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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2009

OR



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

For the transition period from              to
            .

Commission File Number 0-20251





Crescent Banking Company

(Exact Name of Registrant as Specified in its
Charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Georgia                                                        |  | 58-1968323                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|7 Caring Way, Jasper, GA                 |  | 30143     
|(Address of Principal Executive Offices) |  | (Zip Code)

(678) 454-2266

(Registrants Telephone Number, Including Area Code)

Not applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)





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

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

Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and small reporting
company in Rule 12b-2 of the Exchange Act (Check one):



|                        |  |                                              |  |                           |  |  
|----------------------- |  | -------------------------------------------- |  | ------------------------- |  | -
|Large Accelerated Filer |  |  ̈                                            |  | Accelerated Filer         |  |  ̈
|                        |  |                                              | 
|Non-Accelerated Filer   |  |  ̈  (do not check if small reporting company) |  | Smaller Reporting Company |  | x

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

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:

As of May 8, 2009, Crescent Banking Company had 5,391,286 shares of its common stock, par value $1.00 per share, issued and outstanding, of which 33,336 shares were held by Crescent Banking Company as treasury
stock.









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CRESCENT BANKING COMPANY

INDEX



|         |  |                                                                                       |  |         
|-------- |  | ------------------------------------------------------------------------------------- |  | --------
|         |  |                                                                                       |  | Page No.
|Part I.  |  | Financial Information                                                                 |  |         
|         |  |                                                                                      
|Item 1.  |  | Financial Statements                                                                  |  |         
|         |  |                                                                                      
|         |  | Consolidated Balance Sheets                                                           |  | 2       
|         |  |                                                                                      
|         |  | Consolidated Statements of Operations and Comprehensive Income (Loss)                 |  | 3       
|         |  |                                                                                      
|         |  | Consolidated Statements of Cash Flows                                                 |  | 5       
|         |  |                                                                                      
|         |  | Notes to Consolidated Financial Statements                                            |  | 7       
|         |  |                                                                                      
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 12      
|         |  |                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 34      
|         |  |                                                                                      
|Item 4T. |  | Controls and Procedures                                                               |  | 34      
|         |  |                                                                                      
|Part II. |  | Other Information                                                                     |  |         
|         |  |                                                                                      
|Item 1.  |  | Legal Proceedings                                                                     |  | 35      
|         |  |                                                                                      
|Item 1A. |  | Risk Factors                                                                          |  | 35      
|         |  |                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 39      
|         |  |                                                                                      
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  | 39      
|         |  |                                                                                      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 39      
|         |  |                                                                                      
|Item 5.  |  | Other Information                                                                     |  | 39      
|         |  |                                                                                      
|Item 6.  |  | Exhibits                                                                              |  | 39      



i



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PART IFINANCIAL INFORMATION



|Item 1. | CONSOLIDATED FINANCIAL STATEMENTS
|------- | ---------------------------------

CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                                                                                  |  |                          |                  |   |  |   |               |  
|----------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ---------------- | - |  | - | ------------- | -
|                                                                                                                  |  | (Unaudited)March 31,2009 |                  |   |  |  
|                                                                                                                  |  |                          | December 31,2008 |  
|Assets                                                                                                            |  |                          |                  |   |  |   |               |  
|Cash and due from banks                                                                                           |  | $                        | 29,498,634       |   |  | $ | 6,680,289     |  
|Interest-bearing deposits in banks                                                                                |  |                          | 99,502,669       |   |  |   | 63,078,645    |  
|Federal funds sold                                                                                                |  |                          | 53,950,000       |   |  |   | 83,269,000    |  
|Investment securities available-for-sale                                                                          |  |                          | 31,921,563       |   |  |   | 33,593,627    |  
|Investment securities held-to-maturity, at cost (fair value approximates $3,810,000 and $3,874,400, respectively) |  |                          | 4,000,000        |   |  |   | 4,000,000     |  
|Restricted equity securities                                                                                      |  |                          | 3,440,975        |   |  |   | 3,210,675     |  
|Mortgage loans held for sale                                                                                      |  |                          | 680,302          |   |  |   | 979,130       |  
|Loans                                                                                                             |  |                          | 776,108,967      |   |  |   | 785,389,240   |  
|Less allowance for loan losses                                                                                    |  |                          | (21,510,698      | ) |  |   | (22,280,041   | )
|                                                                                                                  |  |                          |                  |   |  |   |               |  
|Loans, net                                                                                                        |  |                          | 754,598,269      |   |  |   | 763,109,199   |  
|Premises and equipment                                                                                            |  |                          | 22,452,571       |   |  |   | 22,756,531    |  
|Other real estate owned                                                                                           |  |                          | 33,033,258       |   |  |   | 25,815,072    |  
|Cash surrender value of life insurance                                                                            |  |                          | 14,270,168       |   |  |   | 14,133,412    |  
|Deposit intangibles                                                                                               |  |                          | 147,592          |   |  |   | 179,030       |  
|Deferred tax asset                                                                                                |  |                          | 490,668          |   |  |   | 2,435,074     |  
|Other assets                                                                                                      |  |                          | 16,886,792       |   |  |   | 15,729,536    |  
|                                                                                                                  |  |                          |                  |   |  |   |               |  
|                                                                                                                  |  |                         
|Total Assets                                                                                                      |  | $                        | 1,064,873,461    |   |  | $ | 1,038,969,220 |  
|                                                                                                                  |  |                          |                  |   |  |   |               |  
|                                                                                                                  |  |                         
|Liabilities                                                                                                       |  |                          |                  |   |  |   |               |  
|Deposits                                                                                                          |  |                          |                  |   |  |   |               |  
|Noninterest-bearing                                                                                               |  | $                        | 41,795,151       |   |  | $ | 40,637,774    |  
|Interest-bearing                                                                                                  |  |                          | 924,019,945      |   |  |   | 895,223,907   |  
|                                                                                                                  |  |                          |                  |   |  |   |               |  
|Total deposits                                                                                                    |  |                          | 965,815,096      |   |  |   | 935,861,681   |  
|Short-term borrowings                                                                                             |  |                          | 13,568,509       |   |  |   | 10,018,509    |  
|Long-term borrowings                                                                                              |  |                          | 45,167,000       |   |  |   | 48,167,000    |  
|Accrued interest and other liabilities                                                                            |  |                          | 6,692,454        |   |  |   | 6,476,004     |  
|Liabilities related to discontinued operations                                                                    |  |                          | 1,694,496        |   |  |   | 1,694,496     |  
|                                                                                                                  |  |                          |                  |   |  |   |               |  
|Total liabilities                                                                                                 |  | $                        | 1,032,937,555    |   |  | $ | 1,002,217,690 |  
|                                                                                                                  |  |                          |                  |   |  |   |               |  
|                                                                                                                  |  |                         
|Shareholders equity                                                                                              |  |                          |                  |   |  |   |               |  
|Preferred stock, par value $1.00; 1,000,000 shares authorized; no shares issued or outstanding, respectively      |  | $                        |                 |   |  | $ |              |  
|Common stock, par value $1.00; 10,000,000 shares authorized; 5,387,647 and 5,384,547 issued, respectively         |  |                          | 5,387,647        |   |  |   | 5,384,547     |  
|Capital surplus                                                                                                   |  |                          | 19,319,695       |   |  |   | 19,180,530    |  
|Retained earnings                                                                                                 |  |                          | 7,027,872        |   |  |   | 12,166,918    |  
|Treasury stock, 33,336 shares                                                                                     |  |                          | (296,091         | ) |  |   | (296,091      | )
|Accumulated other comprehensive income                                                                            |  |                          | 496,783          |   |  |   | 315,626       |  
|                                                                                                                  |  |                          |                  |   |  |   |               |  
|Total shareholders equity                                                                                        |  |                          | 31,935,906       |   |  |   | 36,751,530    |  
|                                                                                                                  |  |                          |                  |   |  |   |               |  
|                                                                                                                  |  |                         
|Total liabilities and shareholders equity                                                                        |  | $                        | 1,064,873,461    |   |  | $ | 1,038,969,220 |  
|                                                                                                                  |  |                          |                  |   |  |   |               |  

See Notes to Consolidated Financial Statements.



2



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CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited)



|                                                                                    |  |                                     |            |   |      |   |            |  
|----------------------------------------------------------------------------------- |  | ----------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                    |  | For the three months endedMarch 31, |           
|                                                                                    |  | 2009                                |            |   | 2008 |  
|Interest income                                                                     |  |                                     |            |   |      |   |            |  
|Loans including fees                                                                |  | $                                   | 10,829,745 |   |      | $ | 14,142,745 |  
|Mortgage loans held for sale                                                        |  |                                     | 5,332      |   |      |   | 433        |  
|Taxable securities                                                                  |  |                                     | 411,742    |   |      |   | 337,032    |  
|Non-taxable securities                                                              |  |                                     | 23,500     |   |      |   | 6,528      |  
|Deposits in banks                                                                   |  |                                     | 406,327    |   |      |   | 9,626      |  
|Federal funds sold                                                                  |  |                                     | 29,927     |   |      |   | 232,122    |  
|                                                                                    |  |                                     |            |   |      |   |            |  
|Total interest income                                                               |  | $                                   | 11,706,573 |   |      | $ | 14,728,486 |  
|                                                                                    |  |                                     |            |   |      |   |            |  
|                                                                                    |  |                                    
|Interest expense                                                                    |  |                                     |            |   |      |   |            |  
|Deposits                                                                            |  |                                     | 8,684,603  |   |      |   | 8,773,260  |  
|Short-term borrowings                                                               |  |                                     | 161,144    |   |      |   | 154,179    |  
|Long-term borrowings                                                                |  |                                     | 427,833    |   |      |   | 621,815    |  
|                                                                                    |  |                                     |            |   |      |   |            |  
|Total interest expense                                                              |  | $                                   | 9,273,580  |   |      | $ | 9,549,254  |  
|                                                                                    |  |                                     |            |   |      |   |            |  
|                                                                                    |  |                                    
|Net interest income                                                                 |  |                                     | 2,432,993  |   |      |   | 5,179,232  |  
|Provision for loan losses                                                           |  |                                     | 2,680,000  |   |      |   | 3,604,000  |  
|                                                                                    |  |                                     |            |   |      |   |            |  
|Net interest income (loss) after provision for loan losses                          |  |                                     | (247,007   | ) |      |   | 1,575,232  |  
|                                                                                    |  |                                    
|Noninterest income                                                                  |  |                                     |            |   |      |   |            |  
|Service charges on deposit accounts                                                 |  |                                     | 322,961    |   |      |   | 381,976    |  
|Gains on sales of SBA loans                                                         |  |                                     | 23,898     |   |      |   | 72,304     |  
|Other operating income                                                              |  |                                     | 508,037    |   |      |   | 501,487    |  
|                                                                                    |  |                                     |            |   |      |   |            |  
|Total noninterest income                                                            |  | $                                   | 854,896    |   |      | $ | 955,767    |  
|                                                                                    |  |                                     |            |   |      |   |            |  
|                                                                                    |  |                                    
|Noninterest expenses                                                                |  |                                     |            |   |      |   |            |  
|Salaries and employee benefits                                                      |  |                                     | 2,858,297  |   |      |   | 3,006,458  |  
|Occupancy and equipment                                                             |  |                                     | 425,488    |   |      |   | 448,063    |  
|Supplies, postage, and telephone                                                    |  |                                     | 250,465    |   |      |   | 259,894    |  
|Advertising                                                                         |  |                                     | 77,010     |   |      |   | 104,778    |  
|Insurance expense                                                                   |  |                                     | 255,495    |   |      |   | 202,327    |  
|Depreciation and amortization                                                       |  |                                     | 429,889    |   |      |   | 418,319    |  
|Legal and professional                                                              |  |                                     | 839,888    |   |      |   | 468,468    |  
|Director fees                                                                       |  |                                     | 49,025     |   |      |   | 79,950     |  
|Foreclosed asset expense, net                                                       |  |                                     | 992,456    |   |      |   | 295,820    |  
|Other operating expenses                                                            |  |                                     | 390,780    |   |      |   | 490,270    |  
|                                                                                    |  |                                     |            |   |      |   |            |  
|Total noninterest expenses                                                          |  | $                                   | 6,568,793  |   |      | $ | 5,774,347  |  
|                                                                                    |  |                                     |            |   |      |   |            |  
|                                                                                    |  |                                    
|Loss before income taxes                                                            |  |                                     | (5,960,904 | ) |      |   | (3,243,348 | )
|Applicable income tax benefit                                                       |  |                                     | (821,857   | ) |      |   | (1,317,048 | )
|                                                                                    |  |                                     |            |   |      |   |            |  
|                                                                                    |  |                                    
|Net loss                                                                            |  |                                     | (5,139,047 | ) |      |   | (1,926,300 | )
|                                                                                    |  |                                     |            |   |      |   |            |  
|                                                                                    |  |                                    
|Other comprehensive income                                                          |  |                                     |            |   |      |   |            |  
|Unrealized gains on securities available-for-sale arising during period, net of tax |  |                                     | 181,158    |   |      |   | 189,987    |  
|                                                                                    |  |                                     |            |   |      |   |            |  
|                                                                                    |  |                                    
|Comprehensive loss                                                                  |  | $                                   | (4,957,889 | ) |      | $ | (1,736,313 | )
|                                                                                    |  |                                     |            |   |      |   |            |  

