UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~March 3031, ~~2011~~2012

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

For transition period from to

Commission file number 000-22473

VOLUNTEER BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)


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

210 East Main Street

Rogersville, TN 37857

(Address of principal executive offices)(Zip Code)

(423) 272-2200

(Registrant’s telephone number, including area code)

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

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

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

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

As of the close of business on ~~December~~March 31, ~~2011~~2012, there were 496,277 shares of the Registrant’s common stock outstanding.

VOLUNTEER BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents

	PART I
ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS – VOLUNTEER BANCORP, INC.	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF VOLUNTEER BANCORP, INC.	25
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	2928
ITEM 4.	CONTROLS AND PROCEDURES	2928
	PART II
ITEM 1.	LEGAL PROCEEDINGS	2928
ITEM 1A.	RISK FACTORS	2928
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	2928
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	2928
ITEM 5.	OTHER INFORMATION	2928
ITEM 6.	EXHIBITS	3029

Explanatory Note

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

Item 1. Financial Statements

VOLUNTEER BANCORP, INC.

Consolidated Balance Sheets

~~September~~March 3031, ~~2011~~2012 (Unaudited) and December 31, ~~2010~~2011

	September 30,			December 31,
	March 31,2012			December 31,2011
	2011			2010
	(Dollars In Thousands)
Assets
Cash and due from banks	$	521,~~753~~777,371		$	5,~~273~~700,328
Federal funds sold		~~600~~—			~~890~~600,000
Cash and cash equivalents		621,~~353~~777,371			6,~~163~~300,328
Securities available for sale		1613,~~015~~433,644			1215,~~684~~277,191
Securities held to maturity (fair value 2011—$36 and 2010—$59)		34			56
Loans receivable, net of allowance for loan losses of $2,564,122 and $3,044,771		82,362,146			93,626,819
Loans receivable, net of allowance for loan losses of $2,678 and $3,723		95,748			101,706
Federal Home Loan Bank stock		494,000			494,000
Federal Home Loan Bank stock		494			494
Accrued interest receivable		485,076			609,355
Accrued interest receivable		512			555
Premises and equipment, net		3,069,353			3,066,531
Premises and equipment, net		3,097			3,234
Other real estate owned, net		6,586,397			5,505,959
Other real estate owned, net		5,107			4,925
Bank owned life insurance		2,708,034			2,686,820
Bank owned life insurance		2,665			2,603
Other assets		343,640			479,776
Other assets		668			494
Total assets	$	131,259,661		$	128,046,779
Total assets	$	130,693		$	132,914
Liabilities and Stockholders’ Equity
Deposits:
Non-interest-bearing	$	1716,~~175~~756,141		$	1415,~~396~~453,959
Interest-bearing		9799,~~634~~810,430			~~102~~97,~~035~~887,929
Total deposits		~~114~~116,~~809~~566,571			~~116~~113,~~431~~341,888
Accrued interest payable		~~504~~503,108			~~617~~504,338
Note payable—major stockholder		830,500			830,500
Securities sold under repurchase agreements		234			337
Notes payable—directors		160,000			160,000
Federal Home Loan Bank advances		8,500,000			8,500,000
Subordinated debentures		3,093,000			3,093,000
Other liabilities		~~234~~226,274			~~164~~216,603
Total liabilities		~~128~~129,~~204~~879,453			~~129~~126,~~972~~646,329
Stockholders’ equity
Common stock, $0.01 par value; 1,000,000 shares authorized; 496,277 shares issued and outstanding		4,962			4,962
Common stock, $0.01 par value; 1,000,000 shares authorized; 496,277 shares issued and outstanding		5			5
Additional paid-in capital		306,834			296,453
Additional paid-in capital		255			255
Retained earnings		1,323,730			1,370,939
Retained earnings		2,367			2,496
Accumulated other comprehensive loss, net		(255,318	)		(271,904	)
Accumulated other comprehensive income (loss), net		(138	)		186
Total stockholders’ equity		1,380,208			1,400,450
Total stockholders’ equity		2,489			2,942
Total liabilities and stockholders’ equity	$	131,259,661		$	128,046,779
Total liabilities and stockholders’ equity	$	130,693		$	132,914

See notes to consolidated financial statements.

VOLUNTEER BANCORP, INC.

Consolidated Statements of Operations

Three ~~and Nine~~ Months Ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Unaudited)

	Three Months Ended						Nine Months Ended
	2012			2011
	September 30,						September 30,
Interest income
	2011			2010			2011			2010
Loans, including fees	$	1,177,248		$	1,306,111
	(In Thousands, Except Per Share Amounts)
Securities
Interest income
Taxable		15,883			62,982
Loans, including fees	$	1,329		$	1,391		$	3,948		$	4,185
Tax exempt		35,922			53,998
Securities
Federal funds sold and other		10,154			1,996
Taxable		31			100			143			328
		1,239,207			1,425,087
Tax exempt		41			54			167			161
Interest expense
Federal funds sold and other		8			7			24			22
Deposits		226,810			346,838
		1,409			1,552			4,282			4,696
Other borrowings		40,576			26,183
Interest expense
		267,386			373,021
Deposits		280			469			939			1,536
Net interest income		971,821			1,052,066
Other borrowings		26			29			78			103
Provision for loan losses		—			5,967
		306			498			1,017			1,639
Net interest income after provision for loan losses		971,821			1,046,099
Net interest income		1,103			1,054			3,265			3,057
Noninterest income
Provision for loan losses		180			1,565			246			1,812
Service charges		44,109			60,339
Net interest income (loss) after provision for loan losses		923			(511	)		3,019			1,245
Gain on sale of securities		54,731			258,285
Noninterest income
Gain on sale of loans		202,674			—
Service charges		55			59			172			195
Gain on sale of premises and equipment		—			13,377
Fees and commissions		10			10			37			40
Other		66,524			49,173
Gain on sale of securities		190			—			528			—
		368,038			381,174
Gain on sale of fixed assets		—			—			13			222
Noninterest expenses
Other		62			31			169			88
Salaries and employee benefits		616,165			624,549
		317			100			919			545
Occupancy expenses		68,006			76,535
Noninterest expenses
Furniture and equipment		69,050			67,276
Salaries and employee benefits		479			550			1,596			1,761
Data processing		68,852			61,275
Occupancy expenses		70			73			210			216
Audit and professional fees		173,021			80,379
Furniture and equipment		68			57			197			208
Insurance and bond expense		51,313			22,041
Data processing expense		65			61			193			184
Other real estate and collection expense		133,430			111,914
Audit and professional fees		114			121			371			368
FDIC assessment expense		80,000			96,757
Insurance and bond expense		52			22			125			53
Director fees		—			21,000
Other real estate and collection expense		293			495			714			683
Other		127,231			125,875
FDIC assessment expense		100			100			298			276
		1,387,068			1,287,601
Director fees		—			25			32			74
Income (loss) before income taxes		(47,209	)		139,672
Other		97			122			331			343
Income tax expense (benefit)		—			—
		1,338			1,626			4,067			4,166
Net income (loss)	$	(47,209	)	$	139,672
Income (loss) before income taxes		(98	)		(2,037	)		(129	)		(2,376	)
Basic and diluted earnings (loss) per share	$	(.10	)	$	.28
Income tax expense (benefit)		—			—			—			—
Average common shares outstanding		496,277			496,277
Net income (loss)	$	(98	)	$	(2,037	)	$	(129	)	$	(2,376	)
Basic and diluted earnings (loss) per common share	$	(0.20	)	$	(4.10	)	$	(0.26	)	$	(4.79	)

See notes to consolidated financial statements.

VOLUNTEER BANCORP, INC.

Consolidated Statements of Comprehensive Income (Loss)

Three ~~and Nine~~ Months Ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Unaudited)

	Three Months Ended						Nine Months Ended
	2012			2011
	September 30,						September 30,
Net income (loss)	$	(47,209	)	$	139,672
	2011			2010			2011			2010
Other comprehensive income (loss), net of tax:
	(In Thousands)						(In Thousands)
Unrealized gains (losses) on securities arising during period		16,586			(262,663	)
Net income (loss)	$	(98	)	$	(2,037	)	$	(129	)	$	(2,376	)
Reclassification of realized amount		(54,731	)		(258,285	)
Other comprehensive income (loss), net of tax:
Other comprehensive income (loss)		(38,145	)		(520,948	)
Unrealized gains (losses) on securities arising during period		171			(15	)		204			(21	)
Income taxes related to other comprehensive income (loss)		—			—
Reclassification of realized amount		(190	)		—			(528	)		—
Other comprehensive income (loss), net of income taxes		(38,145	)		(520,948	)
Other comprehensive income (loss)		(19	)		(15	)		(324	)		(21	)
Total comprehensive income (loss)	$	(85,354	)	$	(381,276	)
Income taxes related to other comprehensive income (loss)		—			—			—			—
Other comprehensive income (loss), net of income taxes		(19	)		(15	)		(324	)		(21	)
Total comprehensive income (loss)	$	(117	)	$	(2,052	)	$	(453	)	$	(2,397	)

See notes to consolidated financial statements.

VOLUNTEER BANCORP, INC.

