EXHIBIT NO. 13.1

MCINTOSH BANCSHARES, INC.

AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2007 and 2006

(with Report of Independent Registered Public Accounting Firm)



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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

McIntosh Bancshares, Inc.

Jackson, Georgia

We have audited the consolidated balance
sheets of McIntosh Bancshares, Inc. (the Company) and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of earnings, changes in stockholders equity, comprehensive income and cash flows for the years
then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes 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 McIntosh
Bancshares, Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

LOGO

Atlanta, Georgia

March 2, 2008



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MCINTOSH BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2007 and 2006



|                                                                                                                   |  |      |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------------------------ |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                   |  | 2007 |             |   | 2006 |  
|Assets                                                                                                             |  |      |             |   |      |   |             |  
|Cash and due from banks                                                                                            |  | $    | 6,491,435   |   |      | $ | 7,728,855   |  
|Interest bearing deposits                                                                                          |  |      | 6,727,673   |   |      |   | 5,265,092   |  
|Federal funds sold                                                                                                 |  |      | 8,124,000   |   |      |   | 13,485,000  |  
|Investment securities held to maturity (market value of $231,047 and $322,865)                                     |  |      | 235,512     |   |      |   | 323,115     |  
|Investment securities available for sale                                                                           |  |      | 75,850,582  |   |      |   | 85,524,588  |  
|Other investments                                                                                                  |  |      | 1,760,865   |   |      |   | 2,179,165   |  
|Loans                                                                                                              |  |      | 341,854,333 |   |      |   | 328,876,744 |  
|Less: Allowance for loan losses                                                                                    |  |      | (6,956,164  | ) |      |   | (4,661,975  | )
|                                                                                                                   |  |      |             |   |      |   |             |  
|Loans, net                                                                                                         |  |      | 334,898,169 |   |      |   | 324,214,769 |  
|                                                                                                                   |  |      |             |   |      |   |             |  
|Premises and equipment, net                                                                                        |  |      | 7,443,657   |   |      |   | 6,863,126   |  
|Other real estate                                                                                                  |  |      | 6,246,715   |   |      |   | 2,208,151   |  
|Accrued interest receivable                                                                                        |  |      | 3,835,210   |   |      |   | 3,871,096   |  
|Bank owned life insurance                                                                                          |  |      | 6,516,157   |   |      |   | 6,226,863   |  
|Other assets                                                                                                       |  |      | 4,324,605   |   |      |   | 3,623,327   |  
|                                                                                                                   |  |      |             |   |      |   |             |  
|Total assets                                                                                                       |  | $    | 462,454,580 |   |      | $ | 461,513,147 |  
|                                                                                                                   |  |      |             |   |      |   |             |  
|Liabilities and Stockholders Equity                                                                               |  |      |             |   |      |   |             |  
|                                                                                                                   |  |     
|Liabilities:                                                                                                       |  |      |             |   |      |   |             |  
|Deposits:                                                                                                          |  |      |             |   |      |   |             |  
|Demand                                                                                                             |  | $    | 31,891,955  |   |      | $ | 36,729,933  |  
|Money market and NOW accounts                                                                                      |  |      | 116,452,038 |   |      |   | 123,864,284 |  
|Savings                                                                                                            |  |      | 12,568,818  |   |      |   | 11,349,183  |  
|Time deposits of $100,000 or more                                                                                  |  |      | 117,250,399 |   |      |   | 120,063,903 |  
|Time deposits                                                                                                      |  |      | 129,113,648 |   |      |   | 107,523,280 |  
|                                                                                                                   |  |      |             |   |      |   |             |  
|Total deposits                                                                                                     |  |      | 407,276,858 |   |      |   | 399,530,583 |  
|Other borrowed funds                                                                                               |  |      | 12,461,379  |   |      |   | 21,000,000  |  
|Accrued interest payable and other liabilities                                                                     |  |      | 4,913,897   |   |      |   | 5,251,700   |  
|                                                                                                                   |  |      |             |   |      |   |             |  
|Total liabilities                                                                                                  |  |      | 424,652,134 |   |      |   | 425,782,283 |  
|                                                                                                                   |  |      |             |   |      |   |             |  
|Commitments                                                                                                        |  |      |             |   |      |   |             |  
|                                                                                                                   |  |     
|Stockholders equity:                                                                                              |  |      |             |   |      |   |             |  
|Common stock, par value $2.50; 10,000,000 shares authorized, 2,810,976 and 2,808,976 shares issued and outstanding |  |      | 7,027,440   |   |      |   | 7,022,440   |  
|Surplus                                                                                                            |  |      | 5,686,589   |   |      |   | 5,573,780   |  
|Retained earnings                                                                                                  |  |      | 25,172,294  |   |      |   | 23,596,177  |  
|Accumulated other comprehensive loss                                                                               |  |      | (83,877     | ) |      |   | (461,533    | )
|                                                                                                                   |  |      |             |   |      |   |             |  
|Total stockholders equity                                                                                         |  |      | 37,802,446  |   |      |   | 35,730,864  |  
|                                                                                                                   |  |      |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                                         |  | $    | 462,454,580 |   |      | $ | 461,513,147 |  
|                                                                                                                   |  |      |             |   |      |   |             |  

See accompanying notes to consolidated financial statements.



2



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MCINTOSH BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

For the Years Ended December 31,
2007 and 2006



|                                                                                                                     |  |      |            |   |      |   |            |  
|-------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                     |  | 2007 |            |   | 2006 |  
|Interest income:                                                                                                     |  |      |            |   |      |   |            |  
|Loans, including fees                                                                                                |  | $    | 29,778,098 |   |      | $ | 27,882,409 |  
|Interest on investment securities:                                                                                   |  |      |            |   |      |   |            |  
|U.S. Treasury, U.S. Government agency and mortgage-backed securities                                                 |  |      | 3,367,380  |   |      |   | 2,322,447  |  
|State, county and municipal                                                                                          |  |      | 428,973    |   |      |   | 434,784    |  
|Other investments                                                                                                    |  |      | 157,774    |   |      |   | 169,428    |  
|Federal funds sold and other short-term investments                                                                  |  |      | 453,892    |   |      |   | 689,783    |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Total interest income                                                                                                |  |      | 34,186,117 |   |      |   | 31,498,851 |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Interest expense:                                                                                                    |  |      |            |   |      |   |            |  
|Interest-bearing demand and money market                                                                             |  |      | 3,441,208  |   |      |   | 2,941,889  |  
|Savings                                                                                                              |  |      | 184,350    |   |      |   | 139,380    |  
|Time deposits of $100,000 or more                                                                                    |  |      | 6,202,057  |   |      |   | 5,075,454  |  
|Other time deposits                                                                                                  |  |      | 5,923,425  |   |      |   | 4,185,178  |  
|Other                                                                                                                |  |      | 704,357    |   |      |   | 831,728    |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Total interest expense                                                                                               |  |      | 16,455,397 |   |      |   | 13,173,629 |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Net interest income                                                                                                  |  |      | 17,730,720 |   |      |   | 18,325,222 |  
|Provision for loan losses                                                                                            |  |      | 3,324,370  |   |      |   | 778,247    |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Net interest income after provision for loan losses                                                                  |  |      | 14,406,350 |   |      |   | 17,546,975 |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Other Income:                                                                                                        |  |      |            |   |      |   |            |  
|Service charges                                                                                                      |  |      | 2,307,843  |   |      |   | 2,119,141  |  
|Investment securities gains                                                                                          |  |      | 156,053    |   |      |   | 14,100     |  
|Increase in cash surrender value of life insurance                                                                   |  |      | 286,074    |   |      |   | 266,346    |  
|Other real estate owned gains (losses)                                                                               |  |      | (23,164    | ) |      |   | 75,567     |  
|Fixed and repossessed asset gains (losses)                                                                           |  |      | (7,772     | ) |      |   | (5,927     | )
|Other income                                                                                                         |  |      | 1,487,199  |   |      |   | 1,484,641  |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Total other income                                                                                                   |  |      | 4,206,233  |   |      |   | 3,953,868  |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Other expenses:                                                                                                      |  |      |            |   |      |   |            |  
|Salaries and employee benefits                                                                                       |  |      | 9,582,292  |   |      |   | 9,093,800  |  
|Occupancy and equipment                                                                                              |  |      | 1,744,790  |   |      |   | 1,674,716  |  
|Other operating                                                                                                      |  |      | 3,579,757  |   |      |   | 3,346,393  |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Total other expenses                                                                                                 |  |      | 14,906,839 |   |      |   | 14,114,909 |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Earnings before income taxes                                                                                         |  |      | 3,705,744  |   |      |   | 7,385,934  |  
|Income tax expense                                                                                                   |  |      | 1,117,856  |   |      |   | 2,468,182  |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Net earnings                                                                                                         |  | $    | 2,587,888  |   |      | $ | 4,917,752  |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Basic earnings per common share based on average outstanding shares of 2,810,554 in 2007 and 2,798,610 in 2006       |  | $    | 0.92       |   |      | $ | 1.76       |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Diluted net earnings per common share based on average outstanding shares of 2,860,884 in 2007 and 2,832,012 in 2006 |  | $    | 0.90       |   |      | $ | 1.74       |  
|                                                                                                                     |  |      |            |   |      |   |            |  
|Dividends declared per share of common stock                                                                         |  | $    | 0.36       |   |      | $ | 0.30       |  
|                                                                                                                     |  |      |            |   |      |   |            |  

See accompanying notes to consolidated financial statements.



3



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MCINTOSH BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the Years Ended
December 31, 2007 and 2006



|                                                                                           |  |      |           |   |      |   |          
|------------------------------------------------------------------------------------------ |  | ---- | --------- | - | ---- | - | ---------
|                                                                                           |  | 2007 |           |   | 2006
|Net Earnings                                                                               |  | $    | 2,587,888 |   |      | $ | 4,917,752
|Other comprehensive income, net of income tax:                                             |  |      |           |   |      |   |          
|Unrealized gains on securities available for sale:                                         |  |      |           |   |      |   |          
|Holding gain arising during period, net of tax of $230,417 in 2007 and $105,100 in 2006    |  |      | 447,281   |   |      |   | 204,017  
|Less: Reclassification adjustment for gains on sale of securities, net of tax of ($50,270) |  |      | (97,583   | ) |      |   |         
|Change in unfunded pension liability, net of tax of $14,402                                |  |      | 27,958    |   |      |   |         
|                                                                                           |  |      |           |   |      |   |          
|Total other comprehensive income                                                           |  |      | 377,656   |   |      |   | 204,017  
|                                                                                           |  |      |           |   |      |   |          
|Comprehensive income                                                                       |  | $    | 2,965,544 |   |      | $ | 5,121,769
|                                                                                           |  |      |           |   |      |   |          

See accompanying notes to consolidated financial statements.