See Notes to Consolidated Financial Statements



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CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Continued)

(unaudited)



|                                         |  |                                     |       |   |      |   |       |  
|---------------------------------------- |  | ----------------------------------- | ----- | - | ---- | - | ----- | -
|                                         |  | For the three months endedMarch 31, |      
|                                         |  | 2009                                |       |   | 2008 |  
|Loss per share                           |  |                                     |       |   |      |   |       |  
|Basic loss per share                     |  | $                                   | (0.97 | ) |      | $ | (0.37 | )
|Diluted loss per share                   |  | $                                   | (0.97 | ) |      | $ | (0.37 | )
|                                         |  |                                    
|Cash dividends per share of common stock |  | $                                   | 0.00  |   |      | $ | 0.08  |  

See Notes to Consolidated Financial Statements



4



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CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                     |  |                                     |             |   |      |   |             |  
|------------------------------------------------------------------------------------ |  | ----------------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                     |  | For the three months endedMarch 31, |            
|                                                                                     |  | 2009                                |             |   | 2008 |  
|Operating Activities                                                                 |  |                                     |             |   |      |   |             |  
|Net loss                                                                             |  | $                                   | (5,139,047  | ) |      | $ | (1,926,300  | )
|Adjustments to reconcile net loss to net cash provided used by operating activities: |  |                                     |             |   |      |   |             |  
|Amortization of discount on securities                                               |  |                                     | 14,459      |   |      |   | (5,560      | )
|Amortization of deposit intangible                                                   |  |                                     | 31,438      |   |      |   | 31,438      |  
|Net gain on sale of other real estate owned                                          |  |                                     | (75,982     | ) |      |   | (46,516     | )
|Amortization of mortgage servicing rights                                            |  |                                     | 3,480       |   |      |   | 3,479       |  
|Provision for loan losses                                                            |  |                                     | 2,680,000   |   |      |   | 3,604,000   |  
|Depreciation                                                                         |  |                                     | 394,972     |   |      |   | 383,402     |  
|Proceeds from sales of mortgage loans held for sale                                  |  |                                     | 9,041,854   |   |      |   | 11,297,348  |  
|Originations of mortgage loans held for sale                                         |  |                                     | (8,743,026  | ) |      |   | (11,680,682 | )
|Income on life insurance policies                                                    |  |                                     | (136,756    | ) |      |   | (126,697    | )
|Deferred tax                                                                         |  |                                     | 1,823,634   |   |      |   | (1,221,043  | )
|Decrease in interest receivable                                                      |  |                                     | 236,893     |   |      |   | 1,343,117   |  
|Increase (decrease) in interest payable                                              |  |                                     | 5,998       |   |      |   | (474,622    | )
|Stock based compensation expense                                                     |  |                                     | 128,926     |   |      |   | 164,302     |  
|Net cash used in discontinued operations                                             |  |                                     |            |   |      |   | (167,782    | )
|Net change in other assets, liabilities and other operating activities               |  |                                     | (878,220    | ) |      |   | (1,712,364  | )
|                                                                                     |  |                                     |             |   |      |   |             |  
|Net cash used by operating activities                                                |  |                                     | (611,377    | ) |      |   | (534,480    | )
|                                                                                     |  |                                     |             |   |      |   |             |  
|                                                                                     |  |                                    
|Investing Activities                                                                 |  |                                     |             |   |      |   |             |  
|Net increase in interest-bearing deposits in banks                                   |  |                                     | (36,424,024 | ) |      |   | (1,506,974  | )
|Purchase of securities available-for-sale                                            |  |                                     | (2,038,750  | ) |      |   | (4,160,970  | )
|Purchase of securities held-to-maturity                                              |  |                                     |            |   |      |   | (4,000,000  | )
|Proceeds from maturities/calls of securities available-for-sale                      |  |                                     | 2,500,000   |   |      |   | 3,581,489   |  
|Proceeds from sales of securities available-for-sale                                 |  |                                     | 1,498,284   |   |      |   |            |  
|Purchase of other securities                                                         |  |                                     | (230,300    | ) |      |   | (251,400    | )
|Proceeds from sale of other real estate owned                                        |  |                                     | 1,736,054   |   |      |   | 490,190     |  
|Net (increase) decrease in federal funds sold                                        |  |                                     | 29,319,000  |   |      |   | (19,250,000 | )
|Net decrease in loans                                                                |  |                                     | (3,356,284  | ) |      |   | (9,594,219  | )
|Purchase of premises and equipment                                                   |  |                                     | (91,012     | ) |      |   | (328,185    | )
|                                                                                     |  |                                     |             |   |      |   |             |  
|Net cash used in investing activities                                                |  |                                     | (7,087,032  | ) |      |   | (35,020,069 | )
|                                                                                     |  |                                     |             |   |      |   |             |  

See Notes to Consolidated Financial Statements.



5



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CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS(continued)

(unaudited)



|                                                                   |  |                                     |            |      |   |            |  
|------------------------------------------------------------------ |  | ----------------------------------- | ---------- | ---- | - | ---------- | -
|                                                                   |  | For the three months endedMarch 31, |           
|                                                                   |  | 2009                                |            | 2008 |  
|Financing Activities                                               |  |                                     |            |      |   |            |  
|Net increase in deposits                                           |  |                                     | 29,953,415 |      |   | 37,383,248 |  
|Net increase in borrowings                                         |  |                                     | 550,000    |      |   |           |  
|Excess tax benefits from share-based payment arrangements          |  |                                     |           |      |   | 96,566     |  
|Issuance of common stock for dividend reinvestment plan            |  |                                     |           |      |   | 202,734    |  
|Issuance of common stock for share purchase plan                   |  |                                     | 13,339     |      |   |           |  
|Proceeds from the exercise of stock options                        |  |                                     |           |      |   | 42,083     |  
|Dividends paid                                                     |  |                                     |           |      |   | (420,627   | )
|                                                                   |  |                                     |            |      |   |            |  
|Net cash provided by financing activities                          |  |                                     | 30,516,754 |      |   | 37,304,004 |  
|                                                                   |  |                                     |            |      |   |            |  
|                                                                   |  |                                    
|Net increase in cash and due from banks                            |  |                                     | 22,818,345 |      |   | 1,749,455  |  
|Cash and due from banks at beginning of period                     |  |                                     | 6,680,289  |      |   | 7,700,345  |  
|                                                                   |  |                                     |            |      |   |            |  
|Cash and due from banks at end of period                           |  | $                                   | 29,498,634 |      | $ | 9,449,800  |  
|                                                                   |  |                                     |            |      |   |            |  
|                                                                   |  |                                    
|Supplemental Disclosure of Cash Flow Information                   |  |                                     |            |      |   |            |  
|Cash paid during period for interest                               |  | $                                   | 9,267,582  |      | $ | 10,023,876 |  
|Cash paid during period for taxes                                  |  |                                     |           |      |   | 613,000    |  
|Principal balances of loans transferred to other real estate owned |  |                                     | 9,187,214  |      |   | 428,925    |  
|Unrealized loss on securities available for sale, net              |  |                                     | 181,158    |      |   | 189,987    |  

See Notes to Consolidated Financial Statements



6



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

NOTE 1GENERAL

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles
(GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for
complete financial statements. These unaudited consolidated financial statements should be read in conjunction with the Companys consolidated financial statements and notes thereto in the 2008 annual report on Form 10-K. In the opinion of
management, all adjustments necessary for a fair presentation of the financial position and results of operations of the interim periods have been made. All such adjustments are of a normal recurring nature. Results of operations for the three
months ended March 31, 2009 are not necessarily indicative of the results of operations for the full year or any other interim periods.

NOTE
2DISCONTINUED OPERATIONS

The consolidated balance sheets at both March 31, 2009 and December 31, 2008 include
liabilities of $1,694,496 related to discontinued operations. The liabilities included in the consolidated balance sheets related to discontinued operations are the allowance for the recourse liability remaining from the sale of the Companys
wholesale mortgage operation in 2003. The estimated recourse liability at both March 31, 2009 and December 31, 2008 for future losses is $1.7 million and is estimated and adjusted based upon historical information on the number of loans
indemnified and the average loss on an indemnified loan. The table below shows the changes in the allowance for recourse obligation from December 31, 2008 to March 31, 2009.

Changes in the allowance for recourse obligation are as follows:



|                                    |  |      |          
|----------------------------------- |  | ---- | ---------
|                                    |  | 2009
|Balance at December 31, 2008        |  | $    | 1,694,496
|Provisions for recourse obligations |  |      |         
|Losses indemnified                  |  |      |         
|                                    |  |      |          
|Balance at March 31, 2009           |  | $    | 1,694,496
|                                    |  |      |          

NOTE 3LOANS



|                                                         |  |               |             |   |                  |   |             |  
|-------------------------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|The composition of loans is summarized as follows:       |  |               |             |   |                  |   |             |  
|                                                         |  |              
|                                                         |  | March 31,2009 |             |   | December 31,2008 |  
|Commercial                                               |  | $             | 36,694,771  |   |                  | $ | 36,184,933  |  
|Real estate  construction and land development          |  |               | 329,377,310 |   |                  |   | 347,117,835 |  
|Real estate  mortgage                                   |  |               | 395,933,325 |   |                  |   | 387,172,975 |  
|Consumer installment and other                           |  |               | 14,103,561  |   |                  |   | 14,913,497  |  
|                                                         |  |               |             |   |                  |   |             |  
|                                                         |  |               | 776,108,967 |   |                  |   | 785,389,240 |  
|Allowance for loan losses                                |  |               | (21,510,698 | ) |                  |   | (22,280,041 | )
|                                                         |  |               |             |   |                  |   |             |  
|Loans, net                                               |  | $             | 754,598,269 |   |                  | $ | 763,109,199 |  
|                                                         |  |               |             |   |                  |   |             |  
|                                                         |  |              
|Changes in the allowance for loan losses are as follows: |  |               |             |   |                  |   |             |  
|                                                         |  |              
|Balance at December 31, 2008                             |  | $             | 22,280,041  |   |                  |   |             |  
|Provision for loan losses                                |  |               | 2,680,000   |   |                  |   |             |  
|Loans charged off                                        |  |               | (3,502,677  | ) |                  |   |             |  
|Recoveries of loans previously charged off               |  |               | 53,334      |   |                  |   |             |  
|                                                         |  |               |             |   |                  |   |             |  
|Balance at March 31, 2009                                |  | $             | 21,510,698  |   |                  |   |             |  
|                                                         |  |               |             |   |                  |   |             |  

The investment in non-performing loans, consisting of renegotiated and non-accrual loans, was $30,281,893 and
$36,778,482 at March 31, 2009 and December 31, 2008, respectively. Total non-performing loans outstanding that required a specific allowance were $7,314,980 and $21,994,274, respectively, as of March 31, 2009 and December 31,
2008. Total allowances of



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NOTE 3LOANS (CONTINUED)



approximately $1,907,000 and $4,680,000 have been established for non-performing loans outstanding as of March 31, 2009 and December 31, 2008,
respectively. Of the non-performing loans without a specific allowance at March 31, 2009, the Company has already charged-off amounts totaling $4,261,665. Of the $30,281,893 and $36,778,482 in non-performing loans at March 31, 2009 and
December 31, 2008, $6,688,234 and $17,896,747, respectively, was related to renegotiated loans. In relation to these loans, the Company has either reduced interest rates or deferred interest payments in order to provide the borrowers time to
reorganize their finances. Total renegotiated loans outstanding that required a specific allowance were $6,272,157 and $17,760,378 at March 31, 2009 and December 31, 2008, respectively. The total specific allowance on these renegotiated
loans was approximately $1,513,000 and $3,384,000 at March 31, 2009 and December 31, 2008, respectively.

Total impaired loans,
which include our total non-performing loans of $30,281,893 discussed above, was $61,900,493 at March 31, 2009. This compares to total impaired loans of $65,620,890 at December 31, 2008. Of our total impaired loans, $38,933,580 required a
specific allowance totaling approximately $8,316,000. Of the impaired loans without a specific allowance at March 31, 2009, the Company has already charged-off amounts totaling $4,261,665.

