UNITY HOLDINGS,
      INC.
      AND SUBSIDIARY

      CONSOLIDATED FINANCIAL
      REPORT

      DECEMBER 31,
    2007





April 11,
2008

Dear Valued
Shareholder:

I am pleased to report
to you our performance for the year ended December 31, 2007.  For 2007, we
continued our favorable trends that we expect to deliver on a consistent
basis.  Our earnings continued to grow.  Market share in new and
existing markets saw increases.  The trading price on our stock ended the
year higher than where it began, and book value continued to rise.  The
Company's financial performance continues to add value to your
investment.

Our success in our
various northwest Georgia markets indicate a demand for a banking experience
that combines "high-touch" service with strong professionalism.  We have
met the challenge by offering the latest in bank technology, such as remote
deposit capture, streamlined ACH payment services, and an extensive ATM network
with no fees.  Total assets at year end of over $300 million represented
$35.3 million in growth over 2006 levels.  Basic earnings per share for
2007 were $2.64 compared to $2.01 for 2006.  Book value grew to $19.11 per
share in 2007 from $17.27 in 2006.

The current year has
begun with a slowing economy and instability in our markets.  We remain
diligent in managing our credit quality and loan losses during these turbulent
times.  We ended 2007 with an extensive review of certain areas of concern
and have identified areas of weakness that will require further
monitoring.  We believe our loss experience will be less than our peers, as
it has been throughout the history of the Bank.

The year 2008 marks our
10th anniversary of providing exceptional banking products and
services.  Your active participation in the ongoing history of Unity
Holdings, Inc. is always encouraged.  We urge you to bank with us and meet
our friendly, experienced staff.  The Board, staff, and I stand ready to
serve your shareholder and banking needs.  I urge you to review the
following report for a thorough explanation of our financial performance, please
make plans to attend the Annual Meeting of Shareholders on May 21,
2008.

Sincerely,

Michael L.
McPherson,

President &
CEO




LOCATIONSMAIN
      OFFICE950 Joe Frank Harris ParkwayCartersville, GA
    30121
    ADAIRSVILLE7450
      Adairsville Highway, NWAdairsville, GA 30103
    ROME42
      Three Rivers DriveRome, GA 30161HENDERSON
      DRIVE601 Henderson DriveCartersville, GA 30120
    CALHOUN150
      W.C. Bryant ParkwayCalhoun, GA 30701
    OPERATIONS
      CENTER34 Center RoadCartersville, GA 30121


|
|

DIRECTORSJERRY W.
      BRADENChairman
    KENNETH R.
      BISHOP
    DONALD D.
      GEORGE
    JOHN S.
      LEWISSAM R.
      McCLESKEY
    MICHAEL L.
      MCPHERSON
    STEPHEN A.
      TAYLOR
    B. DON
      TEMPLES


EXECUTIVE
      OFFICERSMICHAEL L.
      MCPHERSONPresident and Chief Executive OfficerW. STEWART
      GRIGGSExecutive Vice PresidentSenior Loan Officer
    
    ELI D.
      MULLISSenior Vice PresidentChief Financial
  Officer





MAIN OFFICE -
      CARTERSVILLEKIMBERLY
      ABERNATHYVice PresidentHuman Resources
    CONNIE
      MITCHELL-WHITEVice PresidentRetail Division OfficerRICK
      HUGHESVice PresidentLending Manager
    DONA
      WISNOMVice PresidentLending OfficerTERESA
      BROWN
      Retail Banking
      Officer
    APRIL
      HARBINBusiness Development OfficerJEREMY
      SMITHLending Officer
    ANDREW
      WINKLERLending OfficerHENDERSON
      DRIVE-
      CARTERSVILLERICK
      KOLLHOFFVice PresidentSenior Officer
    JOE
      LYNCHCollections OfficerADAIRSVILLEMICHAEL
      SMITHVice President
      Senior Officer
    BRYAN
      SHEALYLending OfficerROMEJOHN
      GRAHAMVice PresidentSenior Officer
    MIKE
      STOVERVice PresidentLending OfficerCALHOUNSTANLEY TAYLORVice
      President
      Senior
      Officer
    MARTHA
      DARBYVice PresidentLending OfficerOPERATIONSMICHELLE
      BAILEYVice PresidentLoan Operations
    CHRISTIE
      McLAUGHLINVice PresidentDeposit OperationsBRANDON
      ADAMSAccounting Officer
    JEFF
      STARKETechnology OfficerHAZEL D.
      TEMPLESBSA Officer





UNITY HOLDINGS,
INC.

AND
SUBSIDIARY



CONSOLIDATED
FINANCIAL REPORT

DECEMBER 31,
2007

|TABLE OF
      CONTENTS                                      
|-------------------------------------------------------------
|                                                             
|REPORT OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|                                                             
|FINANCIAL
      STATEMENTS                                   
|                                                             
|                                                             
|                                                             
|                                                             
|                                                             
|                                                             
|                                                             
|                                                             
|                                                             








MAULDIN & JENKINS

Certified Public Accountants,
LLC

|REPORT OF INDEPENDENT REGISTERED
      PUBLIC
      ACCOUNTING FIRM
|-------------------------------------------------------------------

To the Board of
Directors

Unity Holdings, Inc.

Cartersville, Georgia

We have audited the
accompanying consolidated balance sheets of Unity Holdings, Inc. and
subsidiary as of December 31, 2007 and 2006, and the related consolidated
statements of income, comprehensive income, stockholders' equity and cash flows
for the years then ended.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits
in accordance with the standards of the Public Company Accounting Oversight
Board (United States).  Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting.  Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting.  Accordingly, we express no such opinion.  An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Unity Holdings, Inc. and
subsidiaryas of December 31, 2007 and 2006, and the results of their
operations and their cash flows for the years then ended, in conformity with
U.S. generally accepted accounting principles.

MAULDIN & JENKINS,
LLC

Atlanta, Georgia

March 27,
2008







|UNITY HOLDINGS, INC.                                               
|-------------------------------------------------------------------
|AND SUBSIDIARY                                                     
|CONSOLIDATED BALANCE SHEETS                                        
|DECEMBER 31, 2007 AND 2006                                         
|                                                                   
|                                                                   
|Assets                                                             
|Cash and due from banks                                            
|Interest-bearing deposits in banks                                 
|Federal funds sold                                                 
|Securities available for sale                                      
|Restricted equity securities, at cost                              
|Loans                                                              
|Less allowance for loan losses                                     
|Loans, net                                                         
|Premises and equipment                                             
|Other assets                                                       
|TOTAL ASSETS                                                       
|                                                                   
|Liabilities, Redeemable Common Stock and
      Stockholders' Equity
|Deposits                                                           
|Noninterest-bearing                                                
|Interest-bearing                                                   
|Total
      deposits                                               
|Other borrowings                                                   
|Guaranteed subordinated debentures                                 
|Other liabilities                                                  
|TOTAL LIABILITIES                                                  
|                                                                   
|Commitments and contingencies                                      
|                                                                   
|Redeemable common stock held by KSOP                               
|                                                                   
|Stockholders' equity                                               
|Preferred stock, par value $.01;
      10,000,000 shares           
|authorized;
      none issued                                      
|Common stock, par value $.01;
      10,000,000 shares authorized;  
|987,557 and 990,030 issued and outstanding, respectively           
|Capital surplus                                                    
|Retained earnings                                                  
|Accumulated other comprehensive
      income (loss)                
|Total stockholders' equity                                         
|TOTAL LIABILITIES, REDEEMABLE COMMON
STOCK                         
|AND STOCKHOLDERS' EQUITY                                           
|                                                                   
|See Notes to Consolidated Financial
      Statements.              



