EXHIBIT NO. 13.1

MCINTOSH BANCSHARES, INC.

AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2008 and 2007

(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, 2008 and 2007, and the related consolidated statements of operations, comprehensive income, changes in stockholders equity, 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, 2008 and 2007, 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 25, 2009



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MCINTOSH BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2008 and 2007



|                                                                                                                                            |  |      |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                            |  | 2008 |             |   | 2007 |  
|Assets                                                                                                                                      |  |      |             |   |      |   |             |  
|Cash and due from banks                                                                                                                     |  | $    | 11,236,248  |   |      | $ | 6,491,435   |  
|Interest-bearing deposits                                                                                                                   |  |      | 3,648,976   |   |      |   | 6,727,673   |  
|Federal funds sold                                                                                                                          |  |      | 6,000,000   |   |      |   | 8,124,000   |  
|Investment securities held to maturity (market value of $231,047)                                                                           |  |      |            |   |      |   | 235,512     |  
|Investment securities available for sale                                                                                                    |  |      | 70,655,886  |   |      |   | 75,850,582  |  
|Other investments                                                                                                                           |  |      | 3,347,979   |   |      |   | 1,760,865   |  
|Loans                                                                                                                                       |  |      | 324,331,007 |   |      |   | 341,854,333 |  
|Less: Allowance for loan losses                                                                                                             |  |      | (8,517,479  | ) |      |   | (6,956,164  | )
|                                                                                                                                            |  |      |             |   |      |   |             |  
|Loans, net                                                                                                                                  |  |      | 315,813,528 |   |      |   | 334,898,169 |  
|                                                                                                                                            |  |      |             |   |      |   |             |  
|Premises and equipment, net                                                                                                                 |  |      | 6,785,873   |   |      |   | 7,443,657   |  
|Other real estate                                                                                                                           |  |      | 14,829,144  |   |      |   | 6,246,715   |  
|Accrued interest receivable                                                                                                                 |  |      | 2,296,294   |   |      |   | 3,835,210   |  
|Bank owned life insurance                                                                                                                   |  |      | 6,774,322   |   |      |   | 6,516,157   |  
|Other assets                                                                                                                                |  |      | 9,765,916   |   |      |   | 4,324,605   |  
|                                                                                                                                            |  |      |             |   |      |   |             |  
|Total assets                                                                                                                                |  | $    | 451,154,166 |   |      | $ | 462,454,580 |  
|                                                                                                                                            |  |      |             |   |      |   |             |  
|Liabilities and Stockholders Equity                                                                                                        |  |      |             |   |      |   |             |  
|                                                                                                                                            |  |     
|Liabilities:                                                                                                                                |  |      |             |   |      |   |             |  
|Deposits:                                                                                                                                   |  |      |             |   |      |   |             |  
|Demand                                                                                                                                      |  | $    | 32,218,792  |   |      | $ | 31,891,955  |  
|Money market and NOW accounts                                                                                                               |  |      | 89,485,500  |   |      |   | 116,452,038 |  
|Savings                                                                                                                                     |  |      | 21,488,019  |   |      |   | 12,568,818  |  
|Time deposits of $100,000 or more                                                                                                           |  |      | 108,775,948 |   |      |   | 117,250,399 |  
|Time deposits                                                                                                                               |  |      | 143,631,233 |   |      |   | 129,113,648 |  
|                                                                                                                                            |  |      |             |   |      |   |             |  
|Total deposits                                                                                                                              |  |      | 395,599,492 |   |      |   | 407,276,858 |  
|Borrowed funds                                                                                                                              |  |      | 16,656,504  |   |      |   | 12,461,379  |  
|Accrued interest payable and other liabilities                                                                                              |  |      | 6,624,647   |   |      |   | 4,913,897   |  
|                                                                                                                                            |  |      |             |   |      |   |             |  
|Total liabilities                                                                                                                           |  |      | 418,880,643 |   |      |   | 424,652,134 |  
|                                                                                                                                            |  |      |             |   |      |   |             |  
|Commitments                                                                                                                                 |  |      |             |   |      |   |             |  
|                                                                                                                                            |  |     
|Stockholders equity:                                                                                                                       |  |      |             |   |      |   |             |  
|Common stock, par value $2.50; 10,000,000 shares authorized, 3,252,581 shares for 2008 and 2,810,976 shares for 2007 issued and outstanding |  |      | 8,131,453   |   |      |   | 7,027,440   |  
|Surplus                                                                                                                                     |  |      | 7,660,276   |   |      |   | 5,686,589   |  
|Retained earnings                                                                                                                           |  |      | 16,689,822  |   |      |   | 25,172,294  |  
|Accumulated other comprehensive loss                                                                                                        |  |      | (208,028    | ) |      |   | (83,877     | )
|                                                                                                                                            |  |      |             |   |      |   |             |  
|Total stockholders equity                                                                                                                  |  |      | 32,273,523  |   |      |   | 37,802,446  |  
|                                                                                                                                            |  |      |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                                                                  |  | $    | 451,154,166 |   |      | $ | 462,454,580 |  

See accompanying notes to consolidated financial statements.



2



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MCINTOSH BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

For the Years Ended December 31,
2008 and 2007



|                                                                                                                            |  |      |             |   |      |   |            |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ---------- | -
|                                                                                                                            |  | 2008 |             |   | 2007 |  
|Interest income:                                                                                                            |  |      |             |   |      |   |            |  
|Loans, including fees                                                                                                       |  | $    | 22,153,075  |   |      | $ | 29,778,098 |  
|Interest on investment securities:                                                                                          |  |      |             |   |      |   |            |  
|U.S. Treasury, U.S. Government agency and mortgage-backed securities                                                        |  |      | 3,191,545   |   |      |   | 3,367,380  |  
|State, county and municipal                                                                                                 |  |      | 258,272     |   |      |   | 428,973    |  
|Other investments                                                                                                           |  |      | 96,000      |   |      |   | 157,774    |  
|Federal funds sold and other short-term investments                                                                         |  |      | 234,238     |   |      |   | 453,892    |  
|                                                                                                                            |  |      |             |   |      |   |            |  
|Total interest income                                                                                                       |  |      | 25,933,130  |   |      |   | 34,186,117 |  
|                                                                                                                            |  |      |             |   |      |   |            |  
|Interest expense:                                                                                                           |  |      |             |   |      |   |            |  
|Interest-bearing demand and money market                                                                                    |  |      | 1,328,132   |   |      |   | 3,441,208  |  
|Savings                                                                                                                     |  |      | 264,539     |   |      |   | 184,350    |  
|Time deposits of $100,000 or more                                                                                           |  |      | 5,209,118   |   |      |   | 6,202,057  |  
|Other time deposits                                                                                                         |  |      | 5,675,571   |   |      |   | 5,923,425  |  
|Other                                                                                                                       |  |      | 538,029     |   |      |   | 704,357    |  
|                                                                                                                            |  |      |             |   |      |   |            |  
|Total interest expense                                                                                                      |  |      | 13,015,389  |   |      |   | 16,455,397 |  
|                                                                                                                            |  |      |             |   |      |   |            |  
|Net interest income                                                                                                         |  |      | 12,917,741  |   |      |   | 17,730,720 |  
|Provision for loan losses                                                                                                   |  |      | 15,947,716  |   |      |   | 3,324,370  |  
|                                                                                                                            |  |      |             |   |      |   |            |  
|Net interest income (loss) after provision for loan losses                                                                  |  |      | (3,029,975  | ) |      |   | 14,406,350 |  
|                                                                                                                            |  |      |             |   |      |   |            |  
|Other income:                                                                                                               |  |      |             |   |      |   |            |  
|Service charges                                                                                                             |  |      | 2,503,665   |   |      |   | 2,307,843  |  
|Investment securities gains                                                                                                 |  |      | 2,184,140   |   |      |   | 156,053    |  
|Increase in cash surrender value of life insurance                                                                          |  |      | 297,560     |   |      |   | 286,074    |  
|Other real estate owned losses                                                                                              |  |      | (1,180,926  | ) |      |   | (23,164    | )
|Fixed and repossessed asset losses                                                                                          |  |      | (14,844     | ) |      |   | (7,772     | )
|Other income                                                                                                                |  |      | 1,242,182   |   |      |   | 1,487,199  |  
|                                                                                                                            |  |      |             |   |      |   |            |  
|Total other income                                                                                                          |  |      | 5,031,777   |   |      |   | 4,206,233  |  
|                                                                                                                            |  |      |             |   |      |   |            |  
|Other expenses:                                                                                                             |  |      |             |   |      |   |            |  
|Salaries and employee benefits                                                                                              |  |      | 9,126,505   |   |      |   | 9,582,292  |  
|Occupancy and equipment                                                                                                     |  |      | 1,795,829   |   |      |   | 1,744,790  |  
|Other operating                                                                                                             |  |      | 4,431,671   |   |      |   | 3,579,757  |  
|                                                                                                                            |  |      |             |   |      |   |            |  
|Total other expenses                                                                                                        |  |      | 15,354,005  |   |      |   | 14,906,839 |  
|                                                                                                                            |  |      |             |   |      |   |            |  
|Earnings (loss) before income taxes                                                                                         |  |      | (13,352,203 | ) |      |   | 3,705,744  |  
|Income tax (expense) benefit                                                                                                |  |      | 5,122,719   |   |      |   | (1,117,856 | )
|                                                                                                                            |  |      |             |   |      |   |            |  
|Net earnings (loss)                                                                                                         |  | $    | (8,229,484  | ) |      | $ | 2,587,888  |  
|                                                                                                                            |  |      |             |   |      |   |            |  
|Basic earnings (loss) per common share based on average outstanding shares of 2,813,389 in 2008 and 2,810,554 in 2007       |  | $    | (2.93       | ) |      | $ | 0.92       |  
|                                                                                                                            |  |      |             |   |      |   |            |  
|Diluted net earnings (loss) per common share based on average outstanding shares of 2,813,389 in 2008 and 2,860,884 in 2007 |  | $    | (2.93       | ) |      | $ | 0.90       |  
|                                                                                                                            |  |      |             |   |      |   |            |  
|Dividends declared per share of common stock                                                                                |  | $    | 0.09        |   |      | $ | 0.36       |  
|                                                                                                                            |  |      |             |   |      |   |            |  