Consolidated Statements of Cash Flows

~~Nine~~Three Months Ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Unaudited)

	2011			2010
	2012			2011
	(Dollars In Thousands)
Cash flows from operating activities
Cash flows from operating activities:
Net income (loss)	$	(47,209	)	$	139,672
Net income (loss)	$	(129	)	$	(2,376	)
Adjustments to reconcile net income (loss) to net cash from operating activities
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation expense		46,496			48,390
Depreciation expense		144			155
Imputed interest on noninterest bearing note payable		10,381			—
Premium amortization of securities, net		5376,837			113,254
Provision for loan losses		~~246~~—			15,~~812~~967
Gain on sales of securities		(~~528~~54,731	)		—(258,285	)
Gain on sale of fixed assets		(13	)		(222	)
Gain on sale of loans		(202,674	)		—
Write downs of other real estate owned		387			532
Gain on sale of premises and equipment		—			(13,377	)
Increase in bank owned life insurance		(63	)		(61	)
Gain on sale of other real estate owned		(27,550	)		—
Write downs of other real estate owned		175,070			1,354
Increase in bank owned life insurance		(21,214	)		(21,447	)
Changes in:
Accrued interest receivable		43124,279			~~242~~29,123
Other assets		~~(174~~136,136	)		(5224,529	)
Deferred taxes		—			(107	)
Accrued interest payable		(1,230	)		(79,181	)
Accrued interest payable		(113	)		(53	)
Other liabilities		9,671			97,342
Other liabilities		70			24
Net cash from operating activities		224,262			(71,717	)
Net cash from operating activities		(77	)		(95	)
Cash flows from investing activities
Cash flows from investing activities:
Activity in available for sale securities Purchases		(5,201,830	)		(3,740,749	)
Activity in available for sale securities
Proceeds from sales, calls, maturities and principal pay-downs		7,039,857			6,545,925
Purchases		(20,424	)		(550	)
Activity in held to maturity securities Proceeds from principal pay-downs		—			7,892
Proceeds from sales, calls, maturities and principal pay-downs		17,245			2,094
Net change in loans		4,234,012			2,147,038
Activity in held to maturity securities
Proceeds from sale of premises and equipment		—			13,377
Proceeds from principal pay-downs		22			28
Proceeds from sale of loans		4,971,460			—
Net change in loans		4,685			524
Proceeds from sale of other real estate owned		1,033,917			—
Proceeds from sale of premises and equipment		13			237
Purchases of premises and equipment, net		(49,318	)		(1,849	)
Proceeds from sale of other real estate owned		458			39
Net cash from investing activities		12,028,098			4,971,634
Purchases of premises and equipment		(7	)		(11	)
Purchases of Federal Home Loan Bank stock		—			(3	)
Net cash from investing activities		1,992			2,358
Cash flows from financing activities
Net change in deposits		(13,~~622~~224,683	)		(21,~~686~~608,731	)
Net change in securities sold under repurchase agreements		~~(103~~—	)		9(106,500	)
Repayment of Federal Home Loan Bank advances		(25,500	)		(1,700	)
Net cash from financing activities		3,224,683			1,502,231
Proceeds from Federal Home Loan Bank advances		25,500			1,500
Net change in cash and cash equivalents	$	15,477,043		$	6,402,148
Net cash from financing activities		(1,725	)		(2,877	)
Cash and cash equivalents at beginning of period		6,300,328			6,163,514
Net change in cash and cash equivalents		190			(614	)
Cash and cash equivalents at end of period	$	21,777,371		$	12,565,662
Cash and cash equivalents at beginning of period		6,163			6,101
Supplemental cash flow information:
Cash and cash equivalents at end of period	$	6,353		$	5,487
Interest paid	$	268,616		$	452,202
Supplemental Disclosures of Cash Flow Information:
Payments during the period for:
Interest paid	$	1,130		$	1,692
Income taxes paid		—			—
Supplemental Non-cash disclosures:
Supplemental non-cash disclosures:
Transfers from loans to other real estate owned	$	12,~~027~~261,875		$	4848,~~411~~520

See notes to consolidated financial statements.

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~ 2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

Note 1—Basis of Presentation

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

In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) and disclosures necessary to summarize fairly the consolidated financial position of the Company as of ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010 and~~2011 and the related consolidated statements of operations, comprehensive income (loss) and cash flows for the three months ~~and nine months~~ ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011. The interim financial statements should be read in conjunction with the notes to the financial statements presented in the Company’s latest annual report on Form 10-K as filed with the Securities and Exchange Commission. The results for interim periods are not necessarily indicative of results to be expected for the complete fiscal year.

Going Concern and Related Issues

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

The Company experienced substantial losses in 2009, 2010 and ~~2009~~2011. Furthermore, non-performing assets are over 128% of total assets. Asand ~~discussed~~over in745% ~~more~~of ~~detail~~total instockholders’ ~~Note~~equity 9at toDecember 31, ~~Notes~~2011. toAs ~~Consolidated~~discussed ~~Financial~~in ~~Statements~~more detail later, the Bank is not in compliance with minimum capital requirements set forth in the consent order with bank regulatory authorities.

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

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

~~At September 30,~~In ~~2011, the Bank’s capital is above levels generally established for adequately capitalized under regulatory capital guidelines. However, in~~ January 2010, the Bank ~~agreed~~consented to a FDIC requirement to maintain a ~~minimum~~ Tier 1 capital to average assets ratio of 8%, minimum Tier 1 capital to risk-weighted assets ratio of 10% and total capital to risk-weighted assets ratio of 12%. The Bank did not meet these capital requirements as of ~~September~~March 3031, ~~2011~~2012 or December 31, ~~2010~~2011. See Note 98 to ~~Notes~~the notes to ~~Consolidated~~consolidated financial ~~Financial~~statements ~~Statements~~ for additional disclosures related to regulatory capital.

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

Note 1—Basis of Presentation (continued)

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

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

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

Note 2—New Accounting Standards

In ~~January~~May 2011, the ~~Financial Accounting Standards Board (“~~FASB”) issued ~~ASU~~an ~~No. 2011-01,~~amendment ~~“Deferral~~to ofachieve ~~the Effective~~common ~~Date~~fair ofvalue ~~Disclosures~~measurement ~~about~~and ~~Troubled~~disclosure ~~Debt~~requirements ~~Restructurings~~between ~~in Update No~~U. ~~2010-20~~S.” ~~The provisions of ASU No. 2010-20 required the disclosure of more granular information on the nature~~ and ~~extent of troubled debt restructurings~~ ~~and~~international ~~their~~accounting ~~effect~~principles. onOverall, the ~~allowance~~guidance ~~for~~is ~~loan~~consistent ~~and~~with ~~lease~~existing ~~losses effective for our reporting period ended March 31, 2011~~U. ~~The amendments in ASU No~~S. ~~2011-01~~ ~~defer~~accounting ~~the~~principles; ~~effective~~however, ~~date~~there ~~related~~are tosome ~~these~~provisions ~~disclosures,~~that ~~enabling~~change ~~creditors~~a toparticular ~~provide such~~principle ~~disclosures~~or ~~after~~requirement ~~the~~for ~~FASB~~measuring ~~completes~~fair ~~its~~value ~~project~~or ~~clarifying the guidance~~ for ~~determining~~disclosing information ~~what~~about ~~constitutes~~fair avalue ~~troubled debt restructuring~~measurements. AsThe ~~the~~adoption ~~provisions~~ of this ~~ASU~~standard ~~only~~did ~~defer~~not ~~the~~have ~~effective~~a ~~date~~material ofeffect ~~disclosure~~on ~~requirements related to troubled debt restructurings,~~ the ~~adoption~~Company’s ofoperating ~~this~~results ~~ASU~~or ~~will~~financial ~~have~~condition, nobut ~~impact~~the onadditional ~~the~~disclosures ~~Company’s~~are ~~consolidated~~included ~~financial~~in ~~statements~~Note 5.

In ~~April~~June 2011, the FASB ~~issued~~amended ~~ASU~~existing ~~No. 2011-02,~~guidance “Aand ~~Creditor’s~~eliminated ~~Determination~~the ofoption ~~Whether~~to apresent ~~Restructuring~~the iscomponents aof ~~Troubled~~other ~~Debt~~comprehensive ~~Restructuring.”~~income ~~The~~as ~~provisions~~part of ~~ASU~~the statement ~~No. 2011-02~~of ~~provide~~changes ~~additional~~in ~~guidance~~stockholders’ ~~related~~equity. toThe ~~determining~~amendment ~~whether~~requires athat ~~creditor has~~comprehensive ~~granted~~income abe ~~concession,~~presented ~~include factors and examples for creditors to consider~~ in ~~evaluating~~either ~~whether~~ a ~~restructuring~~single ~~results~~continuous instatement aor ~~delay~~ in ~~payment~~two ~~that~~separate isconsecutive ~~insignificant,~~statements. ~~prohibit~~The ~~creditors~~adoption ~~from~~of ~~using~~this ~~the~~amendment ~~borrower’s~~changed ~~effective rate test to~~the ~~evaluate~~presentation ~~whether~~of ~~a concession has been granted to~~ the ~~borrower,~~statement ~~and~~of ~~add~~comprehensive ~~factors~~income for ~~creditors~~the Company to ~~use~~two inconsecutive ~~determining~~statements ~~whether~~instead aof ~~borrower~~presenting iscomprehensive ~~experiencing~~income ~~financial~~as ~~difficulties.~~part Aof ~~provision in ASU No. 2011-02 also ends~~ the ~~FASB’s~~consolidated ~~deferral~~statement of ~~the~~ ~~additional~~stockholders’ ~~disclosures about troubled debt restructurings as required by ASU No~~equity. ~~2010-20.~~ The ~~provisions~~adoption of ~~ASU~~this ~~No. 2011-02~~amendment ~~are~~had ~~effective~~no impact ~~for~~on ~~our~~the ~~reporting~~consolidated ~~period~~financial ~~ending~~statements ~~September 30,~~as ~~2011.~~the ~~The~~prior ~~adoption~~presentation of ~~ASU~~comprehensive ~~No. 2011-02~~income ~~did not~~was ~~have~~in acompliance ~~material~~with ~~impact~~this ~~on the Company’s consolidated financial statements~~amendment.