|UNITY HOLDINGS , INC.                                
|-----------------------------------------------------
|AND SUBSIDIARY                                       
|                                                     
|CONSOLIDATED STATEMENTS OF
  INCOME                  
|YEARS ENDED DECEMBER 31, 2007 AND
      2006         
|                                                     
|                                                     
|Interest income                                      
|Loans                                                
|Taxable securities                                   
|Nontaxable securities                                
|Federal funds sold                                   
|Interest-bearing deposits in
      banks             
|Total interest income                                
|                                                     
|Interest expense                                     
|Deposits                                             
|Borrowings                                           
|Total interest expense                               
|                                                     
|Net interest income                                  
|Provision for loan losses                            
|Net interest income after provision for loan losses  
|                                                     
|Other income                                         
|Service charges on deposit
      accounts            
|Mortgage loan fees                                   
|Other operating income                               
|Total other income                                   
|                                                     
|Other expenses                                       
|Salaries and employee
benefits                       
|Equipment and occupancy
    expenses                 
|Loss on sale of securities available
      for sale  
|Other operating expenses                             
|Total other expenses                                 
|                                                     
|Income before income taxes                           
|Income tax expense                                   
|NET INCOME                                           
|                                                     
|Basic earnings per share                             
|Diluted earnings per share                           
|                                                     
|See Notes to Consolidated Financial
      Statements.
|                                                     

2






|UNITY HOLDINGS, INC.                                               
|-------------------------------------------------------------------
|AND SUBSIDIARY                                                     
|CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                    
|YEARS ENDED DECEMBER 31, 2007 AND
      2006                       
|                                                                   
|                                                                   
|                                                                   
|Net income                                                         
|                                                                   
|Other comprehensive income:                                        
|Unrealized holding gains on
      securities available for sale:   
|                                                                   
|Unrealized
      holding gains on securities arising during period,
|net of tax of $62,725 and 38,576, respectively                     
|                                                                   
|Reclassification adjustment for losses realized in net income,     
|net of benefit of $0 and $7,196, respectively.                     
|                                                                   
|Other comprehensive income                                         
|                                                                   
|Comprehensive income                                               
|                                                                   
|                                                                   
|See Notes to Consolidated Financial
      Statements.              
|                                                                   





3






|UNITY
      HOLDINGS, INC.                           
|-----------------------------------------------------
|AND
      SUBSIDIARY                                 
|CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY
|YEARS ENDED
      DECEMBER 31, 2007 AND 2006         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|Balance, December 31,
      2005                     
|Net
      income                                     
|Exercise of stock options                            
|Adjustment for shares owned                          
|by
      KSOP                                        
|Retirement of common stock                           
|Stock
      compensation                             
|Other
      comprehensive income                     
|Balance, December 31,
      2006                     
|Net
      income                                     
|Adjustment for shares owned                          
|by
      KSOP                                        
|Retirement of common stock                           
|Stock
      compensation                             
|Other
      comprehensive income                     
|Balance, December 31,
      2007                     
|                                                     
|See Notes to
      Consolidated Financial Statements.
|                                                     





4




5






|UNITY HOLDINGS, INC. AND SUBSIDIARY                                  
|---------------------------------------------------------------------
|CONSOLIDATED
      STATEMENTS OF CASH FLOWS                          
|YEARS ENDED
      DECEMBER 31, 2007 AND 2006                         
|                                                                     
|OPERATING ACTIVITIES                                                 
|Net income                                                           
|Adjustments to reconcile net income
      to net                     
|cash
      provided by operating activities:                         
|Depreciation                                                         
|Provision
      for loan losses                                      
|Deferred
      income taxes                                          
|Loss on sale
      of securities available for sale                  
|Loss on
      disposal of fixed assets                               
|Gain on sale
      of other real estate                              
|Increase in
      interest receivable                                
|Increase in
      interest payable                                   
|Stock
      compensation expense                                     
|Net other
      operating activities                                 
|Net cash provided by operating activities                            
|                                                                     
|INVESTING ACTIVITIES                                                 
|Net (increase) decrease in
      interest-bearing deposits in banks  
|Purchases of securities available
      for sale                     
|Proceeds from sales of securities
      available for sale           
|Proceeds from maturities\calls of
      securities available for sale
|Redemption of restricted equity
      securities                     
|Purchases of restricted equity
      securities                      
|Net (increase) decrease in federal
      funds sold                  
|Net increase in loans                                                
|Purchase of cash surrender value
      life insurance                
|Proceeds from sale of other real
      estate owned                  
|Purchase of premises and
      equipment                             
|Net cash used in investing activities                                
|                                                                     
|FINANCING ACTIVITIES                                                 
|Net increase in deposits                                             
|Net (decrease) increase in federal
      funds purchased             
|Proceeds from other
borrowings                                       
|Repayments of other
borrowings                                       
|Purchase of common stock                                             
|Proceeds from sale  of common
      stock                            
|Proceeds from exercise of stock
      options                        
|Net cash provided by financing activities                            
|                                                                     
|Net increase in cash and due from banks                              
|Cash and due from banks at beginning of period                       
|Cash and due from banks at end of period                             
|                                                                     
|SUPPLEMENTAL DISCLOSURES                                             
|Cash paid during the period
    for:                                 
|Interest                                                             
|Income
      taxes                                                   
|                                                                     
|NONCASH TRANSACTIONS                                                 
|Loans
      transferred to other real estate owned                   
|Financed
      sales of other real estate owned                      
|                                                                     
|See Notes to Consolidated Financial
      Statements.                



6




UNITY HOLDINGS,
INC.

AND
SUBSIDIARY

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1.  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES



Nature of Business



Unity Holdings, Inc.
(the "Company") is a bank holding company whose business is conducted by Unity
National Bank, its wholly-owned subsidiary.  Unity National Bank (the
"Bank") is a commercial bank headquartered in Cartersville, Bartow County,
Georgia.  The Bank operates two offices in Cartersville and additional
offices in Adairsville (Bartow County), Rome (Floyd County), and Calhoun (Gordon
County), Georgia.  Each office provides a full range of banking services in
its primary market areas.

Basis of Presentation and Accounting
Estimates

The consolidated
financial statements include the accounts of the Company and its subsidiary.
Significant intercompany transactions and balances have been eliminated in
consolidation.

In preparing the
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as of the
balance sheet date and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those
estimates.