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, 2008 and 2007



|                                                                                                        |  |      |            |   |      |   |           |  
|------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | -
|                                                                                                        |  | 2008 |            |   | 2007 |  
|Net earnings (loss)                                                                                     |  | $    | (8,229,484 | ) |      | $ | 2,587,888 |  
|Other comprehensive income (loss), net of income tax:                                                   |  |      |            |   |      |   |           |  
|Unrealized gains on securities available for sale:                                                      |  |      |            |   |      |   |           |  
|Holding gains arising during period, net of tax of $413,831 and $230,417                                |  |      | 803,319    |   |      |   | 447,281   |  
|Less: Reclassification adjustment for gains on sale of securities, net of tax of ($8,033) and ($50,270) |  |      | (15,592    | ) |      |   | (97,583   | )
|Change in unfunded pension liability, net of tax of ($469,758) and $14,402                              |  |      | (911,878   | ) |      |   | 27,958    |  
|                                                                                                        |  |      |            |   |      |   |           |  
|Total other comprehensive income (loss)                                                                 |  |      | (124,151   | ) |      |   | 377,656   |  
|                                                                                                        |  |      |            |   |      |   |           |  
|Comprehensive income (loss)                                                                             |  | $    | (8,353,635 | ) |      | $ | 2,965,544 |  
|                                                                                                        |  |      |            |   |      |   |           |  

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, 2008 and 2007                                 |  | CommonStock |           | Surplus |   | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | Total |         
|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 |  
|                                                                               |  |             |           |         |   |                  |  |   |                                            |   |  |       |          |   |  |   |            |  
|Net loss                                                                       |  |             |          |         |   |                 |  |   | (8,229,484                                 | ) |  |       |         |   |  |   | (8,229,484 | )
|Change in unrealized gains/losses on securities available for sale             |  |             |          |         |   |                 |  |   |                                           |   |  |       | 787,727  |   |  |   | 787,727    |  
|Change in unfunded pension obligation                                          |  |             |          |         |   |                 |  |   |                                           |   |  |       | (911,878 | ) |  |   | (911,878   | )
|Stock-based compensation                                                       |  |             |          |         |   | 93,081           |  |   |                                           |   |  |       |         |   |  |   | 93,081     |  
|Cash dividend paid, $0.09 per share                                            |  |             |          |         |   |                 |  |   | (252,988                                   | ) |  |       |         |   |  |   | (252,988   | )
|Issued 441,605 shares of common stock $2.50 par, net of $40,375 issuance costs |  |             | 1,104,013 |         |   | 1,880,606        |  |   |                                           |   |  |       |         |   |  |   | 2,984,619  |  
|                                                                               |  |             |           |         |   |                  |  |   |                                            |   |  |       |          |   |  |   |            |  
|Balance, December 31, 2008                                                     |  | $           | 8,131,453 |         | $ | 7,660,276        |  | $ | 16,689,822                                 |   |  | $     | (208,028 | ) |  | $ | 32,273,523 |  
|                                                                               |  |             |           |         |   |                  |  |   |                                            |   |  |       |          |   |  |   |            |  

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,
2008 and 2007



|                                                                                           |  |      |             |   |      |   |             |  
|------------------------------------------------------------------------------------------ |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                           |  | 2008 |             |   | 2007 |  
|Cash flows from operating activities:                                                      |  |      |             |   |      |   |             |  
|Net earnings (loss)                                                                        |  | $    | (8,229,484  | ) |      | $ | 2,587,888   |  
|Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |  |      |             |   |      |   |             |  
|Depreciation, accretion and amortization                                                   |  |      | 821,995     |   |      |   | 633,132     |  
|Gain on sale of other investments                                                          |  |      | (2,158,514  | ) |      |   |            |  
|Gain on sale or call of securities available for sale                                      |  |      | (25,626     | ) |      |   | (156,053    | )
|Provision for loan losses                                                                  |  |      | 15,947,716  |   |      |   | 3,324,370   |  
|Stock-based compensation                                                                   |  |      | 93,081      |   |      |   | 94,009      |  
|Provision for deferred income tax benefit                                                  |  |      | (69,520     | ) |      |   | (1,072,034  | )
|Loss on sale of other real estate                                                          |  |      | 1,180,926   |   |      |   | 23,164      |  
|Loss on fixed and repossessed asset disposal                                               |  |      | 14,844      |   |      |   | 7,772       |  
|Change in:                                                                                 |  |      |             |   |      |   |             |  
|Accrued interest receivable and other assets                                               |  |      | (4,041,120  | ) |      |   | (82,272     | )
|Accrued interest payable and other liabilities                                             |  |      | 329,115     |   |      |   | (295,443    | )
|                                                                                           |  |      |             |   |      |   |             |  
|Net cash provided by operating activities                                                  |  |      | 3,863,413   |   |      |   | 5,064,533   |  
|                                                                                           |  |      |             |   |      |   |             |  
|Cash flows from investing activities:                                                      |  |      |             |   |      |   |             |  
|Proceeds from maturities and paydowns of securities available for sale                     |  |      | 30,794,789  |   |      |   | 41,847,408  |  
|Proceeds from maturities and paydowns of securities held to maturity                       |  |      | 235,000     |   |      |   | 100,000     |  
|Proceeds from sales of securities available for sale                                       |  |      | 9,468,448   |   |      |   | 335,326     |  
|Proceeds from sales of other real estate                                                   |  |      | 7,285,425   |   |      |   | 2,855,029   |  
|Purchases of securities available for sale                                                 |  |      | (33,864,987 | ) |      |   | (31,674,856 | )
|Purchases of other investments                                                             |  |      | (2,631,179  | ) |      |   | (1,478,500  | )
|Proceed from sales of other investments                                                    |  |      | 3,202,579   |   |      |   | 1,896,800   |  
|Additions to other real estate                                                             |  |      | (1,821,809  | ) |      |   | (313,249    | )
|Net change in loans                                                                        |  |      | (12,090,046 | ) |      |   | (20,611,278 | )
|Purchases of premises and equipment                                                        |  |      | (148,907    | ) |      |   | (1,376,735  | )
|                                                                                           |  |      |             |   |      |   |             |  
|Net cash provided (used) by investing activities                                           |  |      | 429,313     |   |      |   | (8,420,055  | )
|                                                                                           |  |      |             |   |      |   |             |  
|Cash flows from financing activities:                                                      |  |      |             |   |      |   |             |  
|Net change in deposits                                                                     |  |      | (11,677,366 | ) |      |   | 7,746,275   |  
|Proceed from sale of common stock                                                          |  |      | 3,024,994   |   |      |   |            |  
|Stock issuance cost                                                                        |  |      | (40,375     | ) |      |   |            |  
|Proceeds from exercise of stock options                                                    |  |      |            |   |      |   | 23,800      |  
|Proceeds from borrowed funds                                                               |  |      | 24,695,125  |   |      |   | 15,611,379  |  
|Repayment of borrowed fund                                                                 |  |      | (20,500,000 | ) |      |   | (24,150,000 | )
|Dividends paid                                                                             |  |      | (252,988    | ) |      |   | (1,011,771  | )
|                                                                                           |  |      |             |   |      |   |             |  
|Net cash used by financing activities                                                      |  |      | (4,750,610  | ) |      |   | (1,780,317  | )
|                                                                                           |  |      |             |   |      |   |             |  
|Net change in cash and cash equivalents                                                    |  |      | (457,884    | ) |      |   | (5,135,839  | )
|Cash and cash equivalents at beginning of period                                           |  |      | 21,343,108  |   |      |   | 26,478,947  |  
|                                                                                           |  |      |             |   |      |   |             |  
|Cash and cash equivalents at end of period                                                 |  | $    | 20,885,224  |   |      | $ | 21,343,108  |  
|                                                                                           |  |      |             |   |      |   |             |  
|Supplemental schedule of noncash investing and financing activities:                       |  |      |             |   |      |   |             |  
|Change in net unrealized gain/loss on investment securities available-for-sale, net of tax |  | $    | 787,727     |   |      | $ | 349,698     |  
|Change in unfunded pension liability                                                       |  | $    | (911,878    | ) |      | $ | 27,958      |  
|Transfer of loans to other real estate                                                     |  | $    | 15,238,971  |   |      | $ | 6,603,508   |  
|Supplemental disclosures of cash flow information:                                         |  |      |             |   |      |   |             |  
|Cash paid during the period for:                                                           |  |      |             |   |      |   |             |  
|Interest                                                                                   |  | $    | 13,151,515  |   |      | $ | 16,257,535  |  
|Income taxes                                                                               |  | $    |            |   |      | $ | 2,374,954   |  