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

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

Note 3—Securities

The amortized cost and fair value of securities available for sale and held to maturity securities at ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

	AmortizedCost		~~GrossUnrealizedGains~~UnrealizedGains		GrossUnrealizedLosses			~~FairValue~~GrossFairValue
September 30, 2011
March 31, 2012
Available for sale
U.S. government sponsored entities and agencies	$	23,~~415~~287,837	$	128,371	$	(252	)	$	23,~~414~~316,156
State and political subdivision		61,~~309~~057,011		82,612		(212,556	)		61,~~296~~057,067
Mortgage-backed: residential		~~327~~717,512		323,508		—			~~359~~721,020
Collateralized mortgage obligations		68,~~870~~394,364		7624,536		—(79,499	)		68,~~946~~339,401
Total available for sale	$	1513,~~921~~456,724	$	~~117~~59,027	$	(2382,107	)	$	1613,~~015~~433,644
Held to maturity
December 31, 2011
Mortgage-backed: residential	$	34	$	2	$	—		$	36
December 31, 2010
Available for sale
U.S. government sponsored entities and agencies	$	~~613~~2,332,948	$	19,376	$	—(49	)	$	~~614~~2,342,275
State and political subdivision		56,~~153~~013,178		993,546		(1679,416	)		5,~~236~~937,308
Mortgage-backed: residential		4764,~~334~~990		~~303~~2,125		—			4767,~~637~~115
Collateralized mortgage obligations		26,~~166~~205,741		5035,665		(1910,913	)		26,~~197~~230,493
Total available for sale	$	1215,~~266~~316,857	$	~~453~~50,712	$	(3590,378	)	$	1215,~~684~~277,191
Held to maturity
Mortgage-backed: residential	$	56	$	3	$	—		$	59

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

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

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

Note 3—Securities (continued)

The proceeds from sales of securities and the associated gross gains and losses for the three months ended March 31, 2012 and March 31, 2011 are listed below:


	March 31, 2012		March31, 2011
Proceeds	$	6,356,801	$	4,420,719
Gross gains		57,521		258,285
Gross losses		2,790		—

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

	September 30, 2011
	March 31, 2012
	AmortizedCost		FairValue
Available for sale
One to five years	$	1363,~~968~~931	$	1365,~~966~~152
Five to ten years		~~998~~1,314,648		~~980~~1,319,003
Beyond ten years		52,~~758~~666,269		52,~~764~~689,068
Mortgage backed: residential		~~327~~717,512		~~359~~721,020
Collateralized mortgage obligations		68,~~870~~394,364		68,~~946~~339,401
Total	$	1513,~~921~~456,724	$	1613,~~015~~433,644
Held to maturity
One to five years	$	34	$	36
Five to ten years		—		—
Total	$	34	$	36

Securities pledged at ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011 had a carrying amount of $~~7.2~~4,031,622 ~~million~~ and $~~10.0 million~~6, 664,860, respectively, and were pledged to secure public deposits, federal funds lines of credit, and securities sold under repurchase agreements.

The following table summarizes the investment securities with unrealized losses at ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011 aggregated by major security type and length of time in a continuous unrealized loss position:

	Less Than 12 Months					12 Months or Longer					Total
	FairValue		UnrealizedLosses			FairValue		UnrealizedLosses			FairValue		UnrealizedLosses
September 30, 2011
March 31, 2012
Available for sale
U.S. gov’t sponsored entities and agencies		723		(2	)		17		—			740		(2	)
U.S. government-sponsored entities	$		$	—		$	16,190	$	(52	)	$	16,190	$	(52	)
State and political subdivisions	$	1466,~~237~~053	$	(212,556	)	$	—	$	—		$	1466,~~237~~053	$	(212,556	)
Total temporarily impaired	$	1,960	$	(23	)	$	17	$	—		$	1,977	$	(23	)
Collateralized mortgage obligations		4,781,620		(79,499	)		—		—			4,781,620		(79,499	)
Total temporarily impaired	$	5,247,673	$	(82,055	)	$	16,190	$	(52	)	$	5,263,863	$	(82,107	)

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

Note 3—Securities (continued)

	Less Than 12 Months					12 Months or Longer					Total
	FairValue		UnrealizedLosses			FairValue		UnrealizedLosses			FairValue		UnrealizedLosses
December 31, 2010
December 31, 2011
Available for sale
U.S. government-sponsored entities and agencies	$	~~709~~—	$	~~(16~~—	)	$	—16,529	$	—(49	)	$	~~709~~16,529	$	(1649	)
State and political subdivisions		—4,023,251		—(79,416	)		18—		—			184,023,251		—(79,416	)
Mortgage-backed: Residential		490		(19	)		—		—			490		(19	)
Collateralized mortgage obligations		2,994,437		(10,913	)		—		—			2,994,437		(10,913	)
Total temporarily impaired	$	17,~~199~~017,688	$	(3590,329	)	$	1816,529	$	—(49	)	$	17,034,217	$	(3590,378	)

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

Note 4—Loans and Allowance for Loan Losses

Categories of loans include:

	September 30,2011			December 31,2010
	March 31,2012			December 31,2011
Construction & Development	$	95,~~197~~746,273		$	118,~~986~~083,567
Commercial real estate		2825,~~056~~130,746			2926,~~640~~602,015
Residential real estate		5044,~~963~~393,032			5150,~~674~~328,259
Other real estate		3,~~430~~567,086			3,~~406~~402,384
Commercial		43,~~247~~933,912			45,~~893~~782,158
Consumer		2,~~533~~155,219			32,~~830~~473,207
Total loans		9884,~~426~~926,268			~~105~~96,~~429~~671,590
Less allowance for loan losses		(2,~~678~~564,122	)		(3,~~723~~044,771	)
Net loans	$	9582,~~748~~362,146		$	~~101~~93,~~706~~626,819

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

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

The following table ~~sets~~presents ~~forth~~the anactivity ~~analysis~~in ofthe ~~our~~ allowance for loan losses by portfolio segment for the ~~three~~ three months ending ~~September~~March 3031, ~~2011~~2012 and ~~2010~~March 31, 2011.

	September 30,
March 31, 2012	Construction&Development			CommercialReal Estate			ResidentialReal Estate			OtherRealEstate		Commercial			Consumer			Total
	2011			2010
Allowance for loan losses:
Balance at beginning of period	$	2,812		$	2,941
Beginning Balance	$	1,099,013		$	1,383,158		$	219,396		$	99,979	$	234,150		$	9,075		$	3,044,771
Provision for loan losses		~~180~~376,398			1(387,~~565~~069	)		79,893			4,071		(67,503	)		(5,790	)		—
Amounts charged off:
Loans Charged-off		(445,016	)		(43,314	)		(1	)		—		—			—			(488,331	)
Construction & Development		213			904
Recoveries		—			1,267			197			—		1,422			4,796			7,682
Commercial real estate		112			61
Total Ending Allowance Balance	$	1,030,395		$	954,042		$	299,485		$	104,050	$	168,069		$	8,081		$	2,564,122
Residential real estate		26			—
Other real estate		—			42
Commercial		—			570
Consumer		11			27
Total loans charged off		362			1,604
Recoveries of amounts previously charged off:
Construction & Development		34			—
Commercial real estate		—			—
Residential real estate		—			—
Other real estate		—			—
Commercial		2			2
Consumer		12			4
Total recoveries		48			6
Net charge-offs		314			1,598
Balance at end of period	$	2,678		$	2,908

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


March 31, 2011	Construction & Development			Commercial Real Estate			Residential Real Estate			Other Real Estate			Commercial			Consumer			Total
Allowance for loan losses:
Beginning Balance	$	752,645		$	2,251,106		$	310,458		$	126,751		$	270,048		$	12,331		$	3,723,339
Provision for loan losses		(259,131	)		416,636			(17,126	)		(17,147	)		(108,851	)		(8,414	)		5,967
Loans Charged-off		(516	)		(898,853	)		(2,866	)		—			—			(578	)		(902,813	)
Recoveries		515			—			—			—			1,422			5,110			7,047

Total Ending Allowance Balance	$	493,513		$	1,768,889		$	290,466		$	109,604		$	162,619		$	16,863		$	2,833,540

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

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

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

The following ~~table~~tables ~~sets~~present ~~forth~~the anbalance ~~analysis~~in ofthe ~~our~~allowance ~~provision~~ for loan losses ~~for~~and the ~~three~~recorded ~~months~~investment ~~and~~in ~~nine~~loans ~~months~~by ~~ending~~portfolio ~~September~~segment based on the impairment method as of March 3031, 2012 and December 31, 2011. The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.

	Three monthsendingSeptember 30,2011			Nine monthsendingSeptember 30,2011
March 31, 2012	Construction&Development			CommercialReal Estate			ResidentialReal Estate		OtherRealEstate		Commercial		Consumer		Total
Provision for loan losses
Allowance for loan losses:
Construction & Development		(76	)		(85	)
Ending allowance balance attributable to loans:
Commercial real estate		690			568
Individually evaluated for impairment	$	963,155		$	343,673		$	200,819	$	81,444	$	—	$	—	$	1,589,091
Residential real estate		(137	)		(99	)
Collectively evaluated		67,240			610,369			98,666		22,606		168,069		8,081		975,031
Other real estate		(46	)		(28	)
Total ending allowance balance	$	1,030,395		$	954,042		$	299,485	$	104,050	$	168,069	$	8,081	$	2,564,122
Commercial		(249	)		(97	)
Loans:
Consumer		(2	)		(13	)
Individually evaluated for impairment	$	2,422,903		$	4,718,724		$	1,257,823	$	1,866,823	$	—	$	—	$	10,266,273
Total provision for loan losses		180			246
Collectively evaluated		3,323,370			20,412,022			43,135,208		1,700,263		3,933,912		2,155,219		74,659,995
Total ending loans balance	$	5,746,273		$	25,130,746		$	44,393,031	$	3,567,086	$	3,933,912	$	2,155,219	$	84,926,268

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


December 31, 2011	Construction & Development		Commercial Real Estate		Residential Real Estate		Other Real Estate		Commercial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,039,138	$	821,079	$	156,088	$	79,271	$	—	$	—	$	2,095,576
Collectively evaluated		59,875		562,079		63,308		20,708		234,150		9,075		949,195

Total ending allowance balance	$	1,099,013	$	1,383,158	$	219,396	$	99,979	$	234,150	$	9,075	$	3,044,771


Loans:
Individually evaluated for impairment	$	4,815,227	$	5,395,556	$	1,250,568	$	1,866,823	$	—	$	—	$	13,328,174
Collectively evaluated		3,268,340		21,206,459		49,077,691		1,535,561		5,782,158		2,473,207		83,343,416

Total ending loans balance	$	8,083,567	$	26,602,015	$	50,328,259	$	3,402,384	$	5,782,158	$	2,473,207	$	96,671,590

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

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

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

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

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

Year to date information on impaired loans is as follows:

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


	March 31, 2012		March 31, 2011
Average of individually impaired loans during the period:
Construction & Development	$	3,619,065	$	5,905,941
Commercial real estate		5,057,140		4,575,882
Residential real estate		1,254,195		1,170,646
Other real estate		1,866,823		1,871,147
Commercial		—		—
Consumer		—		—

Total		11,797,223		13,523,616


Interest income recognized during impairment (three months ending March 31, 2012 and March 31, 2011):
Construction & Development		4,926		5,018
Commercial real estate		26,740		4,612
Residential real estate		6,826		10,762
Other real estate		9,617		9,564
Commercial		—		—
Consumer		—		—

Total		48,109		29,956

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

For the three months ended March 31, 2012 and 2011, the Company did not recognize any interest income under the cash-basis method of accounting.