4



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MCINTOSH BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders Equity



|                                                                   |  |             |           |         |   |                  |  |   |                                            |   |  |       |          |   |  |   |            |  
|------------------------------------------------------------------ |  | ----------- | --------- | ------- | - | ---------------- |  | - | ------------------------------------------ | - |  | ----- | -------- | - |  | - | ---------- | -
|For The Years Ended December 31, 2007 and 2006                     |  | CommonStock |           | Surplus |   | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | Total |         
|Balance, December 31, 2005                                         |  | $           | 6,996,310 |         | $ | 5,407,238        |  | $ | 19,517,982                                 |   |  | $     | (116,397 | ) |  | $ | 31,805,133 |  
|Net earnings                                                       |  |             |          |         |   |                 |  |   | 4,917,752                                  |   |  |       |         |   |  |   | 4,917,752  |  
|Change in unrealized gains/losses on securities available for sale |  |             |          |         |   |                 |  |   |                                           |   |  |       | 204,017  |   |  |   | 204,017    |  
|Change in unfunded pension obligation                              |  |             |          |         |   |                 |  |   |                                           |   |  |       | (549,153 | ) |  |   | (549,153   | )
|Stock-based compensation                                           |  |             |          |         |   | 67,372           |  |   |                                           |   |  |       |         |   |  |   | 67,372     |  
|Cash dividend paid, $0.30 per share                                |  |             |          |         |   |                 |  |   | (839,557                                   | ) |  |       |         |   |  |   | (839,557   | )
|Stock options exercised, 10,452 shares                             |  |             | 26,130    |         |   | 99,170           |  |   |                                           |   |  |       |         |   |  |   | 125,300    |  
|                                                                   |  |             |           |         |   |                  |  |   |                                            |   |  |       |          |   |  |   |            |  
|Balance, December 31, 2006                                         |  | $           | 7,022,440 |         | $ | 5,573,780        |  | $ | 23,596,177                                 |   |  | $     | (461,533 | ) |  | $ | 35,730,864 |  
|                                                                   |  |             |           |         |   |                  |  |   |                                            |   |  |       |          |   |  |   |            |  
|Net earnings                                                       |  |             |          |         |   |                 |  |   | 2,587,888                                  |   |  |       |         |   |  |   | 2,587,888  |  
|Change in unrealized gains/losses on securities available for sale |  |             |          |         |   |                 |  |   |                                           |   |  |       | 349,698  |   |  |   | 349,698    |  
|Change in unfunded pension obligation                              |  |             |          |         |   |                 |  |   |                                           |   |  |       | 27,958   |   |  |   | 27,958     |  
|Stock-based compensation                                           |  |             |          |         |   | 94,009           |  |   |                                           |   |  |       |         |   |  |   | 94,009     |  
|Cash dividend paid, $0.36 per share                                |  |             |          |         |   |                 |  |   | (1,011,771                                 | ) |  |       |         |   |  |   | (1,011,771 | )
|Stock options exercised, 2,000 shares                              |  |             | 5,000     |         |   | 18,800           |  |   |                                           |   |  |       |         |   |  |   | 23,800     |  
|                                                                   |  |             |           |         |   |                  |  |   |                                            |   |  |       |          |   |  |   |            |  
|Balance, December 31, 2007                                         |  | $           | 7,027,440 |         | $ | 5,686,589        |  | $ | 25,172,294                                 |   |  | $     | (83,877  | ) |  | $ | 37,802,446 |  
|                                                                   |  |             |           |         |   |                  |  |   |                                            |   |  |       |          |   |  |   |            |  

See accompanying notes to consolidated financial statements.



5



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MCINTOSH BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31,
2007 and 2006



|                                                                                           |  |      |             |   |      |   |             |  
|------------------------------------------------------------------------------------------ |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                           |  | 2007 |             |   | 2006 |  
|Cash flows from operating activities:                                                      |  |      |             |   |      |   |             |  
|Net earnings                                                                               |  | $    | 2,587,888   |   |      | $ | 4,917,752   |  
|Adjustments to reconcile net earnings to net cash provided by operating activities:        |  |      |             |   |      |   |             |  
|Depreciation, accretion and amortization                                                   |  |      | 633,132     |   |      |   | 524,857     |  
|Gain on sales and calls of securities                                                      |  |      | (156,053    | ) |      |   | (14,100     | )
|Provision for loan losses                                                                  |  |      | 3,324,370   |   |      |   | 778,247     |  
|Stock-based compensation                                                                   |  |      | 94,009      |   |      |   | 67,372      |  
|Provision for deferred income taxes                                                        |  |      | (1,072,034  | ) |      |   | (397,707    | )
|(Gain) loss on sale of other real estate                                                   |  |      | 23,164      |   |      |   | (75,567     | )
|Loss on fixed and repossessed asset disposal                                               |  |      | 7,772       |   |      |   | 5,927       |  
|Change in:                                                                                 |  |      |             |   |      |   |             |  
|Accrued interest receivable and other assets                                               |  |      | (82,272     | ) |      |   | (1,351,253  | )
|Accrued interest payable and other liabilities                                             |  |      | (295,443    | ) |      |   | 970,486     |  
|                                                                                           |  |      |             |   |      |   |             |  
|Net cash provided by operating activities                                                  |  |      | 5,064,533   |   |      |   | 5,426,014   |  
|                                                                                           |  |      |             |   |      |   |             |  
|Cash flows from investing activities:                                                      |  |      |             |   |      |   |             |  
|Proceeds from maturities and paydowns of securities available for sale                     |  |      | 41,847,408  |   |      |   | 63,185,811  |  
|Proceeds from maturities and paydowns of securities held to maturity                       |  |      | 100,000     |   |      |   | 202,000     |  
|Proceeds from redemption of other investments                                              |  |      | 1,896,800   |   |      |   | 135,000     |  
|Proceeds from sale of securities available for sale                                        |  |      | 335,326     |   |      |   |            |  
|Proceeds from sales of other real estate                                                   |  |      | 2,855,029   |   |      |   | 972,340     |  
|Purchases of securities available for sale                                                 |  |      | (31,674,856 | ) |      |   | (94,383,201 | )
|Purchases of other investments                                                             |  |      | (1,478,500  | ) |      |   | (130,600    | )
|Additions to other real estate                                                             |  |      | (313,249    | ) |      |   | (550,349    | )
|Net change in loans                                                                        |  |      | (20,611,278 | ) |      |   | (48,027,328 | )
|Purchases of premises and equipment                                                        |  |      | (1,376,735  | ) |      |   | (1,374,289  | )
|                                                                                           |  |      |             |   |      |   |             |  
|Net cash used by investing activities                                                      |  |      | (8,420,055  | ) |      |   | (79,970,616 | )
|                                                                                           |  |      |             |   |      |   |             |  
|Cash flows from financing activities:                                                      |  |      |             |   |      |   |             |  
|Net change in deposits                                                                     |  |      | 7,746,275   |   |      |   | 84,002,236  |  
|Proceeds from exercise of stock options                                                    |  |      | 23,800      |   |      |   | 125,300     |  
|Proceeds from other borrowed funds                                                         |  |      | 15,611,379  |   |      |   |            |  
|Repayment of other borrowed funds                                                          |  |      | (24,150,000 | ) |      |   | (5,000,000  | )
|Dividends paid                                                                             |  |      | (1,011,771  | ) |      |   | (839,557    | )
|                                                                                           |  |      |             |   |      |   |             |  
|Net cash provided (used) by financing activities                                           |  |      | (1,780,317  | ) |      |   | 78,287,979  |  
|                                                                                           |  |      |             |   |      |   |             |  
|Net change in cash and cash equivalents                                                    |  |      | (5,135,839  | ) |      |   | 3,743,377   |  
|Cash and cash equivalents at beginning of period                                           |  |      | 26,478,947  |   |      |   | 22,735,570  |  
|                                                                                           |  |      |             |   |      |   |             |  
|Cash and cash equivalents at end of period                                                 |  | $    | 21,343,108  |   |      | $ | 26,478,947  |  
|                                                                                           |  |      |             |   |      |   |             |  
|Supplemental schedule of noncash investing and financing activities:                       |  |      |             |   |      |   |             |  
|Change in net unrealized gain/loss on investment securities available-for-sale, net of tax |  | $    | 349,698     |   |      | $ | 204,017     |  
|Change in unfunded pension liability                                                       |  | $    | 27,958      |   |      | $ | (549,153    | )
|Transfer of loans to other real estate owned                                               |  | $    | 6,603,508   |   |      | $ | 2,603,348   |  
|Supplemental disclosures of cash flow information:                                         |  |      |             |   |      |   |             |  
|Cash paid during the period for:                                                           |  |      |             |   |      |   |             |  
|Interest                                                                                   |  | $    | 16,257,535  |   |      | $ | 12,588,493  |  
|Income taxes                                                                               |  | $    | 2,374,954   |   |      | $ | 2,949,781   |  

See accompanying notes to consolidated financial statements.



6



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McINTOSH BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|------- | ------------------------------------------

McIntosh Bancshares, Inc. and subsidiaries provide a full range of banking and bank-related services to individual and corporate customers in the Georgia counties of Butts, Jasper and Henry and surrounding areas. McIntosh Bancshares, Inc.
and subsidiaries are subject to competition from other financial institutions and are also subject to the regulations of certain governmental agencies and undergo periodic examinations by those regulatory authorities.

The accounting and reporting policies of McIntosh Bancshares, Inc. and subsidiaries conform to accounting principles generally accepted in the United
States of America and to general practices within the banking industry. The following is a summary of the significant accounting policies.

Basis of Presentation

The consolidated financial statements include the accounts of McIntosh Bancshares, Inc (the
Parent Company) and its wholly-owned subsidiaries, McIntosh State Bank (the Bank) and McIntosh Financial Services, Inc., collectively known as the Company. All significant intercompany accounts and transactions have been
eliminated in consolidation.

The consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly 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 and the
market valuation reserve on investment securities available for sale. Management believes that the allowance for loan losses is adequate and the market valuation reserve is appropriate. While management uses available information to recognize losses
on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Banks allowance for loan
losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

Cash and Cash Equivalents

For
purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits with the Federal Home Loan Bank (FHLB) and a broker-dealer, and federal funds sold. Generally, federal funds are
purchased and sold for one-day periods.

Investment Securities

The Company classifies its securities in one of two categories: available-for-sale or held-to-maturity. Held-to-maturity securities are those securities
for which the Company has the ability and intent to hold the security until maturity. All other securities not included in held-to-maturity are classified as available-for-sale.

Investment securities held to maturity are reported at cost, adjusted for amortization of premium and accretion of discount. Investment securities
available for sale are reported at fair value, with unrealized gains and losses reported as a separate component of stockholders equity, net of the related tax effect. Other investments are reported at cost and, accordingly, earnings are
reported when interest is accrued or when dividends are received.



7



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|------- | ------------------------------------------------------

Investment Securities (Continued)



Premiums and
discounts on all noncallable investment securities are amortized and accreted, respectively, to interest income on the straight-line and interest methods over the period to the maturity of the related investment. Premiums on callable investment
securities are amortized to interest income on a straight-line method over the period to the call date of the related investment. Discounts on callable investment securities are accreted to interest income on a straight-line method over the period
to maturity of the related investment. Premiums and discounts on mortgage-backed securities are amortized and accreted, respectively, to interest income using level yield over the period to maturity of the related security, taking into consideration
assumed prepayment patterns.

A decline in the market value of any available for sale or held to maturity investment below cost that is
deemed other than temporary is charged to earnings and establishes a new cost basis for the security.

Gains or losses on disposition are
computed using the specific identification method for all securities except equity investments. Gains or losses on disposition of equity investments are computed using the average cost method.

Loans

Loans are reported at the
gross amount outstanding net of the valuation allowance for loan losses. Interest income is generally recognized over the terms of the loans based on the principal amount outstanding. Loan origination fees and direct origination costs, which are
approximately the same on most loans, are recognized at the time the loan is recorded on the books. If the collectibility of interest appears doubtful, accrual is discontinued. Accrued interest, which appears doubtful of collection, is reversed
against interest income if accrued in the current year or charged to the allowance for loan losses if accrued in prior years. Payments received on non-accrual loans are recorded as a reduction to the loans balance. Accrual of interest is
resumed if management believes a borrowers financial position has improved.

A loan is considered impaired when, based on current
information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Impaired loans are measured based on the present value of expected future cash flows discounted at the
loans effective interest rate, or at the loans observable market price, or at the fair value of the collateral of the loan if the loan is collateral dependent. Interest income from impaired loans is recognized when received.

Allowance for Loan Losses

The
allowance for loan losses is established through a provision for loan losses charged to expense. The allowance represents an amount which, in managements judgment, will be adequate to absorb probable losses on existing loans that may become
uncollectible. The Banks practice is to charge-off loans when they become 120 days past due or are rated loss. Managements judgment in determining the adequacy of the allowance is based on evaluations of the collectibility of loans and
takes into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions that may affect the borrowers ability to pay, overall portfolio quality, and review of specific problem loans.



8



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|------- | ------------------------------------------------------

Allowance for Loan Losses (Continued)



Managements quantitative and qualitative assessment of allowance adequacy considers loans identified with more than the normal risk of repayment or impaired credits, a historical loss experience factor by loan category, and a
qualitative factor considering national, regional, and local economic conditions, industry specific prospects, and collateral and margin estimates by loan category. For loans considered impaired, an allowance is established when the discounted cash
flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan. Historical loss experience applies to performing loans where management is unaware of specific circumstances that would lead it
to believe collectability of principal and interest is in doubt. Qualitative factors are applied to cover uncertainties that could affect managements estimate of probable losses and reflect the margin of imprecision inherent in the underlying
assumptions used in the methodologies for estimating specific and general loan losses in the portfolio.

Periodic revisions are made to the
allowance when circumstances which necessitate such revisions become known. Recognized losses are charged to the allowance for loan losses, while subsequent recoveries are added to the allowance.

Premises and Equipment

Premises and
equipment are reported at cost less accumulated depreciation. For financial reporting purposes, depreciation is computed using primarily the straight-line method over the estimated useful lives of the assets which range from three to forty years.
Expenditures for maintenance and repairs are charged to operations as incurred, while major renewals and betterments are capitalized. For federal tax reporting purposes, depreciation is computed using primarily accelerated methods.

Other Real Estate Owned

Other real
estate owned represents properties acquired through or in lieu of loan foreclosure and reclassified loans wherein other real estate owned was financed by the Bank. Other real estate owned is initially recorded at the lower of cost or fair value less
estimated disposal costs. Any write-down to fair value up to 90 days after transfer to other real estate owned is charged to the allowance for loan losses. Costs of improvements are capitalized, whereas costs relating to holding other real estate
owned and valuation adjustments subsequent to 90 days of transfer are expensed. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.

Income Taxes

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

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



9



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|------- | ------------------------------------------------------

Income Taxes (Continued)



In May 2007, the
Financial Accounting Standards Board (FASB) amended FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes.FIN 48 requires that the Company determine whether a tax position is effectively settled for the purpose
of recognizing previously unrecognized tax benefits. The Company has reviewed its tax planning and provisioning, and believes that no uncertain tax positions existed during the years presented.

Goodwill

Goodwill represents the
excess of cost over the fair value of the net assets purchased in a business combination. Goodwill is required to be tested annually for impairment, or whenever events occur that may indicate that the recoverability of the carrying amount is not
probable. In the event of an impairment, the amount by which the carrying amount exceeds the fair value would be charged to earnings. The carrying amount of goodwill, which is included in other assets in the accompanying consolidated balance sheets,
totaled $600,743 at December 31, 2007 and 2006. During 2007 and 2006, there was no charge to earnings for impairment of goodwill.

Earnings Per Common Share

Earnings per common share has been computed based on the weighted average number of shares
outstanding during the period, which totaled 2,810,554 and 2,798,610 for the years ended December 31, 2007 and 2006, respectively. The basic earnings per share calculation has been adjusted to reflect the impact of dilutive securities in the
form of stock options. The basic and diluted earnings per share for 2007 and 2006 are as follows:



|                                     |  |             |           |              |           |                 |   |       |  
|------------------------------------ |  | ----------- | --------- | ------------ | --------- | --------------- | - | ----- | -
|                                     |  | NetEarnings |           | CommonShares |           | Per ShareAmount |  
|For the year ended December 31, 2007 |  |             |           |              |           |                 |   |       |  
|Basic earnings per share             |  | $           | 2,587,888 |              | 2,810,554 |                 | $ | 0.92  |  
|Effect of dilutive securities        |  |             |          |              | 50,330    |                 |   | (0.02 | )
|                                     |  |             |           |              |           |                 |   |       |  
|Diluted earnings per share           |  | $           | 2,587,888 |              | 2,860,884 |                 | $ | 0.90  |  
|                                     |  |             |           |              |           |                 |   |       |  
|For the year ended December 31, 2006 |  |             |           |              |           |                 |   |       |  
|Basic earnings per share             |  | $           | 4,917,752 |              | 2,798,610 |                 | $ | 1.76  |  
|Effect of dilutive securities        |  |             |          |              | 33,402    |                 |   | (0.01 | )
|                                     |  |             |           |              |           |                 |   |       |  
|Diluted earnings per share           |  | $           | 4,917,752 |              | 2,832,012 |                 | $ | 1.75  |  
|                                     |  |             |           |              |           |                 |   |       |  

Stock Dividend

The Company declared a 2-for-1 stock split effected in the form of a 100% stock dividend during 2007. Earnings per share and all stock option disclosures
for the year ended December 31, 2006 have been retroactively adjusted for the increased number of shares of common stock.



10



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|------- | ------------------------------------------------------



Defined Benefit Pension Plan

In September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement
PlansAn Amendment of FASB Statements No. 87, 88, 106, and 132(R). FASB Statement No. 158 improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement
plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. This
Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions.

This Statement requires the Company to:



| |  |  | Recognize the funded status of its defined benefit pension plan  measured as the difference between plan assets at fair value (with limited exceptions) and
the benefit obligation  in its statement of financial position. For a pension plan, the benefit obligation is the projected benefit obligation.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not
recognized as components of net periodic benefit cost pursuant to FASB Statement No. 87, Employers Accounting for Pensions, or No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. Amounts
recognized in accumulated other comprehensive income, including the gains or losses, prior service costs or credits, and the transition asset or obligation remaining from the initial application of Statements 87 and 106, if any, are adjusted as they
are subsequently recognized as components of net periodic benefit cost pursuant to the recognition and amortization provisions of those Statements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Measure defined benefit plan assets and obligations as of the date of the employers fiscal year-end statement of financial position (with limited exceptions).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from
delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

While
FASB Statement No. 158 amends FASB Statement No. 87, FASB Statement No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, FASB Statement No. 106,
and FASB Statement No. 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits, and other related accounting literature, upon adoption of FASB Statement No. 158 and subsequently, the Company
will continue to apply the provisions in FASB Statements No. 87, 88, and 106 in measuring plan assets and benefit obligations as of the date of its balance sheets and in determining the amount of net periodic benefit cost.



11



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|------- | ------------------------------------------------------

Defined Benefit Pension Plan (Continued)



The
Company adopted FASB Statement No. 158 for its fiscal year ended December 31, 2006 and recognized the funded status of its defined benefit pension plan. Upon adoption, the Company charged other comprehensive income, net of tax, $549,153
related to actuarial net gains or losses and prior service costs or credits that arose during the period but not recognized as components of net periodic benefit cost. Refer to footnote 9 for further information on the Companys defined benefit
pension plan.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment, using the modified-prospective-transition method. Under the
modified-prospective-method, compensation cost recognized for all share-based payments granted on or after January 1, 2006, is based on the grant-date fair value estimated in accordance with the provisions of FASB Statement No. 123(R).
Refer to footnote 10 for more information about the Companys stock- based compensation program.

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 and unrecognized pension obligations, 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 Pronouncements

In September 2006 and February 2007, the FASB issued Statements No. 157, Fair Value Measurementsand No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115, respectively.The effect of both of these Statements is to guide and allow for voluntary use of fair value accounting at the
instrument level. These Statements are effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has elected not to utilize fair value accounting.