NOTE 4EARNINGS (LOSS) PER SHARE

The following
is a reconciliation of net loss (the numerator) and weighted average shares outstanding (the denominator) used in determining basic and diluted earnings (loss) per common share (EPS):



|                                                                   |  |                                   |            |   |                                     |           |                 |   |       |  
|------------------------------------------------------------------ |  | --------------------------------- | ---------- | - | ----------------------------------- | --------- | --------------- | - | ----- | -
|                                                                   |  | Three Months Ended March 31, 2009 |           
|                                                                   |  | Net Loss(Numerator)               |            |   | Weighted-AverageShares(Denominator) |           | Per-ShareAmount |  
|Consolidated                                                       |  |                                   |            |   |                                     |           |                 |   |       |  
|Basic loss per share                                               |  | $                                 | (5,139,047 | ) |                                     | 5,271,915 |                 | $ | (0.97 | )
|Effect of dilutive securities (stock options and restricted stock) |  |                                   |           |   |                                     |          |                 |   |      |  
|Diluted loss per share                                             |  | $                                 | (5,139,047 | ) |                                     | 5,271,915 |                 | $ | (0.97 | )
|                                                                   | 
|                                                                   |  | Three Months Ended March 31, 2008 |           
|                                                                   |  | Net Loss(Numerator)               |            |   | Weighted-AverageShares(Denominator) |           | Per-ShareAmount |  
|Consolidated                                                       |  |                                   |            |   |                                     |           |                 |   |       |  
|Basic loss per share                                               |  | $                                 | (1,926,300 | ) |                                     | 5,177,789 |                 | $ | (0.37 | )
|Effect of dilutive securities (stock options and restricted stock) |  |                                   |           |   |                                     | 48,786    |                 |   |      |  
|Diluted loss per share                                             |  | $                                 | (1,926,300 | ) |                                     | 5,226,575 |                 | $ | (0.37 | )

NOTE 5DERIVATIVE FINANCIAL INSTRUMENTS

In order to manage its interest rate sensitivity, the Company uses off-balance sheet contracts that are considered derivative financial instruments.
Derivative financial instruments can be a cost-effective and capital effective means of modifying the repricing characteristics of on-balance sheet assets and liabilities. At March 31, 2009 and December 31, 2008, the Company was a party to
interest rate swap contracts (back-end derivatives) under which it pays a fixed rate of interest and receives a variable rate of interest. The notional amount of the interest rate swaps was approximately $8,560,000 with a fair value of approximately
$(1,331,000) at March 31, 2009 and approximately $8,764,000 with a fair value of approximately $(1,407,000) at December 31, 2008. The Company also has an embedded derivative in each of the loan agreements (front-end derivative) that would
require the borrower to pay or receive from the Bank an amount equal to and offsetting the value of the interest rate swaps. These front-end and back-end derivatives are recorded in other assets and other liabilities. The net effect of recording the
derivatives at fair value through earnings was immaterial to the Companys financial condition and results of operations as of and for the three months ended March 31, 2009. If a counterparty, in particular our borrower, fails to perform
and the market value of the financial derivative is negative, the Company would be obligated to pay the settlement amount for the financial derivative. If the market value is positive, the Company would receive a payment for the settlement amount
for the financial derivative. The settlement amount of the financial derivative could be material to the Company and is determined by the fluctuation of interest rates.



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NOTE 5DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)



The Companys policy requires all derivative financial instruments be used only for
asset/liability management through the hedging of specific transactions or positions, and not for trading or speculative purposes. The Company is subject to the risk that a counterparty, in particular our borrower, will fail to perform; however,
management believes that the risk associated with using derivative financial instruments to mitigate interest rate risk sensitivity is minimal and should not have any material unintended impact on the financial condition or results of operations.

NOTE 6FAIR VALUE MEASUREMENT

SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair value:

Level 1

Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are
traded in an active exchange market, as well as certain U.S. Treasury, other U.S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2

Observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets
and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can
be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency mortgage-backed debt securities, corporate debt securities, derivative contracts and residential mortgage
loans held-for-sale.

Level 3

Unobservable inputs that
are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments, retained residual
interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

Following is
a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. If the fair value measurement is based upon
quoted prices of like or similar securities, then the investment securities available-for-sale are classified as Level 2. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation
techniques such as the present value of future cash flows, adjusted for the securitys credit rating, prepayment assumptions and other factors such as credit loss assumptions, and the investment securities available-for-sale are classified as
Level 3.

Mortgage Loans Held for Sale

Mortgage Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company
classifies loans subjected to nonrecurring fair value adjustments as Level 2.



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NOTE 6FAIR VALUE MEASUREMENT (CONTINUED)



Impaired 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 considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS
No. 114, Accounting by Creditors for Impairment of a Loan. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation
value and discounted cash flows. 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 March 31, 2009, substantially
all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with SFAS No. 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

Other real estate, consisting of
properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent
sources, adjusted for estimated selling costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Gains or losses on sale
and any subsequent adjustments to the value are recorded as a component of foreclosed real estate expense. As such, the Company classifies other real estate subjected to nonrecurring fair value adjustments as Level 3.

Derivative Assets and Liabilities

The derivative
instruments held or issued by the Company for risk management or customer-initiated activities are traded in over-the-counter markets where quoted market prices are not readily available. For those derivatives, the Company measures fair value based
on a third party model that uses primarily market observable inputs, such as yield curves and option volatilities, and includes the value associated with counterparty credit risk. The Company classifies derivative instruments held or issued for risk
management or customer-initiated activities as Level 2. An example of a Level 2 derivative would be interest rate swaps.

Assets and Liabilities
Recorded at Fair Value on a Recurring Basis

Below is a table that presents information about certain assets and liabilities measured at
fair value on a recurring basis:



|                              |  |                              |  |                                                        |        |   |                                         |   |                        |   |        |   |  |   |        |  
|----------------------------- |  | ---------------------------- |  | ------------------------------------------------------ | ------ | - | --------------------------------------- | - | ---------------------- | - | ------ | - |  | - | ------ | -
|                              |  | March 31, 2009               | 
|                              |  | Fair Value Measurement using |  | Total Carrying Amountin Statement ofFinancial Position |        |   | Assets/LiabilitiesMeasured atFair Value |  
|Description                   |  | Level 1                      |  | Level 2                                                |        |   | Level 3                                 |   |                       
|                              |  |                              |  |                                                        |        |   |                                         |   | (Amounts in Thousands) |   |        |   | 
|Securities available-for-sale |  |                             |  | $                                                      | 31,922 |   |                                         |  |                        | $ | 31,922 |   |  | $ | 31,922 |  
|Derivative assets             |  |                             |  | $                                                      | 1,331  |   |                                         |  |                        | $ | 1,331  |   |  | $ | 1,331  |  
|Derivative liabilities        |  |                             |  | $                                                      | (1,331 | ) |                                         |  |                        | $ | (1,331 | ) |  | $ | (1,331 | )



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NOTE 6FAIR VALUE MEASUREMENT (CONTINUED)



Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These include
assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below.



|                                          |  |                              |  |                                                        |     |                                         |   |                        |  |   |        |  |   |       
|----------------------------------------- |  | ---------------------------- |  | ------------------------------------------------------ | --- | --------------------------------------- | - | ---------------------- |  | - | ------ |  | - | ------
|                                          |  | March 31, 2009              
|                                          |  | Fair Value Measurement using |  | Total Carrying Amountin Statement ofFinancial Position |     | Assets/LiabilitiesMeasured atFair Value
|Description                               |  | Level 1                      |  | Level 2                                                |     | Level 3                                 |   |                       
|                                          |  |                              |  |                                                        |     |                                         |   | (Amounts in Thousands) |  |  
|Impaired loans                            |  |                             |  |                                                        |    |                                         | $ | 45,899                 |  | $ | 45,899 |  | $ | 45,899
|Other Real Estate                         |  |                             |  |                                                        |    |                                         | $ | 32,598                 |  | $ | 32,598 |  | $ | 32,598
|Other Assets  Trust Preferred Investment |  |                             |  | $                                                      | 176 |                                         |   |                       |  | $ | 176    |  | $ | 176   

NOTE 7SUBSEQUENT EVENTS

On April 29, 2009, the board of directors of the Companys wholly-owned subsidiary, Crescent Bank and Trust Company (the Bank), the Federal Deposit Insurance Corporation (the FDIC) and the
Georgia Department of Banking and Financing (the Georgia Department), entered into an order (the Order), requiring the Bank to cease and desist from certain unsafe and unsound practices and to adopt a program of corrective
action as a means of addressing the identified deficiencies. The Order became effective on May 11, 2009. The Order alleged that the Bank is: operating with a board of directors that has failed to provide adequate supervision over and direction to
the management of the Bank; operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits; operating with marginally adequate equity capital and reserves in relation to the volume and
quality of assets held by the Bank; operating with an excessive level of adversely classified items; operating with inadequate provisions for liquidity and funds management; operating with hazardous loan underwriting and administration practices;
operating in such a manner as to produce operating losses; and operating in apparent violation of certain laws, regulations and/or statements of policy.

The Order requires that the Bank implement a number of actions, including: developing a written analysis and assessment of the Banks management and staffing needs; increasing the board of directors
participation in the Banks affairs; and having and retaining qualified management, including a chief executive officer responsible for the supervision of the lending function and a senior lending officer with experience in upgrading a low
quality loan portfolio. The Order further requires the Bank to: increase its capital so that it has a minimum Tier 1 Capital Ratio of 8.0% and a minimum Total Risk Based Capital Ratio of at least 10.0% within 120 days of the effective date of the
Order; eliminate certain classified assets not previously collected or charged-off; reduce risk exposure with respect to certain problem assets; cease the extension of additional credit to certain borrowers; implement a plan to improve the
Banks lending practices; implement a plan for reducing credit concentration; establish and maintain a policy to ensure the adequacy of the allowance for loan losses; formulate and implement a plan to improve earnings; implement an
assets/liability management policy; develop and implement a written liquidity contingency funding plan; obtain a waiver from the FDIC prior to accepting, renewing or rolling over brokered deposits; review and implement Bank Secrecy Act compliance;
and eliminate or correct all apparent violations of law. The Banks board of directors consented to the Order without admitting to or denying any of these allegations.

These findings were the result of a regulatory examination of the Bank that was completed in July 2008 and are based upon the Banks June 30, 2008
financial information. Prior to receiving the Report of Examination from the FDIC and the related Order in April 2009, the Banks management had already begun to undertake a process to address many of the deficiencies that were cited in the
Order. In October 2008, the board of directors of the Company and the Bank proactively adopted a self-imposed Action Plan to address many of the challenges that the Company and the Bank are facing. Under the Action Plan, the Bank has
improved its liquidity position, aggressively recognized and reserved for troubled assets, reduced its concentrations in development and construction loans, reduced overhead, started strategic initiatives to increase transaction deposits,
implemented a plan to reduce wholesale and broker deposits and conducted an outside assessment of management and staffing levels.

In
addition, the Banks board of directors has created a Directors Committee to ensure that all of the deficiencies noted in the Order are being addressed in a timely and effective manner. Pursuant to the Order, the Bank is required to provide a
quarterly report to the Georgia Department and the FDIC reflecting its progress status towards full compliance with the Order.

NOTE 8 GOING
CONCERN OPINION

Dixon Hughes PLLC, the Companys independent registered public accounting firm, has issued a report with respect
to the Companys audited financial statements for the fiscal year ended December 31, 2008 that contains an explanatory paragraph indicating that there is substantial doubt about the Companys ability to continue as a going concern.
Continued operations depend on our ability to raise additional capital, which we may be unable to accomplish in this weakened economic environment. The potential lack of sources of liquidity raises substantial doubt about our ability to continue as
a going concern for the foreseeable future.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Special Cautionary Notice Regarding Forward-Looking Statements

Certain of the statements made or
incorporated by reference in this Form 10-Q, including those under Managements Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this report, may constitute forward-looking
statements within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act).

Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, targets,
expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control, and which may cause the actual results,
performance or achievements of Crescent Banking Company (Crescent or the Company), or the commercial banking industry or economy generally, to be materially different from future results, performance or achievements expressed
or implied by such forward-looking statements.

All statements other than statements of historical fact are statements that may be
forward-looking statements. You can identify these forward-looking statements through our use of words such as may, will, anticipate, assume, should, indicate,
would, believe, contemplate, expect, estimate, continue, plan, target, point to, project, predict, could,
intend, target, potential, and other similar words and expressions of the future or otherwise regarding the outlook for the Companys future business and financial performance and/or the performance of the
commercial banking industry and economy generally. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:



| |  |  | the effects of economic and business conditions, including, without limitation, the recent and dramatic deterioration of the subprime, mortgage, credit and
liquidity markets, as well as the Federal Reserves actions with respect to interest rates, all of which have contributed to the recent compression in the Companys net interest margin and may cause further compression in future periods;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | governmental monetary and fiscal policies, as well as legislative and regulatory changes, including changes in banking, securities and tax laws and regulations, as
well as changes affecting financial institutions ability to lend and otherwise do business with consumers;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risks of changes in interest rates and the yield curve on the levels, composition and costs of deposits, loan demand, and the values of loan collateral,
securities, and interest rate sensitive assets and liabilities;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | credit risks of borrowers, including, without limitation, an increase in those risks as a result of changing economic conditions;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risk that one or more of a small number of borrowers to whom we have made substantial loans are unable to make payments on those loans;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | risks related to loans secured by real estate, including the risk that changes in the real estate markets might cause decreases in the value and marketability of
collateral;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Companys ability to originate loans and build and manage its assets with a tolerable level of credit risk, and to adopt, maintain and implement policies
and procedures designed to identify, address and protect against losses resulting from any such risks;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases in the Companys non-performing assets (whether as part of non-accrual loans or other real estate owned), or the Companys inability to recover
or absorb losses created by such non-performing assets;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effects of competition from a wide variety of local, regional, national, and other providers of financial, investment, mortgage and insurance services,
including, without limitation, the effects of interest rates and products that the Company may elect to provide in the face of such competition, which could negatively affect net interest margin and other important financial measures at the Company;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the failure of assumptions underlying the establishment of allowances for loan losses and other estimates, or dramatic changes in those underlying assumptions or
judgments in future periods, that, in either case, render the allowance for loan losses inadequate or require that further provisions for loan losses be made, or that render us unable to timely and favorably identify and resolve credit quality
issues as they arise;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | the increased expenses associated with our efforts to address credit quality issues, including expenses related to hiring additional personnel or retaining third
party firms to perform credit quality reviews;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Companys ability to maintain adequate liquidity to fund its operations and future growth, especially in light of the volume of the Companys
commercial bank loan production and the competitive pricing for deposits in the Companys principal market area;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the inability of the Company to raise capital to fund our operations, particularly the origination of new loans and other strategic initiatives;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in accounting policies, rules and practices;
| | - |  | ----------------------------------------------------



| |  |  | changes in technology and/or products that may be more difficult or costly, or less effective, than anticipated;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | the effects of war or other conflict, acts of terrorism or other catastrophic events that affect general economic conditions; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | other factors and other information contained in this report and in other reports that the Company makes with the Securities and Exchange Commission (the
Commission) under the Exchange Act.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All written or oral forward-looking statements that are made by or are
attributable to us are expressly qualified in their entirety by this cautionary notice. You should not place undue reliance on any forward-looking statements, since those statements speak only as of the date that they are made. We have no obligation
and do not undertake to publicly update, revise or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made, whether as a result of new information, future
events or otherwise, except as may otherwise be required by law.