Material estimates
that are particularly susceptible to significant change in the near term relate
to the determination of the allowance for loan losses, deferred tax assets,
valuation of foreclosed assets and contingent assets and liabilities.  The
determination of the adequacy of the allowance for loan losses is based on
estimates that are susceptible to significant changes in the economic
environment and market conditions.  In connection with the determination of
the estimated losses on loans and foreclosed assets, management obtains
independent appraisals for significant collateral.

Cash, Due From Banks and Cash
Flows

For purposes of
reporting cash flows, cash and due from banks includes cash on hand, cash items
in process of collection and amounts due from banks.  Cash flows from
loans, federal funds sold, interest-bearing deposits in banks, deposits, and
federal funds purchased are reported net.

The Bank is required to
maintain reserve balances in cash or on deposit with the Federal Reserve Bank,
based on a percentage of deposits.  The total of those reserve balances was
approximately $655,000 and $653,000 at December 31, 2007 and 2006,
respectively.

Securities

Debt securities that
management has the positive intent and ability to hold to maturity are
classified as held-to-maturity and recorded at amortized cost.  Debt
securities not classified as held-to-maturity are classified as
available-for-sale and recorded at fair value with unrealized gains and losses
excluded from earnings and reported in accumulated other comprehensive income
(loss) net of the related deferred tax effect.  Equity securities,
including restricted stock, without a readily determinable fair value are
recorded at cost.

7




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)

Securities (Continued)

Purchased premiums and
discounts are recognized in interest income using the interest method over the
terms of the securities.  Gains and losses on the sale of securities are
determined using the specific identification method.  Declines in the fair
value of held-to-maturity and available-for-sale securities below their cost
that are deemed to be other than temporary are reflected in earnings as realized
losses.  In estimating other-than-temporary impairment losses, management
considers (1) the length of time and the extent to which the fair value has been
less than cost, (2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Company to retain its investment
in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value.

Loans

Loans are reported at
their outstanding principal balances less net deferred loan fees and the
allowance for loan losses.  Interest income is accrued on the outstanding
principal balance.  Nonrefundable loan fees, net of direct loan origination
costs, are deferred with the net amount recognized into interest income over the
life of the loans.

The accrual of interest
on loans is discontinued when, in management's opinion, the borrower may be
unable to meet payments as they become due, unless the loan is well-secured.
 All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income, unless management
believes that the accrued interest is recoverable through the liquidation of
collateral.  Interest income on nonaccrual loans is recognized on the
cost-recovery method, until the loans are returned to accrual status. 
Loans are returned to accrual status when all the principal and interest amounts
are brought current and future payments are reasonably assured.

A loan is considered
impaired when it is probable, based on current information and events, the
Company will be unable to collect all principal and interest payments due in
accordance with the contractual terms of the loan agreement.  Impaired
loans are measured by either the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's obtainable market
price, or the fair value of the collateral if the loan is collateral
dependent.  The amount of impairment, if any, and any subsequent changes
are included in the allowance for loan losses.  Interest on accruing
impaired loans is recognized as long as such loans do not meet the criteria for
nonaccrual status.

Allowance for Loan Losses

The allowance for loan
losses is established through a provision for loan losses charged to
expense.  Loan losses are charged against the allowance when management
believes the collectibility of the principal is unlikely.  Subsequent
recoveries are credited to the allowance.

The allowance is an
amount that management believes will be adequate to absorb estimated losses
relating to specifically identified loans, as well as probable credit losses
inherent in the balance of the loan portfolio, based on an evaluation of the
collectibility of existing loans and prior loss experience.  This
evaluation also takes into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, concentrations and current economic conditions that may affect
the borrower's ability to pay.  This evaluation does not include the
effects of expected losses on specific loans or groups of loans that are related
to future events or expected changes in economic conditions.  While
management uses the best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are any significant
changes in economic conditions.  In addition, regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowance for loan losses, and may require the Company to make additions to the
allowance based on their judgment about information available to them at the
time of their examinations.

Premises and Equipment

Land is carried at
cost.  Premises and equipment are carried at cost less accumulated
depreciation.  Depreciation is computed principally by the straight-line
method over the estimated useful lives of the assets.  Estimated useful
lives for premises and equipment are three years to forty years.

8




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)



Other Real Estate Owned

Other real estate owned
represents properties acquired through foreclosure.  Other real estate
owned is held for sale and is carried at the lower of cost or fair value less
estimated costs to sell.  Any write-down to fair value at the time of
transfer to other real estate owned is charged to the allowance for loan
losses.  Revenue and expenses from operations and changes in the valuation
allowance are included in net expenses from foreclosed assets.  The Company
had $2,338,092 and $118,300 of other real estate owned at December 31, 2007
and 2006, respectively.

Stock Compensation Plans

At December 31, 2007, the Company has two stock-based
employee compensation plans, which are described more fully in Note 8. 
Effective January 1, 2006, we adopted SFAS No. 123 (revised), "Share-Based
Payment" ("SFAS 123(R)") utilizing the modified prospective approach.

Under the modified prospective approach, SFAS 123(R)
applies to new awards and to awards that were outstanding on January 1, 2006
that are subsequently modified, repurchased or cancelled.  Under the
modified prospective approach, compensation cost recognized includes
compensation cost for all share-based payments granted prior to, but not yet
vested as of January 1, 2006, based on the grant-date fair value estimated in
accordance with the original provisions of SFAS 123, and compensation cost for
all share-based payments granted subsequent to January 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS
123(R).

Grant-date fair value is measured on the date of grant
using option-pricing models with market assumptions. The grant-date fair value
is amortized into expense on a straight-line basis over the vesting
period.  Option pricing models require the use of highly subjective
assumptions, including but not limited to, expected stock price volatility,
forfeiture rates, and interest rates, which if changed can materially affect
fair value estimates. Accordingly the model does not necessarily provide a
reliable single measure of the fair value of our stock options.
  Under SFAS No. 123(R), stock-based compensation expense was $45,238
and $46,380 for the years ended December 31, 2007 and 2006, respectively.

Earnings Per Share

Basic earnings per share
are computed by dividing net income  by the weighted average number of
shares of common stock outstanding.  Diluted earnings per share are
computed by dividing net income  by the sum of the weighted average number
of shares of common stock outstanding and potential common shares. 
Potential common shares consist of stock options and stock warrants.

Comprehensive Income

Accounting principles
generally require that recognized revenue, expenses, gains and losses be
included in net income.  Although certain changes in assets and
liabilities, such as unrealized gains and losses on available for sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.

Recent Accounting
Standards

In September 2006, the FASB issued Statement No. 157, Fair
Value Measurements.The Statement provides guidance for using
fair value to measure assets and liabilities.  It defines fair value,
establishes a framework for measuring fair value under generally accepted
accounting principles and expands disclosures about fair value
measurement.  Under the Statement, fair value refers to the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants in the market in which the reporting
entity transacts.  It clarifies the principle that fair value should
be based on the assumptions market participants would use when pricing the asset
or liability.  In support of this principle, the Statement establishes
a fair value hierarchy that prioritizes the information used to develop those
assumptions.  Under the Statement, fair value measurements would be
separately disclosed by level within the fair value
hierarchy.  Statement No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and is not expected to
have a material impact on the Company's financial condition or results of
operations.