In September 2006, the FASB ratified Emerging Issues Task Force (EITF) Issue 06-4, Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split-Dollar Life Insurance Arrangements.EITF Issue 06-4 addresses accounting for split-dollar life insurance arrangements after the employer purchases a life insurance policy on the covered employee. EITF Issue 06-4
states that an obligation arises as a result of a substantive agreement with an employee to provide future postretirement benefits. Under EITF Issue 06-4, the obligation is not settled upon entering into an insurance arrangement. Since the
obligation is not settled, a liability should be recognized in accordance with applicable authoritative guidance. EITF Issue 06-4 is effective for fiscal years beginning after December 15, 2007. The Company has evaluated the impact of
the implementation of EITF Issue 06-4 and concluded that it has no material impact on the consolidated financial statements.

Other
accounting standards that have been issued or proposed by the FASB and other standard setting entities that do not require adoption until a future date are not expected to have a material impact on the Companys consolidated financial
statements upon adoption.



12



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|------- | ------------------------------------------------------



Reclassifications

Certain items in the consolidated financial statements for the year-ended December 31, 2006 have been reclassified with no effect on total assets,
total income, or net change in cash and cash equivalents to be consistent with the classifications adopted for the year ended December 31, 2007.



|NOTE 2. | CASH AND DUE FROM BANKS
|------- | -----------------------

The Bank is required to
maintain average reserve balances with the Federal Reserve Bank on deposit with national banks or in cash. At December 31, 2007 and 2006, the Banks reserve requirement was approximately $176,000 and $188,000, respectively. The Bank
maintained cash balances which were adequate to meet the requirements.



|NOTE 3. | INVESTMENT SECURITIES
|------- | ---------------------

Investment securities at
December 31, 2007 and 2006 are as follows:



|                                    |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|----------------------------------- |  | ------------- | ---------- | --------------- | - | ---------------- |  | - | ----------- | - |  | - | ----------
|                                    |  | AmortizedCost |            | UnrealizedGains |   | UnrealizedLosses |  |   | MarketValue
|Securities Held to Maturity         |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|December 31, 2007                   |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|States and political subdivisions   |  | $             | 235,512    |                 | $ |                 |  | $ | (4,465      | ) |  | $ | 231,047   
|                                    |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|December 31, 2006                   |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|States and political subdivisions   |  | $             | 323,115    |                 | $ | 1,891            |  | $ | (2,141      | ) |  | $ | 322,865   
|                                    |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|Securities Available for Sale       |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|December 31, 2007                   |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|U. S. Government-sponsored agencies |  | $             | 42,645,853 |                 | $ | 677,561          |  | $ | (8,801      | ) |  | $ | 43,314,613
|Mortgage-backed securities          |  |               | 20,748,902 |                 |   | 75,575           |  |   | (159,928    | ) |  |   | 20,664,549
|States and political subdivisions   |  |               | 11,293,221 |                 |   | 133,703          |  |   | (60,904     | ) |  |   | 11,366,020
|Corporate debt securities           |  |               | 500,000    |                 |   | 5,400            |  |   |            |   |  |   | 505,400   
|                                    |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|                                    |  | $             | 75,187,976 |                 | $ | 892,239          |  | $ | (229,633    | ) |  | $ | 75,850,582
|                                    |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|December 31, 2006                   |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|U. S. Government-sponsored agencies |  | $             | 57,977,482 |                 | $ | 135,589          |  | $ | (236,003    | ) |  | $ | 57,877,068
|Mortgage-backed securities          |  |               | 16,916,957 |                 |   | 32,194           |  |   | (257,204    | ) |  |   | 16,691,947
|States and political subdivisions   |  |               | 9,809,919  |                 |   | 137,840          |  |   | (56,561     | ) |  |   | 9,891,198 
|Corporate debt securities           |  |               | 500,000    |                 |   |                 |  |   |            |   |  |   | 500,000   
|Equity securities                   |  |               | 187,473    |                 |   | 376,902          |  |   |            |   |  |   | 564,375   
|                                    |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|                                    |  | $             | 85,391,831 |                 | $ | 682,525          |  | $ | (549,768    | ) |  | $ | 85,524,588
|                                    |  |               |            |                 |   |                  |  |   |             |   |  |   |           



13



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 3. | INVESTMENT SECURITIES (Continued)
|------- | ---------------------------------



Other investments are comprised of the following:



|                                   |  |                          |           |      |   |          
|---------------------------------- |  | ------------------------ | --------- | ---- | - | ---------
|                                   |  | Years Ended December 31,
|                                   |  | 2007                     |           | 2006
|Federal Home Loan Bank             |  | $                        | 1,369,300 |      | $ | 1,787,600
|Community Financial Services, Inc. |  |                          | 391,565   |      |   | 391,565  
|                                   |  |                          |           |      |   |          
|                                   |  | $                        | 1,760,865 |      | $ | 2,179,165
|                                   |  |                          |           |      |   |          

The carrying value and estimated market value of investment securities held to maturity and the
amortized cost and estimated market value of investment securities available for sale at December 31, 2007, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities in mortgage-backed securities because
the mortgages underlying the securities may be called or repaid with or without penalty. Therefore, these securities are not included in the maturity categories in the following summary.



|                           |  |                                       |         |                                         |   |               |  |              |            |  |   |           
|-------------------------- |  | ------------------------------------- | ------- | --------------------------------------- | - | ------------- |  | ------------ | ---------- |  | - | ----------
|                           |  | Investment SecuritiesHeld to Maturity |         | Investment SecuritiesAvailable for Sale
|                           |  | AmortizedCost                         |         | MarketValue                             |   | AmortizedCost |  | Market Value
|Due in one year or less    |  | $                                     | 235,512 |                                         | $ | 231,047       |  | $            | 6,384,922  |  | $ | 6,381,347 
|Due from one to five years |  |                                       |        |                                         |   |              |  |              | 28,016,007 |  |   | 28,503,527
|Due from five to ten years |  |                                       |        |                                         |   |              |  |              | 16,423,694 |  |   | 16,711,427
|Due after ten years        |  |                                       |        |                                         |   |              |  |              | 3,614,451  |  |   | 3,589,732 
|Mortgage-backed securities |  |                                       |        |                                         |   |              |  |              | 20,748,902 |  |   | 20,664,549
|                           |  |                                       |         |                                         |   |               |  |              |            |  |   |           
|                           |  | $                                     | 235,512 |                                         | $ | 231,047       |  | $            | 75,187,976 |  | $ | 75,850,582
|                           |  |                                       |         |                                         |   |               |  |              |            |  |   |           

Gross gains and losses on calls of securities consist of the following:



|                                   |  |                          |         |      |   |       
|---------------------------------- |  | ------------------------ | ------- | ---- | - | ------
|                                   |  | Years Ended December 31,
|                                   |  | 2007                     |         | 2006
|Gross gains on calls of securities |  | $                        | 8,200   |      | $ | 14,100
|Gross gains on sales of securities |  |                          | 147,853 |      |   |      
|                                   |  |                          |         |      |   |       
|                                   |  | $                        | 156,053 |      | $ | 14,100
|                                   |  |                          |         |      |   |       

Proceeds from the sale of equity securities for the year ended December 31, 2007 totaled
$335,326.

Investment securities with a market value of $72,624,840 and $69,685,488 at December 31, 2007 and 2006, respectively, were
pledged to secure public funds required by law, collateralized United States Treasury, Tax and Loan deposits, and sold under agreement to repurchase.



14



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 3. | INVESTMENT SECURITIES (Continued)
|------- | ---------------------------------



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 for the years ended at December 31, 2007 and 2006, respectively



|                                   |  |                         |         |                       |           |   |                       |  |   |           |   |  |   |           
|---------------------------------- |  | ----------------------- | ------- | --------------------- | --------- | - | --------------------- |  | - | --------- | - |  | - | ----------
|                                   |  | Less Than Twelve Months |         | Twelve Months or More
|                                   |  | GrossUnrealizedLosses   |         |                       | FairValue |   | GrossUnrealizedLosses |  |   | FairValue
|December 31, 2007                  |  |                         |         |                       |           |   |                       |  |   |           |   |  |   |           
|                                   |  |                         |         |                      
|U.S. Government-sponsored agencies |  | $                       | (3,013  | )                     |           | $ | 992,165               |  | $ | (5,788    | ) |  | $ | 4,399,003 
|State and political subdivisions   |  |                         | (11,669 | )                     |           |   | 1,275,063             |  |   | (53,700   | ) |  |   | 2,281,680 
|Mortgage-backed securities         |  |                         | (6,760  | )                     |           |   | 2,953,009             |  |   | (153,168  | ) |  |   | 9,307,228 
|                                   |  |                         |         |                       |           |   |                       |  |   |           |   |  |   |           
|Total securities                   |  | $                       | (21,442 | )                     |           | $ | 5,220,237             |  | $ | (212,656  | ) |  | $ | 15,987,911
|                                   |  |                         |         |                       |           |   |                       |  |   |           |   |  |   |           
|December 31, 2006                  |  |                         |         |                       |           |   |                       |  |   |           |   |  |   |           
|                                   |  |                         |         |                      
|U.S. Government-sponsored agencies |  | $                       | (64,500 | )                     |           | $ | 21,335,793            |  | $ | (171,503  | ) |  | $ | 16,404,041
|State and political subdivisions   |  |                         | (6,222  | )                     |           |   | 906,029               |  |   | (52,480   | ) |  |   | 2,109,018 
|Mortgage-backed securities         |  |                         |        |                       |           |   |                      |  |   | (257,204  | ) |  |   | 10,014,333
|                                   |  |                         |         |                       |           |   |                       |  |   |           |   |  |   |           
|Total securities                   |  | $                       | (70,722 | )                     |           | $ | 22,241,822            |  | $ | (481,187  | ) |  | $ | 28,527,392
|                                   |  |                         |         |                       |           |   |                       |  |   |           |   |  |   |           

The FASB Emerging Issues Task Force Issue 03-01, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments requires disclosure of certain information about other than temporary impairments in the market value of securities. 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.

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.