Recent Developments

General

During 2008 and the first quarter of 2009, turmoil within the financial services industry,
the economy and the effect on real estate generally contributed to an increase in the Companys non-performing assets and a decrease in the Companys earnings. In response, the Company has taken what it believes to be an aggressive
approach with respect to determining the probability of losses in its loan portfolio. The Company attempted to strengthen its credit structure to assure sound operating practices during these challenging times. The Company and its wholly owned
subsidiary, Crescent Bank and Trust Company (the Bank or Crescent Bank), were not adequately capitalized under all applicable regulatory capital measurements as of March 31, 2009. In addition, the Federal Deposit
Insurance Corporation (the FDIC), as the Banks primary federal regulator and deposit insurer, and the Georgia Department of Banking and Finance (the Georgia Department), as the Banks chartering authority, have
issued an order (the Order), as described more fully below, requiring the Bank to cease and desist from certain unsafe and unsound practices and to adopt a program of corrective action as a means to address the identified deficiencies.

In light of the foregoing, the Company is making all efforts to increase its capital ratios and liquidity. As part of those efforts, the
Company has retained the services of investment bankers to review all strategic opportunities available to the Company and the Bank. We have been actively pursuing a number of capital-raising alternatives including, without limitation, through a
private placement (the Private Placement) of approximately $27.2 million of convertible preferred stock to a group of investors comprised of members of our management and board of directors, as well as several third-party investors
(collectively, the Purchasers), and participation in the Capital Purchase Program administered by the U.S. Department of the Treasury (the Treasury) under the Troubled Asset Relief Program. Consummation of the Private
Placement was subject to a number of closing conditions, including, without limitation, the Treasurys approval of our Capital Purchase Program application. On March 3, 2009, we voluntarily withdrew our application to participate in the
Capital Purchase Program and this condition was not waived by the Purchasers. As a result, on March 31, 2009, the Company and the Purchasers mutually agreed to terminate the purchase agreement with respect to the Private Placement and the
purchase price, which had been held in escrow, was returned to the Purchasers.

The Company is continuing to pursue a variety of strategic
alternatives, however, there is no assurance that the Companys capital raising efforts will be successful, particularly in the current economic environment. In the event we are unable to raise additional capital, our ability to operate may be
significantly impacted.



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Cease and Desist Order

On April 29, 2009, the Banks board of directors, the FDIC and the Georgia Department entered into the Order, requiring the Bank to cease and desist from certain unsafe and unsound practices and to adopt a
program of corrective action as a means of addressing the identified deficiencies. The Order became effective on May 11, 2009. The Order alleged that the Bank is: operating with a board of directors that has failed to provide adequate
supervision over and direction to the management of the Bank; operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits; operating with marginally adequate equity capital and
reserves in relation to the volume and quality of assets held by the Bank; operating with an excessive level of adversely classified items; operating with inadequate provisions for liquidity and funds management; operating with hazardous loan
underwriting and administration practices; operating in such a manner as to produce operating losses; and operating in apparent violation of certain laws, regulations and/or statements of policy.

The Order requires that the Bank implement a number of actions, including developing a written analysis and assessment of our management and staffing
needs; increasing our board of directors participation in our affairs; and having and retaining qualified management, including a chief executive officer responsible for the supervision of the lending function and a senior lending officer with
experience in upgrading a low quality loan portfolio. The Order further requires us to increase our capital so that we have a minimum Tier 1 Capital Ratio of 8.0% and a minimum Total Risk Based Capital Ratio of at least 10.0% within 120 days of the
effective date of the Order; eliminate certain classified assets not previously collected or charged-off; reduce risk exposure with respect to certain problem assets; cease the extension of additional credit to certain borrowers; implement a plan to
improve our lending practices; implement a plan for reducing credit concentration; establish and maintain a policy to ensure the adequacy of the allowance for loan losses; formulate and implement a plan to improve earnings; implement an
assets/liability management policy; develop and implement a written liquidity contingency funding plan; obtain a waiver from the FDIC prior to accepting, renewing or rolling over brokered deposits; review and implement Bank Secrecy Act compliance;
and eliminate or correct all apparent violations of law. The Banks board of directors consented to the Order without admitting to or denying any of these allegations.

These findings were the result of a regulatory examination of our Bank that was completed in July 2008 and are based upon the Banks June 30,
2008 financial information. Prior to receiving the Report of Examination from the FDIC and the related Order in April 2009, our management had already begun to undertake a process to address many of the deficiencies that were cited in the
Order. In October 2008, the board of directors of the Company and the Bank proactively adopted a self-imposed Action Plan to address many of the challenges that the Company and the Bank are facing. Under the Action Plan, the Bank
has improved its liquidity position, aggressively recognized and reserved for troubled assets, reduced its concentrations in development and construction loans, reduced overhead, started strategic initiatives to increase transaction deposits,
implemented a plan to reduce wholesale and broker deposits and conducted an outside assessment of management and staffing levels.

In
addition, the Banks board of directors has created a Directors Committee to ensure that all of the deficiencies noted in the Order are being addressed in a timely and effective manner. Pursuant to the Order, we are required to provide a
quarterly report to the Georgia Department and the FDIC reflecting our then current progress status towards full compliance with the Order.

The Order does not affect the Banks ability to continue to conduct its banking business with customers in a normal fashion. Bank products and services, hours of operation, Internet banking and ATM usage will all be unaffected, and the
Banks deposits will remain insured by the FDIC to the maximum allowed by law.

Overview

As of March 31, 2009, the Company was made up of the following entities:



| |  |  | Crescent Banking Company, which is the parent holding company of Crescent Bank & Trust Company and Crescent Mortgage Services, Inc. (CMS);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Crescent Bank, a community-focused commercial bank;
| | - |  | ---------------------------------------------------



| |  |  | CMS, a mortgage banking company;
| | - |  | --------------------------------



| |  |  | Crescent Capital Trust II, a Delaware statutory business trust;
| | - |  | ---------------------------------------------------------------



| |  |  | Crescent Capital Trust III, a Delaware statutory business trust; and
| | - |  | --------------------------------------------------------------------



| |  |  | Crescent Capital Trust IV, a Delaware statutory business trust.
| | - |  | ---------------------------------------------------------------



14



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##### Table of Contents

For purposes of the discussion contained in this Item 2, the words the Company,
we, us and our refer to the combined entities of Crescent Banking Company and its wholly owned subsidiaries, Crescent Bank and CMS. The words Crescent, Crescent Bank or the
Bank, and CMS refer to the individual entities of Crescent Banking Company, Crescent Bank & Trust Company and Crescent Mortgage Services, Inc., respectively.

In accordance with Financial Accounting Standards Board Interpretation No. 46R (FIN 46), Crescent Capital Trust II, Crescent Capital Trust III and
Crescent Capital Trust IV (together, the Trusts) are not consolidated with the Company. Accordingly, the Company does not report the securities issued by the Trusts as liabilities, and instead reports as liabilities the junior
subordinated debentures issued by the Company and held by the Trusts. The Company further reports its investment in the common shares of the Trusts as other assets. The Company has fully and unconditionally guaranteed the payment of interest and
principal on the trust preferred securities to the extent that the Trusts have sufficient assets to make such payments but fail to do so. Of the $21.5 million in trust preferred securities currently outstanding, approximately $13.4 million qualifies
as tier 1 capital for regulatory capital purposes.

The Companys principal executive offices, including the principal executive
offices of Crescent Bank and CMS, are located at 7 Caring Way, Jasper, Georgia 30143, and the telephone number at that address is (678) 454-2266. The Company maintains an Internet website at www.crescentbank.com. The Company is not
incorporating the information on that website into this report, and the website and the information appearing on the website are not included in, and are not part of, this report.

As of March 31, 2009, the Company had total consolidated assets of approximately $1.1 billion, total deposits of approximately $965.8 million, total
consolidated liabilities, including deposits, of $1.0 billion and consolidated stockholders equity of approximately $31.9 million. The Companys operations are discussed below under the section captioned Results of Operations.

Commercial Banking Business

The
Company currently conducts its traditional commercial banking operations through Crescent Bank. The Bank is a Georgia banking corporation that was founded in August 1989. The Bank is a member of the FDIC. The Banks deposits are insured by the
FDICs Deposit Insurance Fund (DIF). The Bank is also a member of the Federal Home Loan Bank of Atlanta.

Through the
Bank, the Company provides a broad range of banking and financial services to those areas surrounding Jasper, Georgia. As its primary market area, the Bank focuses on Pickens, Bartow, Forsyth, Cherokee and north Fulton Counties, Georgia and nearby
Dawson, Cobb, Walton and Gilmer Counties, Georgia, which are situated to the north of Atlanta, Georgia. The Banks commercial banking operations are primarily retail-oriented and focused on individuals and small to medium-sized businesses
located within its primary market area. While the Bank provides most traditional banking services, its principal activities as a community bank are the taking of demand and time deposits and the making of secured and unsecured consumer loans and
commercial loans to its target customers. The retail nature of the Banks commercial banking operations allows for diversification of depositors and borrowers, and the Banks management believes it is not dependent upon a single or a few
customers. The Bank does not have a significant portion of commercial banking loans concentrated within a single industry or group of related industries. However, approximately 93% of the Banks loan portfolio is secured by commercial and
residential real estate in its primary market area. Our entire market area has experienced a significant weakening in the real estate markets during 2008 and the first quarter of 2009, in particular with respect to real estate related to
acquisition, development and construction, and we anticipate that such markets will continue to weaken in 2009. Acquisition, development and construction loans or ADC are cyclical and pose risks of possible loss due to concentration
levels and similar risks of the asset. As of March 31, 2009, we had approximately $329.4 million in ADC loans, or approximately 42% of our loan portfolio. The Bank has limited any new ADC loans in 2008 and the first quarter of 2009 due to the
declining real estate market and the Banks ADC loans have declined by approximately 21% since December 31, 2007. The Banks criticized loans, non-performing loans and foreclosed properties related to its ADC loan portfolio increased
$49.1 million to $57.3 million, increased $17.1 million to $20.3 million and increased $24.1 million to $24.4 million, respectively, from December 31, 2007 compared to March 31, 2009. The deterioration in our ADC loan portfolio is due to
the increase in the inability of some borrowers to make payments and the decrease in sales activity and property values within the residential real estate market in our market area during the last quarter of 2007, 2008 and the first quarter of 2009.

The Company does not consider its commercial banking operations to be seasonal in nature. Real estate activity and values tend to be
cyclical and vary over time with interest rate fluctuations and general economic conditions.

Challenges for the Commercial Banking Business

Our commercial banking business has four primary challenges for the future: interest rate risk, a competitive marketplace, liquidity
and credit risk. The Banks principal source of income is its net interest income. Net interest income is the



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##### Table of Contents

difference between the interest income we receive on our interest-earning assets, such as investment securities and loans, and the interest expense paid on
our interest-bearing liabilities, such as deposits and borrowings. The greatest risk to our net interest margin is interest rate risk from interest rate fluctuation, which, if not anticipated and managed, can result in a decrease in earnings or
earnings volatility. The Company manages interest rate risk by maintaining what it believes to be the proper balance of rate sensitive assets and rate sensitive liabilities. Rate sensitive assets and rate sensitive liabilities are those that can be
repriced to current rates within a relatively short time period. The Federal Reserve decreased interest rates 100 basis points during the last half of 2007 and an additional 400 basis points during 2008. Our net interest margin declined from 3.68%
for 2007 to 1.85% during 2008, mainly as a result of the decreases in interest rates. Our net interest margin declined further during the first quarter of 2009 to 1.00%. The further decline in our net interest margin during the first quarter of 2009
was due to the increase in non-performing assets and the subsequent write-off of approximately $714,000 in accrued interest on these assets and the Companys strategic decision to increase its liquidity in which the Company held more short term
liquid assets that have lower yields. Further action by the Federal Reserve with respect to interest rates will depend on many factors that are not known at this time and which are beyond our control and could further impact our net interest margin.
During the 0- to 90-day period in which we are most sensitive to interest rate changes, the Company is considered asset sensitive, and if interest rates rise, our net interest margin would be expected to improve. Conversely, if interest rates
continue to fall, our net interest margin will further decline based on the Companys present asset sensitive position. During the one year period, the Bank is considered liability sensitive and if interest rates rise, our net interest margin
would be expected to decrease over the one year time frame. Conversely, if interest rates continue to fall, our net interest margin will improve over the one year time frame based upon the Companys present liability sensitive position.