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

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

~~Year~~The tofollowing ~~date~~tables ~~information~~present onloans ~~impaired~~individually ~~loans~~evaluated isfor impairment by class of loans as ~~follows~~of March 31, 2012 and December 31, 2011:

	September 30,2011		September 30,2010
	As of March 31, 2012
Average of individually impaired loans during the period:
	RecordedInvestment/UnpaidPrincipal Balance		AllowanceFor Loan LossesAllocated
Construction & Development	$	5,802	$	5,109
With no related allowance recorded:
Commercial real estate		5,828		10,232
Construction & Development	$	176,306	$	—
Residential real estate		1,215		2,530
Commercial real estate		1,157,036		—
Other real estate		1,869		1,544
Residential real estate		20,002		—
Commercial		11		823
Other real estate		—		—
Commercial		—		—
Consumer		—		—
Total		14,725		20,238
With an allowance recorded:
Interest income recognized during impairment (three months ending September 30, 2011 and September 30, 2010):
Construction & Development		2,246,597		963,155
Construction & Development		11		12
Commercial real estate		3,561,688		343,673
Commercial real estate		8		78
Residential real estate		1,237,821		200,819
Residential real estate		9		26
Other real estate		1,866,823		81,444
Other real estate		10		3
Commercial		—		—
Commercial		—		2
Consumer		—		—
Total	$	3810,266,273	$	~~121~~1,589,091

	September 30,2011		September 30,2010
	As of December 31, 2011
Interest income recognized during impairment (nine months ending September 30, 2011 and September 30, 2010):
	RecordedInvestment/UnpaidPrincipal Balance		AllowanceFor Loan LossesAllocated
Construction & Development		10		91
With no related allowance recorded:
Commercial real estate		37		161
Construction & Development	$	378,360	$	—
Residential real estate		35		78
Commercial real estate		3,063,094		—
Other real estate		29		—
Residential real estate		20,002		—
Other real estate		—		—
Commercial		—		—
Consumer		—		—
Total	$	111	$	330
With an allowance recorded:
Construction & Development		4,436,867		1,039,138
Commercial real estate		2,332,462		821,079
Residential real estate		1,230,566		156,088
Other real estate		1,866,823		79,271
Commercial		—		—
Consumer		—		—
Total	$	13,328,174	$	2,095,576

~~For~~The ~~the~~recorded ~~three~~investment ~~and~~in ~~nine~~loans ~~months~~excluded ~~ended~~accrued ~~September 30,~~interest ~~2011~~receivable and ~~2010~~loan origination fees, net due to immateriality. For purposes of this disclosure, the ~~Company~~unpaid ~~did~~principal ~~not~~balance ~~recognize~~is ~~any~~reduced for net charge-offs and cash-basis interest recognized represents interest income ~~under~~ ~~the~~that is recognized on a cash-basis method of accounting.

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

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

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

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

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

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(Dollars in tables in thousands)

(Unaudited)

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

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

	As of September 30, 2011
	As of March 31, 2012
	Nonaccrual		Loans Past DueOver 90 Days andStill Accruing
Construction & Development	$	41,~~573~~819,541	$	—
Commercial real estate		43,~~327~~646,632		—
Residential real estate		~~964~~869,496		—3,633
Other real estate		1,255,130		—
Commercial		—		—
Consumer		1310,667		—
Total	$	117,~~132~~601,466	$	—3,633

	As of December 31, 2010
	As of December 31, 2011
	Nonaccrual		Loans Past DueOver 90 Days andStill Accruing
Construction & Development	$	3,~~576~~991,562	$	—
Commercial real estate		64,~~740~~313,940		—
Residential real estate		~~614~~866,162		—
Other real estate		1,~~251~~255,130		—
Commercial		—		26—
Consumer		1611,746		4—
Total	$	1210,~~197~~438,540	$	30—

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

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

30-89DaysPast Due

Over 90DaysPast Due

TotalPast Due

Loans NotPast Due

Total

30-90DaysPast Due

Over 90DaysPast Due

TotalPast Due

Loans NotPast Due

Total

September 30, 2011

March 31, 2012

Construction & Development

~~791~~617,657

44—

~~835~~617,657

85,~~362~~128,616

95,~~197~~746,273

Commercial real estate

1500,~~025~~881

~~280~~275,000

1775,~~305~~881

2624,~~751~~354,865

2825,~~056~~130,746

Residential real estate

~~414~~1,197,167

~~133~~13,317

~~547~~1,210,484

5043,~~416~~182,547

5044,~~963~~393,031

Other real estate

—656,378

1,255,130

1,~~255~~911,508

21,~~175~~655,578

3,~~430~~567,086

Commercial

—21,232

—

—21,232

43,~~247~~912,680

43,~~247~~933,912

Consumer

734,841

—

734,841

2,~~526~~120,378

2,~~533~~155,219

Total

23,~~237~~028,156

1,~~712~~543,447

34,~~949~~571,603

9480,~~477~~354,665

9884,~~426~~926,268

1514

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

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

30-89DaysPast Due

Over 90DaysPast Due

TotalPast Due

Loans NotPast Due

Total

30-90DaysPast Due

Over 90DaysPast Due

TotalPast Due

Loans NotPast Due

Total

December 31, 2010

December 31, 2011

Construction & Development

~~511~~428,056

—979,656

~~511~~1,407,712

116,~~475~~675,855

118,~~986~~083,567

Commercial real estate

~~431~~190,058

2925,~~361~~850

21,~~792~~115,908

2625,~~848~~486,107

2926,~~640~~602,015

Residential real estate

1,~~250~~731,167

41—

1,~~291~~731,167

5048,~~383~~597,092

5150,~~674~~328,259

Other real estate

—51,154

1,~~251~~255,130

1,~~251~~306,284

2,~~155~~096,100

3,~~406~~402,384

Commercial

—10,961

26—

2610,961

45,~~867~~771,197

45,~~893~~782,158

Consumer

6827,205

4—

7227,205

32,~~758~~446,002

32,~~830~~473,207

Total

2,~~260~~438,601

3,~~683~~160,636

5,~~943~~599,237

9991,~~486~~072,353

~~105~~96,~~429~~671,590

Troubled Debt Restructurings:

The Company reported total troubled debt restructurings of $8.5,419,465 ~~million~~as of March 31, 2012 and $7,661,000 as of ~~September~~December 3031, 2011. Specific allocations of $849,926 and $~~5.8~~1,491,312 ~~million~~were reported for the troubled debt restructurings as of March 31, 2012 and December 31, ~~2010~~2011, respectively. The Company has no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings. Troubled debt restructurings are included in impaired loans.

During the period ending ~~September~~March 3031, ~~2011~~2012, ~~$3.1~~there ~~million~~were in no additional loans ~~were~~ modified as troubled debt restructurings. The modification of the terms of such loans would include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

~~These~~No ~~modified~~payment ~~loans~~defaults ~~included~~or ~~three~~charge-offs ~~construction~~were ~~and~~reported ~~development~~for ~~loans~~troubled ~~totaling~~debt $2restructurings during the three month period ending March 31, 2012.4 ~~million~~A ~~and~~default ~~one commercial~~is ~~real~~when ~~estate~~a loan ~~totaling~~is ~~$651,000~~past atdue ~~September 30,~~by ~~2011.~~greater than 90 days.

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

Credit Quality Indicators:

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

1615

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

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

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

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

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

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

September 30, 2011

March 31, 2012

Pass

SpecialMention

Substandard

Doubtful

Total

Construction & Development

3,~~620~~209,824

~~104~~—

52,~~429~~536,449

44—

95,~~197~~746,273

Commercial real estate

2320,~~166~~318,192

—

4,~~890~~812,554

—

2825,~~056~~130,746

Residential real estate

4842,~~994~~707,009

—

1,~~969~~686,022

—

5044,~~963~~393,031

Other real estate

1,~~512~~650,409

—

1,~~918~~916,677

—

3,~~430~~567,086

Commercial

43,~~172~~769,374

—

75164,538

—

43,~~247~~933,912

Consumer

2,~~515~~144,552

—

1810,667

—

2,~~533~~155,219

Total

8373,~~979~~799,361

~~104~~—

1411,~~299~~126,907

44—

9884,~~426~~926,268

December 31, 2010

December 31, 2011

Pass

SpecialMention

Substandard

Doubtful

Total

Construction & Development

53,~~992~~253,824

~~110~~—

54,~~411~~829,743

~~473~~—

118,~~986~~083,567

Commercial real estate

1921,~~171~~110,922

~~336~~—

105,~~133~~491,093

—

2926,~~640~~602,015

Residential real estate

4948,~~019~~628,368

~~350~~—

21,~~305~~699,891

—

5150,~~674~~328,259

Other real estate

1,484,407

—

1,~~922~~917,977

—

3,~~406~~402,384

Commercial

45,~~729~~628,312

—

~~164~~153,846

—

45,~~893~~782,158

Consumer

32,~~782~~459,918

—

4813,289

—

32,~~830~~473,207

Total

8482,~~177~~565,751

~~796~~—

1914,~~983~~105,839

~~473~~—

~~105~~96,~~429~~671,590

~~Note~~16 ~~5—Subsequent Events~~

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

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

Note 65—Fair Value

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

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

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

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

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

~~The~~Impaired ~~fair~~loans ~~value~~carried ofat ~~impaired~~fair ~~loans~~value ~~with~~generally receive specific allocations of the allowance for loan losses. At the time a loan is ~~generally~~considered impaired, it is valued at the lower of cost or fair value. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are ~~typically~~ usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