15



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 4. | LOANS
|------- | -----

Major classifications of loans are
summarized as follows:



|                                       |  |              |             |   |      |   |             |  
|-------------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | -
|                                       |  | December 31, |            
|                                       |  | 2007         |             |   | 2006 |  
|Commercial, financial and agricultural |  | $            | 56,712,741  |   |      | $ | 49,914,211  |  
|Real estate  mortgage                 |  |              | 158,317,197 |   |      |   | 150,893,103 |  
|Real estate  construction             |  |              | 109,739,188 |   |      |   | 112,219,558 |  
|Consumer and other                     |  |              | 16,074,053  |   |      |   | 14,717,592  |  
|Tax-exempt                             |  |              | 1,011,154   |   |      |   | 1,132,280   |  
|                                       |  |              |             |   |      |   |             |  
|                                       |  |              | 341,854,333 |   |      |   | 328,876,744 |  
|Less: Allowance for loan losses        |  |              | (6,956,164  | ) |      |   | (4,661,975  | )
|                                       |  |              |             |   |      |   |             |  
|                                       |  | $            | 334,898,169 |   |      | $ | 324,214,769 |  
|                                       |  |              |             |   |      |   |             |  

The Bank grants loans and extensions of credit to individuals and a variety of businesses and
corporations located in its general trade area of Butts, Jasper and Henry counties as well as other adjoining counties in Georgia. Although the Bank has a diversified portfolio, a substantial portion is secured by improved and unimproved real estate
and is dependent on the real estate market.

The following is a summary of activity in the allowance for loan losses:



|                                           |  |                          |            |   |      |   |           |  
|------------------------------------------ |  | ------------------------ | ---------- | - | ---- | - | --------- | -
|                                           |  | Years Ended December 31, |           
|                                           |  | 2007                     |            |   | 2006 |  
|Balance at beginning of year               |  | $                        | 4,661,975  |   |      | $ | 4,077,071 |  
|Provision charged to expense               |  |                          | 3,324,370  |   |      |   | 778,247   |  
|Loans charged off                          |  |                          | (1,238,344 | ) |      |   | (249,045  | )
|Recoveries of loans previously charged off |  |                          | 208,163    |   |      |   | 55,702    |  
|                                           |  |                          |            |   |      |   |           |  
|                                           |  | $                        | 6,956,164  |   |      | $ | 4,661,975 |  
|                                           |  |                          |            |   |      |   |           |  

Impaired loans totaled $16,542,763 and $602,126 at December 31, 2007 and 2006, respectively.
Allocations of the loan loss reserve related to impaired loans totaled $2,916,854 and $88,278 at December 31, 2007 and 2006, respectively. The average balance for impaired loans in the years ended December 31, 2007 and 2006 was
approximately $8,187,000 and $645,000, respectively. There were no significant amounts of interest income recognized on impaired loans for the years ended December 31, 2007 and 2006.

Loans on nonaccrual status totaled $21,564,738 and $602,126 at December 31, 2007 and 2006, respectively. Loans past due ninety days or more and still
accruing interest totaled $43,704 and $335,036 at December 31, 2007 and 2006, respectively.



16



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 5. | PREMISES AND EQUIPMENT
|------- | ----------------------

Premises and equipment are
comprised of the following:



|                                  |  |              |            |   |      |   |            |  
|--------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                  |  | December 31, |           
|                                  |  | 2007         |            |   | 2006 |  
|Land                              |  | $            | 800,433    |   |      | $ | 719,339    |  
|Buildings and land improvements   |  |              | 7,149,531  |   |      |   | 6,347,382  |  
|Furniture, fixtures and equipment |  |              | 4,846,686  |   |      |   | 4,834,126  |  
|                                  |  |              |            |   |      |   |            |  
|                                  |  |              | 12,796,650 |   |      |   | 11,900,847 |  
|Less accumulated depreciation     |  |              | (5,352,993 | ) |      |   | (5,037,721 | )
|                                  |  |              |            |   |      |   |            |  
|                                  |  | $            | 7,443,657  |   |      | $ | 6,863,126  |  
|                                  |  |              |            |   |      |   |            |  

Depreciation expense totaled approximately $793,000 and $787,000 in 2007 and 2006, respectively.



|NOTE 6. | DEPOSITS
|------- | --------

Maturities of time deposits at
December 31, 2007 are as follows:



|             |  |   |            
|------------ |  | - | -----------
|Maturing in: |  |   |            
|2008         |  | $ | 186,293,460
|2009         |  |   | 26,395,002 
|2010         |  |   | 20,996,865 
|2011         |  |   | 7,986,898  
|2012         |  |   | 4,691,822  
|             |  |   |            
|             |  | $ | 246,364,047
|             |  |   |            

For the years ended December 31, 2007 and 2006 the Bank had $58,026,000 and $40,854,000,
respectively, in brokered deposits outstanding. The daily average of such deposits totaled $47,352,000 and $27,389,000 for the years ended December 31, 2007 and 2006, respectively. For the years ended December 31, 2007 and 2006 the
weighted average cost of funds on these deposits was 5.32% and 4.95%, respectively. As of December 31, 2007 and 2006, the weighted average rate on these deposits was 4.76% and 5.27%, respectively. Brokered deposits mature from January 17,
2008 through September 30, 2010.



|NOTE 7. | OTHER BORROWED FUNDS
|------- | --------------------

Other borrowed funds are
summarized as follows:



|                                                      |  |              |            |      |   |           
|----------------------------------------------------- |  | ------------ | ---------- | ---- | - | ----------
|                                                      |  | December 31,
|                                                      |  | 2007         |            | 2006
|FHLB advances                                         |  | $            | 12,000,000 |      | $ | 21,000,000
|Repurchase agreements and other short-term borrowings |  |              | 461,379    |      |   |          
|                                                      |  |              |            |      |   |           
|                                                      |  | $            | 12,461,379 |      | $ | 21,000,000
|                                                      |  |              |            |      |   |           



17



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 7. | OTHER BORROWED FUNDS (Continued)
|------- | --------------------------------



The Bank has invested in FHLB stock for the purpose of establishing credit lines with the FHLB.
Advances on the credit lines are secured by liens against the Banks qualifying real estate loans. Total qualifying real estate loans eligible as collateral amounted to $81,332,000 and $92,000,000 at December 31, 2007 and 2006,
respectively. Outstanding borrowings totaled $12,000,000 and $21,000,000 at December 31, 2007 and 2006, respectively. All advances outstanding at December 31, 2007 carry fixed interest rates ranging from 2.91% to 4.17%, require monthly or
quarterly payments of interest only, and mature through May 19, 2015. The FHLB has the option to convert $7,000,000 of the advances at dates through May 2009 to advances bearing interest based on LIBOR. At December 31, 2007, remaining
credit availability for the Bank totaled approximately $35,900,000.

Securities sold under agreements to repurchase amounted to $304,555 at
December 31, 2007, mature on a daily basis, and are secured by state, county, and municipal securities with a fair value of $6,208,398. The weighted average cost of funds on these agreements was 3.15% for the year ending December 31, 2007.

United States Treasury, Tax, and Loan note obligations totaled $156,823 at December 31, 2007, are callable by the Treasury, and are
secured by mortgage-backed securities with a fair value of $343,386. The weighted average cost of funds for this agreement was 4.27% for the year ending December 31, 2007.



|NOTE 8. | INCOME TAXES
|------- | ------------

The following are the components of
income tax expense:



|                         |  |                          |            |   |      |   |           |  
|------------------------ |  | ------------------------ | ---------- | - | ---- | - | --------- | -
|                         |  | Years Ended December 31, |           
|                         |  | 2007                     |            |   | 2006 |  
|Current                  |  | $                        | 2,189,890  |   |      | $ | 2,865,889 |  
|Deferred                 |  |                          | (1,072,034 | ) |      |   | (397,707  | )
|                         |  |                          |            |   |      |   |           |  
|Total income tax expense |  | $                        | 1,117,856  |   |      | $ | 2,468,182 |  
|                         |  |                          |            |   |      |   |           |  

The differences between the provision for income taxes and the amount computed by applying the
statutory federal income tax rate to earnings before income taxes are as follows:



|                                                    |  |                          |           |   |      |   |           |  
|--------------------------------------------------- |  | ------------------------ | --------- | - | ---- | - | --------- | -
|                                                    |  | Years Ended December 31, |          
|                                                    |  | 2007                     |           |   | 2006 |  
|Income taxes computed at federal statutory tax rate |  | $                        | 1,259,953 |   |      | $ | 2,511,218 |  
|Increase (decrease) resulting from:                 |  |                          |           |   |      |   |           |  
|Tax-exempt interest                                 |  |                          | (165,396  | ) |      |   | (172,772  | )
|Nondeductible interest on tax-exempt investments    |  |                          | 28,576    |   |      |   | 25,360    |  
|Life insurance income                               |  |                          | (97,265   | ) |      |   | (90,558   | )
|State income taxes                                  |  |                          | 199       |   |      |   | 157,526   |  
|Other, net                                          |  |                          | 91,789    |   |      |   | 37,408    |  
|                                                    |  |                          |           |   |      |   |           |  
|                                                    |  | $                        | 1,117,856 |   |      | $ | 2,468,182 |  
|                                                    |  |                          |           |   |      |   |           |  



18



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 8. | INCOME TAXES (Continued)
|------- | ------------------------



The following summarizes the components of the net deferred tax asset. The deferred tax asset is
included as a component of other assets as follows:



|                                                            |  |              |           |   |      |   |           |  
|----------------------------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                            |  | December 31, |          
|                                                            |  | 2007         |           |   | 2006 |  
|Deferred income tax assets:                                 |  |              |           |   |      |   |           |  
|Allowance for loan losses                                   |  | $            | 2,462,594 |   |      | $ | 1,665,099 |  
|Pension plan contributions                                  |  |              | 80,152    |   |      |   | 67,481    |  
|Deferred compensation                                       |  |              | 623,348   |   |      |   | 488,000   |  
|Other                                                       |  |              | 204,115   |   |      |   | 21,704    |  
|Unrecognized net periodic pension costs                     |  |              | 268,495   |   |      |   | 282,897   |  
|                                                            |  |              |           |   |      |   |           |  
|Total gross deferred tax assets                             |  | $            | 3,638,704 |   |      | $ | 2,525,181 |  
|                                                            |  |              |           |   |      |   |           |  
|Deferred income tax liabilities:                            |  |              |           |   |      |   |           |  
|Accumulated depreciation on premises and equipment          |  | $            | (168,114  | ) |      | $ | (144,608  | )
|Unrealized gain on investment securities available for sale |  |              | (225,286  | ) |      |   | (45,137   | )
|Other                                                       |  |              | (107,949  | ) |      |   | (75,564   | )
|                                                            |  |              |           |   |      |   |           |  
|Total gross deferred tax liabilities                        |  | $            | (501,349  | ) |      | $ | (265,309  | )
|                                                            |  |              |           |   |      |   |           |  
|Net deferred income tax asset                               |  | $            | 3,137,355 |   |      | $ | 2,259,872 |  
|                                                            |  |              |           |   |      |   |           |  



|NOTE 9. | EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS
|------- | ------------------------------------------------

Defined Benefit Pension Plan

The Parent Company sponsors a defined benefit pension plan covering substantially all
employees. The plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Parent Company and compensation rates for the last five years. Contributions to the plan reflect benefits attributed
to employees services to date, as well as services expected to be performed in the future.