9




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)

Recent Accounting Standards
(Continued)

In February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities - Including an
Amendment of FASB Statement No. 115.  The Statement permits an
entity to choose to measure many financial instruments and certain other items
at fair value at specified election dates.  A business entity will
report unrealized gains and losses on items for which the fair value option has
been elected in earnings at each subsequent reporting date.  The fair
value option may be applied instrument by instrument (with a few exceptions), is
irrevocable (unless a new election date occurs) and is applied only to entire
instruments and not to portions of instruments.  Most of the
provisions in Statement 159 are elective; however, the amendment to FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, applies to all entities with available-for-sale and trading
securities.  Statement No. 159 is effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2007 and is not
expected to have a material impact on the Company's financial condition or
results of operations.

In December 2007, the FASB issued Statement No. 141 (Revised
2007), Business Combinations.  The Statement will significantly
change the accounting for business combinations, as an acquiring entity will be
required to recognize all the assets and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions.  The
Statement changes the accounting treatment for several specific items, such as
acquisition costs, noncontrolling interests (formerly referred to as minority
interests), contingent liabilities, restructuring costs and changes in deferred
tax asset valuation allowances.  The Statement also includes a
substantial number of new disclosure requirements.  Statement No. 141R
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008.  Early adoption is prohibited.  The
Company is currently evaluating the impact the adoption of this statement will
have on the accounting for future acquisitions and business combinations.

In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements - An Amendment
of ARB No. 51.  The Statement establishes new accounting and
reporting standards for the noncontrolling interest (formerly referred to as
minority interests) in a subsidiary and for the deconsolidation of a
subsidiary.  Statement No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008.  Early adoption is prohibited.  The Company currently
does not have any noncontrolling interests and is evaluating the impact the
adoption of this statement will have on the accounting for future business
combinations.



NOTE 2.  SECURITIES

The amortized cost and
fair value of securities are summarized as follows:

10




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                  |            |           |            | Gross  |       | Gross    |  |          
|------------------------------------------------- | ---------- | --------- | ---------- | ------ | ----- | -------- |  | ---------
|Amortized                                         | Unrealized |           | Unrealized |        | Fair 
|Cost                                              | Gains      |           | Losses     |        | Value
|Securities Available for Sale                     |            |           |            |        |       |          |  |          
|December 31,
      2007:                          |            |           |            |        |       |          |  |          
|U.S. Government sponsored agency
      securities |            | $         | 15,744,312 |        | $     | 47,452   |  | $        
|Municipal
      securities                        |            | 6,010,459 |            | 83,943 |       | (25,840) |  | 6,068,562
|Mortgage-backed
      securities                  |            | 4,843,084 |            | 12,482 |       | (41,355) |  | 4,814,211
|                                                  |            | $         | 26,597,855 |        | $     | 143,877  |  | $        
|                                                  |            |           |            |        |       |          |  |          
|December 31, 2006:                                |            |           |            |        |       |          |  |          
|U.S. Government sponsored agency
      securities |            | $         | 10,239,380 |        | $     | 9,141    |  | $        
|Municipal securities                              |            | 5,960,903 |            | 96,403 |       | (8,658)  |  | 6,048,648
|Mortgage-backed
    securities                    |            | 3,727,304 |            | -      |       | (80,183) |  | 3,647,121
|                                                  |            | $         | 19,927,587 |        | $     | 105,544  |  | $        
|                                                  |            |           |            |        |       |          |  |          

Securities with a
carrying value of $15,889,501 and $8,017,511 at December 31, 2007 and 2006,
respectively, were pledged to secure public deposits and for other purposes
required or permitted by law.

NOTE 2.  SECURITIES
(Continued)

There were no realized
gains on sales of securities available for sale during 2007.  Gross losses
of $21,423 were realized in sales of securities available for sale for the year
ended December 31, 2006.

The amortized cost and
fair value of debt securities as of December 31, 2007 by contractual maturity
are shown below.  Maturities may differ from contractual maturities of
mortgage-backed securities because the mortgages underlying the securities may
be called or repaid without penalty.  Therefore, these securities are not
included in the maturity categories in the following summary.

|                           | Securities
      Available for Sale
|-------------------------- | -----------------------------------
|                           | Amortized                          
|                           | Cost                               
|Due in less than one year  | $                                  
|Due from one to five years |                                    
|Due from five to ten years |                                    
|Due after ten years        |                                    
|Mortgage-backed securities |                                    
|                           | $                                  
|                           |                                    
|                           |                                    

Restricted equity
securities consist of the following:

|                               |  | December
      31,
|------------------------------ |  | ------------------
|                               |  | 2007              
|Federal Home Loan Bank Stock   |  | $                 
|Federal Reserve Bank Stock     |  | 364,600           
|Other correspondent bank stock |  | 123,178           
|Trust preferred securities     |  | 93,000            
|                               |  | $                 
|                               |  |                   
|                               |  |                   

11




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 2.  SECURITIES
(Continued)

The FASB Emerging Issues
Task Force released Issue No. 03-01, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments,whichrequires
disclosure of certain information about other than temporary impairments in the
market value of securities.  The market value of investment securities is
based on quoted market values and is significantly affected by the interest rate
environment.  At December 31, 2007 and 2006, all unrealized losses in the
securities portfolio were for debt securities.

The following table
shows the gross unrealized losses and fair value of securities, aggregated by
category and length of time that securities have been in a continuous unrealized
loss position at December 31, 2007 and 2006.

|                                                 |       | Less Than
      Twelve Months |            | Twelve
      Months or More
|------------------------------------------------ | ----- | ----------------------------- | ---------- | ---------------------------
|                                                 |       | Gross                         |            |                            
|Unrealized                                       | Fair  |                               | Unrealized | Fair                       
|Losses                                           | Value |                               | Losses     | Value                      
|December 31, 2007:                               |       |                               |            |                            
|U.S. Government sponsored
      federal agencies |       | $                             | 3,137      |                            
|State and municipal
      securities             |       | -                             |            | -                          
|Mortgage-backed
    securities                   |       | 7,236                         |            | 971,225                    
|Temporarily impaired
      debt securities       |       | $                             | 10,373     |                            
|                                                 |       |                               |            |                            
|                                                 |       |                               |            |                            
|December 31, 2006:                               |       |                               |            |                            
|U.S. Government sponsored
      federal agencies |       | $                             | 1,039      |                            
|State and municipal
      securities             |       | 1,000                         |            | 602,481                    
|Mortgage-backed
    securities                   |       | -                             |            | -                          
|Temporarily impaired
      debt securities       |       | $                             | 2,039      |                            
|                                                 |       |                               |            |                            
|                                                 |       |                               |            |                            

Management evaluates securities for other-than-temporary
impairment at least on a quarterly basis, and more frequently when economic or
market concerns warrant such evaluation.  Consideration is given to (1) the
length of time and the extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the issuer, and (3) the
intent and ability of the Company to retain its investment in the issuer for a
period of time sufficient to allow for any anticipated recovery in fair
value.