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 (the Company) 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 of (FHLB), the Federal Reserve Bank (FRB), and a broker-dealer, and federal funds
sold. Generally, federal funds are 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.

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.

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 sufficient to support the debt and demonstrated through payment history.

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. Loans or relationships exceeding $200,000 on nonaccrual or internally graded Substandard or Doubtful are
reviewed for impairment. 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 (in whole or part) when the credit
(1) becomes 120 days past due and is not real estate secured, (2) is deemed collateral dependent and impaired when secured by real estate, or (3) is 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 nonperforming loans.



8



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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.

Management reviews the adequacy of
the allowance at least quarterly. This review considers changes to loan grades, delinquency levels, portfolio mix, and impairment testing results as well as changes to eight qualitative factors regarding the economy and overall underwriting
standards. Recognized losses are charged to the allowance for loan losses, while subsequent recoveries are added to the allowance. Bank regulators may make the Bank increase the allowance based upon their examination results.

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

Other real estate
represents properties acquired through or in lieu of loan foreclosure. Other real estate is initially recorded at the lower of cost or fair value less estimated disposal costs. Fair value is reviewed annually after the initial determination, any
write-down to fair value up to 90 days after transfer to other real estate is charged to the allowance for loan losses. Costs of improvements are capitalized, as long as the resulting balance of the asset does not exceed fair value less costs of
disposal. Whereas costs relating to holding other real estate 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 gain (loss) 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



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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, 2008 and 2007. During 2008 and 2007, there was no charge to earnings for impairment of goodwill.

Earnings Per Common Share

Basic earnings (loss) per common share has been computed based on the weighted average number of
shares outstanding during the period which totaled 3,252,581 and 2,810,554 for the years ended December 31, 2008 and 2007 respectively. The basic earnings per share calculation have been adjusted to reflect the impact of dilutive securities in
the form of stock options. Inclusion of potential common shares for the period ending December 31, 2008 would have been anti-dilutive; therefore, these amounts are not presented. There were 199,892 anti-dilutive stock options outstanding at
December 31, 2008. The basic and diluted earnings per share for 2007 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  |  
|                                     |  |             |           |              |           |                 |   |       |  



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 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).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

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, 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.

Adoption of FASB Statement No. 158 requires the Company to charge other
comprehensive income, net of tax, 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.



11



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Stock-Based Compensation

The Company accounts for its stock compensation plans using Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based
Payments, which requires a fair value based method of accounting for employee stock compensation plans whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is
usually the vesting period. 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

SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115 allows for voluntary use of fair value accounting at the instrument level. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has elected
not to utilize fair value accounting.

Emerging Issues Task Force (EITF) Issue 99-20-1, Amendments to the Impairment Guidance of EITF
99-20 Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interestsaddresses clarification on whether other-than-temporary impairment (OTTI) has occurred. EITF Issue 99-20-1 is effective for fiscal
years beginning after December 15, 2008. The Company has evaluated the impact of implementation of EITF Issue 99-20-1 and found its application to OTTI assessment was immaterial to 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.



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

The Bank is required to
maintain average reserve balances with the Federal Reserve Bank or in cash. At December 31, 2008 and 2007, the Banks reserve requirement was approximately $4,869,000 and $176,000, respectively. The Bank maintained cash balances which were
adequate to meet the requirements.



12



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

Investment securities at
December 31, 2008 and 2007 are as follows:



|                                    |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|----------------------------------- |  | ------------- | ---------- | --------------- | - | ---------------- |  | - | ----------- | - |  | - | ----------
|                                    |  | AmortizedCost |            | UnrealizedGains |   | UnrealizedLosses |  |   | MarketValue
|Securities Held to Maturity         |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|December 31, 2007                   |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|States and political subdivisions   |  | $             | 235,512    |                 | $ |                 |  | $ | (4,465      | ) |  | $ | 231,047   
|                                    |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|Securities Available for Sale       |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|December 31, 2008                   |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|U. S. Government-sponsored agencies |  | $             | 26,782,056 |                 | $ | 823,585          |  | $ |            |   |  | $ | 27,605,641
|Mortgage-backed securities          |  |               | 39,267,722 |                 |   | 1,039,517        |  |   | (7,339      | ) |  |   | 40,299,900
|States and political subdivisions   |  |               | 2,249,980  |                 |   | 40,482           |  |   | (31,007     | ) |  |   | 2,259,455 
|Corporate debt securities           |  |               | 500,000    |                 |   |                 |  |   | (9,110      | ) |  |   | 490,890   
|                                    |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|                                    |  | $             | 68,799,758 |                 | $ | 1,903,584        |  | $ | (47,456     | ) |  | $ | 70,655,886
|                                    |  |               |            |                 |   |                  |  |   |             |   |  |   |           
|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
|                                    |  |               |            |                 |   |                  |  |   |             |   |  |   |           

Other investments are comprised of the following:



|                                   |  |              |           |      |   |          
|---------------------------------- |  | ------------ | --------- | ---- | - | ---------
|                                   |  | December 31,
|                                   |  | 2008         |           | 2007
|Federal Home Loan Bank             |  | $            | 1,641,300 |      | $ | 1,369,300
|Silverton Financial Services, Inc. |  |              | 1,706,679 |      |   | 391,565  
|                                   |  |              |           |      |   |          
|                                   |  | $            | 3,347,979 |      | $ | 1,760,865
|                                   |  |              |           |      |   |          



13



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The amortized cost and estimated market value of investment securities available for sale at
December 31, 2008, 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 SecuritiesAvailable for Sale
|                           |  | AmortizedCost                           |            | MarketValue
|Due in one year or less    |  | $                                       | 1,645,000  |             | $ | 1,662,359 
|Due from one to five years |  |                                         | 21,496,302 |             |   | 22,086,810
|Due from five to ten years |  |                                         | 6,150,734  |             |   | 6,387,647 
|Due after ten years        |  |                                         | 240,000    |             |   | 219,170   
|Mortgage-backed securities |  |                                         | 39,267,722 |             |   | 40,299,900
|                           |  |                                         |            |             |   |           
|                           |  | $                                       | 68,799,758 |             | $ | 70,655,886
|                           |  |                                         |            |             |   |           

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



|                                   |  |                          |           |      |   |        
|---------------------------------- |  | ------------------------ | --------- | ---- | - | -------
|                                   |  | Years Ended December 31,
|                                   |  | 2008                     |           | 2007
|Gross gains on calls of securities |  | $                        | 2,000     |      | $ | 8,200  
|Gross gains on sales of securities |  |                          | 2,182,140 |      |   | 147,853
|                                   |  |                          |           |      |   |        
|                                   |  | $                        | 2,184,140 |      | $ | 156,053
|                                   |  |                          |           |      |   |        

Proceeds from the sale of available-for-sale securities for the years ended December 31, 2008
and 2007 totaled $9,468,448 and $335,326, respectively. Proceeds from the sale of other investments for the year ended December 31, 2008 totaled $3,202,579. There were no sales of other investments for the year ended December 31, 2007.