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

1817

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

Note 65—Fair Value (continued)

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

	Fair Value Measurements at September 30, 2011
	Fair Value Measurements at March 31, 2012
	Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1)		Significant OtherObservable Inputs(Level 2)		SignificantUnobservable Inputs(Level 3)
Assets:
Securities available-for-sale
U.S. government sponsored entities and agencies	$	—	$	2,414	$	—
U.S. government-sponsored entities and agencies	$	—	$	3,316,156	$	—
State and political subdivision		—		61,~~296~~057,067		—
Mortgage-backed: residential		—		~~359~~721,020		—
Collateralized mortgage obligations		—		68,~~946~~339,401		—
Total investment securities	$	—	$	1613,~~015~~433,644	$	—
	Fair Value Measurements at December 31, 2011
	Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1)		Significant OtherObservable Inputs (Level 2)		SignificantUnobservableInputs (Level 3)
Assets:
Securities available-for-sale
U.S. government-sponsored entities and agencies	$	—	$	2,342,275	$	—
State and political subdivision		—		5,937,308		—
Mortgage-backed: residential		—		767,115		—
Collateralized mortgage obligations		—		6,230,493		—
Total investment securities	$	—	$	15,277,191	$	—

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

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

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


	Fair Value Measurements at March 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans with specific allocations:
Construction and development	$	—	$	—	$	1,459,748
Commercial real estate		—		—		4,375,051
Residential real estate		—		—		1,057,004
Other real estate		—		—		1,785,379
Commercial		—		—		—
Consumer		—		—		—

Other real estate owned:
Construction and development	$	—	$	—	$	2,261,238
Commercial real estate		—		—		1,151,480
Residential		—		—		104,960
Commercial		—		—		402,362

	Fair Value Measurements at September 30, 2011
	Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1)		Significant OtherObservable Inputs(Level 2)		SignificantUnobservable Inputs(Level 3)
Impaired loans with specific allocations:
Construction & Development	$	—	$	—	$	2,744
Commercial real estate		—		—		1,229
Residential real estate		—		—		1,135
Other real estate		—		—		1,789
Commercial		—		—		—
Consumer		—		—		—
Other real estate owned:
Construction & Development	$	—	$	—	$	2,461
Commercial real estate		—		—		912
Residential real estate		—		—		853
Commercial		—		—		466

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012 and 2011

(Unaudited)

Note 5—Fair Value (continued)


	Fair Value Measurements at December 31, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans with specific allocations:
Construction and development	$	—	$	—	$	3,397,729
Commercial real estate		—		—		1,511,383
Residential real estate		—		—		1,074,478
Other real estate		—		—		1,787,552
Commercial		—		—		—
Consumer		—		—		—

Other real estate owned:
Construction and development	$	—	$	—	$	2,261,238
Commercial real estate		—		—		1,151,480
Residential		—		—		841,757
Commercial		—		—		402,362

Impaired loans with specific allowance for loan loss allocations, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $10,266,273 with a valuation allowance of $1,589,091 at March 31, 2012, resulting in no additional provision for loan losses for the three month period ended March 31, 2012.

Impaired loans with specific allowance for loan loss allocations, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $9,866,718 with a valuation allowance of $2,095,576 at December 31, 2011. Impaired loans measured at fair value resulted in $5,967 additional provision for loan losses for the three months ended March 31, 2011.

Other real estate owned, with a valuation allowance, had a net carrying value of $3,920,040 at March 31, 2012 and $4,657,837 at December 31, 2011. Total writedowns of other real estate owned for the three months ended March 31, 2012 and 2011 were approximately $148,000 and $1,000, respectively.

In determining the net realizable value of the underlying collateral for impaired loans and OREO properties, we primarily rely on third party appraisals. We obtain appraisals on an annual basis for impaired loans and OREO properties. Appraisals are reviewed by an employee independent of the loan production process and large and/or more complicated appraisals are reviewed by a certified appraiser. These appraisal values are discounted from 8% to 40% in consideration of charges we expect would be incurred in event of foreclosure. These charges can include realtor commissions, attorney fees, insurance, and other adjustments management believes accurately reflect the value since the time of appraisal. In addition to the discounts taken, our calculation of net realizable value considers any other liens in place on the underlying collateral.

Of the $10,266,273 impaired loan portfolio at March 31, 2012, $8,932,932 were carried at fair value as a result of the aforementioned charge-offs and specific valuation allowances. The remaining $1,333,341 of impaired loans were carried at cost at March 31, 2012, as the fair value of the collateral on these loans exceeded the book value for each individual loan.

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

Note 65—Fair Value (continued)

	Fair Value Measurements at December 31, 2010
	Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1)		Significant OtherObservable Inputs(Level 2)		SignificantUnobservable Inputs(Level 3)
Impaired loans with specific allocations:
Construction & Development	$	—	$	—	$	1,638
Commercial real estate		—		—		4,286
Residential real estate		—		—		366
Other real estate		—		—		1,789
Commercial		—		—		—
Consumer		—		—		—
Other real estate owned:
Construction & Development	$	—	$	—	$	1,942
Commercial real estate		—		—		567
Residential real estate		—		—		998

Of the $6,586,397 in OREO properties at March 31, 2012, $3,920,040 were carried at fair value as a result of the aforementioned charge-offs and specific valuation allowances. The remaining $2,666,357 of impaired loans were carried at cost at March 31, 2012, as the fair value of the collateral on these loans exceeded the book value for each individual loan.

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

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

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

	September 30, 2011				December 31, 2010
			Fair Value Measurements atMarch 31, 2012 Using:
	CarryingAmount		Fair Value		CarryingAmount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial Assets
	(In thousands)
Cash and cash equivalents	$	6,353	$	6,353	$	6,163	$	6,163
Financial assets
Securities held to maturity		34		36		56		59
Cash and cash equivalents	$	21,777	$	21,777	$	—	$	—	$	21,777
Loans, net of allowance		95,748		95,199		101,706		101,304
Loans, net		82,362		—		—		81,768		81,768
Accrued interest receivable		~~512~~485		~~512~~—		~~555~~45		~~555~~440		485
Federal Home Loan Bank stock		494		~~N/A~~—		~~494~~—		~~N/A~~—		N/A
Financial liabilities
Deposits	$	116,567	$	39,450	$	72,192	$	—	$	116,462
Federal Home Loan Bank advances		8,500		—		8,500		—		8,500
Subordinated debentures		3,093		—		—		1,764		1,764
Accrued interest payable		503		53		183		267		503
Note payable—major stockholder		831		—		—		831		831
Note payable—directors		160		—		—		160		160

The carrying amounts and estimated fair values of financial instruments at December 31, 2011 are as follows:


	Carrying Amount		Fair Value
	(In thousands)
December 31, 2011
Financial assets
Cash and cash equivalents	$	6,300	$	6,300
Securities available for sale		15,277		15,277
Loans, net		93,627		93,110
Federal Home Loan Bank stock		494		N/A
Accrued interest receivable		609		609

Financial liabilities
Deposits	$	113,342	$	113,463
Federal Home Loan Bank advances		8,500		8,500
Subordinated debentures		3,093		1,734
Accrued interest payable		504		504
Note payable—major stockholder		831		831
Note payable—directors		160		160

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

Note 65—Fair Value (continued)

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

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

~~Carrying~~Note ~~amount~~6—Subordinated isDebentures the estimated fair value for cash and cash equivalents, short-term borrowings, accrued interest receivable and payable, demand deposits, short-term debt, and loans and deposits that reprice frequently and fully. Security fair values are as stated previously. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. For loans or deposits and for deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are as stated previously. The fair value of subordinated debentures was determined based on current rates for similar financing. The fair value of commitments to extend credit and standby letters of credit is not considered material.

~~Note~~The ~~7—Subordinated~~Company ~~Debentures~~began deferring the interest payments on its subordinated debentures during the third quarter of 2010. These payments may be deferred a total of five years. As of March 31 2012, there was approximately $150,000 of accrued and unpaid interest on the debentures. For more information on these debentures, see the notes to the consolidated financial statements filed with the Company’s annual report on Form 10-K.

~~The~~Note ~~Company~~7 ~~began~~– ~~deferring~~Consent ~~the~~Order interest payments on its subordinated debentures during the third quarter of 2010. These payments may be deferred a total of five years. As of September 30, 2011, there was approximately $107,000 of accrued and ~~unpaid~~Action ~~interest~~Plans ~~on the debentures. For more information on these debentures, see the notes to the consolidated financial statements filed with the Company’s annual report on Form 10-K.~~

~~Note~~On ~~8—Action~~January 28, ~~Plans~~2010, the Bank entered into a Consent Order (the “Consent Order”) with the Federal Deposit Insurance Corporation (“FDIC”). As is customary for orders of this type, the Bank entered into the Consent Order without admitting or denying any charges of unsafe and unsound practices or violations of law or regulations. On June 22, 2011, the Bank also executed a written agreement (the “Agreement”) with the Tennessee Department of Financial Institutions (“TDFI”).