At December 31, 2007 and 2006, no debt securities have
unrealized losses with aggregate depreciation of 5% from the Company's amortized
cost basis.  In analyzing an issuer's financial condition, management
considers whether the securities are issued by the federal government or its
agencies, whether downgrades by bond rating agencies has occurred, and industry
analysts' reports.  As management has the ability to hold debt securities
until maturity, or for the foreseeable future if classified as available for
sale, no declines are deemed to be other than temporary.

12




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 3.  LOANS



The composition of loans
is summarized as follows:

|                                       | December
      31,
|-------------------------------------- | ------------------
|                                       | 2007              
|                                       |                   
|Commercial, financial and agricultural | $                 
|Real estate - construction             | 47,528,638        
|Real estate - mortgage                 | 168,879,644       
|Consumer, installment and other        | 7,287,901         
|                                       | 243,295,529       
|Net deferred loan fees                 | (265,811)         
|Allowance for loan losses              | (3,280,508)       
|Loans, net                             | $                 
|                                       |                   

Changes in the allowance
for loan losses are as follows:

|                                                 | Years Ended
      December 31,
|------------------------------------------------ | ------------------------------
|                                                 | 2007                          
|                                                 |                               
|Balance, beginning of year                       | $                             
|Provision for loan losses                        | 737,776                       
|Loans charged off                                | (337,579)                     
|Recoveries of loans previously charged
      off | 88,968                        
|Balance, end of year                             | $                             
|                                                 |                               

13




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 3.  LOANS
(Continued)

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

|                                              | As of and
      for the Years Ended
|--------------------------------------------- | -----------------------------------
|                                              | December
      31,                 
|                                              | 2007                               
|Impaired loans without a valuation allowance  | $                                  
|Impaired loans with a valuation allowance     | 7,570,376                          
|Total Impaired loans                          | 8,361,827                          
|Valuation allowance related to impaired loans | 912,095                            
|Average investment in impaired loans          | $                                  
|                                              |                                    

Interest income
recognized on impaired loans for cash payments received was not material for the
years ended December 31, 2007 and 2006.  Loans on nonaccrual status
amounted to approximately $3,145,000 and $4,235,000 at December 31, 2007 and
2006, respectively.  Loans past due ninety days or more and still accruing
interest were approximately $791,000 and $94,000 at December 31, 2007 and 2006,
respectively.

In the ordinary course
of business, the Company has granted loans to certain related parties including
directors, executive officers and their affiliates.  The interest rates on
these loans were substantially the same as rates prevailing at the time of the
transaction and repayment terms are customary for the type of loan. 
Changes in related party loans for the year ended December 31, 2007 are as
follows:

|Balance, beginning of year | $         | 1,110,406
|-------------------------- | --------- | ---------
|Advances                   | 1,945,516
|Less repayments            | 1,767,442
|Balance, end of year       | $         | 1,288,480
|                           |          



NOTE 4.  PREMISES AND
EQUIPMENT

Premises and equipment
are summarized as follows:

|                                    | December
      31,
|----------------------------------- | ------------------
|                                    | 2007              
|                                    |                   
|Land and land improvements          | $                 
|Buildings & construction in process | 7,721,615         
|Equipment                           | 2,386,265         
|                                    | 13,823,610        
|Accumulated depreciation            | (2,406,959)       
|                                    | $                 
|                                    |                   

In August 2006, the Bank
completed construction of its full service office in Calhoun and discontinued
the lease on rented office space.  Total rental expense incurred for the
year ended December 31, 2006 was approximately $4,000.

14




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 5.  DEPOSITS

The aggregate amount of
time deposits in denominations of $100,000 or more at December 31, 2007 and 2006
was $62,773,157 and $39,313,461, respectively.  The scheduled maturities of
total time deposits at December 31, 2007 are as follows:

|2008 | $          | 93,315,890 
|---- | ---------- | -----------
|2009 | 16,129,890
|2010 | 3,836,568 
|2011 | 3,417,135 
|2012 | 4,863,978 
|     | $          | 121,563,461
|     |           

Total overdrafts
reclassified to loans at December 31, 2007 and 2006 were $110,990 and $46,918,
respectively.

The Company had brokered
certificates of deposit at December 31, 2007 and 2006 of $17,250,170 and
$16,464,812, respectively.



NOTE 6.  OTHER
BORROWINGS

Other borrowings consist
of the following:

|                                                                                                                                                                                                                 | December
      31,
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------
|                                                                                                                                                                                                                 | 2007              
|                                                                                                                                                                                                                 |                   
|Federal Home Loan Bank advances with interest payable
      at various intervals at interest rates ranging from 2.74% to 5.32%, due at
      various maturity dates between February 25, 2008 and June 29, 2012. | $                 
|                                                                                                                                                                                                                 |                   
|                                                                                                                                                                                                                 |                   

Contractual maturities
of other borrowings as of December 31, 2007 are as follows:

|2008 | $ | 450,000   
|---- | - | ----------
|2009 |   | 11,000,000
|2010 |   | -         
|2011 |   | 2,000,000 
|2012 |   | 8,800,000 
|     | $ | 22,250,000
|     |   |           

The FHLB advance line is
collateralized by a blanket lien on the Company's 1-4 family mortgage and home
equity loans.  The loans pledged as collateral had an approximate carrying
amount of $63,066,000 as of December 31, 2007.

## 

15




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 7.  GUARANTEED SUBORDINATED
DEBENTURES

In
2003, the Company formed a wholly-owned grantor trust to issue cumulative trust
preferred securities.  The grantor trust has invested the proceeds of the
trust preferred securities in junior subordinated debentures of the
Company.  The trust preferred securities can be redeemed prior to maturity
at the option of the Company on or after December 17, 2008.  The sole
assets of the guarantor trust are the Junior Subordinated Deferrable Interest
Debentures of the Company (the "Debentures") held by the grantor trust. 
The debentures have the same interest rate (three month LIBOR plus 2.95%,
floating) as the trust preferred securities.  The Company has the right to
defer interest payments on the Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarters provided that no extension period
may extend beyond the stated maturity of the related Debentures.  During
any such extension period, distributions on the trust preferred certificates
would also be deferred.

Payment of periodic cash
distributions and payment upon liquidation or redemption with respect to the
trust preferred securities are guaranteed by the Company to the extent of funds
held by the grantor trust (the "Preferred Securities Guarantee").  The
Preferred Securities Guarantee, when taken together with the Company's other
obligations under the Debentures, constitute a full and unconditional guarantee,
on a subordinated basis, by the Company of payments due on the trust preferred
securities.

The
trust preferred securities and the related debentures were issued on December
18, 2003.  Distributions on the trust preferred securities are paid
quarterly.  Interest on the Debentures is paid on the corresponding
dates.  The aggregate principal amount of Debentures outstanding at
December 31, 2007 and 2006 were $3,093,000.  Certain issue costs have been
deferred and recorded in other assets in the accompanying balance sheet. 
The issue costs are being amortized over the initial five year period until the
first call date.  The remaining outstanding balance of the unamortized
issue costs at December 31, 2007 and 2006 was $15,987 and $30,735, respectively,
and is included in other assets.