Investment securities with a market value of $69,883,410 and $72,624,840 at December 31, 2008 and 2007, respectively, were pledged to
secure public funds required by law, collateralized United States Treasury, Tax and Loan deposits, collateralized a Federal Funds accommodation line, 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, 2008 and 2007, respectively



|                                   |  |                         |         |                       |           |   |                       |  |   |           |   |  |   |           
|---------------------------------- |  | ----------------------- | ------- | --------------------- | --------- | - | --------------------- |  | - | --------- | - |  | - | ----------
|                                   |  | Less Than Twelve Months |         | Twelve Months or More
|                                   |  | GrossUnrealizedLosses   |         |                       | FairValue |   | GrossUnrealizedLosses |  |   | FairValue
|December 31, 2008                  |  |                         |         |                       |           |   |                       |  |   |           |   |  |   |           
|                                   |  |                         |         |                      
|State and political subdivisions   |  | $                       | (31,007 | )                     |           | $ | 708,993               |  | $ |          |   |  | $ |          
|Mortgage-backed securities         |  |                         | (23     | )                     |           |   | 17,643                |  |   | (7,316    | ) |  |   | 475,428   
|Corporate debt securities          |  |                         | (9,110  | )                     |           |   | 490,890               |  |   |          |   |  |   |          
|                                   |  |                         |         |                       |           |   |                       |  |   |           |   |  |   |           
|Total                              |  | $                       | (40,140 | )                     |           | $ | 1,217,526             |  | $ | (7,316    | ) |  | $ | 475,428   
|                                   |  |                         |         |                       |           |   |                       |  |   |           |   |  |   |           
|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                              |  | $                       | (21,442 | )                     |           | $ | 5,220,237             |  | $ | (212,656  | ) |  | $ | 15,987,911
|                                   |  |                         |         |                       |           |   |                       |  |   |           |   |  |   |           

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 as of December 31, 2008 and 2007.



15



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

Major classifications of loans are
summarized as follows:



|                                       |  |              |             |   |      |   |             |  
|-------------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | -
|                                       |  | December 31, |            
|                                       |  | 2008         |             |   | 2007 |  
|Commercial, financial and agricultural |  | $            | 63,786,772  |   |      | $ | 56,712,741  |  
|Real estate  mortgage                 |  |              | 178,287,266 |   |      |   | 158,317,197 |  
|Real estate  construction             |  |              | 63,051,843  |   |      |   | 109,739,188 |  
|Consumer and other                     |  |              | 15,323,921  |   |      |   | 16,074,053  |  
|Tax-exempt                             |  |              | 3,881,205   |   |      |   | 1,011,154   |  
|                                       |  |              |             |   |      |   |             |  
|                                       |  |              | 324,331,007 |   |      |   | 341,854,333 |  
|Less: Allowance for loan losses        |  |              | (8,517,479  | ) |      |   | (6,956,164  | )
|                                       |  |              |             |   |      |   |             |  
|                                       |  | $            | 315,813,528 |   |      | $ | 334,898,169 |  
|                                       |  |              |             |   |      |   |             |  

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, |            
|                                           |  | 2008                     |             |   | 2007 |  
|Balance at beginning of year               |  | $                        | 6,956,164   |   |      | $ | 4,661,975  |  
|Provision charged to expense               |  |                          | 15,947,716  |   |      |   | 3,324,370  |  
|Loans charged off                          |  |                          | (14,469,948 | ) |      |   | (1,238,344 | )
|Recoveries of loans previously charged off |  |                          | 83,547      |   |      |   | 208,163    |  
|                                           |  |                          |             |   |      |   |            |  
|                                           |  | $                        | 8,517,479   |   |      | $ | 6,956,164  |  
|                                           |  |                          |             |   |      |   |            |  

Impaired loans totaled $38,269,840 and $24,713,216 at December 31, 2008 and 2007,
respectively. Allocations of the loan loss reserve related to impaired loans totaled $4,163,312 and $2,916,854 at December 31, 2008 and 2007, respectively. The average balance for impaired loans in the years ended December 31, 2008 and
2007 was approximately $37,863,000 and $13,581,000, respectively. There were no significant amounts of interest income recognized on impaired loans for the years ended December 31, 2008 and 2007.

Loans on nonaccrual status totaled $29,754,944 and $21,564,737 at December 31, 2008 and 2007, respectively. Loans past due ninety days or more and
still accruing interest totaled $512 and $43,704 at December 31, 2008 and 2007, respectively.



16



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

Premises and equipment are
comprised of the following:



|                                  |  |              |            |   |      |   |            |  
|--------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                  |  | December 31, |           
|                                  |  | 2008         |            |   | 2007 |  
|Land                              |  | $            | 785,361    |   |      | $ | 800,433    |  
|Buildings and land improvements   |  |              | 7,029,806  |   |      |   | 7,149,531  |  
|Furniture, fixtures and equipment |  |              | 5,084,382  |   |      |   | 4,846,686  |  
|                                  |  |              |            |   |      |   |            |  
|                                  |  |              | 12,899,549 |   |      |   | 12,796,650 |  
|Less accumulated depreciation     |  |              | (6,113,676 | ) |      |   | (5,352,993 | )
|                                  |  |              |            |   |      |   |            |  
|                                  |  | $            | 6,785,873  |   |      | $ | 7,443,657  |  
|                                  |  |              |            |   |      |   |            |  

Depreciation expense totaled approximately $806,000 and $793,000 in 2008 and 2007, respectively.



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

Maturities of time deposits at
December 31, 2008 are as follows:



|             |  |   |            
|------------ |  | - | -----------
|Maturing in: |  |   |            
|2009         |  | $ | 189,734,166
|2010         |  |   | 34,511,006 
|2011         |  |   | 12,612,108 
|2012         |  |   | 8,755,253  
|2013         |  |   | 6,794,648  
|             |  |   |            
|             |  | $ | 252,407,181
|             |  |   |            

For the years ended December 31, 2008 and 2007 the Bank had $50,856,000 and $58,026,000,
respectively, in brokered deposits outstanding. The daily average of such deposits totaled $53,382,000 and $47,352,000 for the years ended December 31, 2008 and 2007, respectively. For the years ended December 31, 2008 and 2007 the
weighted average cost of funds on these deposits was 4.44% and 5.32%, respectively. As of December 31, 2008 and 2007, the weighted average rate on these deposits was 3.99% and 4.76%, respectively. Brokered deposits mature from January 8,
2009 through December 8, 2011. Brokered deposits may not be renewed without prior approval of the FDIC if the Bank is less than Well Capitalized.



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

Other borrowed funds are
summarized as follows:



|                                                      |  |              |            |      |   |           
|----------------------------------------------------- |  | ------------ | ---------- | ---- | - | ----------
|                                                      |  | December 31,
|                                                      |  | 2008         |            | 2007
|FHLB advances                                         |  | $            | 16,000,000 |      | $ | 12,000,000
|Repurchase agreements and other short-term borrowings |  |              | 656,504    |      |   | 461,379   
|                                                      |  |              |            |      |   |           
|                                                      |  | $            | 16,656,504 |      | $ | 12,461,379
|                                                      |  |              |            |      |   |           



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 $61,945,000 and $81,332,000 at December 31, 2008 and 2007,
respectively. The amount of qualifying real estate loans eligible was reduced during 2008 as the Bank opted to instead pledge commercial real estate loans as collateral for the Federal Reserve Bank discount window due to greater availability on
eligible collateral. Outstanding borrowings totaled $16,000,000 and $12,000,000 at December 31, 2008 and 2007, respectively. All advances outstanding at December 31, 2008 carry fixed interest rates ranging from 2.86% to 4.17%, require
monthly or quarterly payments of interest only, and mature through May 23, 2018. The FHLB has the option to convert $9,000,000 of the advances at dates through May 2013 to advances bearing interest based on LIBOR. At December 31, 2008,
remaining credit availability for the Bank totaled approximately $12,300,000.

The Bank has access to the Federal Reserve Bank (FRB) of
Atlanta discount window. Advances are collateralized by eligible loans including commercial real estate mortgages, commercial non real estate loans and agricultural loans. As of December 31, 2008, the Bank had $20,108,000 in eligible loans as
collateral providing a borrowing capacity of approximately $15,100,000. Draws from the discount window are intended to be of a short term nature. The Bank had no borrowings from FRB outstanding at December 31, 2008.

Securities sold under agreements to repurchase amounted to $440,757 and $304,555 at December 31, 2008 and 2007 respectively, mature on a daily
basis, and are secured by securities with fair values of $1,797,996 and $6,208,398, respectively. The weighted average cost of funds on these agreements was 0.40% and 3.15% for the years ending December 31, 2008 and 2007, respectively.

United States Treasury, Tax, and Loan note obligations totaled $215,746 and $156,824 at December 31, 2008 and 2007, respectively, are
callable by the Treasury, and are secured by mortgage-backed securities with a fair value of $270,618 and $343,386 at December 31, 2008 and 2007, respectively. The weighted average cost of funds for this agreement was 1.44% and 4.27% for the
years ending December 31, 2008 and 2007, respectively.