On ~~January~~May 2826, 2010, the ~~Bank~~Company entered into aan ~~Consent~~agreement ~~Order~~ (the “~~Consent~~FRB ~~Order~~Agreement”) with the Federal ~~Deposit~~Reserve ~~Insurance Corporation~~Board (“~~FDIC~~FRB”). AsThe Company is ~~customary~~to ~~for~~act ~~orders~~as ofa ~~this~~source ~~type,~~of ~~and~~financial ~~pursuant~~strength tofor the ~~terms~~Bank. ofAccordingly ~~the~~in ~~Consent~~this ~~Order~~FRB Agreement, the ~~Bank~~Company ~~entered~~is ~~into~~required to obtain written permission before any of the ~~Consent~~following ~~Order~~actions ~~without~~are ~~admitting~~taken: payment or ~~denying~~receipt of any ~~charges~~dividends offrom ~~unsafe~~the Bank, payments on the subordinated debentures (see Note 6) or ~~unsound~~Trust ~~banking~~Preferred ~~practices~~Securities, or ~~violations~~ ofthe ~~law~~purchase or ~~regulations~~redemption of any stock. OnIn ~~June 22~~addition, ~~2011~~under the FRB Agreement, the ~~Bank~~Company ~~also~~may ~~executed~~not aincur, ~~written~~increase, ~~agreement~~or ~~(the~~guarantee ~~“Agreement”)~~any ~~with~~debt ~~the~~without ~~Tennessee~~prior ~~Department~~written approval of ~~Financial~~the ~~Institutions (“TDFI”)~~FRB.

OnThe ~~May 26,~~Consent ~~2010~~Order, the ~~Company~~Agreement, ~~entered~~and ~~into~~the anFRB Agreement (~~“FRB~~collectively, ~~Agreement”) with~~ the ~~Federal Reserve Bank (~~“~~FRB~~Action Plans”). ~~The Company is~~contain tosubstantially ~~act~~similar asterms aand ~~source~~are ofbased ~~financial~~on ~~strength~~the ~~for~~findings of the ~~Bank.~~FDIC ~~Accordingly,~~and inTDFI ~~this~~during ~~FRB~~their ~~Agreement~~joint ~~the~~examination ~~Company~~of isthe ~~required~~Bank tothat ~~obtain~~commenced ~~written~~on ~~permission~~September 14, ~~before~~2009. ~~any~~The ofAction ~~the~~Plans ~~following~~represent ~~actions~~agreement ~~are~~between ~~taken:~~the ~~payment~~Bank, oron ~~receipt~~the ofone ~~any~~hand, ~~dividends~~and ~~from~~the FDIC, the ~~Bank~~TDFI, ~~payments on~~and the ~~subordinated~~FRB, ~~debt~~respectively, ~~(see~~on ~~Note~~the 7)other orhand ~~Trust~~as ~~Preferred~~to ~~Securities,~~areas orof the ~~purchase~~Bank’s or ~~redemption~~Company’s ofoperations ~~any~~that ~~stock.~~warrant Inimprovement ~~addition,~~and ~~under~~require the ~~FRB~~Bank ~~Agreement~~or ~~the~~ Company ~~may~~to ~~not~~present ~~incur,~~plans ~~increase,~~for ormaking ~~guarantee~~those ~~any~~improvements. ~~debt~~The ~~without~~Action ~~prior~~Plans ~~written~~impose no ~~approval~~fines ofor penalties on the ~~FRB~~ Bank or Company.

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

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

Note 8—7 – Consent Order and Action Plans (continued)

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

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

~~Management believes the Bank is in substantial compliance with the terms of the Action Plans as of September 30, 2011, with the exception of the capital requirements.~~ The Bank has provided quarterly written progress reports to the Joint Officials through the ~~fourth~~first quarter of ~~2011~~2012. Management plans to conform to all conditions of the Action Plans, and is implementing its plan to return capital ~~ratios~~levels to prescribed levels.

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

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

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

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

Note 8—~~Action~~Capital ~~Plans~~Requirements ~~(continued)~~

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

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

Note 9—Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

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

As of ~~February~~ March 931, 2012, the ~~most~~Bank’s ~~recent~~capital ~~notification~~ratios ~~from the Federal Deposit Insurance Corporation (FDIC)~~ categorized the Bank as ~~under~~adequately capitalized under the regulatory framework for prompt corrective action. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans.

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

The Action Plans the Bank was issued by regulators requires the Bank to maintain Tier 1 capital to average total assets of 8%, Tier 1 risk based capital to risk-weighted assets of 10% and total risk based capital to total risk weighted assets of 12%. As of ~~September~~March 3031, ~~2011~~2012, the Bank was not in compliance with these capital requirements. The Bank’s actual capital amounts, ratios and minimum capital requirements per the Action Plans are presented in the table below. Dollar amounts are presented in thousands.


	Actual					To Comply With Minimum Capital Requirements Per Consent Order					Excess (Deficit) To Comply With Requirements Per Consent Order
March 31, 2012	Amount		Ratio			Amount		Ratio			Amount			Ratio
Total Capital to Risk Weighted Assets	$	6,814		8.64	%	$	9,469		12.00	%	$	(4,677	)		(3.36	)%
Tier 1 Capital to Risk Weighted Assets	$	5,807		7.36	%	$	7,891		10.00	%	$	(2,084	)		(2.64	)%
Tier 1 Capital to Average Assets—Leverage	$	5,807		4.43	%	$	10,484		8.00	%	$	(4,677	)		(3.57	)%

VOLUNTEER BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

(Dollars in tables in thousands)

(Unaudited)

Note 98—Capital Requirements (continued)

						To Comply WithMinimum CapitalRequirements					Excess (Deficit) To Comply WithRequirements
	Actual					To Comply WithMinimum CapitalRequirementsPer Consent Order					Excess (Deficit)To Comply WithRequirementsPer Consent Order
	Actual					Per Action Plans					Per Action Plans
December 31, 2011	Amount		Ratio			Amount		Ratio			Amount			Ratio
	Amount		Ratio			Amount		Ratio			Amount			Ratio
Total Capital to Risk Weighted Assets	$	6,883		7.72	%	$	10,699		12.00	%	$	(3,816	)		(4.28	)%
September 30, 2011
Tier 1 Capital to Risk Weighted Assets	$	5,745		6.44	%	$	8,916		10.00	%	$	(3,171	)		(3.56	)%
Total Capital to Risk Weighted Assets	$	7,791		8.52	%	$	10,967		12.00	%	$	(3,176	)		(3.48	)%
Tier 1 Capital to Average Assets—Leverage	$	5,745		4.37	%	$	10,506		8.00	%	$	(4,761	)		(3.63	)%
Tier 1 Capital to Risk Weighted Assets	$	6,630		7.25	%	$	9,139		10.00	%	$	(2,509	)		(2.75	)%
Tier 1 Capital to Average Assets—Leverage	$	6,630		5.02	%	$	10,564		8.00	%	$	(3,934	)		(2.98	)%

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

No cash dividends were paid to stockholders in either 2012 or 2011. The Company’s principal source of funds is dividends received from the Bank. In accordance with the Action Plans with the FDIC and TDFI, no dividend can be paid from the Bank to the holding company without prior approval by the FDIC. In addition, the Company is restricted from paying dividends while deferring interest payments on the subordinated debt.

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

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain various forward-looking statements and includes assumptions concerning the Company’s operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides this cautionary statement identifying important factors, among others, the absence or effect of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. For a list of these factors, please refer to “Cautionary Notice Regarding Forward-Looking Statements” in the Company’s annual report on Form 10-K for the fiscal year ended December 31, ~~2010~~2011.

Comparison of Financial Condition at ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011

Our total assets ~~decreased~~increased 2.5% to $~~130~~131.73 million at ~~September~~March 3031, ~~2011~~2012 from $~~132~~128.90 million at December 31, ~~2010~~2011. The ~~decrease~~increase was due to aan ~~decrease~~increase in ~~net~~deposits ~~loans~~ of $63.03 million, or 52.858%, to $95116.76 million at ~~September~~March 3031, ~~2011~~2012 from $~~101~~113.73 million at December 31, ~~2010~~2011. ~~This decrease~~Net ~~in net~~ loans ~~was partially offset by an increase in securities of~~ decreased $311.3 million, ~~or 26.3%,~~ to ~~$16~~82.0 4 million at ~~September~~March 3031, ~~2011~~2012 from $1293.76 million at December 31, ~~2010~~2011. ~~The~~These changes fueled the increase in ~~securities~~cash ~~was~~and ~~primarily~~equivalents ~~due~~of to$15.5 amillion ~~desire~~ to ~~earn~~ ~~more~~$21.8 onmillion ~~the funds generated~~ from ~~declining~~$6.3 ~~loan~~million ~~balances~~at ~~than~~December 31, ~~to place the money in overnight funds~~2011.

The decrease in our loan portfolio during the period ended ~~September~~March 3031, ~~2011~~2012 was primarily due to the sale of $4.8 million of residential real estate loans, principal paydowns of $4.96 million and a decrease of $12.03 million from loans being placed in foreclosure. The decreases in our loan segments were in Construction and Land Development loans of $2.83 million, toCommercial ~~$9.2~~Real ~~million~~Estate loans ~~at September 30, 2011 from $12.0 million at December 31, 2010, as well as a decrease~~ of $1.65 million, ofResidential ~~Commercial~~ Real Estate ~~loans~~of to $285.09 million ~~at September 30~~, ~~2011~~Commercial ~~from $29.6 million at December 31, 2010. In addition, consumer~~ loans ~~declined~~of $1.37 million toand ~~$2.5~~Consumer ~~million~~loans atof ~~September 30, 2011 from~~ $3.85 million ~~at December 31, 2010~~.

ByOur securities ~~decreasing~~portfolio ~~our~~decreased ~~loan~~$1.8 ~~balances,~~million weto ~~were~~$13.4 ~~able~~million at March 31, 2012 due to ~~increase~~sales ~~our~~of ~~investment~~some securities byfor ~~$3.3~~a ~~million~~net gain during the period. ~~This~~We ~~increase,~~expect ~~with~~to aninvest a portion of the increase in cash in investments and ~~equivalents~~some will be utilized to fund loan growth in Small Business Administration loans. This increase in cash of $~~190,000~~15.5 million has ~~improved~~greatly ~~the~~increased ~~Company’s liquid~~our ~~assets.~~liquidity Inand in the opinion of management, ~~our~~it ~~liquidity~~is ~~levels~~adequate ~~are~~to ~~adequate~~cover our current obligations.