The second challenge for the Companys commercial banking business is that it operates in highly competitive markets. The Bank
competes directly for deposits in its primary market area with other commercial banks, savings and loan associations, credit unions, mutual funds, securities brokers and insurance companies, locally, regionally and nationally, some of which compete
by offering products and services by mail, telephone and the Internet. In its commercial bank lending activities, the Bank competes with other financial institutions as well as consumer finance companies, mortgage companies and other lenders engaged
in the business of extending credit to customers located in its primary market area. Interest rates, both on loans and deposits, and prices of services are significant competitive factors among financial institutions generally. Important competitive
factors, such as office location, types and quality of services and products, office hours, customer service, a local presence, community reputation and continuity of personnel, among others, are and continue to be a focus of the Bank. Many of the
largest banks operating in Georgia, including some of the largest banks in the country, also have offices within the Banks primary market area. Virtually every type of competitor offering products and services of the type offered by the Bank
has offices in Atlanta, Georgia, which is approximately 60 miles away from Jasper. Many of these institutions have greater resources, broader geographic markets and higher lending limits than the Company and may offer various services that the
Company does not offer, and may be able to better afford and make broader use of media advertising, support services and electronic technology. In addition, as a result of recent developments in the credit and liquidity markets, many of our
competitors in our primary market area, in order to attract deposits, have recently offered interest rates on certificates of deposit and other products that we are unable to offer. To offset these competitive disadvantages, the Bank depends on its
reputation as an independent and locally-owned community bank, its personal service, its greater community involvement and its ability to make credit and other business decisions quickly and locally. If we cannot effectively compete for deposits in
our primary market area, our liquidity could come under further pressure and we may be unable to fund our operations.

The third challenge
for the Companys commercial banking business is liquidity, or our ability to raise funds to support asset growth, meet deposit withdrawals and other borrowing needs, maintain adequate reserves and sustain our operations. Due to the competitive
pricing by competitors in our primary market area, the Banks liquidity has, and could continue to, come under pressure. Also, due to the decline in the confidence in the financial services industry, the Bank could see customers withdrawing
their deposits, which would put additional pressure on the Banks liquidity. The Bank has had the ability to acquire out-of-market deposits that are not considered brokered deposits to supplement deposit growth in our market areas and can
borrow an additional $15.3 million through the Federal Reserve Bank, if necessary. However, if access to these funds is limited in any way, then our liquidity could be adversely affected. Currently, because the Bank is below the well capitalized
requirements of the Federal Deposit Insurance Corporation Improvement Act of 1991 (the FDICIA), the Bank cannot acquire brokered deposits and is limited in the rates that it can offer on other out-of-market deposits. From April 2009 to
December 2009, the Bank has approximately $111 million in brokered and out-of market deposits maturing and if the Bank does not return to a well capitalized position, it will most likely not be able to renew these deposits. Therefore, the Bank may
have to increase deposit rates in its local markets in the future, which would adversely affect its net interest margin and net income.Although the Company is currently considering a variety of strategic alternatives, including, without
limitation, restructuring the Private Placement described above on page 13, the Company may not be able to raise sufficient capital to become well capitalized and to provide additional liquidity. Finally, if the deterioration in the credit and real
estate markets continues and causes additional borrowers to default on their loans or causes a further decline in the realizable value of underlying real estate collateral, we may continue to experience an increase in non-performing assets and loan
charge-offs, and may have to make additional provisions for loan losses, which could reduce our available liquidity.



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##### Table of Contents

The fourth challenge for the Companys commercial banking business is maintaining sound credit
quality. During 2008 and the first quarter of 2009, the Banks loan portfolio actually declined 4% and 1%, respectively. However, the Banks loan portfolio grew 17% during 2007, 17% during 2006 and 37% during 2005. Also, from 2005 to 2007,
the Bank added approximately 26 new loan officers, which were mainly related to the addition of five full service branches and two loan production offices. The weakening of the real estate market had a significant effect on the Banks loan
portfolio in 2008 and the first quarter of 2009, which led the Bank to slow down production in order to focus on asset quality. Approximately 93% of the Banks loan portfolio is secured by real estate at March 31, 2009. From
December 31, 2007 to March 31, 2009, our non-performing assets increased from $11.0 million to $63.3 million, or 474%. Of the $63.3 million in non-performing assets at March 31, 2009, $44.8 million was related to ADC loans. Our entire
market area has experienced a significant weakening in the real estate markets during 2008 and the first quarter of 2009, in particular with respect to real estate related to ADC. As of March 31, 2009, we had approximately $329.4 million in ADC
loans, or approximately 42% of our loan portfolio. The Banks criticized loans, non-performing loans and foreclosed properties related to its ADC loan portfolio increased $49.1 million to $57.3 million, increased $17.1 million to $20.3 million
and increased $24.1 million to $24.4 million, respectively, from December 31, 2007 compared to March 31, 2009. The deterioration in our ADC loan portfolio is due to the increase in the inability of some borrowers to make payments and the
decrease in sales activity and property values within the residential real estate market in our market area during 2008 and the first quarter of 2009.The Bank must maintain the proper procedures to monitor loan growth, including the quality
of the loans, and its concentration in real estate secured loans. The Bank has limited any new ADC loans in 2008 and 2009 due to the declining real estate market. Our ADC loans have declined by approximately 21% since December 31, 2007.Given the current condition of the credit, liquidity and real estate markets, we may experience further increases in non-performing assets. If this occurs, we may make additional provision for loan losses and experience an increase in
charge-offs, either of which would adversely impact our performance and the Banks ability to raise capital.

Accounting Standards

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB
Statement No. 133. SFAS No. 161 expands quarterly disclosure requirements in SFAS No. 133 about an entitys derivative instruments and hedging activities. SFAS No. 161 became effective for the Company on
January 1, 2009 and did not have a material impact on the consolidated financial statements.

In April 2008, the FASB issued FSP No.
FAS 142-3, Determination of the Useful Life of Intangible Assets. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, Goodwill and Other Intangible Assets. The objective of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows
used to measure the fair value of the asset under SFAS No. 141(R), and other generally accepted accounting principles (GAAP). This FSP applies to all intangible assets, whether acquired in a business combination or otherwise and
shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years and applied prospectively to intangible assets acquired after the effective date. Early
adoption is prohibited. We have evaluated the new statement and have determined that it will not have a significant impact on the determination or reporting of our financial results.

Financial Accounting Standards Board Staff Position (FSP) No. SFAS 157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly was issued April 9, 2009. FSP SFAS 157-4 affirms that the objective of fair value when the market for an asset is not active is the price
that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not
active. FSP SFAS 157-4 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. FSP SFAS 157-4 also amended SFAS 157, Fair Value Measurements, to expand certain disclosure
requirements. FSP SFAS 157-4 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company is currently assessing the impact of FSP SFAS 157-4 on
its consolidated financial statements and results of operations.

Financial Accounting Standards Board Staff Position (FSP) SFAS 115-2 and
SFAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments were issued April 9, 2009. FSP SFAS 115-2 and SFAS 124-2 (i) changes existing guidance for determining whether an impairment is other than temporary
to debt securities and (ii) replaces the existing requirement that the entitys management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does
not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under FSP SFAS 115-2 and SFAS 124-2, declines in the fair value of held-to-maturity and
available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other



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factors is recognized in other comprehensive income. FSP SFAS 115-2 and SFAS 124-2 are effective for interim and annual periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15, 2009. The Company is currently assessing the impact of FSP SFAS 115-2 and SFAS 124-2 on its consolidated financial statements and results of operations.

Financial Accounting Standards Board Staff Position (FSP) SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments were issued April 9, 2009. FSP SFAS 107-1 and APB 28-1 amends SFAS 107, Disclosures about Fair Value of Financial Instruments, to require an entity to provide disclosures about fair value of financial instruments
in interim financial information and amends Accounting Principles Board (APB) Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. Under FSP SFAS
107-1 and APB 28-1, a publicly traded company shall include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. In addition, entities must disclose, in the
body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods, the fair value of all financial instruments for which it is practicable to estimate
that value, whether recognized or not recognized in the statement of financial position, as required by SFAS 107. The new interim disclosures required by FSP SFAS 107-1 and APB 28-1 will be included in the Companys interim financial statements
beginning with the second quarter of 2009.

In January 2009, the FASB finalized EITF 99-20-1, Amendments to the Impairment and Interest
Income Measurement Guidance of EITF Issue No. 99-20. This FSP conforms the guidance in EITF 99-20 to that of FSP FAS 115-1 by removing the requirement of management to consider a market participants assumptions about cash flows in
assessing whether or not an adverse change in previously anticipated cash flows has occurred. The FSP is effective for interim and annual periods ending after December 15, 2008, applied prospectively. We have evaluated the new standard and have
determined that it will not have a significant impact on the determination or reporting of our financial results.

Critical Accounting Policies and
Estimates

The Companys consolidated financial statements are prepared in accordance with GAAP, including prevailing practices
within the financial services industry. The preparation of consolidated financial statements requires management to make judgments, involving significant estimates and assumptions, in the application of certain of its accounting policies about the
effects of matters that are inherently uncertain. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the
financial statements, and changes in this information over time could materially impact amounts reported in subsequent financial statements as a result of the use of revised estimates and assumptions. Certain accounting policies, by their nature,
involve a greater reliance on the use of estimates and assumptions, and could produce results materially different from those originally reported. Based on the sensitivity of financial statement amounts to the policies, estimates and assumptions
underlying reported amounts, the more significant accounting policies applied by the Company have been identified by management as:



| |  |  | the valuation of other real estate owned;
| | - |  | -----------------------------------------



| |  |  | the allowance for loan losses; and
| | - |  | ----------------------------------



| |  |  | the recourse obligation reserve.
| | - |  | --------------------------------

These policies
require the most subjective or complex judgments, and related estimates and assumptions could be most subject to revision as new information becomes available.

The following is a brief discussion of the above-mentioned critical accounting policies. An understanding of the judgments, estimates and assumptions underlying these accounting policies is essential in order to
understand our reported financial condition and results of operations.

Other Real Estate Owned

Other real estate owned represents properties acquired through foreclosure. Other real estate owned is held for sale and is carried at the lower of cost
or fair value less estimated costs to sell. Any write-down to fair value at the time of transfer to other real estate owned is charged to the allowance for loan losses. Revenue and expenses from operations and changes in the valuation allowances are
included in other operating expenses. The fair value of other real estate owned is based upon our assessment of information available to us at the time of determination, and depends upon a number of factors, including our historical experience,
economic conditions and issues with respect to individual properties. The Companys evaluation of these factors involves subjective estimates and judgments that may change.



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Allowance for Loan Losses

The establishment of our allowance for loan losses is based upon our assessment of information available to us at the time of determination, and depends
upon a number of factors, including our historical experience, economic conditions and issues with respect to individual borrowers. The Companys evaluation of these factors involves subjective estimates and judgments that may change. Please
see Financial Condition of Our Commercial Banking BusinessLoan Loss Allowance.

Recourse Obligation Reserve

In the wholesale mortgage business that we operated prior to December 31, 2003, we regularly made representations and
warranties to purchasers of our mortgage loans and insurers that, if breached, would require us to indemnify the purchaser for losses or to repurchase the loans, and we considered this practice to be customary and routine. The Company records a
specific reserve for the recourse liability for the loans on which the Company has already become obligated to make indemnification payments to the purchaser and an estimated reserve for the recourse liability for probable future losses from loans
that the Company may have to indemnify. Given the limited historical information available to management with respect to the Companys potential obligations to make indemnification payments, the evaluation of these factors involves subjective
estimates and judgments that may change.