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

The following are the components of
income tax expense (benefit):



|                                   |  |                          |            |   |      |   |            |  
|---------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- | -
|                                   |  | Years Ended December 31, |           
|                                   |  | 2008                     |            |   | 2007 |  
|Current                            |  | $                        | (5,053,199 | ) |      | $ | 2,189,890  |  
|Deferred                           |  |                          | 218,309    |   |      |   | (1,072,034 | )
|Net operating loss carry-forward   |  |                          | (287,829   | ) |      |   |           |  
|                                   |  |                          |            |   |      |   |            |  
|Total income tax expense (benefit) |  | $                        | (5,122,719 | ) |      | $ | 1,117,856  |  
|                                   |  |                          |            |   |      |   |            |  

The Company has net operating loss carry-forwards in 2008 for federal and state income tax
purposes of $487,000 and $3,273,000, respectively. If unused, the carry-forwards will expire in 2028.



18



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



|                                                            |  |              |            |   |      |   |           |  
|----------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | --------- | -
|                                                            |  | December 31, |           
|                                                            |  | 2008         |            |   | 2007 |  
|Income tax (benefit) computed at federal statutory tax rate |  | $            | (4,539,749 | ) |      | $ | 1,259,953 |  
|Increase (decrease) resulting from:                         |  |              |            |   |      |   |           |  
|Tax-exempt interest                                         |  |              | (147,660   | ) |      |   | (165,396  | )
|Nondeductible interest on tax-exempt investments            |  |              | 20,083     |   |      |   | 28,576    |  
|Life insurance income                                       |  |              | (101,170   | ) |      |   | (97,265   | )
|State income taxes (benefit), net of federal benefit        |  |              | (390,133   | ) |      |   | 199       |  
|Other, net                                                  |  |              | 35,911     |   |      |   | 91,789    |  
|                                                            |  |              |            |   |      |   |           |  
|                                                            |  | $            | (5,122,719 | ) |      | $ | 1,117,856 |  
|                                                            |  |              |            |   |      |   |           |  

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, |          
|                                                            |  | 2008         |           |   | 2007 |  
|Deferred income tax assets:                                 |  |              |           |   |      |   |           |  
|Allowance for loan losses                                   |  | $            | 2,008,998 |   |      | $ | 2,462,594 |  
|Pension plan contributions                                  |  |              |          |   |      |   | 80,152    |  
|Deferred compensation                                       |  |              | 746,313   |   |      |   | 623,348   |  
|Net operating loss carry-forward                            |  |              | 287,829   |   |      |   |          |  
|Accrued pension contribution                                |  |              | 224,703   |   |      |   | 80,152    |  
|Unfunded pension liability                                  |  |              | 738,253   |   |      |   | 268,495   |  
|Other                                                       |  |              | 142,205   |   |      |   | 123,963   |  
|                                                            |  |              |           |   |      |   |           |  
|Total gross deferred tax assets                             |  | $            | 4,148,301 |   |      | $ | 3,638,704 |  
|                                                            |  |              |           |   |      |   |           |  
|Deferred income tax liabilities:                            |  |              |           |   |      |   |           |  
|Accumulated depreciation on premises and equipment          |  | $            | (106,048  | ) |      | $ | (168,114  | )
|Unrealized gain on investment securities available for sale |  |              | (631,083  | ) |      |   | (225,286  | )
|Other                                                       |  |              | (140,334  | ) |      |   | (107,949  | )
|                                                            |  |              |           |   |      |   |           |  
|Total gross deferred tax liabilities                        |  | $            | (877,465  | ) |      | $ | (501,349  | )
|                                                            |  |              |           |   |      |   |           |  
|Net deferred income tax asset                               |  | $            | 3,270,836 |   |      | $ | 3,137,355 |  
|                                                            |  |              |           |   |      |   |           |  



19



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|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, |         
|                                                  |  | 2008         |          |   | 2007 |  
|Service cost of the current period                |  | $            | 330,964  |   |      | $ | 261,837  |  
|Interest cost on the projected benefit obligation |  |              | 200,812  |   |      |   | 170,163  |  
|Return on plan assets                             |  |              | (182,052 | ) |      |   | (152,447 | )
|Net amortization of actuarial net gain/loss       |  |              | 33,335   |   |      |   | 27,208   |  
|                                                  |  |              |          |   |      |   |          |  
|Pension expense, net                              |  | $            | 383,059  |   |      | $ | 306,761  |  
|                                                  |  |              |          |   |      |   |          |  

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, 2008                      |  | UnrecognizedActuarial NetGain or Loss |           |   | UnamortizedPrior ServiceCost
|Accumulated other comprehensive income, beginning of year |  | $                                     | 789,690   |   |                              | $ | 
|Components of comprehensive income arising during period: |  |                                       |           |   |                              |   |  
|Recognized during the period                              |  |                                       | 1,414,970 |   |                              |   | 
|Recognized in net periodic pension cost                   |  |                                       | (33,335   | ) |                              |   | 
|                                                          |  |                                       |           |   |                              |   |  
|Accumulated other comprehensive income, end of year       |  | $                                     | 2,171,325 |   |                              | $ | 
|                                                          |  |                                       |           |   |                              |   |  

The Parent Company uses the straight-line method of amortization for prior service cost and
unrecognized gains and losses. During 2009, the Company expects to expense approximately $98,400 for unrecognized gains and losses.

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



|                                                                   |  |              |           |   |      |   |           |  
|------------------------------------------------------------------ |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                                   |  | December 31, |          
|                                                                   |  | 2008         |           |   | 2007 |  
|Actuarial present value of benefit obligations:                    |  |              |           |   |      |   |           |  
|Accumulated benefit obligation                                     |  | $            | 2,014,324 |   |      | $ | 1,405,118 |  
|                                                                   |  |              |           |   |      |   |           |  
|Projected benefit obligation                                       |  | $            | 4,206,664 |   |      | $ | 3,171,451 |  
|Fair value of assets held in the plan                              |  | $            | 1,439,877 |   |      | $ | 2,207,269 |  
|                                                                   |  |              |           |   |      |   |           |  
|Unfunded excess of projected benefit obligation over plan assets   |  |              | 2,766,787 |   |      |   | 964,182   |  
|Less accrued pension costs                                         |  |              | (595,462  | ) |      |   | (174,492  | )
|                                                                   |  |              |           |   |      |   |           |  
|Accrued pension liability recognized in other comprehensive income |  | $            | 2,171,325 |   |      | $ | 789,690   |  
|                                                                   |  |              |           |   |      |   |           |  



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, |          
|                                               |  | 2008         |           |   | 2007 |  
|Projected benefit obligation beginning of year |  | $            | 3,171,451 |   |      | $ | 2,673,181 |  
|Service cost                                   |  |              | 330,964   |   |      |   | 261,837   |  
|Interest cost                                  |  |              | 200,812   |   |      |   | 170,163   |  
|Distributions                                  |  |              | (2,678    | ) |      |   | (97,311   | )
|Actuarial (gains) losses                       |  |              | 506,115   |   |      |   | 163,581   |  
|                                               |  |              |           |   |      |   |           |  
|Projected benefit obligation end of year       |  | $            | 4,206,664 |   |      | $ | 3,171,451 |  
|                                               |  |              |           |   |      |   |           |  

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



|                               |  |              |           |   |      |   |           |  
|------------------------------ |  | ------------ | --------- | - | ---- | - | --------- | -
|                               |  | December 31, |          
|                               |  | 2008         |           |   | 2007 |  
|Fair value  beginning of year |  | $            | 2,207,269 |   |      | $ | 1,848,558 |  
|Contributions                  |  |              |          |   |      |   | 273,183   |  
|Return on plan assets          |  |              | 47,038    |   |      |   | 235,089   |  
|Distributions                  |  |              | (2,678    | ) |      |   | (97,311   | )
|Unrealized gains (losses)      |  |              | (811,752  | ) |      |   | (52,250   | )
|                               |  |              |           |   |      |   |           |  
|Fair value  end of year       |  | $            | 1,439,877 |   |      | $ | 2,207,269 |  
|                               |  |              |           |   |      |   |           |  

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



|                                                              |  |              |   |  |      |  
|------------------------------------------------------------- |  | ------------ | - |  | ---- | -
|                                                              |  | December 31, |  
|                                                              |  | 2008         |   |  | 2007 |  
|Weighted average discount rate - projected benefit obligation |  | 5.80         | % |  | 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 which approximates
the yield on AA rated corporate bonds. 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:



|                                                     |  |   |          
|---------------------------------------------------- |  | - | ---------
|2009                                                 |  | $ | 1,000    
|2010                                                 |  |   | 141,000  
|2011                                                 |  |   | 33,000   
|2012                                                 |  |   | 50,000   
|2013                                                 |  |   | 1,558,000
|2014-2018                                            |  |   | 1,569,000
|                                                     |  |   |          
|Total estimated benefit payments over next ten years |  | $ | 3,352,000
|                                                     |  |   |          

The Parent Company made no contribution to the plan in 2008 and contributed $273,183 to the plan in
2007. During 2009, the Company expects to contribute approximately $270,000 to the plan.



