Months Ended September 30,
	2008		2007
	(Dollars in thousands)
Impaired Loans	$	21,221	$	12,859
Valuation Allowance		2,607		774

Net Impaired Loans	$	23,828	$	13,633

Changes in the allowance for loan losses for the periods ended September 30, 2008 and 2007 are as follows:


	2008			2007
Balance, Beginning	$	2,426		$	2,328
Provision for Loan Losses		6,383			431
Loans Charged Off		(2,854	)		(154	)
Recoveries of Loans Previously Charged Off		49			20

Balance, Ending	$	6,004		$	2,625

NOTE 6.

DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 has been applied prospectively as of the beginning of the year.

Under the standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, the standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. The standard describes three levels of inputs that may be used to measure fair value:


Level 1		Quoted prices in an active market for identical assets or liabilities.

Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially full term of the assets or liabilities.

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to their fair value of the assets and liabilities.

The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Securities available-for-sale

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset based and other securities. In certain cases where level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Currently, all of the Company’s securities are considered to be Level 2 securities.

The following is a description of the valuation methodologies used for instruments measured at fair value on a non-recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Impaired loans

Loans measured for impairment using the practical expedients permitted by SFAS No. 114, Accounting by Creditors for Impairment of a Loan, including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loans is dependent on collateral, is determined by appraisals or independent valuation and are considered Level 3 inputs.

Other Real Estate Owned

Certain assets such as other real estate owned (OREO) are measured at fair value. We believe that the fair value component in its valuation follows the provisions of SFAS No. 157. Fair values of OREO at September 30, 2008 were determined by appraisals or independent valuation and are considered Level 2 or Level 3 inputs.

NEWNAN COWETA BANCSHARES, INC. AND SUBSIDIARY

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of certain significant factors which have affected our financial position and operating results during the period included in the accompanying consolidated financial statements.

Forward Looking Statements

Certain of the statements made herein under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) are forward-looking statements for purposes of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward looking statements include statements using the words such as “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “may,” “intend” or other similar words and expressions of the future. Our actual results may differ significantly from the results described in these forward-looking statements.

These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, without limitation: the effects of future economic conditions; governmental monetary and fiscal policies, as well as legislative and regulatory changes; the risks of changes in interest rates on the level and composition of deposits, loan demand and the values of loan collateral, securities and other interest-sensitive assets and liabilities; interest rate risks; the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet.

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 footnotes to the consolidated financial statements at December 31, 2007, as filed in our 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 consolidated financial statements. Refer to the portion of this discussion that addresses our allowance for loan losses for a description of our processes and methodology for determining our allowance for loan losses.

Liquidity and Capital Resources

We monitor our liquidity resources on an ongoing basis. Our liquidity is also monitored on a periodic basis by State and Federal regulatory authorities. As of September 30, 2008, our liquidity, as determined under guidelines established by regulatory authorities and internal policy, was satisfactory.

On September 2, 2008 we entered into a written agreement with the Federal Reserve Board and the Georgia Department of Banking and Finance to resolve issues that are impacting many banks and financial institutions. The written agreement is designed to help us get back to our traditionally high level of asset quality and financial stability by finding ways to further reduce the risk in our lending portfolio and improve the quality of our asset management. To make sure we continue to successfully meet the milestones for improvement, the agreement is supported by increased oversight by our board of directors and regular reporting to both state and federal regulators.

At September 30, 2008, the Company and bank were deemed adequately capitalized based on regulatory minimum capital requirements. The minimum capital requirements and the actual capital ratios on a consolidated and bank-only basis at September 30, 2008 were as follows:


	Actual				Minimum Regulatory
	Consolidated		Bank		Requirement
Leverage capital ratios	6.83	%	6.80	%	4.00	%
Risk-based capital ratios:
Core capital	8.31	%	8.28	%	4.00	%
Total capital	9.58	%	9.55	%	8.00	%

Off-Balance Sheet Risk

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. A summary of our commitments is as follows:


	September 30, 2008
	(Dollars in Thousands)
Commitments to extend credit	$	11,940
Letters of credit		1,082

	$	13,022

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral is required in instances which we deem necessary.

In 2007, the Company purchased two parcels of land in Coweta County. These properties will be used to locate future branch facilities. No construction agreements exist for these properties as of September 30, 2008.