Results of Operations

General Discussion

A principal source of our revenue comes from net interest income, which is
the difference between:



| |  |  | income we receive on our interest-earning assets, such as investment securities and loans; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | monies we pay on our interest-bearing sources of funds, such as deposits and borrowings.
| | - |  | ----------------------------------------------------------------------------------------

The level of net interest income is determined primarily by the average balances, or volume, of interest-earning assets and the various rate spreads
between the interest-earning assets and our funding sources, primarily through the Bank. Changes in our net interest income from period to period result from, among other things:



| |  |  | increases or decreases in the volumes of interest-earning assets and interest-bearing liabilities;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | increases or decreases in the average rates earned and paid on those assets and liabilities;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | our ability to manage the interest-earning asset portfolio, which includes loans; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the availability and costs of particular sources of funds, such as noninterest bearing deposits, and our ability to match our liabilities to fund our
assets.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



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The following table sets forth a distribution of the assets, liabilities and shareholders equity
for the three months ended March 31, 2009 and 2008:



|                                     |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|------------------------------------ |  | ---------------- | --------- | - | ------------- | - | ------- | ---------------- |  | ------------------ | ---- |  | ------------- | ---- |  | ---- | ------ |  | ------ | ------ |  | ---- | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                     |  | Average Balances |           |   | Yields /Rates |   |         | Income / Expense |  | Increase(Decrease) |      |  | Change Due to |     
|                                     |  | 2009             |           |   | 2008          |   |         | 2009             |  |                    | 2008 |  |               | 2009 |  | 2008 |        |  | Volume |        |  | Rate |       
|Assets                               |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|Loans, including fee income          |  | $                | 789,692   |   |               | $ | 818,482 |                  |  | 5.56               | %    |  | 6.95          | %    |  | $    | 10,830 |  | $      | 14,143 |  | $    | (3,313 | ) |  | $ | (452   | ) |  | $ | (2,861 | )
|Mortgage loans held for sale         |  |                  | 691       |   |               |   | 57      |                  |  | 3.13               | %    |  | 3.06          | %    |  |      | 5      |  |        |       |  |      | 5      |   |  |   | 5      |   |  |   |       |  
|Investment securities                |  |                  | 40,233    |   |               |   | 27,146  |                  |  | 4.39               | %    |  | 5.09          | %    |  |      | 435    |  |        | 343    |  |      | 92     |   |  |   | 140    |   |  |   | (48    | )
|Federal funds sold                   |  |                  | 63,913    |   |               |   | 30,871  |                  |  | 0.19               | %    |  | 3.02          | %    |  |      | 30     |  |        | 232    |  |      | (202   | ) |  |   | 15     |   |  |   | (217   | )
|Interest bearing deposits in banks   |  |                  | 88,439    |   |               |   | 1,287   |                  |  | 1.86               | %    |  | 3.01          | %    |  |      | 407    |  |        | 10     |  |      | 397    |   |  |   | 401    |   |  |   | (4     | )
|                                     |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |               |   |         |                  | 
|Total earning assets                 |  |                  | 982,968   |   |               |   | 877,843 |                  |  | 4.83               | %    |  | 6.75          | %    |  |      | 11,707 |  |        | 14,728 |  |      | (3,021 | ) |  |   | 109    |   |  |   | (3,130 | )
|                                     |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |               |   |         |                  | 
|Cash and due from banks              |  |                  | 14,493    |   |               |   | 7,017   |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|Allowance for loan losses            |  |                  | (22,247   | ) |               |   | (9,997  | )                |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|Other assets                         |  |                  | 88,966    |   |               |   | 71,562  |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|Total                                |  | $                | 1,064,180 |   |               | $ | 946,425 |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |               |   |         |                  | 
|Liabilities and Equity               |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|Interest bearing demand              |  | $                | 120,289   |   |               | $ | 69,077  |                  |  | 2.83               | %    |  | 2.03          | %    |  | $    | 839    |  | $      | 349    |  | $    | 490    |   |  | $ | 356    |   |  | $ | 134    |  
|Savings                              |  |                  | 71,084    |   |               |   | 74,435  |                  |  | 2.97               | %    |  | 3.25          | %    |  |      | 520    |  |        | 602    |  |      | (82    | ) |  |   | (27    | ) |  |   | (55    | )
|Certificates of deposit              |  |                  | 728,719   |   |               |   | 615,412 |                  |  | 4.08               | %    |  | 5.11          | %    |  |      | 7,326  |  |        | 7,822  |  |      | (496   | ) |  |   | 1,105  |   |  |   | (1,601 | )
|                                     |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |               |   |         |                  | 
|Total interest bearing deposits      |  |                  | 920,092   |   |               |   | 758,924 |                  |  | 3.83               | %    |  | 4.65          | %    |  |      | 8,685  |  |        | 8,773  |  |      | (88    | ) |  |   | 1,434  |   |  |   | (1,522 | )
|                                     |  |                  |           |   |               |   |         |                  | 
|Borrowings                           |  |                  | 58,525    |   |               |   | 58,167  |                  |  | 4.08               | %    |  | 5.37          | %    |  |      | 589    |  |        | 776    |  |      | (187   | ) |  |   |       |   |  |   | (187   | )
|                                     |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |               |   |         |                  | 
|Total interest bearing liabilities   |  |                  | 978,617   |   |               |   | 817,091 |                  |  | 3.84               | %    |  | 4.70          | %    |  |      | 9,274  |  |        | 9,549  |  |      | (275   | ) |  |   | 1,434  |   |  |   | (1,709 | )
|                                     |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |               |   |         |                  | 
|Noninterest bearing demand deposits  |  |                  | 39,618    |   |               |   | 45,514  |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|Other liabilities                    |  |                  | 11,231    |   |               |   | 16,742  |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|Shareholders equity                 |  |                  | 34,714    |   |               |   | 67,078  |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|Total                                |  | $                | 1,064,180 |   |               | $ | 946,425 |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|Net interest income                  |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  | $    | 2,433  |  | $      | 5,179  |  | $    | (2,746 | ) |  | $ | (1,325 | ) |  | $ | (1,421 | )
|                                     |  |                  |           |   |               |   |         |                  |  |                    |      |  |               |      |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|Net interest yield on earning assets |  |                  |           |   |               |   |         |                  |  | 1.00               | %    |  | 2.37          | %    |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  
|Net interest spread                  |  |                  |           |   |               |   |         |                  |  | 0.99               | %    |  | 2.05          | %    |  |      |        |  |        |        |  |      |        |   |  |   |        |   |  |   |        |  

Results of Our Commercial Banking Business

During the three month period ended March 31, 2009, the Company experienced a net loss of approximately $5.1 million, as compared with net loss of
approximately $1.9 million for the three month period ended March 31, 2008. This net loss was primarily due to a decrease in net interest income, an increase in noninterest expenses and a reduction in our income tax benefit.

Interest Income

Our interest income
related to commercial banking decreased approximately $3.0 million, or 21%, to $11.7 million for the three months ended March 31, 2009 from $14.7 million for the three months ended March 31, 2008. The decrease in interest income during the
first quarter of 2009 compared to the same period in 2008 was the result of a decline in yield from commercial banking interest-earning assets, in particular from commercial banking loans, during the current declining interest rate environment. The
yield from commercial banking loans decreased from 6.95% for the three months ended March 31, 2008 to 5.56% for the three months ended March 31, 2009. This decrease in yield was mainly due to the repricing of the commercial banking loan
portfolio in response to the Federal Reserve decreasing interest rates 500 basis points from September 2007 through



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the end of 2008. During the six months ended June 30, 2008, approximately 60% of our commercial banking loan portfolio was variable rate without a floor
and adjusted with changes in the prime rate. During the third and fourth quarter of 2008, the Bank began requiring floors on most of its new and renewed loans and the percentage of variable rate loans without a floor declined to 42% of the loan
portfolio at September 30, 2008, 28% at December 31, 2008 and 25% at March 31, 2009. The decrease in yield on the commercial banking loan portfolio was also due to the Banks non-performing assets increasing from $23.8 million at
March 31, 2008 to $63.3 million at March 31, 2009 and the subsequent write-off of approximately $714,000 or 37 basis points in accrued interest on assets that were placed on non-accrual status during the first quarter of 2009. The decline
in interest income was also due to a decrease in average commercial banking loans. Average commercial banking loans decreased $28.8 million, or 4%, for the quarter ended March 31, 2009 over the same period for 2008. The decrease in average
commercial banking loans from the three month period ended March 31, 2008 to the three month period ended March 31, 2009 was the result of the Company foreclosing on approximately $37.0 million in commercial banking loans and of the
Company making the strategic decision to slow loan growth in 2008 and 2009 to focus on asset quality and core deposit growth.

Interest
Expense

Our interest expense related to the commercial banking business for the three months ended March 31, 2009 amounted to $9.3
million compared to $9.5 million for the three months ended March 31, 2008, a decrease of 3%. Interest expense related to commercial banking deposits for the three months ended March 31, 2009 was $8.7 million compared to $8.8 million for
the three months ended March 31, 2008, a decrease of 1%. Interest expense related to borrowings for the three months ended March 31, 2009 was approximately $589,000 compared to approximately $776,000 for the three months ended
March 31, 2008, a decrease of 24%. The decrease in interest expense from interest-bearing deposits for the three month period ended March 31, 2009 compared to the same period in 2008 resulted from a decrease in the cost of funds from
commercial banking deposits. The cost of funds of commercial banking deposits decreased from 4.65% for the three months ended March 31, 2008 to 3.83% for the three months ended March 31, 2009. The cost of savings accounts (including money
market accounts), and time deposits decreased 28 basis points and 103 basis points, respectively, for the three months ended March 31, 2009 compared to the same period in 2008. These decreases in average cost were due to the falling rate
environment during which the Federal Reserve has decreased interest rates 500 basis points from September 2007 through the first quarter of 2009. The decrease in interest expense related to the decrease in the cost of funds of commercial banking
deposits was partially offset by an increase in the average balance of commercial banking deposits for the three months ended March 31, 2009 compared to the same period in 2008. Average interest-bearing deposits increased approximately $161.2
million, or 21%, from $758.9 million for the three months ended March 31, 2008 to $920.1 million for the three months ended March 31, 2009. The Bank ran several certificate of deposit specials in 2008 and the first quarter of 2009 in which
the Bank increased its in-market certificates of deposit by approximately $68.9 million from March 31, 2008. The Bank also ran an interest-bearing checking account special from September 2008 to February 2009 that guaranteed a rate of 3.75%
until March 31, 2009 and then 3.00% until June 30, 2009. As of March 31, 2009, this special had brought in deposit balances totaling $101.0 million. The Bank made the strategic decision to increase short-term liquidity in 2008 and the
first quarter of 2009 through growth in deposits because of the tightening in the credit and liquidity markets and the deterioration in the real estate market. The decrease in interest expense from borrowings for the three month period ended
March 31, 2009 compared to the same period in 2008 resulted from a decrease in the cost of borrowings. The cost of borrowings decreased from 5.37% for the three months ended March 31, 2008 to 4.08% for the three months ended March 31,
2009. This decline is mainly related to the drop in interest rates on our trust preferred securities of $22.2 million, which all are either tied to the Wall Street prime rate or the three month LIBOR and reprice quarterly.

Net Interest Income

Our net interest
income, net interest margin and interest spread for our commercial banking business for the three months ended March 31, 2009 were $2.4 million, 1.00% and 0.99%, respectively. Our net interest income, net interest margin and interest spread for
our commercial banking business for the three months ended March 31, 2008 were $5.2 million, 2.37% and 2.05%, respectively. The decrease in net interest income, net interest margin and interest spread from 2008 to 2009 was mainly due to the
decrease in the yield on commercial banking loans. The yield from commercial banking loans decreased from 6.95% for the three months ended March 31, 2008 to 5.56% for the three months ended March 31, 2009. This decrease in yield was mainly
due to the repricing of the commercial banking loan portfolio in reaction to the Federal Reserve decreasing interest rates 500 basis points from September 2007 through the end of 2008. During the six months ended June 30, 2008, approximately
60% of our commercial banking loan portfolio was variable rate without a floor and adjusted with changes in the prime rate. During the third and fourth quarter of 2008, the Bank began requiring floors on most of its new and renewed loans and the
percentage of variable rate loans without a floor declined to 42% of the loan portfolio at September 30, 2008, 28% at December 31, 2008 and 25% at March 31, 2009. The decrease in yield on the commercial banking loan portfolio was also
due to the Banks non-performing assets increasing from $23.8 million at March 31, 2008 to $63.3 million at March 31, 2009 and the subsequent write-off of approximately $714,000, or 37 basis points, in accrued interest on assets that
were placed on non-accrual status during the first quarter of 2009. The decrease in net interest income, net interest margin and interest spread during 2009 was also due to the Bank holding more short-term liquid assets, which provide a lower yield
than investments and loans. For the three months ended March 31, 2009, in comparison to the three months ended March 31, 2008, the Bank held on average $120.2 million, or 374%,



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more in interest-bearing deposits and federal funds sold. The Company made the strategic decision to increase short-term liquidity to address the tightening
in the credit and liquidity markets, as well as the deterioration in the real estate market. The yield on commercial banking assets decreased 192 basis points while the cost of interest-bearing liabilities decreased only 86 basis points in comparing
the first quarter of 2009 to the first quarter of 2008. Even with the Federal Reserve decreasing interest rates 500 basis points from September 2007 through the first quarter of 2009, the average cost of time deposits has only decreased 103 basis
points due to strong competition in the market area for local deposits and due to the fact that time deposits are slower to reprice than the loan portfolio.