16




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 8.   STOCK COMPENSATION
PLANS

The Company has an
incentive stock option plan that allows for an annual increase in shares
available for options up to a total of 150,000 shares.  At December 31,
2007, the Company has available 114,551 shares of common stock for issuance to
key employees and directors.  Options are granted at the fair value of the
Company's common stock on the date of grant and expire ten years from the
effective date of the grant.  The options vest at a rate of 20% per
year.

Other pertinent
information related to the options is as follows:

|                                                                                    | Years Ended
      December 31,
|----------------------------------------------------------------------------------- | ------------------------------
|                                                                                    | 2007                          
|                                                                                    |                               
|                                                                                    | Number                        
|Under option, beginning of year                                                     | 82,960                        
|Granted                                                                             | -                             
|Exercised                                                                           | -                             
|Terminated                                                                          | -                             
|Under option, end of year                                                           | 82,960                        
|                                                                                    |                               
|Exercisable, end of year                                                            | 78,960                        
|                                                                                    |                               
|Total intrinsic value of exercised shares                                           |                               
|                                                                                    |                               
|Weighted average remaining contractual term of
      exercisable options (in years) |                               
|                                                                                    |                               
|Aggregate intrinsic value of total outstanding
      options                        |                               
|                                                                                    |                               
|Aggregate intrinsic value of exercisable options                                    |                               

17




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 8.   STOCK COMPENSATION
PLANS (Continued)

Additional information
pertaining to options outstanding at December 31, 2007 is as follows:

|                      | Options
      Outstanding |  | Options
      Exercisable                        
|--------------------- | ------------------------- |  | -------------------------------------------------
|                      |                           |  | Weighted
      Average Remaining Contractual Life
|Rangeof ExercisePrice | Number
      Outstanding  |  |                                                  
|$10 - $15             | 40,960                    |  | 1 year                                           
|$16                   | 32,000                    |  | 5 Years                                          
|$19 - $22             | 10,000                    |  | 7 years                                          
|                      |                           |  |                                                  

In 1998, the Company
granted 140,000 common stock warrants to its initial directors.  The
warrants are exercisable at a price of $10 per share and are fully vested. 
The warrants expire ten years from date of grant and have a weighted average
remaining contractual life of one year.  The aggregate intrinsic value of
warrants outstanding and exercisable at December 31, 2007 and 2006 was
$2,800,000 and $2,240,000, respectively.

The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model.  No options were granted in 2007 or 2006.  At
December 31, 2007, there was approximately $19,000 of unrecognized compensation
expense related to stock-based payments, which is expected to be recognized over
a weighted average period of 0.4 years.

NOTE 9.   OTHER EMPLOYEE AND
DIRECTOR BENEFIT PLANS



Employee Stock Ownership
Plan

In 2002, the Company
established a leveraged Employee Stock Ownership Plan with 401-k provisions
(KSOP) for the benefit of employees who meet certain eligibility requirements,
subject to IRS limits.  Contributions to the KSOP are determined by the
Board of Directors of the Company taking into consideration the financial
condition and fiscal requirements of the Company and such other factors as the
Board of Directors may deem pertinent and applicable under the
circumstances.  The Company made matching contributions totaling $70,757
and $56,767 in 2007 and 2006, respectively.  The KSOP has no debt as of
December 31, 2007 and December 31, 2006.  The match for 2007 was paid in
Company stock at approximately $30 per share.

During 2007, the KSOP
purchased 4,327 shares from outside shareholders at prevailing market
prices.  During 2006, the Company offered to buy back shares from existing
shareholders at the prevailing stock value as determined by an external
valuation firm.  The KSOP purchased 13,658 shares on behalf of its
participants, with the remainder being terminated by the Company.  Further
information about the Company's tender offer can be found in its Schedule TO
filings done in February and April of 2006.  Information about the KSOP's
purchase of the stock can be found in its Form S-8 filed in June 2006.  The
KSOP owned 22,083 and 17,756 shares of the Company's common stock as of December
31, 2007 and 2006, respectively, which were purchased solely from employee
contributions to the KSOP.

In accordance with the
KSOP, the Company is expected to honor the rights of certain participants to
diversify their account balances or to liquidate their ownership of the common
stock in the event of termination.  The purchase price of the common stock
would be based on the fair market value of the Company's common stock as of the
annual valuation date, which precedes the date the put option is
exercised.  No participant has exercised these rights since the inception
of the KSOP.  However, since the redemption of common stock is outside the
control of the Company, the Company's maximum cash obligation based on the
approximate market prices of common stock as of the reporting date has been
presented outside stockholders' equity.  The amount presented as redeemable
common stock held by the KSOP in the consolidated balance sheet represents the
Company's maximum cash obligation and has been reflected as a reduction of
retained earnings.

18




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 9.   OTHER EMPLOYEE AND
DIRECTOR BENEFIT PLANS (Continued)



Deferred Compensation Plan

In 2002, the Company
established a deferred compensation plan providing for death and retirement
benefits for its directors.  The balance of deferred compensation included
in other liabilities at December 31, 2007 and December 31, 2006 amounted to
$545,436 and $449,123, respectively.  Deferred compensation and other
associated expenses amounted to $96,313 and $204,240 for the years ended
December 31, 2007 and 2006, respectively.  Original expense accruals
accounted for the present value of future cash flows from the plan.  The
current accruals account for the actual deferred amounts plus any applicable
interest earned in the deferred fee accounts at the present time.

In December 2004, the
Company established a deferred compensation plan providing for death and
retirement benefits for certain officers.  The balance of deferred
compensation included in other liabilities amounted to $187,437 and $124,665 at
December 31, 2007 and 2006.  Expense recognized for deferred compensation
amounted to $62,772 and $67,021 for the years ended December 31, 2007 and
2006.

The estimated amounts to
be paid under these compensation plans are being offset by the earnings of life
insurance policies on the participants.  The balance of policy surrender
values included in other assets amounted to $5,811,938 and $2,390,039 at
December 31, 2007 and 2006, respectively.  During 2007, the Bank purchased
approximately $3,200,000 in additional life insurance on the participants. 
The offset to expenses from the earnings on these policies amounted to $161,899
and $73,535 for the year ended December 31, 2007 and 2006,
respectively.