Financial Condition

Following is a summary of our balance sheets for the periods indicated:


	September 30, 2008		December 31, 2007
	(Dollars in Thousands)
Assets
Cash and due from banks	$	2,198	$	5,076
Federal funds sold		13,229		6,059
Securities		17,354		21,232
Loans, net		163,977		175,708
Premises and equipment		3,815		9,448
Other real estate		19,430		12,643
Other assets		10,581		7,803

	$	230,584	$	237,969

Liabilities and Stockholders’ Equity
Deposits	$	194,616	$	195,539
Subordinated debentures		3,093		3,093
Other borrowed funds		14,000		18,000
Other liabilities		4,862		1,736
Stockholders’ equity		14,013		19,601

	$	230,584	$	237,969

Our total assets declined by 3.10% for the nine month period ended September 30, 2008. Loans receivable were $170 million at September 30, 2008, a decrease of $8.2 million or -4.6% from the $178.2 million total at December 31, 2007. Deposit growth decreased by $0.9 million versus December 31, 2007. Our ratio of loans to deposits and all other funding sources decreased to 78.60% as of September 30, 2008 from 82.28% as of December 31, 2007 resulting from the $4.0 million reduction in other borrowed funds. During the first quarter of 2008, the Company completed a sale/leaseback transaction on the main office located in Newnan and the branches located in Peachtree City and Tyrone which resulting in Premises and Equipment decreasing in value by $5.5 million from $9.4 million as of December 31, 2007 to $3.8 million as of September 30, 2008. Net proceeds of the sale were $8.51 million, resulting in a gain, net of transaction cost, of $3.04 million. The Company is recognizing the gain ratable over the ten year expected term of the leases. The unrecognized gain is found within Other Liabilities causing the increase from December 31, 2007 to September 30, 2008.

Results of Operations For The Three and Nine Months Ended September 30, 2008 and 2007

Following is a summary of our operations for the periods indicated.


	Three Months Ended September 30,					Nine Months Ended September 30,
	2008			2007		2008			2007
	(Dollars in Thousands)
Interest income	$	2,318		$	4,592	$	8,903		$	14,285
Interest expense		1,987			2,595		6,503			7,522

Net interest income		331			1,997		2,400			6,763
Provision for loan losses		5,378			260		6,383			431
Other income		301			206		993			626
Other expense		1,902			1,663		5,657			4,730

Pretax income (loss)		(6,648	)		280		(8,647	)		2,228
Income taxes (benefit)		(2,410	)		107		(3,247	)		859

Net income (loss)	$	(4,238	)	$	173	$	(5,400	)	$	1,369

Our net interest income decreased by $1.7 million during the third quarter of 2008 as compared to the same period in 2007. Our net interest margin decreased to 1.68% during the third quarter of 2008 as compared to 3.99% during the third quarter of 2007. The decrease in net interest income is due primarily to the decreased interest rates and an increase in impaired loans as well as other real estate. The cost of funds decreased to 4.08% in the third quarter of 2008 as compared to 4.76% in the third quarter of 2007.

The provision for loan losses increased by $5,952,000 for the nine months ended September 30, 2008, respectively, as compared to the same period in 2007. There was $21.2 million in non-accrual loans as of September 30, 2008. This increase in non-accrual loans is due to management’s review of the current loan portfolio in relation to the economic conditions surrounding the bank. Loans past due ninety days or more and still accruing interest totaled $520 thousand on September 30, 2008. As of September 30, 2008, management has assessed the allowance for loan losses and believes the $6 million, or 3.7% of total net outstanding loans, is adequate to absorb risks in the portfolio. No assurance can be given, however, that increased loan volume, and adverse economic conditions or other circumstances, will not result in increased losses in our loan portfolio.

Information with respect to non-accrual, past due, restructured, and potential problem loans at September 30, 2008 and 2007 is as follows:


	September 30,
	2008		2007
	(Dollars in Thousands)
Non-accrual loans	$	21,221	$	12,859
Loans contractually past due ninety days or more as to interest or principal payments and still accruing		520		0
Restructured loans		0		45
Potential problem loans		1,951		14,960
Interest income that would have been recorded on non-accrual and restructured loans under original terms		673		122
Interest income that was recorded on non-accrual and restructured loans		1		203

It is our policy to discontinue the accrual of interest income when, in our opinion, collection of such interest becomes doubtful. We will generally discontinue the accrual of interest income when (1) there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected and (2) the principal or interest is more than ninety days past due, unless the loan is both well-secured and in the process of collection.