Pension expense includes the following
components:



|                                                                    |  |              |          |   |      |   |          |  
|------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                    |  | December 31, |         
|                                                                    |  | 2007         |          |   | 2006 |  
|Service cost of the current period                                  |  | $            | 261,837  |   |      | $ | 212,117  |  
|Interest cost on the projected benefit obligation                   |  |              | 170,163  |   |      |   | 139,875  |  
|Return on plan assets                                               |  |              | (152,447 | ) |      |   | (118,967 | )
|Net amortization of prior service cost, and actuarial net gain/loss |  |              | 27,208   |   |      |   | 60,185   |  
|                                                                    |  |              |          |   |      |   |          |  
|Pension expense, net                                                |  | $            | 306,761  |   |      | $ | 293,210  |  
|                                                                    |  |              |          |   |      |   |          |  



19



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 9. | EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS (Continued)
|------- | ------------------------------------------------------------

Defined Benefit Pension Plan (Continued)



The following table shows the pre-tax change in accumulated other comprehensive income (loss), a component of stockholders equity, attributable to the components of net pension expense and reclassification
adjustments:



|                                                          |  |                                       |         |   |                              |   |        |  
|--------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---------------------------- | - | ------ | -
|For the year ended December 31, 2007                      |  | UnrecognizedActuarial NetGain or Loss |         |   | UnamortizedPrior ServiceCost |  
|Accumulated other comprehensive income, beginning of year |  | $                                     | 834,165 |   |                              | $ | 2,115  |  
|Components of comprehensive income arising during period: |  |                                       |         |   |                              |   |        |  
|Recognized during the period                              |  |                                       | (19,382 | ) |                              |   | (2,115 | )
|Recognized in net periodic pension cost                   |  |                                       | (25,093 | ) |                              |   |       |  
|                                                          |  |                                       |         |   |                              |   |        |  
|Accumulated other comprehensive income, end of year       |  | $                                     | 789,690 |   |                              | $ |       |  
|                                                          |  |                                       |         |   |                              |   |        |  

The Parent Company uses the straight-line method of amortization for prior service cost and
unrecognized gains and losses. During 2008, the Company expects to expense approximately $24,000 for unrecognized gains and losses.

Effective 2006, FASB Statement No. 158 required that companies recognize a balance sheet asset or liability for their pension plans equal to the funded status of the plan, as shown below.

The following sets forth the funded status of the plan and the amounts included in the accompanying balance sheet:



|                                                                   |  |              |           |   |      |   |          
|------------------------------------------------------------------ |  | ------------ | --------- | - | ---- | - | ---------
|                                                                   |  | December 31,
|                                                                   |  | 2007         |           |   | 2006
|Actuarial present value of benefit obligations:                    |  |              |           |   |      |   |          
|Accumulated benefit obligation                                     |  | $            | 1,405,118 |   |      | $ | 1,618,942
|                                                                   |  |              |           |   |      |   |          
|Projected benefit obligation                                       |  | $            | 3,171,451 |   |      | $ | 2,673,181
|                                                                   |  |              |           |   |      |   |          
|Fair value of assets held in the plan                              |  | $            | 2,207,269 |   |      | $ | 1,848,558
|                                                                   |  |              |           |   |      |   |          
|Unfunded excess of projected benefit obligation over plan assets   |  |              | 964,182   |   |      |   | 824,623  
|Unfunded (accrued) prepaid liability                               |  |              | (174,492  | ) |      |   | 9,542    
|                                                                   |  |              |           |   |      |   |          
|Accrued pension liability recognized in other comprehensive income |  | $            | 789,690   |   |      | $ | 834,165  
|                                                                   |  |              |           |   |      |   |          



20



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 9. | EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS (Continued)
|------- | ------------------------------------------------------------

Defined Benefit Pension Plan (Continued)



The following table includes a reconciliation of projected benefit obligation:



|                                               |  |              |           |   |      |   |           |  
|---------------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                               |  | December 31, |          
|                                               |  | 2007         |           |   | 2006 |  
|Projected benefit obligation beginning of year |  | $            | 2,673,181 |   |      | $ | 2,271,912 |  
|Service cost                                   |  |              | 261,837   |   |      |   | 212,117   |  
|Interest cost                                  |  |              | 170,163   |   |      |   | 139,875   |  
|Distributions                                  |  |              | (97,311   | ) |      |   | (16,717   | )
|Actuarial (gains) losses                       |  |              | 163,581   |   |      |   | 65,994    |  
|                                               |  |              |           |   |      |   |           |  
|Projected benefit obligation end of year       |  | $            | 3,171,451 |   |      | $ | 2,673,181 |  
|                                               |  |              |           |   |      |   |           |  

The following table includes a reconciliation of the fair value of plan assets:



|                               |  |              |           |   |      |   |           |  
|------------------------------ |  | ------------ | --------- | - | ---- | - | --------- | -
|                               |  | December 31, |          
|                               |  | 2007         |           |   | 2006 |  
|Fair value  beginning of year |  | $            | 1,848,558 |   |      | $ | 1,427,608 |  
|Contributions                  |  |              | 273,183   |   |      |   | 222,957   |  
|Return on plan assets          |  |              | 235,089   |   |      |   | 118,967   |  
|Distributions                  |  |              | (97,311   | ) |      |   | (16,717   | )
|Unrealized gains (losses)      |  |              | (52,250   | ) |      |   | 95,743    |  
|                               |  |              |           |   |      |   |           |  
|Fair value  end of year       |  | $            | 2,207,269 |   |      | $ | 1,848,558 |  
|                               |  |              |           |   |      |   |           |  

The following table sets forth the assumptions used to compute the estimated pension liability:



|                                                              |  |              |   |  |      |  
|------------------------------------------------------------- |  | ------------ | - |  | ---- | -
|                                                              |  | December 31, |  
|                                                              |  | 2007         |   |  | 2006 |  
|Weighted average discount rate  projected benefit obligation |  | 6.00         | % |  | 6.00 | %
|Increase in future compensation levels                        |  | 4.00         | % |  | 4.00 | %
|Expected long-term rate of return                             |  | 8.25         | % |  | 8.25 | %



21



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 9. | EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS (Continued)
|------- | ------------------------------------------------------------

Defined Benefit Pension Plan (Continued)



In consultation with the plans investment management company and actuary, the Parent Company, as plan sponsor, arrives at an assumption for the expected long-term rate of return on plan assets. This rate is
intended to reflect the average rate of earnings expected on funds invested given funding obligations, future compensation levels, and inflation. The expected long-term rate of return is not necessarily a reflection of recent experience but rather a
historical estimate of future long-term rates of return. Anticipated returns for the plan are not reduced by taxes and assume the plan continues in place for the foreseeable future.

The Parent Company reviews the plans asset allocation and investment mix at least annually. Plan assets may be invested in a mix of the following
major classes: equity  large cap; equity  small and mid cap; equity  international; short and intermediate bond; and money market. Investment strategies are based, in part, on the Companys overall assessment of the state of
the economy and its assumed direction, the Federal Reserve Boards bias in setting monetary policy, fiscal policy and its projected impact, and the direction of short and long-term interest rates. Investment strategies are guided by an
investment policy that calls for comparing the investment performance of the investment management company to an appropriate benchmark. This evaluation is conducted over a three-year horizon and also considers the investment managers
performance relative to their discipline.

The estimated benefit payments by year to plan participants over the next 10 years are as
follows:



|                                                     |  |   |          
|---------------------------------------------------- |  | - | ---------
|2008                                                 |  | $ | 2,600    
|2009                                                 |  |   | 2,500    
|2010                                                 |  |   | 24,500   
|2011                                                 |  |   | 28,300   
|2012                                                 |  |   | 34,700   
|2013-2017                                            |  |   | 1,126,500
|                                                     |  |   |          
|Total estimated benefit payments over next ten years |  | $ | 1,219,100
|                                                     |  |   |          

The Parent Company contributed $306,761 and $222,957 to the plan in 2007 and 2006, respectively.
During 2008, the Company expects to contribute approximately $285,000 to the plan.

The incremental effect of applying FASB Statement
No. 158 on individual items on the Companys consolidated balance sheet at December 31, 2007 is a decrease in the funded status of the pension plan liability of $42,360, a decrease in deferred tax assets of $14,402 and a rise in
stockholders equity of $27,958.



22



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 9. | EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS (Continued)
|------- | ------------------------------------------------------------



Profit Sharing Plan

The Parent Company sponsors an Internal Revenue Code Section 401(k) Employee Savings Plan that permits an employee to defer annual cash compensation.
The Parent Companys Board of Directors determines the Parent Companys contribution, which was approximately $271,000 and $391,000 in 2007 and 2006, respectively.

Deferred Compensation Plans

The Bank
has entered into salary continuation agreements with its directors, its chief executive officer and five other officers. In 2007 and 2006, the Bank expensed $381,452 and $350,528, respectively, for the accrual of future salary continuation benefits.
The Bank has elected to fund the salary continuation liability with single premium universal life insurance policies. In 2007 and 2006, cash value income totaled $274,838 and $258,066, respectively. As of December 31, 2007 and 2006, other
assets included $6,314,451 and $6,076,670, respectively, in surrender value, and other liabilities included salary continuation benefits payable of $1,651,870 and $1,293,201, respectively.