NOTE 10.  INCOME
TAXES

Income tax expense
consists of the following:

|                   | Years Ended
      December 31,
|------------------ | ------------------------------
|                   | 2007                          
|                   |                               
|Current            | $                             
|Deferred           | (163,892)                     
|Income tax expense | $                             
|                   |                               

The Company's income tax
expense differs from the amounts computed by applying the federal income tax
statutory rates to income before income taxes.  A reconciliation of the
differences is as follows:

|                               | Years Ended
      December 31,
|------------------------------ | ------------------------------
|                               | 2007                          
|                               |                               
|Income taxes at statutory rate | $                             
|Tax-free income                | (87,359)                      
|State tax expense              | 103,263                       
|Other items                    | (24,970)                      
|Income tax expense             | $                             
|                               |                               

19




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 10.  INCOME TAXES
(Continued)

The components of
deferred income taxes are as follows:

|                              | December
      31,
|----------------------------- | ------------------
|                              | 2007              
|Deferred tax assets:          |                   
|Loan loss reserves            | $                 
|Loan fees                     | 100,306           
|Deferred compensation         | 276,556           
|Nonaccrual loan interest      | 15,698            
|Securities available for sale | -                 
|                              | 1,536,594         
|Deferred tax liabilities:     |                   
|Depreciation                  | 200,509           
|Securities available for sale | 24,488            
|                              | 224,997           
|                              |                   
|Net deferred tax assets       | $                 
|                              |                   

NOTE 11.  EARNINGS PER
SHARE

Presented below is a
summary of the components used to calculate basic and diluted earnings per
common share.

|                                                                                                                                                         |           | Years Ended
      December 31,
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ------------------------------
|                                                                                                                                                         |           | 2007                          
|Basic Earnings Per Share:                                                                                                                                |           |                               
|Weighted average common shares outstanding                                                                                                               | 989,820   |                               
|                                                                                                                                                         |           |                               
|Net income                                                                                                                                               | $         | 2,609,162                     
|Basic earnings  per share                                                                                                                                | $         | 2.64                          
|                                                                                                                                                         |           |                               
|Diluted Earnings Per Share:                                                                                                                              |           |                               
|Weighted average common shares outstanding                                                                                                               | 989,820   |                               
|Net effect of the assumed exercise of stock options and
      warrants based on the treasury stock method using average market prices
      for the year | 132,913   |                               
|Total weighted
      average common shares and common stock equivalents outstanding                                                                      | 1,122,733 |                               
|                                                                                                                                                         |           |                               
|Net income                                                                                                                                               | $         | 2,609,162                     
|Diluted earnings per share                                                                                                                               | $         | 2.32                          
|                                                                                                                                                         |           |                               

20




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 12.  COMMITMENTS AND
CONTINGENCIES

Loan Commitments

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

The Company's exposure
to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and letters of credit is
represented by the contractual amount of those instruments.  The Company
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.  A summary of the Company's
commitments is as follows:

|                             | December
      31,
|---------------------------- | ------------------
|                             | 2007              
|                             |                   
|Commitments to extend credit | $                 
|Letters of credit            | 841,000           
|                             | $                 
|                             |                   

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

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

At December 31, 2007 and
2006, the carrying amount of liabilities related to the Company's obligation to
perform under financial standby letters of credit was insignificant.  The
Company has not been required to perform on any financial standby letters of
credit, and the Company has not incurred any losses on financial standby letters
of credit for the years ended December 31, 2007 and 2006.

Contingencies

In the normal course of
business, the Company is involved in various legal proceedings.  The
Company is also involved in other non-recurring legal matters, the ultimate
outcome of which has not been determined.  In the opinion of management,
any liability resulting from such proceedings would not have a material effect
on the Company's financial statements.

NOTE 13.   CONCENTRATIONS OF
CREDIT

The Company originates
primarily commercial, residential, and consumer loans to customers in Bartow
County and surrounding counties.  The ability of the majority of the
Company's customers to honor their contractual loan obligations is dependent on
the economy in these areas.

Approximately 89%
percent of the Company's loan portfolio is concentrated in loans secured by real
estate, of which a substantial portion is secured by real estate in the
Company's primary market area.  Accordingly, the ultimate collectibility of
the loan portfolio is susceptible to changes in market conditions in the
Company's primary market area.  The other significant concentrations of
credit by type of loan are set forth in Note 3.

21




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

The Company, as a matter
of policy, does not generally extend credit to any single borrower or group of
related borrowers in excess of 15% of the Bank's capital and surplus as defined
by the Office of the Comptroller of the Currency (the "OCC"), or approximately
$4,027,000.  Because of the Company's capital strength, the Company
qualifies for the OCC's pilot lending program, which increases the lending limit
to approximately $6,712,000.

NOTE 14.  REGULATORY
MATTERS

The Bank is subject to
certain restrictions on the amount of dividends that may be declared without
prior regulatory approval.  At December 31, 2007, dividends of $6,831,000
could be declared without regulatory approval.

The Company and the Bank
are subject to various regulatory capital requirements administered by the
federal banking agencies.  Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
financial statements.  Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and Bank must meet specific
capital guidelines that involve quantitative measures of the assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices.  Capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.  Prompt corrective actions are not applicable to bank
holding companies.

Quantitative measures
established by regulation to ensure capital adequacy require the Company and
Bank to maintain minimum amounts and ratios of Total and Tier I capital to
risk-weighted assets, as defined, and of Tier I capital to average assets, as
defined.  Management believes, as of December 31, 2007 and 2006, the
Company and the Bank met all capital adequacy requirements to which they are
subject.



As of December 31, 2007,
the most recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action.  To be categorized as well capitalized, the Bank
must maintain minimum Total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the following table.  There are no conditions or
events since that notification that management believes have changed the Bank's
category.

The Company and Bank's
actual capital amounts and ratios are presented in the following
table:

22




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                        |        |        |          |        | For               |   | To Be Well Capitalized 
|------------------------------------------------------- | ------ | ------ | -------- | ------ | ----------------- | - | -----------------------
|                                                        |        |        |          |        | Capital Adequacy  |   | Under Prompt Corrective
|                                                        | Actual |        | Purposes |        | Action Provisions
|December 31, 2007:
      (Dollars in '000s)             | Amount |        | Ratio    |        | Amount            |   | Ratio                  
|Total Risk-Based
      Capital to Risk Weighted Assets: |        |        |          |        |                   |   |                        
|Consolidated                                            | $      | 29,700 |          | 11.86% |                   | $ | 20,038                 
|Bank                                                    | $      | 26,703 |          | 10.65% |                   | $ | 20,050                 
|Tier I Capital to Risk
      Weighted Assets:           |        |        |          |        |                   |   |                        
|Consolidated                                            | $      | 26,567 |          | 10.61% |                   | $ | 10,019                 
|Bank                                                    | $      | 23,568 |          | 9.40%  |                   | $ | 10,025                 
|Tier I Capital to
      Average Assets:                 |        |        |          |        |                   |   |                        
|Consolidated                                            | $      | 26,567 |          | 9.07%  |                   | $ | 11,712                 
|Bank                                                    | $      | 23,568 |          | 7.73%  |                   | $ | 9,943                  
|                                                        |        |        |          |        |                   |   |                        
|                                                        |        |        |          |        |                   |   |                        
|December 31, 2006:
      (Dollars in '000s)             |        |        |          |        |                   |   |                        
|Total Risk-Based Capital
      to Risk Weighted Assets: |        |        |          |        |                   |   |                        
|Consolidated                                            | $      | 23,438 |          | 10.59% |                   | $ | 17,704                 
|Bank                                                    | $      | 22,480 |          | 10.16% |                   | $ | 17,694                 
|Tier I Capital to Risk
      Weighted Assets:           |        |        |          |        |                   |   |                        
|Consolidated                                            | $      | 20,672 |          | 9.34%  |                   | $ | 8,852                  
|Bank                                                    | $      | 19,715 |          | 8.91%  |                   | $ | 8,847                  
|Tier I Capital to Average
      Assets:                 |        |        |          |        |                   |   |                        
|Consolidated                                            | $      | 20,672 |          | 8.32%  |                   | $ | 9,952                  
|Bank                                                    | $      | 19,715 |          | 7.93%  |                   | $ | 9,943                  
|                                                        |        |        |          |        |                   |   |                        
|                                                        |        |        |          |        |                   |   |                        



23




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 15.   FAIR VALUE OF
FINANCIAL INSTRUMENTS

The fair value of a
financial instrument is the current amount that would be exchanged between
willing parties, other than in a forced liquidation.  Fair value is best
determined based upon quoted market prices.  However, in many instances,
there are no quoted market prices for the Company's various financial
instruments.  In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques.  Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. 
Accordingly, the fair value estimates may not be realized in an immediate
settlement of the instrument.  SFAS No. 107, Disclosures about Fair
Values of Financial Instruments,excludes certain financial instruments and
all nonfinancial instruments from its disclosure requirements. 
Accordingly, the aggregate fair value amounts presented may not necessarily
represent the underlying fair value of the Company.