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 $148,000 and $271,000 in 2008 and 2007, respectively.

Deferred Compensation Plans

The Bank
has entered into salary continuation agreements with its directors, its chief executive officer and five other officers. In 2008 and 2007, the Bank expensed $394,987 and $381,452, 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 2008 and 2007, cash value income totaled $285,911 and $274,838, respectively. As of December 31, 2008 and 2007, other
assets included $6,560,968 and $6,314,451, respectively, in surrender value. As of December 31, 2008 and 2007, other liabilities included salary continuation benefits payable of $1,977,729 and $1,651,870, respectively.

The Bank also maintains split dollar insurance on its chief executive officer. In 2008 and 2007, the increase in cash surrender value recorded in income
totaled $11,649 and $11,236, respectively. As of December 31, 2008 and 2007, other assets include cash surrender value of $213,354 and $201,706, respectively.



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

The Companys stock option
plans (1998 and 2006) (the Plans) reserve a maximum of 331,892 shares of common stock as of December 31, 2008. 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. 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. No options were granted during the years ended December 31, 2008 or 2007.



23



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



A summary status of the Companys stock option plans as of December 31, 2008 and 2007, and
changes during the years ending on those dates is as follows:



|                                 |  |         |   |  |                               |       |                                                 |     |                         |   |        
|-------------------------------- |  | ------- | - |  | ----------------------------- | ----- | ----------------------------------------------- | --- | ----------------------- | - | -------
|                                 |  | Shares  |   |  | Weighted-AverageExercisePrice |       | Weighted-AverageRemainingContractualTerm(Years) |     | AggregateIntrinsicValue
|Outstanding at January 1, 2008   |  | 199,892 |   |  | $                             | 15.47 |                                                 |     |                         |   |        
|Granted                          |  |        |   |  |                               |      |                                                 |     |                         |   |        
|Exercised                        |  |        |   |  |                               |      |                                                 |     |                         |   |        
|Forfeited                        |  |        |   |  |                               |      |                                                 |     |                         |   |        
|                                 |  |         |   |  |                               |       |                                                 |     |                         |   |        
|Outstanding at December 31, 2008 |  | 199,892 |   |  | $                             | 15.47 |                                                 | 4.3 |                         | $ | N/A    
|                                 |  |         |   |  |                               |       |                                                 |     |                         |   |        
|Vested at December 31, 2008      |  | 148,372 |   |  | $                             | 13.92 |                                                 | 3.2 |                         | $ | N/A    
|                                 |  |         |   |  |                               |       |                                                 |     |                         |   |        
|Outstanding at January 1, 2007   |  | 203,892 |   |  | $                             | 15.48 |                                                 |     |                         |   |        
|Granted                          |  |        |   |  |                               |      |                                                 |     |                         |   |        
|Exercised                        |  | (2,000  | ) |  |                               | 11.90 |                                                 |     |                         | $ | 16,200 
|Forfeited                        |  | (2,000  | ) |  |                               | 20.00 |                                                 |     |                         |   |       
|                                 |  |         |   |  |                               |       |                                                 |     |                         |   |        
|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
|                                 |  |         |   |  |                               |       |                                                 |     |                         |   |        

Information pertaining to options outstanding at December 31, 2008 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             |  | 2.0 years                                |  | $                             | 12.23 |                   | 115,594 |                               | $ | 12.23
|$18.00 - $21.00          |  | 84,298              |  | 7.5 years                                |  | $                             | 19.92 |                   | 32,778  |                               | $ | 19.87

As of December 31, 2008, there was $214,974 of total unrecognized compensation cost related to
unvested share-based compensation arrangements granted under the Plans. The cost is expected to be recognized over three years.



24



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

As of December 31,
2008 and 2007, 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 $2,521,696 and $2,193,987, respectively. During 2008 and 2007,
$5,059,806 and $951,514 of such loans were made and repayments totaled $4,732,096 and $916,520, 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 $4,343,038 and $5,075,091 at
December 31, 2008 and 2007, respectively.



|NOTE 12. | REGULATORY MATTERS
|-------- | ------------------

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 Parent Company and Bank to meet specific capital adequacy guidelines that involve quantitative measures of the Parent Company and Bank
assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Parent Company and Bank 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, 2008, the most recent notification from the FDIC categorized the Bank as adequately 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 Bank must maintain minimum Tier 1 leverage, Tier 1 risk-based, and Total risk-based ratios as set forth in the tables.



|                     |  |                       |   |  |                       |   |  |            |        |   |      |   |        |      |  |   |        |   |  |   |        |  
|-------------------- |  | --------------------- | - |  | --------------------- | - |  | ---------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                     |  | RegulatoryGuidelines  |   |  | Company(consolidated) |   |  | Bank(only) |       
|                     |  |                       |  
|                     |  | AdequatelyCapitalized |   |  | WellCapitalized       |   |  | 2008       |        |   | 2007 |   |        | 2008 |  |   | 2007   |  
|Leverage Ratio       |  | 3.0                   | % |  | 5.0                   | % |  |            | 6.4    | % |      |   | 8.1    | %    |  |   | 6.7    | % |  |   | 8.0    | %
|Risked Based Ratios: |  |                       |   |  |                       |   |  |            |        |   |      |   |        |      |  |   |        |   |  |   |        |  
|Tier 1 capital       |  | 4.0                   | % |  | 6.0                   | % |  |            | 8.2    | % |      |   | 10.0   | %    |  |   | 8.3    | % |  |   | 10.0   | %
|Total capital        |  | 8.0                   | % |  | 10.0                  | % |  |            | 9.5    | % |      |   | 11.3   | %    |  |   | 9.6    | % |  |   | 11.2   | %
|(in thousands)       |  |                       |   |  |                       |   |  |            |        |   |      |   |        |      |  |   |        |   |  |   |        |  
|Tier 1 capital       |  |                       |   |  |                       |   |  | $          | 28,610 |   |      | $ | 37,285 |      |  | $ | 29,701 |   |  | $ | 36,963 |  
|Total capital        |  |                       |   |  |                       |   |  | $          | 33,011 |   |      | $ | 41,956 |      |  | $ | 34,118 |   |  | $ | 41,629 |  



25



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 12. | REGULATORY MATTERS (Continued)
|-------- | ------------------------------



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, 2008, there was no stockholders equity of the Bank available for the payment of dividends after that date to the Parent Company.

Due to its current condition and results of operation, the Company and Bank entered into informal agreements with regulatory authorities in
the third quarter of 2008. These regulatory agreements are designed to help the Company and Bank return to profitability and capital adequacy by improving asset quality. Specifically, the agreements provide for reducing troubled assets; limiting
credit to troubled borrowers; maintaining an adequate allowance for loans losses; revising policies to more comprehensively address commercial real estate lending; maintaining a Tier One leverage capital ratio of 8% or more, a Tier One risked-based
capital ratio of 6% or more, and a Total risked-based capital ratio of 10% or more; prohibiting the Bank from paying dividends to the Company without prior approval; prohibiting the Company from paying dividends to shareholders without prior
approval; prohibiting the Company from incurring debt without prior approval; and prohibiting the Company from repurchasing stock without prior approval. The Bank is presently unable to achieve the Tier One leverage and Total risked-based capital
provisions of the agreements but is negotiating for added capital. Failure to raise capital to the prescribed levels may lead to the issuance of a cease and desist order and further limitations on banking activities.



|NOTE 13. | STOCKHOLDERS EQUITY
|-------- | -------------------

On December 29, 2008, the
Company issued 441,605 shares of commons stock to certain directors and executive officers for aggregate proceeds of $3,024,994, less a placement fee of $40,375.

On January 28, 2009 common shareholders approved an amendment to the Companys articles of incorporation allowing for the issuance of one or more series of preferred stock. The articles of incorporation were
amended to allow the issuance of up to 10 million shares of preferred stock at no par value. Preferred stock can be issued with rights and conditions that might among other things restrict dividends on the common stock, dilute the voting power
of the common stock, and reduce the market price for the common stock. The Companys board of directors is authorized to issue preferred stock from time to time, with full or limited voting powers, or without voting powers, and with all
designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions upon each series of preferred stock.



|NOTE 14. | 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, 2008 and 2007, commitments to extend credit totaled $24,490,071 and $45,567,042, respectively.



26



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 14. | 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, 2008 and 2007, commitments under letters of credit aggregated $1,284,725 and $2,069,008, respectively. In 2008 and 2007, 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 15. | FAIR VALUE OF FINANCIAL INSTRUMENTS
|-------- | -----------------------------------

SFAS
No. 157, Fair Value Measurements, (SFAS 157) expands disclosures about fair value measurements and applies under other accounting statements that the Company has previously adopted. The effective date of SFAS 157 is for financial
statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Under SFAS 157, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the
assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1
 Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2  Valuation is based upon
quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3  Valuation is generated from model-based techniques that use at least one significant assumption not observable in the
market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and
similar techniques.