The Bank also maintains split dollar insurance on its chief executive officer. In 2007 and 2006, the increase in cash surrender value recorded in income
totaled $11,236 and $8,280, respectively. As of December 31, 2007 and 2006, other assets include accrued cash surrender value of $201,706 and $190,470, respectively.



|NOTE 10. | STOCK OPTION PLANS
|-------- | ------------------

The Companys Stock Option
Plans (1998 and 2006) reserve a maximum of 331,892 shares of common stock as of December 31, 2007. Options are granted with exercise prices equal to the fair market value of the stock at the date of the grant. These options expire 10 years from
the grant date and vest between four and six years. The Plans provide that upon exercise, the number of options awarded will be adjusted for any stock dividends occurring since the grant date. Therefore, the number of shares granted and the weighted
average exercise prices have been adjusted for any stock dividends that have been declared since the first options were granted under the Plans.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes-Merton valuation model that uses the assumptions noted in the following table. Expected volatilities are based on a pool of similarly situated and
traded Georgia community banks. The Company considers historical data and peer group data to estimate option exercise and employee terminations within the valuation model; separate groups of employees that have similar historical exercise behavior
are considered separately for valuation purposes. The expected term of options granted is based on the short-cut method and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.



23



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 10. | STOCK OPTION PLAN (Continued)
|-------- | -----------------------------



|                        |  |                          |  |         |  
|----------------------- |  | ------------------------ |  | ------- | -
|                        |  | Years Ended December 31, | 
|                        |  | 2007                     |  | 2006    |  
|Dividend yield          |  | N/A                      |  | 1.50    | %
|Expected life           |  | N/A                      |  | 8 years |  
|Risk-free interest rate |  | N/A                      |  | 5.18    | %
|Expected volatility     |  | N/A                      |  | 10.33   | %

No options were granted during the year ended December 31, 2007. The weighted-average
grant-date fair value of options granted during the year ended December 31, 2006 was $4.70.

A summary status of the Companys
Stock Option Plans as of December 31, 2007 and 2006, and changes during the years ending on those dates is as follows:



|                                 |  |         |   |  |                               |       |                                                 |     |                         |   |          
|-------------------------------- |  | ------- | - |  | ----------------------------- | ----- | ----------------------------------------------- | --- | ----------------------- | - | ---------
|                                 |  | Shares  |   |  | Weighted-AverageExercisePrice |       | Weighted-AverageRemainingContractualTerm(Years) |     | AggregateIntrinsicValue
|Outstanding at January 1, 2007   |  | 203,892 |   |  | $                             | 15.48 |                                                 |     |                         |   |          
|Granted                          |  |        |   |  |                               |      |                                                 |     |                         |   |          
|Exercised                        |  | (2,000  | ) |  |                               | 11.90 |                                                 |     |                         | $ | 16,200   
|Forfeited                        |  | (2,000  | ) |  |                               | 20.00 |                                                 |     |                         |   | 0        
|                                 |  |         |   |  |                               |       |                                                 |     |                         |   |          
|Outstanding at December 31, 2007 |  | 199,892 |   |  | $                             | 15.47 |                                                 | 5.3 |                         | $ | 905,511  
|                                 |  |         |   |  |                               |       |                                                 |     |                         |   |          
|Vested at December 31, 2007      |  | 124,719 |   |  | $                             | 13.27 |                                                 | 3.6 |                         | $ | 921,711  
|                                 |  |         |   |  |                               |       |                                                 |     |                         |   |          
|Outstanding at January 1, 2006   |  | 132,344 |   |  | $                             | 12.39 |                                                 |     |                         |   |          
|Granted                          |  | 82,000  |   |  |                               | 20.02 |                                                 |     |                         |   |          
|Exercised                        |  | (10,452 | ) |  |                               | 11.99 |                                                 |     |                         | $ | 109,903  
|                                 |  |         |   |  |                               |       |                                                 |     |                         |   |          
|Outstanding at December 31, 2006 |  | 203,892 |   |  | $                             | 15.48 |                                                 | 6.3 |                         | $ | 1,431,322
|                                 |  |         |   |  |                               |       |                                                 |     |                         |   |          
|Vested at December 31, 2006      |  | 103,866 |   |  | $                             | 12.37 |                                                 | 3.7 |                         | $ | 1,052,162
|                                 |  |         |   |  |                               |       |                                                 |     |                         |   |          

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



|                         |  |                     |  |                                          |  |                               |       |                   |         |                               |   |      
|------------------------ |  | ------------------- |  | ---------------------------------------- |  | ----------------------------- | ----- | ----------------- | ------- | ----------------------------- | - | -----
|                         |  | Options Outstanding |  | Options Exercisable                     
|Range of Exercise Prices |  | NumberOutstanding   |  | Weighted-AverageRemainingContractualLife |  | Weighted-AverageExercisePrice |       | NumberExercisable |         | Weighted-AverageExercisePrice
|$11.90  $12.80          |  | 115,594             |  | 3.0 years                                |  | $                             | 12.23 |                   | 107,000 |                               | $ | 12.18
|$18.00  $21.00          |  | 84,298              |  | 8.5 years                                |  | $                             | 19.92 |                   | 17,719  |                               | $ | 19.83

As of December 31, 2007, there was $308,055 of total unrecognized compensation cost related to
nonvested share-based compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted-average period of 4 years. The total fair value of shares vested during the years ended December 31, 2007 and 2006 was
$417,060 and $41,081, respectively.



24



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 11. | RELATED PARTY TRANSACTIONS
|-------- | --------------------------

As of December 31,
2007 and 2006, the Bank had direct and indirect loans outstanding to or for the benefit of certain of the Banks executive officers, directors, and their related interests of $2,468,473 and $2,433,480, respectively. During 2007 and 2006,
$951,514 and $1,724,020 of such loans were made and repayments totaled $916,520 and $242,350, respectively. These loans were made in the ordinary course of business in conformity with normal credit terms, including interest rates and collateral
requirements prevailing at the time for comparable transactions with other borrowers. These individuals and their related interests also maintain customary demand and time deposit accounts at the Bank which amounted to $5,075,091 and $3,360,186 at
December 31, 2007 and 2006, respectively.



|NOTE 12. | STOCKHOLDERS EQUITY
|-------- | --------------------

The Parent Company and
the Bank are subject to various capital requirements administered by the regulatory authorities. 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 Companys financial statements. The regulations require the Company to meet specific capital adequacy guidelines that involve quantitative measures of the Companys assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Companys capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other
factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and
ratios (set forth in the following tables) of Tier 1 capital (as defined in the regulations) to total average assets (as defined), and minimum ratios of Tier 1 and total capital (as defined) to risk-weighted assets (as defined). As of
December 31, 2007, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be considered well capitalized and adequately capitalized (as
defined) under the regulatory framework for prompt corrective action, the Company must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios as set forth in the tables. The Companys actual capital amounts and ratios
are also presented in the following tables. Capital levels at the Parent Company approximate those of the Bank.



25



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 12. | STOCKHOLDERS EQUITY (Continued)
|-------- | --------------------------------



|                                       |  |                             |        |       |                                  |   |        |        |        |  |      |        |  |       |        |  |       |  
|-------------------------------------- |  | --------------------------- | ------ | ----- | -------------------------------- | - | ------ | ------ | ------ |  | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                       |  | Well CapitalizedRequirement |        |       | AdequatelyCapitalizedRequirement |   |        | Actual |       
|                                       |  | Amount                      |        | Ratio |                                  |   | Amount |        | Ratio  |  |      | Amount |  | Ratio |       
|                                       |  | (Dollars in Thousands)      |       
|As of December 31, 2007                |  |                             |        |       |                                  |   |        |        |        |  |      |        |  |       |        |  |       |  
|Tier I Capital to Average Assets       |  | $                           | 23,025 |       | 5.00                             | % |        | $      | 13,815 |  | 3.00 | %      |  | $     | 37,285 |  | 8.10  | %
|Tier I Capital to Risk Weighted Assets |  | $                           | 22,284 |       | 6.00                             | % |        | $      | 14,856 |  | 4.00 | %      |  | $     | 37,285 |  | 10.04 | %
|Total Capital to Risk Weighted Assets  |  | $                           | 37,140 |       | 10.00                            | % |        | $      | 29,712 |  | 8.00 | %      |  | $     | 41,956 |  | 11.30 | %
|As of December 31, 2006                |  |                             |        |       |                                  |   |        |        |        |  |      |        |  |       |        |  |       |  
|Tier I Capital to Average Assets       |  | $                           | 22,627 |       | 5.00                             | % |        | $      | 13,576 |  | 3.00 | %      |  | $     | 35,571 |  | 7.90  | %
|Tier I Capital to Risk Weighted Assets |  | $                           | 21,562 |       | 6.00                             | % |        | $      | 14,375 |  | 4.00 | %      |  | $     | 35,571 |  | 9.90  | %
|Total Capital to Risk Weighted Assets  |  | $                           | 35,937 |       | 10.00                            | % |        | $      | 28,750 |  | 8.00 | %      |  | $     | 40,250 |  | 11.20 | %

Management believes, as of December 31, 2007, that the Parent Company and the Bank meet all
capital requirements to which they are subject.

Banking regulations limit the amount of dividends which the Bank may pay without obtaining
prior approval. Under current state banking laws, the approval of the Georgia Department of Banking and Finance will be required if the total of all dividends declared in the calendar year exceeds 50 percent of the net profits for the previous
calendar year, and the ratio of equity capital to adjusted total assets is less than 6 percent. At December 31, 2007, stockholders equity of the Bank available for the payment of dividends after that date to the Parent Company without
prior regulatory approval was approximately $1,301,000.



|NOTE 13. | OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
|-------- | ---------------------------------------

The Bank
is a party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Bank has in particular classes of financial
instruments.

The Banks exposure to credit loss in the event of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet
instruments.

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. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. At December 31, 2007 and 2006, commitments to extend credit totaled $45,567,042 and $65,185,930, respectively.



26



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 13. | OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (Continued)
|-------- | ---------------------------------------------------



Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance
of a customer to a third party. Those guarantees 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. At December 31, 2007 and 2006, commitments under letters of credit aggregated $2,069,008 and $2,083,391, respectively. In 2007 and 2006, the Bank was not required to perform on any letters of credit.

The Bank evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on managements credit evaluation of the other party. Collateral held varies but may include accounts receivable; inventory; property, plant and equipment; and income-producing commercial properties on those
commitments for which collateral is deemed necessary.



|NOTE 14. | FAIR VALUE OF FINANCIAL INSTRUMENTS
|-------- | -----------------------------------

The
assumptions used in the estimation of the fair value of the Companys financial instruments are detailed below. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation
techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation
value of the Company or its subsidiaries, but rather a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance.