Loans classified for regulatory purposes as loss, doubtful, substandard or special mention that have not been included in the table above do not represent or result from trends or uncertainties which we reasonably expect will materially impact future operating results, liquidity, or capital resources. These classified loans do not represent material credits about which we are aware of any information that causes us to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms

Information regarding certain loans and allowance for loan loss data for the nine months ended September 30, 2008 and 2007 is as follows:


	Nine Months Ended September 30,
	2008			2007
	(Dollars in Thousands)
Average amount of loans outstanding	$	177,584		$	186,094

Balance of allowance for loan losses at beginning of period	$	2,426		$	2,328

Loans charged off
Commercial and financial		233			150
Real estate mortgage		2,532			—
Installment		89			4

		2,854			154

Loans recovered
Commercial and financial		32			14
Real estate mortgage		16			—
Installment		1			6

		49			20

Net charge-offs		2,805			134

Additions to allowance charged to operating expense during period		6,383			431

Balance of allowance for loan losses at end of period	$	6,004		$	2,625

Ratio of net loans charged off during the period to average loans outstanding		1.58	%		0.72	%

The allowance for loan losses is maintained at a level that is deemed appropriate by management to adequately cover all known and inherent risks in the loan portfolio. Management’s evaluation of the loan portfolio includes a loan classification program. Under the program, as each loan is made, management will assign a loan grade. The loans are then classified by loan type and assigned an allowance percentage based on our specific experience and the historical experience of the banking industry in general. Loan classifications are subject to periodic review by the responsible lending officers and by senior management based upon their judgment, our loan loss experience, current economic conditions that may affect the borrower’s ability to repay, lender requirements, the underlying collateral value of the loans and other appropriate information. Management relies predominantly on this ongoing review of the loan portfolio to assess the risk characteristics of the portfolio in the aggregate and to determine adjustments, if any, to our allowance for loan losses. Based upon this ongoing review, we may identify loans that could be impaired. A loan is considered impaired when it is probable that we will be unable to collect all principal and

interest due in accordance with the contractual terms of the loan agreement. When we identify a loan as impaired, the loan is reviewed on an individual basis to determine the amount of the impairment. A specific allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is less than the carrying value of the loan.

The Company continues to explore ways to reduce its overall exposure in these non-performing loans through various alternatives, including the potential sale of certain of the non-performing assets. Any future impact to the Company’s allowance for losses on loans in the event of such sales or other similar actions cannot be reasonably determined at this time

ITEM 3.

Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and the Principal Financial and Accounting Officer, of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer concluded that our disclosure controls and procedures are effective.

There have been no changes in the Company’s internal control over financial reporting in the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II—OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

The Company is not a party to any pending legal proceeding (nor is any property of the Company subject to any legal proceeding) other than routine litigation that is incidental to the business.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

There have been no defaults in the payment of principal, interest, a sinking or purchase fund installment, or any other default with respect to any indebtedness of the Company.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None

ITEM 5.

OTHER INFORMATION.

None.

ITEM 6.

EXHIBITS

3.1

Articles of Incorporation of the Company (filed as Exhibit 3.1 to the Registrant’s Form 8-K12g3 previously filed with the Commission on October 11, 2001 and incorporated herein by reference)

3.2

Bylaws of the Company, as amended (filed as Exhibit 3.2 to the Registrant’s Form 8-K12g3 previously filed with the Commission on October 11, 2001 and incorporated herein by reference)

31.1

Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certificate of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certificate of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

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


NEWNAN COWETA BANCSHARES, INC.
(Registrant)

DATE: November 19, 2008	BY:	/s/ James B. Kimsey
		James B. Kimsey, President and CEO
		(Principal Executive Officer)

DATE: November 19, 2008	BY:	/s/ J. Randal McKoon
		J. Randal McKoon, Principal Financial and
		Accounting Officer

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NEWNAN COWETA BANCSHARES INC 10-Q