Loan Loss Provisions

For the three months ended March 31, 2009, we made a provision for loan
losses of $2,680,000 and incurred net charge-offs of $3,449,343 of commercial banking loans. For the three months ended March 31, 2008, we made a provision for loan losses of $3,604,000 and incurred net charge-offs of $463,037 of commercial
banking loans. The ratios of net charge-offs to average commercial banking loans outstanding were 2.77% (annualized) for the three months ended March 31, 2009, 1.64% for the year ended December 31, 2008 and 0.23% (annualized) for the three
months ended March 31, 2008. During the first quarter of 2009, the Bank charged-off $3.5 million in loans, which was a $3.0 million or 545% increase from the first quarter of 2008. Of the total amount charged-off during the first quarter of
2009, $2.7 million was related to impaired loans that the Bank had not taken into foreclosure at the time of charge-off. The Bank took an aggressive approach and charged-off the balances based upon the current downturn in the economy and real estate
market. Of the total amount of charge-offs during 2008, $2.3 million was related to our ADC loan portfolio, where the Bank has seen significant deterioration in asset quality, including an increase in the inability of some borrowers to make payments
and declines in the value and marketability of the underlying collateral. The Banks charge-offs in the first three months of 2009 consisted of three commercial real estate loan charge-offs of $322,873, seven commercial loan charge-offs of
$126,823, twenty-one ADC loan charge-offs of $2,254,441, twelve residential real estate charge-offs of $615,250 and various installment and other consumer loans charge-offs, while the charge-offs in the first three months of 2008 consisted of two
commercial real estate loan charge-offs of $306,164, three commercial loan charge-offs of $94,962, two ADC loan charge-offs of $42,961 and various installment and other consumer loans charge-offs.

The provision for loan losses of $2,680,000 for the three months ended March 31, 2009 decreased in comparison to the provision for loans losses of
$3,604,000 for the three months ended March 31, 2008. The decrease in the provision for loan losses was due to the fact that we saw less deterioration in the loan portfolio in the first quarter of 2009 than in the first quarter of 2008. During
the first quarter of 2008, non-performing loans increased $13.1 million, while during the first quarter of 2009 non-performing loans decreased $6.5 million from $36.8 million at December 31, 2008 to $30.3 million at March 31, 2009. The
decrease in non-performing loans was mainly due to the fact that the Bank foreclosed on $9.2 million in commercial banking loans. If you include the foreclosed loans that were moved to other real estate owned during the first quarter of 2009,
non-performing loans increased only $2.7 million. During the first quarter of 2008, the Banks potential problem loans increased $14.4 million, while during the first quarter of 2009 the Banks potential problem loans increased $19.8
million from $38.4 million at December 31, 2008 to $58.2 million at March 31, 2009. While the increase in the Banks potential problem loans during the first quarter of 2009 was $5.4 million more than in the first quarter of 2008,
$10.3 million of the increase in the first quarter of 2009 was related to two loan relationships that required no specific reserves based upon the Banks strong collateral position. Based upon managements analysis of its individual
classified and non-performing loans, including the additions to non-performing loans since the end of the first quarter of 2009, and our analysis of the remaining loan portfolio including historical charge-offs and the composition of our loan
portfolio, we adjusted our allowance for loan losses accordingly. The allowance for loan losses as a percentage of total commercial banking loans was 2.77%, 2.84% and 1.57% at March 31, 2009, December 31, 2008 and March 31, 2008,
respectively.

Noninterest Income

Our noninterest income related to our commercial banking business was approximately $855,000 during the three months ended March 31, 2009 compared to approximately $956,000 during the three months ended
March 31, 2008, a 11% decrease. During the three month period ending March 31, 2009 compared to the same period in 2008, service charge income decreased approximately $59,000 and gains on sale of SBA loans decreased approximately $48,000.
The decrease in deposit service charges was mainly related to a $64,000 decrease in overdraft charges which is due to the Bank having fewer overdrawn accounts and insufficient fund items because customers are being more diligent with their accounts.
The decrease in gains on sale of SBA loans is due to the Bank selling fewer loans at lower premiums during the first quarter of 2009 compared to the same period in 2008.

Noninterest Expense

Our noninterest expenses related to our commercial banking business (other than
income tax expenses) were $6.6 million for the three months ended March 31, 2009 compared to $5.8 million for the three months ended March 31, 2008, an increase of 14%. The increase in noninterest expense for the three month period ended
March 31, 2009 compared to the same period in 2008



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was attributable to an increase in foreclosed asset expense of approximately $697,000 and an increase in legal and professional expense of approximately
$371,000. The increase in foreclosed asset expense in the first quarter of 2009 over the same period in 2008 was attributable to write-downs on foreclosed properties totaling approximately $309,000 and the costs to complete construction on several
properties during the first quarter of 2009. The Bank has seen its foreclosed properties increase from $5.1 million at March 31, 2008 to $33.0 million at March 31, 2009, which has directly impacted our foreclosed asset expense. The
increase in legal and professional fees expense during the first quarter of 2009 compared to the same period in 2008 was mainly attributable to the increased regulatory and disclosure requirements for a public company, an increase in legal and
consulting fees related to regulatory and capital issues, and an increase in legal fees related to the collection of loans. These increases were offset by a decrease in salaries and employee benefits of approximately $148,000. This decrease was
mainly due to a reduction of 17 employees from March 31, 2008 to March 31, 2009 including six officers.

Pretax Net Income
(Loss)

For the three months ended March 31, 2009, our commercial banking pre-tax loss was $(6.0) million compared to pre-tax loss
of approximately $(3.2) million for the three months ending March 31, 2008. Pretax loss for the three months ended March 31, 2009 increased approximately $2.8 million, or 84%, compared to the three months ended March 31, 2008. The
increase in pretax loss was due to a decrease in net interest income of approximately $2.7 million and an increase in noninterest expense of $794,000 for the three months ended March 31, 2009 compared to the same periods in 2008. The decrease
in the net interest income was due to both the Federal Reserve decreasing interest rates 500 basis points from September 2007 through the first quarter of 2009, and to non-performing assets increasing from $23.8 million at March 31, 2008 to
$63.3 million at March 31, 2009 and the subsequent write-off of approximately $714,000 million in accrued interest on loans that were placed on non-accrual during the first quarter of 2009. The increase in noninterest expense during the first
quarter of 2009 compared to the same period in 2008 was mainly due to a net increase in legal and professional expenses and foreclosed asset expense. See further discussion above under Net Interest Income, and
Noninterest Expense.

Income Taxes

The effective income tax rate for our commercial banking business for the three months ended March 31, 2009 and 2008 was 13.79% and 40.61%, respectively. The primary reason for the decrease in the effective tax
rate from the first quarter in 2008 compared to the first quarter in 2009 was due to fact that the Company recorded an additional valuation allowance related to its deferred tax asset which was recorded as income tax expense during the first quarter
of 2009 and due to the fact that the Company is limited in the income tax benefit that it can record due to its cumulative losses in 2008 and 2009.

Results of Discontinued Operations From Our Mortgage Banking Business

During the first three months of 2009 and
2008, our discontinued mortgage banking operations had no revenues or expenses. During the fourth quarter of 2008, the mortgage banking business did record a valuation allowance of approximately $658,000 related to its deferred tax asset which was
recorded as income tax expense. During each quarter, we evaluate our allowance for recourse liability for indemnified loans based upon the number of loans indemnified and the average loss on an indemnified loan. We evaluated the allowance for
recourse liability during the first quarter of 2009 and determined that no adjustments are needed at this time.

Financial Condition

General Discussion

Total
Assets

Our total assets increased $25.9 million, or 2%, from $1.039 billion as of December 31, 2008 to $1.065 billion as of
March 31, 2009. The increase in total assets was mainly comprised of a $29.9 million, or 20% increase in cash and due from banks, federal funds sold and interest-bearing deposits in banks. This increase was due to the Bank making the strategic
decision to increase short-term liquidity with the tightening in the credit and liquidity markets along with the deterioration in the real estate market. Our increase in total assets corresponded with a $30.0 million, or 3%, increase in deposits. At
March 31, 2008, we had total assets of $954.1 million.



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Interest-Earning Assets

Our interest-earning assets are comprised of:



| |  |  | commercial banking loans;
| | - |  | -------------------------



| |  |  | mortgage loans held for sale;
| | - |  | -----------------------------



| |  |  | investment securities;
| | - |  | ----------------------



| |  |  | interest-bearing balances in other banks; and
| | - |  | ---------------------------------------------



| |  |  | temporary investments.
| | - |  | ----------------------

At
March 31, 2009, interest-earning assets totaled $969.6 million and represented 91% of total assets. This represents a $3.9 million, or 0.4%, decrease from December 31, 2008, when interest-earning assets totaled $973.5 million and
represented 94% of total assets. This decrease was mainly related to a $9.3 million decrease in the Banks commercial banking loan portfolio. The decrease in total commercial banking loans from December 31, 2008 is mainly the result of
foreclosing upon $9.2 million in commercial banking loans during the first quarter of 2009. See Financial Condition of Our Commercial Banking BusinessTotal Commercial Banking Loans. At March 31, 2008, our
interest-earning assets totaled $897.4 million and represented 94% of our total assets.

Allowance for Loan Losses

Our assessment of the risks associated with extending credit and our evaluation of the quality of our loan portfolio is reflected in the allowance for
loan losses. We maintain an allowance for our commercial banking loan portfolio, as detailed below under Financial Condition of Our Commercial Banking BusinessLoan Loss Allowance.

Premises and Equipment

We had
premises and equipment of $22.5 million at March 31, 2009, compared to $22.8 million at December 31, 2008 and $21.0 million at March 31, 2008. The increase of $1.5 million in premises and equipment from March 31, 2008 was mainly
due to the Bank purchasing a parcel of land for future branch development for $1.4 million in the third quarter of 2008. The Bank also incurred costs of approximately $1.1 million in 2008 related to expanding its current Cartersville branch located
in Bartow County, Georgia. These increases were offset by depreciation expense from the premises and equipment of approximately $1.6 million. The remaining increase in premises and equipment was related to the normal purchasing and replacement of
technology and equipment throughout the period.

Cash Surrender Value of Life Insurance

In 1999, the Bank provided a supplemental retirement plan to its banking officers funded with life insurance. In the first quarter of 2000, we added our
directors to the supplemental retirement plan. At March 31, 2009, the total cash value of the life insurance was $14.3 million. At December 31, 2008 and March 31, 2008, the total cash value of the life insurance was $14.1 million and
$13.7 million, respectively. The increase of approximately $0.6 million from March 31, 2008 to March 31, 2009 was due to policy earnings.

Financial Condition of Our Commercial Banking Business

Total Commercial Banking Loans

During the first quarter of 2009, our average commercial banking loans were $789.7 million. These loans constituted 80% of our average consolidated
earning assets and 74% of our average consolidated total assets. For the first quarter of 2008, we had average commercial banking loans of $818.5 million, or 93% of our average consolidated earning assets and 86% of our average consolidated total
assets. For the year ended December 31, 2008, we had average commercial banking loans of $816.9 million, or 88% of our average consolidated earning assets and 82% of our average consolidated total assets. Commercial banking loans at the periods
ending March 31, 2009, December 31, 2008 and March 31, 2008 were $776.1 million, $785.4 million and $823.9 million, respectively. The $28.8 million or 4% decrease in average commercial banking loans and the $47.8 million or 6%
decrease in period end commercial banking loans from the three month period ended March 31, 2008 to the three month period ended March 31, 2009 was the result of the Company foreclosing on approximately $37.0 million in commercial banking
loans and of the Company making the strategic decision to slow loan growth in 2008 and 2009 to focus on asset quality and core deposit growth.



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Loan Loss Allowance

The allowance for loan losses represents managements assessment of the risks associated with extending credit and its evaluation of the quality of the commercial loan portfolio. We maintain our allowance for
loan losses at a level that we believe is adequate to absorb the risk of loan losses in the loan portfolio. In determining the appropriate level of the allowance for loan losses, we apply a methodology that has both a specific component and a
general component. Under the specific component of the methodology, each loan is graded:



| | (1) | at the time of the loans origination;
| | --- | --------------------------------------



| | (2) | at each of the Banks loan committee meetings; and
| | --- | --------------------------------------------------



| | (3) | at any point in time when payments due under the loan are delinquent or events occur which may affect the customers ability to repay loans.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------

The Banks grading system is similar to the grading systems used by bank regulators in analyzing loans. To grade a loan the Bank considers:



| | (1) | the value of underlying collateral;
| | --- | -----------------------------------



| | (2) | the relative risk of the loan, based upon the financial strength and creditworthiness of the borrower;
| | --- | ------------------------------------------------------------------------------------------------------



| | (3) | prevailing and forecasted economic conditions; and
| | --- | --------------------------------------------------



| | (4) | the Banks historical experience with similar loans.
| | --- | ----------------------------------------------------

The actual grading is performed by loan officers and reviewed and approved by the loan committee. After grading each of the loans, we review the overall grades assigned to the portfolio as a whole, and we attempt to identify and determine
the effect of potential problem loans.

The general component of the methodology involves an analysis of actual loan loss experience, a
comparison of the actual loss experience of banks in the Banks peer group, and carefully developed assumptions about the economy generally. We also follow the regulatory guidance provided by the Federal Financial Institution Examination
Councils Interagency Policy Statement on Allowance for Loan Losses Methodologies, as well as other widely accepted guidelines for banks and savings institutions generally.

We apply both the specific and general components of the methodology, together with regulatory guidance, to determine an appropriate level for the
allowance for loan losses. We also hire independent loan review consultants on an annual basis to review the quality of the loan portfolio and the adequacy of the allowance for loan losses. The provision for loan losses during a particular period is
a charge to earnings in that period in order to maintain the allowance for loan losses at a level that is estimated to be adequate to cover probable losses inherent in the loan portfolio.