The allowance for loan losses was $2.76 million, or 23.720% of total loans at ~~September~~March 3031, ~~2011~~2012, compared to $3.70 million, or 3.531% of total loans at December 31, ~~2010~~2011. Total impaired loans were $1310.43 million at ~~September~~March 3031, ~~2011~~2012, a decrease of $63.10 million, or 3122.26%, compared to $1913.53 million at December 31, ~~2010~~2011. The impaired loans with an allocated allowance decreased to $8.7 9 million at ~~September~~March 3031, ~~2010~~2012 from $119.09 million at December 31, ~~2010~~2011. ~~While~~The ~~our~~decreases in these amounts correspond to the transfers to Other Real Estate Owned (“OREO”) of $2.3 million plus amounts charged off of $.5 million relating to those transfers to OREO. For some impaired ~~loan~~loans ~~trends~~recorded ~~have~~at ~~improved~~the fair value of the collateral, the underlying asset values ofincreased during the ~~real~~period. ~~estate supporting~~For other impaired loans, the ~~recorded~~fair ~~amounts~~value of the collateral decreased. The allowance for loan losses as a percentage of impaired loans ~~that~~increased ~~are~~to ~~collateral~~23.0% ~~dependent~~at ~~have~~March 31, ~~declined~~2012 ~~during~~compared to 21.6% at December 31, 2011. Management believes that our calculation of the ~~period~~allowance for loan losses is adequate to cover probable and incurred losses in our loan portfolio.

Deposits ~~decreased~~increased $13.6 3 million, or 12.48%, to $~~114~~116.86 million at ~~September~~March 3031, ~~2011~~2012 from $~~116~~113.43 million at December 31, ~~2010~~2011. The ~~decrease~~increase was primarily attributable to a ~~decrease~~$1.3 inmillion ~~public~~increase ~~fund~~in demand deposits ofand a $21.34 million, orincrease ~~38%,~~in tomoney 3market deposit accounts.~~8 million~~ Most of this increase is due to a normal fluctuation of balances at Christmas ~~September 30,~~time ~~2011~~and ~~from~~then ~~$6.1~~an ~~million~~increase atwhen ~~December 31,~~tax ~~2010~~refunds are collected by customers.

We had advances from the Federal Home Loan Bank of Cincinnati of $8.5 million as of ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011. We have additional credit available under a blanket pledge of one to four family loans with the Federal Home Loan Bank of Cincinnati of approximately $6.1 million at ~~September~~ March 3031, ~~2011~~2012.

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

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

~~Comparison~~Total ofequity ~~Operating~~remained ~~Results~~virtually ~~for~~unchanged ~~the~~at ~~Three~~$1.4 ~~Months~~million ~~Ended~~at ~~September~~March 3031, 2012 compared to $1.4 million at December 31, 2011. The net loss of $47,000 was offset by an increase in accumulated other comprehensive income and additional paid-in capital. The change in additional paid-in capital was due to a capital contribution related to ~~September~~imputed interest on the note payable to stockholder which currently has a contracted interest rate of 0%. While overall capital stayed approximately the same as December 3031, ~~2010~~2011, management worked to position our assets in lower risk categories for capital purposes. Securities with higher risk weights were sold and replaced with 0% risk weights. As mentioned earlier, the decrease in loans also helped us achieve better risk-based capital. For a discussion of capital requirements, see Note 8 to the Notes to Consolidated Financial Statements.

~~General. Net~~Comparison ~~loss~~of ~~decreased~~Operating toResults ~~$98,000~~ for the ~~three~~Three ~~months~~Months ~~ended~~Ended ~~September~~March 3031, ~~2011~~ ~~from~~2012 ~~$2,037,000~~and ~~for the three months ended September~~March 3031, ~~2010. The decrease reflected a decline in the provision for loan losses of $1.4 million to $180,000 at September 30,~~ 2011 from $1.6 million for the three months ended September 30, 2010. In addition, noninterest income increased $217,000 to $317,000 at September 30, 2011, from $100,000 for the three months ended September 30, 2010. Noninterest expense decreased $288,000 to $1.3 million at September 30, 2011 from $1.6 million for the three months ended September 30, 2010.

~~Interest Income~~General. ~~Interest income~~Net loss decreased to $~~143~~47,000, ~~or 9.2%, to $1.4 million~~ for the three months ended ~~September~~March 3031, ~~2011~~2012 compared ~~from~~to ~~$1.6~~income ~~million~~of $140,000 for the three months ended ~~September~~March 3031, ~~2010~~2011. The decrease ~~was~~reflected ~~largely due to~~ a ~~decrease~~decline in ~~the~~net ~~average~~interest ~~balance~~income of ~~loans~~ $80,000 to $972,000 for the three months ended ~~September~~March 3031, ~~2011~~2012 ~~to $100.4 million~~ from $~~111~~1.71 million for the three months ended ~~September~~ March 3031, ~~2010,~~2011. ~~which~~In ~~was~~addition, ~~partially~~noninterest ~~offset~~expense byincreased an$99,000 ~~increase in the yield on loans~~ to 5$1.~~29%~~4 ~~for~~million ~~the~~at ~~three months ended September~~March 3031, ~~2011~~2012, ~~compared~~from ~~to 4~~$1.~~98%~~3 million for the three months ended ~~September~~March 3031, ~~2010~~2011.

Interest Income. Interest income ~~on loans~~ decreased $62186,000, or 4 13.50%, to $1.32 million for the three months ended ~~September~~March 3031, ~~2011~~2012 from $1.4 million for the three months ended ~~September~~March 3031, 2011. ~~2010,~~The ~~reflecting~~decrease ~~shrinkage~~was inlargely ~~our~~due ~~loan~~to ~~portfolio~~a asdecrease ~~noted~~in ~~above.~~the ~~Interest~~average ~~income~~balance onof ~~investment~~loans ~~securities decreased to $72,000~~ for the three months ended ~~September~~March 3031, ~~2011~~2012 to $93.4 million from $~~154,000~~104.2 million for the three months ended ~~September~~March 3031, ~~2010~~2011, ~~reflecting~~which awas ~~decrease~~partially inoffset ~~the~~by ~~average~~an increase ~~balance~~in ofthe ~~such~~yield ~~securities~~on loans to ~~$10~~5.004% ~~million~~for inthe ~~2011~~three ~~from~~months ~~$12.8~~ended ~~million~~March 31, ~~in 2010~~2012, ascompared ~~well~~to as5.02% afor ~~decrease in~~ the ~~average~~three ~~yield~~months onended ~~such~~March 31, ~~securities to 2~~2011.~~87%~~ ~~from 4.83%.~~

Interest ~~Expense. Interest expense~~income on loans decreased $~~192~~129,000, or 389.69%, to $~~306,000~~1.2 million for the three months ended ~~September~~March 3031, ~~2011~~2012 from $~~498,000~~1.3 million for the three months ended ~~September~~March 3031, ~~2010.~~2011, ~~The~~reflecting ~~decrease~~shrinkage in ~~reflected~~our aloan ~~decrease~~portfolio inas ~~the~~noted ~~average~~above. ~~rate~~Interest ~~paid~~income on ~~deposits~~investment insecurities ~~the three~~decreased ~~months~~to ~~ended September 30~~$52,000 ~~2011~~for ~~to 1.14% from 1.82% in~~ the three months ended ~~September~~March 3031, ~~2010~~2012 asfrom ~~well as a decrease in the average balance of such deposits to~~ $~~98.7 million at September 30~~117,000 ~~2011 from $103.1 million~~ for the three months ~~ending~~ended ~~September~~March 3031, ~~2010.~~2011, ~~The~~reflecting ~~decrease~~the inlower ~~average~~yielding investments ~~interest~~that ~~bearing~~were ~~deposits~~purchased ~~resulted~~after ~~primarily~~the ~~from~~sale ~~declines~~of inmost ~~public~~of ~~fund~~our ~~deposits.~~securities ~~Decreases~~portfolio induring ~~average~~2011 ~~rate~~and ~~paid~~the onfirst ~~deposits~~quarter isof ~~attributed to lower market rates as well as a decline in higher priced public fund deposits~~2012.

~~Net~~ Interest ~~Income~~ Expense. ~~Net~~Interest ~~interest~~expense ~~income~~decreased ~~increased~~$106,000, or 28.3%, to $49267,000 for the three months ended ~~September~~March 3031, ~~2011.~~2012 ~~The increase resulted~~ from an$373,000 ~~increase in our interest rate spread from 3.11%~~ for the three months ended ~~September~~March 3031, ~~2010 to 3~~2011.~~95%~~ ~~for~~The ~~the~~decrease ~~three~~reflected ~~months~~a ~~ended~~decrease ~~September 30,~~in ~~2011.~~the ~~Our~~average ~~net~~rate ~~interest~~paid ~~margin~~on ~~increased~~deposits toin ~~3.80% for~~ the three months ended ~~September~~March 3031, ~~2011~~2012 to .78% from 31.2819%, ~~for~~in the three months ended ~~September~~March 3031, ~~2010.~~2011 ~~The~~as ~~increases~~well inas ~~our~~a ~~interest~~decrease ~~rate~~of ~~spread~~$898,000 ~~and~~in ~~net~~the ~~interest~~average ~~margin~~balance ~~were~~of ~~largely~~such ~~due~~deposits to ~~our~~$116.1 ~~declining~~million ~~cost~~for ofthe three months ended ~~funds~~March 31, ~~which~~2012 ~~reflected~~from ~~the~~$117.0 ~~continuing~~million ~~decline~~for ~~across~~ the ~~U.S.~~three ~~Treasury~~months ~~yield~~ending ~~curve~~March 31, 2011.