Cash and Cash Equivalents: For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.

Investment Securities: Fair values for investment securities are based on quoted market prices.

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

Other Investments: The carrying value of other investments is estimated to approximate fair value.

Bank Owned Life
Insurance: The carrying value of cash surrender value of life insurance approximates fair value.

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

Other Borrowed Funds: The fair value of fixed rate
and convertible FHLB advances is estimated by discounting the future cash flows using the current rates at which similar advances would be drawn by the Bank. For variable rate FHLB advances, the carrying value approximates fair value. The carrying
amounts of borrowings under repurchase agreements and other short-term borrowings approximate their fair value.



27



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 14. | FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
|-------- | -----------------------------------------------



Commitments to Extend Credit and Standby Letters of Credit: Off-balance-sheet financial
instruments (commitments to extend credit and standby letters of credit) are generally short-term and at variable interest rates. Therefore, both the carrying value and the fair value associated with these instruments are immaterial.

Limitations: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Companys entire holdings of a particular financial instrument. Because no market exists for a significant portion of
the Companys financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off-balance-sheet
financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial
instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered
in the estimates.

The carrying amount and estimated fair values of the Companys financial instruments at December 31, 2007 and
2006 are as follows:



December 31, 2007

December 31, 2006CarryingValue

EstimatedFair Value

CarryingValue

EstimatedFair ValueFinancial assets:Cash and cash equivalents

$
21,343,108

$
21,343,108

$
26,478,947

$
26,478,947Investment securities


76,086,094


76,081,629


85,847,703


85,847,453Other investments


1,760,865


1,760,865


2,179,165


2,179,165Loans (net)


334,898,169


334,678,894


324,214,769


321,273,548Bank owned life insurance


6,516,157


6,516,157


6,267,140


6,267,140Financial liabilities:Deposits

$
407,276,858

$
407,402,402

$
399,530,583

$
399,545,083Other borrowed funds


12,461,379


12,544,985


21,000,000


20,400,000


Due to the short-term duration of most of the off-balance-sheet financial instruments
(commitments to extend credit and standby letters of credit), management has chosen not to defer any fees associated with those instruments. Additionally, most of the off-balance-sheet financial instruments (or their underlying credit instrument)
carry variable rates. Therefore, management has determined that both the carrying value and the fair value associated with the off-balance-sheet financial instruments are immaterial.



28



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 15. | CONDENSED FINANCIAL INFORMATION OF McINTOSH BANCSHARES, INC.
|-------- | ------------------------------------------------------------

CONDENSED BALANCE SHEETS

(Parent Only)



|                                                           |  |      |            |   |      |   |            |  
|---------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                           |  | 2007 |            |   | 2006 |  
|Assets                                                     |  |      |            |   |      |   |            |  
|Cash                                                       |  | $    | 367,968    |   |      | $ | 137,092    |  
|Investment in McIntosh State Bank subsidiary               |  |      | 38,001,249 |   |      |   | 35,700,262 |  
|Investment in McIntosh Financial Services, Inc. subsidiary |  |      | 142,386    |   |      |   | 88,653     |  
|Investment securities available for sale                   |  |      |           |   |      |   | 564,375    |  
|Other assets                                               |  |      | 292,936    |   |      |   | 379,503    |  
|                                                           |  |      |            |   |      |   |            |  
|Total assets                                               |  | $    | 38,804,539 |   |      | $ | 36,869,885 |  
|                                                           |  |      |            |   |      |   |            |  
|Liabilities and Stockholders Equity                       |  |      |            |   |      |   |            |  
|Unfunded pension liability                                 |  | $    | 1,002,093  |   |      | $ | 1,010,875  |  
|Other liabilities                                          |  |      |           |   |      |   | 128,146    |  
|                                                           |  |      |            |   |      |   |            |  
|Total liabilities                                          |  |      | 1,002,093  |   |      |   | 1,139,021  |  
|                                                           |  |      |            |   |      |   |            |  
|Stockholders equity:                                      |  |      |            |   |      |   |            |  
|Common stock                                               |  |      | 7,027,440  |   |      |   | 3,511,220  |  
|Surplus                                                    |  |      | 5,686,589  |   |      |   | 9,085,000  |  
|Retained earnings                                          |  |      | 25,172,294 |   |      |   | 23,596,177 |  
|Accumulated other comprehensive income (loss)              |  |      | (83,877    | ) |      |   | (461,533   | )
|                                                           |  |      |            |   |      |   |            |  
|Total stockholders equity                                 |  |      | 37,802,446 |   |      |   | 35,730,864 |  
|                                                           |  |      |            |   |      |   |            |  
|Total liabilities and stockholders equity                 |  | $    | 38,804,539 |   |      | $ | 36,869,885 |  
|                                                           |  |      |            |   |      |   |            |  



29



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 15. | CONDENSED FINANCIAL INFORMATION OF McINTOSH BANCSHARES, INC. (Continued)
|-------- | ------------------------------------------------------------------------



CONDENSED STATEMENTS OF EARNINGS

(Parent Only)



|                                                               |  |      |           |   |      |   |           |  
|-------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                               |  | 2007 |           |   | 2006 |  
|Dividend income from Bank subsidiary                           |  | $    | 900,000   |   |      | $ | 800,000   |  
|Interest income                                                |  |      | 461       |   |      |   |          |  
|Income from gain on sale of securities                         |  |      | 147,853   |   |      |   |          |  
|Operating expenses                                             |  |      | (216,691  | ) |      |   | (159,483  | )
|                                                               |  |      |           |   |      |   |           |  
|Income before equity in undistributed earnings of subsidiaries |  |      | 831,623   |   |      |   | 640,517   |  
|Equity in undistributed earnings of subsidiaries               |  |      | 1,756,265 |   |      |   | 4,277,235 |  
|                                                               |  |      |           |   |      |   |           |  
|Net earnings                                                   |  | $    | 2,587,888 |   |      | $ | 4,917,752 |  
|                                                               |  |      |           |   |      |   |           |  

CONDENSED STATEMENTS OF CASH FLOWS

(Parent Only)



|                                                                                    |  |      |            |   |      |   |            |  
|----------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                    |  | 2007 |            |   | 2006 |  
|OPERATING ACTIVITIES                                                                |  |      |            |   |      |   |            |  
|Cash flows from operating activities:                                               |  |      |            |   |      |   |            |  
|Net earnings                                                                        |  | $    | 2,587,888  |   |      | $ | 4,917,752  |  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |      |            |   |      |   |            |  
|Gain on sale of securities                                                          |  |      | (147,853   | ) |      |   |           |  
|Equity in undistributed earnings of subsidiaries                                    |  |      | (1,756,265 | ) |      |   | (4,277,235 | )
|Stock-based compensation                                                            |  |      | 94,009     |   |      |   | 67,372     |  
|Other operating activities                                                          |  |      | 105,742    |   |      |   | (26,354    | )
|                                                                                    |  |      |            |   |      |   |            |  
|Net cash provided by operating activities                                           |  |      | 883,521    |   |      |   | 681,535    |  
|                                                                                    |  |      |            |   |      |   |            |  
|INVESTING ACTIVITIES                                                                |  |      |            |   |      |   |            |  
|Cash flows from investing activities, consisting of sales of securities             |  |      | 335,326    |   |      |   |           |  
|                                                                                    |  |      |            |   |      |   |            |  
|Net cash flows provided by investing activities                                     |  |      | 335,326    |   |      |   |           |  
|                                                                                    |  |      |            |   |      |   |            |  
|FINANCING ACTIVITIES                                                                |  |      |            |   |      |   |            |  
|Cash flows from financing activities:                                               |  |      |            |   |      |   |            |  
|Proceeds from exercise of stock options                                             |  |      | 23,800     |   |      |   | 125,300    |  
|Dividends paid                                                                      |  |      | (1,011,771 | ) |      |   | (839,557   | )
|                                                                                    |  |      |            |   |      |   |            |  
|Net cash flows used in financing activities                                         |  |      | (987,971   | ) |      |   | (714,257   | )
|                                                                                    |  |      |            |   |      |   |            |  
|Net change in cash                                                                  |  |      | 230,876    |   |      |   | (32,722    | )
|Cash at beginning of year                                                           |  |      | 137,092    |   |      |   | 169,814    |  
|                                                                                    |  |      |            |   |      |   |            |  
|Cash at end of year                                                                 |  | $    | 367,968    |   |      | $ | 137,092    |  
|                                                                                    |  |      |            |   |      |   |            |  



30



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 16. | OTHER COMMITMENTS AND OBLIGATIONS
|-------- | ---------------------------------

The Bank has
entered into operating lease commitments for two banking offices and properties for signage and an ATM site. The following table outlines the total annual obligations arising from these leases:



|           |  |                  |        
|---------- |  | ---------------- | -------
|           |  | AnnualObligation
|2008       |  | $                | 135,818
|2009       |  |                  | 130,788
|2010       |  |                  | 130,320
|2011       |  |                  | 130,320
|2012       |  |                  | 130,320
|Thereafter |  |                  | 259,200
|           |  |                  |        
|           |  | $                | 916,766
|           |  |                  |        

The Bank has commitments to purchase federal funds from its correspondent banks totaling
$25,800,000 as of December 31, 2007. As of December 31, 2007, the Bank has no outstanding balance under these commitments. The Bank has committed to purchase 0.5 acres of land in Greensboro, Georgia for future expansion. The commitment
amount for this land purchase is $650,000 of which $100,000 has been contingently deposited.



|NOTE 17. | MISCELLANEOUS OPERATING INCOME AND EXPENSES
|-------- | -------------------------------------------

Significant components of other operating income and expense included in the consolidated statements of earnings in excess of 1% of interest and other income for the years ended December 31, 2007 and 2006 are as follows:



|                                           |  |      |         |      |   |        
|------------------------------------------ |  | ---- | ------- | ---- | - | -------
|                                           |  | 2007 |         | 2006
|Other operating income:                    |  |      |         |      |   |        
|Secondary market mortgage origination fees |  | $    | 689,261 |      | $ | 774,188
|Other operating expenses:                  |  |      |         |      |   |        
|Professional fees                          |  | $    | 404,755 |      | $ | 501,014
|Data processing expenses                   |  |      | 626,450 |      |   | 565,547



31