The Company utilizes fair value measures to record fair value adjustments on certain assets and liabilities and to
complete fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Other asset categories that are affected by periodic adjustments to fair value include: goodwill; impaired loans; and other real estate.
The Company, as allowed under SFAS 157, elects to disclose on a prospective basis. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.



27



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 15. | FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
|-------- | -----------------------------------------------



Following is a description of valuation methodologies used by the Company for assets and liabilities
which are either recorded or disclosed at fair value:

Cash and Cash Equivalents

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

Investment Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent
pricing models or other model-based valuation techniques such as present value of future cash flows, adjusted for the securitys credit rating, prepayment assumptions, and other factors such as credit loss assumptions. Level 1 securities
include those traded on an active exchange, U.S. Treasury securities that are traded by dealers and brokers in active over-the-counter markets, and money market funds. Level 2 securities include U. S. Agency securities, mortgage-backed securities
issued by government sponsored entities, municipals bonds, and corporate debt securities. Level 3 securities include asset-backed securities in less liquid markets.

Other Investments

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

Loans

The Company
does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be
made in accordance with the contractual terms of the loan agreement are judged for impairment. Once a loan is identified as individually impaired, management measures impairment in accordance with Statement of Financial Accounting Standards
No. 114, Accounting by Creditors for Impairment of a Loan, (SFAS 114). The fair value of impaired loans is estimated using one of three methods, including collateral value, market value of similar debt, and discounted cash flow. Those
impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2008, substantially all of the Companys impaired
loans were evaluated based on the fair value of the collateral. In accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair
value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the
collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Other Real Estate

Foreclosed assets are adjusted to fair value upon transfer of the loans to
foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or managements estimation of the value of the
collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management
determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

Bank Owned Life Insurance

The
carrying value of cash surrender value of life insurance approximates fair value.



28



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 15. | FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
|-------- | -----------------------------------------------



Goodwill

Goodwill is subject to periodic impairment testing. A discounted cash flow valuation method is used in the completion of impairment testing. This valuation method requires a significant degree of management judgment.
In the event the projected discounted net operating cash flows are less than the carrying value, the asset is recorded at fair value as determined by the valuation model. As such in the period where an impairment charge is recorded, the Company
classifies goodwill subjected to nonrecurring fair value adjustments as Level 3.

Deposits

The fair value of demand deposits, savings accounts, NOW accounts, and certain money market deposits are estimated by discounting the future cash flows
using the rates currently offered for funding of similar maturities to the estimated average life for each type of deposit. 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.

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.

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.

Assets Recorded At Fair
Value on a Recurring Basis as of December 31, 2008



|                          |  |       |        |         |   |         |  |         |        |  |   |  
|------------------------- |  | ----- | ------ | ------- | - | ------- |  | ------- | ------ |  | - | -
|(Amounts in thousands)    |  | Total |        | Level 1 |   | Level 2 |  | Level 3
|Investment Securities AFS |  | $     | 70,656 |         | $ |        |  | $       | 70,656 |  | $ | 
|                          |  |       |        |         |   |         |  |         |        |  |   |  
|Total Recurring           |  | $     | 70,656 |         | $ |        |  | $       | 70,656 |  | $ | 

Assets Recorded At Fair Value on a Nonrecurring Basis as of December 31, 2008



|                           |  |       |         |         |   |         |  |         |         |  |   |       
|-------------------------- |  | ----- | ------- | ------- | - | ------- |  | ------- | ------- |  | - | ------
|(Amounts in thousands)     |  | Total |         | Level 1 |   | Level 2 |  | Level 3
|Impaired Loans             |  | $     | 38,270  |         | $ |        |  | $       | 18,283  |  | $ | 19,987
|Other Real Estate          |  |       | 14,829  |         |   |        |  |         | 14,829  |  |   |      
|                           |  |       |         |         |   |         |  |         |         |  |   |       
|Total Nonrecurring         |  | $     | 53,099  |         | $ |        |  | $       | 33,112  |  | $ | 19,987
|                           |  |       |         |         |   |         |  |         |         |  |   |       
|Total Fair Value of Assets |  | $     | 123,755 |         | $ |        |  | $       | 103,768 |  | $ | 19,987
|                           |  |       |         |         |   |         |  |         |         |  |   |       



29



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 15. | FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
|-------- | -----------------------------------------------



The carrying amount and estimated fair values of the Companys financial instruments at
December 31, 2008 and 2007 are as follows:



|                          |  |                   |         |                     |   |               |  |                     |         |  |   |        
|------------------------- |  | ----------------- | ------- | ------------------- | - | ------------- |  | ------------------- | ------- |  | - | -------
|                          |  | December 31, 2008 |         | December 31, 2007  
|(Amounts in thousands)    |  | CarryingValue     |         | EstimatedFair Value |   | CarryingValue |  | EstimatedFair Value
|Financial assets:         |  |                   |         |                     |   |               |  |                     |         |  |   |        
|Cash and cash equivalents |  | $                 | 20,885  |                     | $ | 20,885        |  | $                   | 21,343  |  | $ | 21,343 
|Investment securities     |  |                   | 70,656  |                     |   | 70,656        |  |                     | 76,086  |  |   | 76,082 
|Other investments         |  |                   | 3,348   |                     |   | 3,348         |  |                     | 1,761   |  |   | 1,761  
|Loans (net)               |  |                   | 315,814 |                     |   | 324,741       |  |                     | 334,898 |  |   | 334,679
|Bank owned life insurance |  |                   | 6,774   |                     |   | 6,774         |  |                     | 6,516   |  |   | 6,516  
|Financial liabilities:    |  |                   |         |                     |   |               |  |                     |         |  |   |        
|Deposits                  |  | $                 | 395,599 |                     | $ | 395,591       |  | $                   | 407,277 |  | $ | 407,402
|Other borrowed funds      |  |                   | 16,657  |                     |   | 16,746        |  |                     | 12,461  |  |   | 12,545 

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.



30



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 16. | CONDENSED FINANCIAL INFORMATION OF McINTOSH BANCSHARES, INC.
|-------- | ------------------------------------------------------------

CONDENSED BALANCE SHEETS

(Parent Only)



|                                                           |  |      |            |   |      |   |            |  
|---------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                           |  | 2008 |            |   | 2007 |  
|Assets                                                     |  |      |            |   |      |   |            |  
|Cash                                                       |  | $    | 135,068    |   |      | $ | 367,968    |  
|Investment in McIntosh State Bank subsidiary               |  |      | 33,835,340 |   |      |   | 38,001,249 |  
|Investment in McIntosh Financial Services, Inc. subsidiary |  |      | 86,502     |   |      |   | 142,386    |  
|Other assets                                               |  |      | 1,023,716  |   |      |   | 292,936    |  
|                                                           |  |      |            |   |      |   |            |  
|Total assets                                               |  | $    | 35,080,685 |   |      | $ | 38,804,539 |  
|                                                           |  |      |            |   |      |   |            |  
|Liabilities and Stockholders Equity                       |  |      |            |   |      |   |            |  
|Unfunded pension liability                                 |  | $    | 2,766,787  |   |      | $ | 1,002,093  |  
|Other liabilities                                          |  |      | 40,375     |   |      |   |           |  
|                                                           |  |      |            |   |      |   |            |  
|Total liabilities                                          |  |      | 2,807,162  |   |      |   | 1,002,093  |  
|                                                           |  |      |            |   |      |   |            |  
|Stockholders equity:                                      |  |      |            |   |      |   |            |  
|Common stock                                               |  |      | 8,131,453  |   |      |   | 7,027,440  |  
|Surplus                                                    |  |      | 7,660,276  |   |      |   | 5,686,589  |  
|Retained earnings                                          |  |      | 16,689,822 |   |      |   | 25,172,294 |  
|Accumulated other comprehensive loss                       |  |      | (208,028   | ) |      |   | (83,877    | )
|                                                           |  |      |            |   |      |   |            |  
|Total stockholders equity                                 |  |      | 32,273,523 |   |      |   | 37,802,446 |  
|                                                           |  |      |            |   |      |   |            |  
|Total liabilities and stockholders equity                 |  | $    | 35,080,685 |   |      | $ | 38,804,539 |  
|                                                           |  |      |            |   |      |   |            |  