~~Provision~~Net ~~for~~Interest ~~Loan Losses~~Income. WeNet ~~recorded~~interest aincome ~~provision~~decreased ~~for loan losses of~~ $~~180~~80,000 for the three months ended ~~September~~March 3031, ~~2011, compared to $1,565,000 for the three months ended September 30, 2010~~2012. The ~~provision~~decrease ~~for~~resulted ~~loan~~from ~~losses~~a decrease in ~~2011~~our ~~reflected~~ net ~~charge-offs~~interest ofrate ~~$314,000~~margin from 3.49% for the three months ended ~~September~~March 3031, 2011, ~~compared~~ to ~~$1,598,000~~3.31% for the three months ended ~~September~~ March 3031, ~~2010~~2012. InThe ~~the~~decreases ~~period~~in ~~ended~~our ~~September 30,~~net ~~2010,~~interest ~~the~~margin ~~amount~~were oflargely ~~provision was related to large charge-offs that occurred~~ due to ~~deteriorating~~ ~~credit quality on commercial loans not secured by real estate and real estate valuations that declined during the period. The decrease in the provision for~~ our ~~loan classes are indicative of the~~ declining loan balances. ~~The~~and ~~exception to~~yield ~~this~~on issecurities ~~the~~described ~~Commercial Real Estate class which has had continued losses~~above.

Provision for Loan Losses. We recorded no provision for loan losses for the three months ended March 31, 2012, compared to $6,000 for the three months ended March 31, 2011. While there were increases in specific reserves on some loans, some valuations on impaired loans valued at the fair value of collateral increased during the period which decreased the specific reserve related to these loans. At the same time, loan balances decreased significantly, as described earlier, thus causing no additional provision for loans losses to be necessary.

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

Noninterest Income. Noninterest income ~~increased~~decreased $~~217~~13,000 to $~~317~~368,000 for the three months ended ~~September~~March 3031, ~~2011~~2012 from $~~100~~381,000 for the three months ended ~~September~~March 3031, ~~2010~~2011. ~~The~~Service ~~increase~~charges decreased $16,000 for the three months ended March 31, 2012 compared to the same period in ~~noninterest~~2011. ~~income~~This was ~~primarily~~due ~~attributable~~ to ~~gains~~a decrease in overdraft fees. We recognized a gain of $~~190~~203,000 on the sale of ~~securities~~$4.8 million of residential real estate loans for the three months ended ~~September~~ March 3031, ~~2011~~2012, while ~~none~~there were ~~recorded~~no transactions of this type for the three months ended ~~September~~March 3031, ~~2010~~ 2011. WeGains ~~also~~on ~~recognized~~sale ~~income~~of ~~from~~securities ~~other~~decreased ~~real~~to ~~estate of~~ $2655,000 ~~for~~during the three months ended ~~September~~March 3031, 2012, compared to $258,000 in the same period in 2011. For the period ended March 31, 2011, we had gains of $13,000 on the sale of fixed assets while there ~~was~~were ~~only~~no sales of this type during the three months ended March 31, 2012. Other income increased $117,000 to $67,000 for the ~~same~~ ~~period~~three months ended March 31, 2012 due to an increase in ~~2010~~income from OREO properties.

Noninterest Expense. Noninterest expense ~~decreased~~increased $~~288~~99,000, or 177.7%, to $1~~,338,000~~.4 million for the three months ended ~~September~~March 3031, ~~2011~~2012, compared to $1~~,626,000~~.3 million for the three months ended ~~September~~March 3031, ~~2010~~2011. The ~~decrease~~increase was due to aan ~~decrease~~increase in ~~other~~audit ~~real~~and ~~estate~~professional ~~expenses~~fees of $~~202~~93,000 ~~because~~due ofto ~~significant~~the ~~writedowns~~cost of ~~other~~additional ~~real~~services ~~estate~~related ~~for~~ to the ~~three~~audit ~~months~~and ~~ended~~filing ~~September 30,~~of ~~2010.~~reports Weas ~~also experienced~~ a ~~decrease~~public company. inInsurance ~~salaries~~ and ~~employee~~bond ~~benefits~~expense ofincreased $7129,000 due to the ~~reduction~~increased incost ~~the number~~ of ~~employees~~insurance ~~undertaken~~based inon ~~the~~our ~~first~~risk ~~quarter 2011~~profile. The Directors also waived their fees for services to the Company which amounted to a savings of $2521,000 for the three months ended ~~September~~March 3031, ~~2011~~2012.

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

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

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

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

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

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

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

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

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

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

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

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

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

Volunteer Bancorp, Inc.

Part II. Other Information

Item 3 Quantitative And Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

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

As disclosed in Item 9A to our annual report on Form 10-K for the fiscal year ended December 31, 2010, because we did not believe we were subject to the reporting requirements under the Securities Exchange Act of 1934, a full evaluation was not conducted under the supervision and with the participation of the Company’s management of the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2010. An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) as of ~~September 30~~March 31, ~~2011~~2012. Based on that evaluation, ~~other~~ ~~than~~ the ~~omission of applicable filings with the Securities and Exchange Commission, as referred to above, the~~ Company’s management, including the Chief Executive Officer and the Chief Financial Officer, ~~believe~~ concluded that the Company’s disclosure controls and procedures ~~are~~ were effective.

During the quarter ended ~~September~~March 3031, ~~2011~~2012, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

Item 1. Legal Proceedings

Other than as discussed in Note 87 to Notes to Consolidated Financial Statements, in the opinion of management, there is no proceeding pending or, to the knowledge of management, threatened, in which an adverse decision could result in a material adverse change in the consolidated financial condition or results of operations of the Company.

Item 1A. Risk Factors

~~Disclosures~~There ofhave been no material changes to our risk factors ~~are~~as ~~not~~disclosed ~~required~~in byour ~~smaller~~latest ~~reporting~~annual ~~companies,~~report ~~such~~on asForm ~~the Company~~10-K.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 5. Other Information

None.

2928

Volunteer Bancorp, Inc.

Part II. Other Information

Item 6. Exhibits

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

Exhibit Index

ExhibitNumber		Description of Document
Exhibit Number		Description of Document
3.1*		Articles of Incorporation of Volunteer Bancorp, Inc., as amended, filed as Exhibit 3.1 of the Company’s Form 10-K dated December 31, ~~2010~~2011 and incorporated herein by reference
3.2*		Bylaws of Volunteer Bancorp, Inc., filed as Exhibit 3.2 of the Company’s Form 10-K dated December 31, ~~2010~~2011 and incorporated herein by reference
10.1*		Stock Purchase Agreement, dated April 13, 2006, among Ralph T. Hurley, Willa Dean Hurley and Volunteer Bancorp, Inc., filed as Exhibit 10.1 of the Company’s Form 10-K dated December 31, ~~2010~~2011 and incorporated herein by reference
10.2*		Amended Stock Purchase Agreement, dated June 16, 2008, among Ralph T. Hurley, Willa Dean Hurley and Volunteer Bancorp, Inc., filed as Exhibit 10.2 of the Company’s Form 10-K dated December 31, ~~2010~~2011 and incorporated herein by reference
10.3*		Second Amended Stock Purchase and Trust Agreement, dated November 10, 2010, among Ralph T. Hurley, Willa Dean Hurley and Volunteer Bancorp, Inc., filed as Exhibit 10.3 of the Company’s Form 10-K dated December 31, ~~2010~~2011 and incorporated herein by reference
10.4*		Consent Order, dated January 28, 2010, issued by Federal Deposit Insurance Corporation to The Citizens Bank of East Tennessee, filed as Exhibit 10.4 of the Company’s Form 10-K dated December 31, ~~2010~~2011 and incorporated herein by reference
10.5*		Written Agreement, dated June 22, 2011, between Tennessee Department of Financial Institutions and The Citizens Bank of East Tennessee, filed as Exhibit 10.5 of the Company’s Form 10-K dated December 31, ~~2010~~2011 and incorporated herein by reference
10.6*		Written Agreement, dated May 26, 2010, between Federal Reserve Bank of Atlanta and Volunteer Bancorp, Inc., filed as Exhibit 10.6 of the Company’s Form 10-K dated December 31, ~~2010~~2011 and incorporated herein by reference
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
10.7*		Mortgage Loan Participation Sale Agreement, dated March 21, 2012, between The Citizens Bank of East Tennessee and Old Town Bank, filed as Exhibit 99.1 of the Company’s Form 8-K dated March 27, 2012 and incorporated herein by reference
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101		The following financial information from Volunteer Bancorp, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 filed with the SEC on February 29, 2012, formatted in XBRL includes: (i) Consolidated Balance Sheets at September 30, 2011 and December 31, 2010, (ii) Consolidated Statements of Operations for the fiscal periods ended September 30, 2011 and 2010, (iii) Consolidated Statements of Comprehensive Income (Loss) for the fiscal periods ended September 30, 2011 and 2010, (iv) Consolidated Statements of Cash Flows for the fiscal periods ended September 30, 2011 and 2010, and (v) Notes to Consolidated Financial Statements.



10.8*		Mortgage Loans Master Participation Certificate and Agreement, dated March 21, 2012, between The Citizens Bank of East Tennessee and Old Town Bank, filed as Exhibit 99.2 of the Company’s Form 8-K dated March 27, 2012 and incorporated herein by reference

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101		The following financial information from Volunteer Bancorp, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 filed with the SEC on May 15, 2012, formatted in XBRL includes: (i) Consolidated Balance Sheets at March 31, 2012 and December 31, 2011, (ii) Consolidated Statements of Operations for the fiscal periods ended March 31, 2012 and 2011, (iii) Consolidated Statements of Comprehensive Income (Loss) for the fiscal periods ended March 31, 2012 and 2011, (iv) Consolidated Statements of Cash Flows for the fiscal periods ended March 31, 2012 and 2011, and (v) Notes to Consolidated Financial Statements.

*	Filed previously

Volunteer Bancorp, Inc.

SIGNATURES

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

Volunteer Bancorp, Inc.




						Volunteer Bancorp, Inc.
						(Registrant)

DATE: May 15, 2012						/s/ Douglas E. Rehm
						Douglas E. Rehm
						President and Chief Executive Officer

DATE: May 15, 2012						/s/ Benjamin R. Lindley
						Benjamin R. Lindley
						Chief Financial Officer

(Registrant)

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

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

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Smaller reporting company

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