Cash, Due From Banks,
Interest-bearing Deposits in Banks and Federal Funds Sold:The
carrying amounts of cash, due from banks, interest-bearing deposits in banks and
federal funds sold approximate fair values.

Securities:Fair
values for securities are based on available quoted market prices.  The
carrying values of restricted equity securities with no readily determinable
fair value approximate fair values.



Loans:For
variable-rate loans that reprice frequently and have no significant change in
credit risk, fair values are based on carrying values.  For other loans,
the fair values are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
with similar credit quality.  Fair values for impaired loans are estimated
using discounted cash flow analyses or underlying collateral values, where
applicable.



Bank Owned Life
Insurance:The carrying amounts of
bank owned life insurance approximates their fair values.



Deposits:The
carrying amounts of demand deposits, savings deposits, and variable-rate
certificates of deposit approximate their fair values.  Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time
deposits.

Other Borrowings and
Guaranteed Subordinated Debentures:The carrying amounts of
variable-rate other borrowings, guaranteed subordinated debentures and federal
funds purchased approximate their fair values.  Fair values for fixed-rate
other borrowings are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on other borrowings with similar
terms.

Accrued Interest:The
carrying amounts of accrued interest approximate their fair values.

Off-Balance Sheet
Instruments:Fair values of the
Company's off-balance sheet financial instruments are based on fees currently
charged to enter into similar agreements.  Since the majority of the
Company's off-balance sheet instruments consist of nonfee-producing,
variable-rate commitments, the Company has determined they do not have a
distinguishable fair value.

24




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 15.   FAIR VALUE OF
FINANCIAL INSTRUMENTS (Continued)

The carrying amounts and
estimated fair values of the Company's financial instruments were as
follows:

|                                                                                       | December 31, 2007      |        | December 31, 2006
|-------------------------------------------------------------------------------------- | ---------------------- | ------ | -----------------
|                                                                                       | Carrying               |        | Fair             
|                                                                                       | Value                  | Value  | Value            
|                                                                                       | (Dollars in Thousands)
|Financial
      assets:                                                                |                        |        |                  
|Cash, due from banks,
      interest-bearing deposits in banks, and federal funds sold | $                      | 10,366 |                  
|Securities available for
      sale                                                    | 26,670                 |        | 26,670           
|Restricted equity
      securities                                                     | 2,138                  |        | 2,138            
|Loans, net                                                                             | 239,749                |        | 242,031          
|Bank owned life
      insurance                                                        | 5,812                  |        | 5,812            
|Accrued interest
      receivable                                                      | 2,010                  |        | 2,010            
|                                                                                       |                        |        |                  
|Financial
      liabilities:                                                           |                        |        |                  
|Deposits                                                                               | 254,384                |        | 255,738          
|Borrowings                                                                             | 22,250                 |        | 19,618           
|Guaranteed subordinated
      debentures                                               | 3,093                  |        | 3,093            
|Accrued interest
      payable                                                         | 510                    |        | 510              
|                                                                                       |                        |        |                  
|                                                                                       |                        |        |                  

NOTE 16.  SUPPLEMENTAL FINANCIAL
DATA

Components of other
operating expenses in excess of 1% of total revenue are as follows:

|                | Years Ended
      December 31,
|--------------- | ------------------------------
|                | 2007                          
|                |                               
|Data Processing | $                             
|Marketing       | 302,652                       
|                |                               
|                |                               



25




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 17.  PARENT COMPANY FINANCIAL
INFORMATION

The following
information presents the condensed balance sheets, statements of income and cash
flows of Unity Holdings, Inc. as of and for the years ended December 31, 2007
and 2006:

|CONDENSED
      BALANCE SHEETS                                     
|-------------------------------------------------------------------
|                                                                   
|                                                                   
|Assets                                                             
|Cash                                                               
|Investment in subsidiary                                           
|Restricted equity securities, at cost                              
|Other assets                                                       
|Total
    assets                                                   
|                                                                   
|Liabilities, Redeemable Common Stock and
      Stockholders' Equity
|Miscellaneous liabilities                                          
|Redeemable common stock held by KSOP                               
|Subordinated debentures                                            
|Stockholders' equity                                               
|Total redeemable common stock and stockholders'
      equity       
|                                                                   

26




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 17.  PARENT COMPANY FINANCIAL
INFORMATION (Continued)

|CONDENSED
      STATEMENTS OF INCOME                                                           
|-----------------------------------------------------------------------------------------------
|                                                                                               
|                                                                                               
|Income                                                                                         
|Dividends from subsidiary                                                                      
|Interest income on investments                                                                 
|Total Income                                                                                   
|                                                                                               
|Expenses                                                                                       
|Interest expense on bank notes                                                                 
|Interest expense on subordinated debentures                                                    
|Noninterest expense                                                                            
|Total Expenses                                                                                 
|                                                                                               
|Income (loss) before income tax benefits and equity in
      undistributed income of subsidiary
|Income tax
      benefits                                                                      
|Income (loss) before equity in undistributed income of
      subsidiary                        
|Equity in undistributed income of
    subsidiary                                               
|Net
      income                                                                               
|                                                                                               

27




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 17.  PARENT COMPANY FINANCIAL
INFORMATION (Continued)

|CONDENSED
      STATEMENTS OF CASH FLOWS              
|------------------------------------------------------
|                                                      
|                                                      
|OPERATING ACTIVITIES                                  
|Net income                                            
|Adjustments to reconcile net income  to net
      cash
|used in operating activities:                         
|Equity in undistributed
      income of subsidiary    
|Net other operating
      activities                  
|Net cash used in operating activities                 
|                                                      
|INVESTING ACTIVITIES                                  
|Investment in subsidiary                              
|Net cash used in investing activities                 
|                                                      
|FINANCING ACTIVITIES                                  
|Proceeds from sale of common stock,
    net           
|Proceeds from other borrowings                        
|Repayments of other borrowings                        
|Purchase of common stock                              
|Proceeds from exercise of stock
    options           
|Net cash used in financing activities                 
|                                                      
|Net decrease in cash                                  
|Cash at beginning of year                             
|Cash at end of year                                   
|                                                      

28