CONDENSED STATEMENTS OF OPERATIONS

(Parent Only)



|                                                                             |  |      |            |   |      |   |           |  
|---------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | -
|                                                                             |  | 2008 |            |   | 2007 |  
|Dividend income from Bank subsidiary                                         |  | $    |           |   |      | $ | 900,000   |  
|Dividend income from non-bank subsidiary                                     |  |      | 75,000     |   |      |   |          |  
|Interest income                                                              |  |      | 1,459      |   |      |   | 461       |  
|Income from gain on sale of securities                                       |  |      |           |   |      |   | 147,853   |  
|Operating expenses                                                           |  |      | (396,483   | ) |      |   | (216,691  | )
|                                                                             |  |      |            |   |      |   |           |  
|Income (loss) before equity in undistributed earnings (loss) of subsidiaries |  |      | (320,024   | ) |      |   | 831,623   |  
|Equity in undistributed earnings (loss) of subsidiaries                      |  |      | (7,909,460 | ) |      |   | 1,756,265 |  
|                                                                             |  |      |            |   |      |   |           |  
|Net earnings (loss)                                                          |  | $    | (8,229,484 | ) |      | $ | 2,587,888 |  
|                                                                             |  |      |            |   |      |   |           |  



31



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 16. | CONDENSED FINANCIAL INFORMATION OF McINTOSH BANCSHARES, INC. (Continued)
|-------- | ------------------------------------------------------------------------



CONDENSED STATEMENTS OF CASH FLOWS

(Parent Only)



|                                                                                                  |  |      |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                  |  | 2008 |            |   | 2007 |  
|OPERATING ACTIVITIES                                                                              |  |      |            |   |      |   |            |  
|Cash flows from operating activities:                                                             |  |      |            |   |      |   |            |  
|Net earnings (loss)                                                                               |  | $    | (8,229,484 | ) |      | $ | 2,587,888  |  
|Adjustments to reconcile net earnings (loss) to net cash (used) provided by operating activities: |  |      |            |   |      |   |            |  
|Gain on sale of securities                                                                        |  |      |           |   |      |   | (147,853   | )
|Equity in undistributed (earnings) loss of subsidiaries                                           |  |      | 7,909,460  |   |      |   | (1,756,265 | )
|Stock-based compensation                                                                          |  |      | 93,081     |   |      |   | 94,009     |  
|Other operating activities                                                                        |  |      | 162,413    |   |      |   | 105,742    |  
|                                                                                                  |  |      |            |   |      |   |            |  
|Net cash provided (used) by operating activities                                                  |  |      | (64,531    | ) |      |   | 883,521    |  
|                                                                                                  |  |      |            |   |      |   |            |  
|INVESTING ACTIVITIES                                                                              |  |      |            |   |      |   |            |  
|Cash flows from investing activities:                                                             |  |      |            |   |      |   |            |  
|Sales of securities                                                                               |  |      |           |   |      |   | 335,326    |  
|Investment in subsidiary                                                                          |  |      | (2,900,000 | ) |      |   |           |  
|                                                                                                  |  |      |            |   |      |   |            |  
|Net cash (used) provided by investing activities                                                  |  |      | (2,900,000 | ) |      |   | 335,326    |  
|                                                                                                  |  |      |            |   |      |   |            |  
|FINANCING ACTIVITIES                                                                              |  |      |            |   |      |   |            |  
|Cash flows from financing activities:                                                             |  |      |            |   |      |   |            |  
|Proceeds from exercise of stock options                                                           |  |      |           |   |      |   | 23,800     |  
|Proceeds from sale of common stock                                                                |  |      | 2,984,619  |   |      |   |           |  
|Dividends paid                                                                                    |  |      | (252,988   | ) |      |   | (1,011,771 | )
|                                                                                                  |  |      |            |   |      |   |            |  
|Net cash provided (used) by financing activities                                                  |  |      | 2,731,631  |   |      |   | (987,971   | )
|                                                                                                  |  |      |            |   |      |   |            |  
|Net change in cash                                                                                |  |      | (232,900   | ) |      |   | 230,876    |  
|Cash at beginning of year                                                                         |  |      | 367,968    |   |      |   | 137,092    |  
|                                                                                                  |  |      |            |   |      |   |            |  
|Cash at end of year                                                                               |  | $    | 135,068    |   |      | $ | 367,968    |  
|                                                                                                  |  |      |            |   |      |   |            |  



32



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 17. | 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
|2009       |  | $                | 130,788
|2010       |  |                  | 130,320
|2011       |  |                  | 130,320
|2012       |  |                  | 130,320
|2013       |  |                  | 130,320
|Thereafter |  |                  | 128,880
|           |  |                  |        
|           |  | $                | 780,948
|           |  |                  |        

The Bank has available commitments to purchase federal funds from its correspondent banks totaling
$6,500,000 as of December 31, 2008. As of December 31, 2008, the Bank has no outstanding balance under these commitments.

On
December 23, 2008, the Company entered into a Debenture Agreement with Redemptus Group LLC (Redemptus), pursuant to which the Company will issue to Redemptus $8 million in debentures. The Debenture Agreement with Redemptus provides
for the issuance to Redemptus of fixed rate debentures in principal amount of $439,229 (the Fixed Rate Debentures) and floating rate debentures in principal amount of $7,560,771 (the Floating Rate Debentures, and,
collectively with the Fixed Rate Debentures, the Debentures). The Floating Rate Debentures will have quarterly coupon payments at an annual rate based on the prime rate plus 4.50%, subject to a minimum coupon of 7.50% and a maximum
coupon of 12.75% and will be convertible at the option of the holder into common shares of the Company at a conversion price of $6.85 per share (the Conversion Price). The Conversion Price is subject to certain anti-dilution adjustments
under the terms of the Debenture Agreement.

The Fixed Rate Debentures will have quarterly coupon payments at an annual rate of 12.75% and
will be mandatorily convertible into an equal principal amount of Floating Rate Debentures upon the issuance by the Company of a sufficient number of common shares to result in Redemptus owning fewer than 25% of the outstanding common shares upon
conversion of all the Debentures.

The Debentures will be secured by all of the outstanding common stock of the Bank and a $1.5 million
interest payment account. The security interest in the Bank stock will terminate at the end of the fiscal quarter during which the Bank has consummated the sale of certain troubled assets in accordance with the provisions of the Debenture Agreement,
provided that specified capital ratios for the Company and the Bank meet or exceed well-capitalized regulatory standards and that no event of default has occurred and is continuing.

The Debentures have a term of ten years, and will be callable by the Company at its option after five years under certain conditions described in the
Debenture Agreement, subject in all cases to prior approval by the Federal Reserve Board, if then required.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 17. | OTHER COMMITMENTS AND OBLIGATIONS (Continued)
|-------- | ---------------------------------------------



Indebtedness under the Debentures may be accelerated and Redemptus or any subsequent holder of the
Debentures may exercise their rights to the collateral and receive a default rate of interest if any of the following events of default occur:



| | a) | failure to pay any obligation when due;
| | -- | ---------------------------------------



| | b) | failure to complete a subsequent private placement and the sale of certain assets in accordance with the provisions of the Debenture Agreement;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------



| | c) | breach of or default under any of the terms and conditions of the Debenture Agreement, subject to a 30-day right to cure certain breaches or defaults;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | failure to make a position available for the holders nominee on the boards of directors of the Company and the Bank;
| | -- | ---------------------------------------------------------------------------------------------------------------------



| | e) | court-ordered attachment, seizure, receivership, injunction or similar action relating to the material assets or activities of the Company or the Bank;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | f) | insolvency or bankruptcy of the Company or closure or receivership of the Bank;
| | -- | -------------------------------------------------------------------------------



| | g) | material misrepresentations or omissions reasonably relied upon in evaluating the purchase of the Debentures; or
| | -- | ----------------------------------------------------------------------------------------------------------------



| | h) | certain change in control transactions.
| | -- | ---------------------------------------

The issuance of
the Debentures is expected to close on or before March 31, 2009 and is subject to specified closing conditions, including but not limited to receipt of required regulatory approvals; receipt of transaction financing by Redemptus; completion of
a $3.0 million private placement to directors and executive officers of the Company; payment of a placement fee and reimbursement of certain expenses to Redemptus; and Redemptuss reasonable satisfaction with its continuing due diligence.
Management is negotiating to extend this agreement beyond March 31, 2009. There is no certainty this extension will occur.



|NOTE 18. | MISCELLANEOUS OPERATING INCOME AND EXPENSES
|-------- | -------------------------------------------

Significant components of other operating income and expense included in the consolidated statements of operations in excess of 1% of interest and other income for the years ended December 31, 2008 and 2007 are as follows:



|                                           |  |      |         |      |   |        
|------------------------------------------ |  | ---- | ------- | ---- | - | -------
|                                           |  | 2008 |         | 2007
|Other operating income:                    |  |      |         |      |   |        
|Secondary market mortgage origination fees |  | $    | 551,407 |      | $ | 689,261
|Other operating expenses:                  |  |      |         |      |   |        
|Professional fees                          |  | $    | 468,830 |      | $ | 404,755
|Data processing expenses                   |  | $    | 666,059 |      | $ | 626,450



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