The Banks allowance for loan losses is also subject to regulatory examinations and determinations as to adequacy, which may take into account such
factors as the methodology used to calculate the allowance for loan losses and the size of the allowance for loan losses compared to a group of peer banks identified by the regulators. During their routine examinations of banks, the FDIC and the
Georgia Department may require a bank to make additional provisions to its allowance for loan losses when, in their opinion, their credit evaluations and allowance for loan loss methodology differ materially from ours.

While it is the Banks policy to charge-off, in the current period, loans for which a loss is considered probable, there are additional risks of
loss that cannot be quantified precisely or attributed to particular loans or classes of loans. Because these risks include the state of the economy and other factors over which management has no control and which management cannot accurately
predict, managements judgment as to the adequacy of the allowance is necessarily approximate and imprecise.

The allowance for loan
losses totaled $21.5 million, or 2.77% of total commercial banking loans, at March 31, 2009, $13.0 million, or 1.57% of total commercial banking loans at March 31, 2008, and $22.3 million, or 2.84% of total loans at December 31, 2008.
During the first quarter of 2009, we made a provision for loan losses of $2,680,000. The slight decline in the allowance for loan losses and percentage of the allowance for loan losses to total commercial banking loans was due to the fact that the
Banks net charge-offs of $3.4 million was approximately $769,000 more than its provision for loans losses of $2.7 million during the first quarter of 2009. Of the total amount charged-off during the first quarter of 2009, $2.7 million was
related to impaired loans that the Bank had not taken into foreclosure at the time of charge-off. The decrease in the provision for loan losses from previous quarters was due to the fact that we saw less deterioration in the loan portfolio in the
first quarter of 2009 than in previous quarters. Therefore, the Bank did not have to record as much provision for loan losses related to specific reserves on impaired loans in the first quarter of 2009 as in previous quarters. During the first
quarter of 2009, non-performing loans decreased $6.5 million from $36.8 million at December 31, 2008 to $30.3 million at March 31, 2009. The decrease in non-performing loans was mainly due to the fact that the Bank foreclosed on $9.2
million in commercial banking loans. If you include the foreclosed loans that were moved to other real estate owned during the first quarter of 2009, non-performing loans



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increased only $2.7 million. During the first quarter of 2009, the Banks potential problem loans increased $19.8 million from $38.4 million at
December 31, 2008 to $58.2 million at March 31, 2009. While the increase in the Banks potential problem loans during the first quarter of 2009 was significant, $10.3 million of the increase in the first quarter of 2009 was related to
two loans relationships that required no specific reserves based upon the Banks strong collateral position. The Banks ratio of its allowance for loan losses to total commercial banking loans of 2.77% at March 31, 2009 is
considerably higher than historical levels and this ratio is expected to remain at this higher level throughout 2009 and into 2010. The main sector of the Banks loan portfolio that experienced this deterioration was its ADC loans. The
Banks potential problem loans, non-performing loans and foreclosed properties related to its ADC loan portfolio were $36.9 million, $20.3 million and $24.4 million, respectively, at March 31, 2009. The deterioration in our ADC portfolio
is due to the increase in the inability of some borrowers to make payments and the decrease in sales activity and property values within the residential real estate market in our market area during 2008 and the first quarter of 2009. As of
March 31, 2009, we had approximately $329.4 million in ADC loans, or approximately 42% of our loan portfolio. The Bank has limited any new ADC loans in 2008 and the first quarter of 2009 due to the declining real estate market. Our ADC loans
have declined by approximately 21% since December 31, 2007. Based upon managements analysis of its individual classified and non-performing loans, including the additions to non-performing loans since the end of the first quarter of 2009,
and our analysis of the remaining loan portfolio including historical charge-offs and the composition of our loan portfolio, we adjusted our allowance for loan losses accordingly. The Banks charge-offs in the first three months of 2009
consisted of three commercial real estate loan charge-offs of $322,873, seven commercial loan charge-offs of $126,823, twenty-one ADC loan charge-offs of $2,254,441, twelve residential real estate charge-offs of $615,250 and various installment and
other consumer loans charge-offs, while the charge-offs in the first three months of 2008 consisted of two commercial real estate loan charge-offs of $306,164, three commercial loan charge-offs of $94,962, two ADC loan charge-offs of $42,961 and
various installment and other consumer loans charge-offs.

In order to address the weakening of the real estate market, and in particular
real estate related to construction and acquisition and development, the Bank increased its monitoring of its loan portfolio in 2007, 2008 and the first quarter of 2009 in an effort to identify and attempt to resolve potential loan problems more
quickly. The Bank added one full time employee in 2007 and two full time employees in 2008 to aid in this increased monitoring of asset quality and in the management of problem loans. In addition to the normal quarterly monitoring and reporting of
our ADC loan portfolio, including any industry, borrower and geographic concentrations, the Bank initiated quarterly problem loan meetings in 2007 and during the third quarter of 2008 increased these problem loan meetings to twice a quarter. During
these meetings, senior management and collections personnel discuss the other real estate owned and each classified and past due credit over $50,000 with our county presidents and loan officers. During these meetings, senior management, collections
personnel, county presidents and loan officers discuss and document the current status of the classified and past due credit, the potential problems with such credit, action plans for such credit and estimated losses with respect to such credit.
During the third quarter of 2008, executive management also began meeting weekly with collection personnel to discuss the status of all foreclosed properties and any new developments with our non-accrual and classified credits. During the last
quarter of 2007 and continuing into 2008 and 2009, our asset quality department also began conducting site visits to the properties securing the criticized ADC loans in excess of $50,000 to allow us to better assess the most recent developments and
trends with respect to these projects. Beginning in 2007 and continuing into 2008 and 2009, our asset quality personnel also began conducting quarterly site visits with respect to all construction projects over 12 months old. These visits allow us
to assess the percent completion of the project and the marketability of the project. These visits are documented by photographs and written reports and are reviewed by senior management. In order to assess our ADC portfolio and determine whether
those loans are appropriately graded, in the fourth quarter of 2007 we also initiated an internal review of all the Banks acquisition and development projects, which was completed during the second quarter of 2008. The Bank believes all of
these measures will help to identify and favorably resolve any potential problem credits more quickly, which should help to limit our losses in the loan portfolio. Given the current condition of the credit, liquidity and real estate markets, we
expect our asset quality to continue to come under pressure.

The increase in the provision for loan losses and the determination of the
allowance for loan losses as a percentage of commercial banking loans since the end of 2007 was based on our analysis and judgment of loan quality and our determination of what level of reserves were reasonable to cover the risk of loss in the loan
portfolio. The determination of the reserve level is based upon our assessment of the factors affecting loan quality, assumptions about the economy and historical experience. Our assessment as to the adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, which include all classified loans greater than $50,000 with a particular focus on loans that are past due and other loans that we believe require attention based upon the type of
loan collateral, the terms of the loan and the location of loan collateral. We believe that the allowance at March 31, 2009 is adequate to cover risk of losses in our loan portfolio; however, our judgment is based upon a number of assumptions
which we believed at that time to be reasonable and that may or may not actually be realized. There is no assurance that charge-offs will not exceed the allowance for loan losses or that additional increases in the allowance for loan loss will not
be required at any time in the future. As a result of uncertainties in the economy and the slowdown in the real estate market, additions to the allowance for loan losses and additional charge-offs may become necessary. Also, regulatory authorities
in the ordinary course of their examinations may require the Bank to increase its allowance for loan losses based on circumstances existing at the time of their review.



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Total Non-Performing Commercial Banking Assets

Total non-performing commercial assets totaled $63.3 million at March 31, 2009. This compares to total non-performing commercial assets of
approximately $62.6 million at December 31, 2008 and $23.8 million at March 31, 2008. The following table shows the Banks commercial banking assets that we believe warrant special attention due to the potential for loss, in addition
to the non-performing commercial banking loans and foreclosed properties related to the commercial banking loans.



|                                                                                                                 |  |               |            |   |                  |   |            |               |  |   |            |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | ---------------- | - | ---------- | ------------- |  | - | ---------- | -
|                                                                                                                 |  | March 31,2009 |            |   | December 31,2008 |   |            | March 31,2008 | 
|Non-performing loans (1)                                                                                         |  | $             | 30,281,893 |   |                  | $ | 36,778,482 |               |  | $ | 18,725,789 |  
|Foreclosed properties                                                                                            |  |               | 33,033,258 |   |                  |   | 25,815,072 |               |  |   | 5,101,945  |  
|                                                                                                                 |  |               |            |   |                  |   |            |               |  |   |            |  
|Total non-performing assets                                                                                      |  | $             | 63,315,151 |   |                  |   | 62,593,554 |               |  | $ | 23,827,734 |  
|                                                                                                                 |  |               |            |   |                  |   |            |               |  |   |            |  
|                                                                                                                 |  |               |           
|Loans 90 days or more past due on accrual status                                                                 |  | $             | 64,611     |   |                  | $ | 389        |               |  | $ | 195,317    |  
|Renegotiated loans                                                                                               |  | $             | 6,688,234  |   |                  | $ | 17,896,747 |               |  | $ | 650,000    |  
|Potential problem loans (2)                                                                                      |  | $             | 58,242,661 |   |                  | $ | 38,436,888 |               |  | $ | 21,936,330 |  
|Potential problem loans/total loans                                                                              |  |               | 7.50       | % |                  |   | 4.89       | %             |  |   | 2.66       | %
|Non-performing assets/total loans and foreclosed properties                                                      |  |               | 7.82       | % |                  |   | 7.72       | %             |  |   | 2.87       | %
|Non-performing assets and loans 90 days or more past due on accrual status/total loans and foreclosed properties |  |               | 7.83       | % |                  |   | 7.72       | %             |  |   | 2.90       | %



|(1) | Defined as non-accrual loans and renegotiated loans.
|--- | ----------------------------------------------------

|(2) | Loans identified by management as potential problem loans (criticized loans), but that are still accounted for on an accrual basis.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

We define non-performing commercial banking loans as non-accrual and renegotiated commercial banking loans. The Banks policy is to discontinue the
accrual of interest on loans that are 90 days past due unless they are well secured and in the process of collection. Total non-performing commercial banking loans decreased $6.5 million from $36.8 million at December 31, 2008 to $30.3 million
at March 31, 2009. The decrease in non-performing commercial banking loans from December 31, 2008 to March 31, 2009 was mainly related to the Bank foreclosing on twenty-one properties totaling $9.2 million during the first quarter of
2009. If you include the foreclosed loans that were moved to other real estate owned during the first quarter of 2009, non-performing loans increased $2.7 million. This increase of $2.7 million was related to one loan totaling $1.3 million related
to a residential home under construction and various other smaller loans. The residential home under construction is approximately 90% complete and is located in Fulton County, Georgia. The Bank saw a significant deterioration in its ADC loan
portfolio during 2008 and the first quarter of 2009. Our entire market area has experienced a significant weakening in the real estate markets during 2008 and the first quarter of 2009, in particular with respect to real estate related to ADC. As of
March 31, 2009, we had approximately $329.4 million in ADC loans, or approximately 42% of our loan portfolio. The Banks non-performing loans related to its ADC loan portfolio increased $17.1 million to $20.3 million from December 31,
2007 compared to March 31, 2009. The deterioration in our ADC loan portfolio was mainly due to a decline in sales activity and property values within the real estate market in our market area during the last quarter of 2007, 2008 and the first
quarter of 2009. We have evaluated these loan relationships and based on available information, we presently believe that any losses that may come from these loan relationships have been considered in our determination of the loan loss allowance.

Foreclosed properties totaled approximately 33.0 million at March 31, 2009, as compared to approximately $25.8 million at
December 31, 2008 and approximately $5.1 million at March 31, 2008. Foreclosed properties increased approximately $7.2 million or 28% during the first quarter of 2009. The Bank foreclosed on twenty one properties, totaling approximately
$9.2 million. This amount mainly consists of five loan relationships, totaling approximately $7.3 million. The first of these five loan relationships, totaling approximately $3.3 million, is secured by two properties which consist of 85 acres of
undeveloped land being held for residential development located in Forsyth County, Georgia. The second of these five loan relationships, totaling approximately $1.5 million, is secured by 24 developed residential home lots located in Fannin County,
Georgia. The third of these five loan relationships, totaling approximately $1.1 million, is secured by 74 acres of undeveloped land being held for residential development located in Cherokee County, Georgia. The fourth of these five loan
relationships, totaling approximately $920,000, is secured by four completed residential homes being held for sale and a residential home lot all located in Cherokee County, Georgia. The last of these five loan relationships is secured by a
residential home located in DeKalb County, Georgia totaling approximately $514,000. Of the remaining properties that were foreclosed upon in the first quarter of 2009, four of the properties, totaling $292,000, were related to residential home lots,
four of the properties, totaling $912,000, were related to residential home construction, one of the properties, totaling $50,000, was related to a residential home, and two of the properties, totaling $601,000, were related to commercial real
estate. During the first quarter of 2009, the Bank sold eight properties that were foreclosed upon in 2008, totaling approximately $1.6 million for a gain of approximately $58,000. The Bank sold one



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property that was foreclosed upon in 2009, totaling approximately $50,000 for a gain of approximately $17,000. Of the nine properties sold in the first
quarter of 2009, two were residential homes that sold at a gain of approximately $16,000 and seven were related to residential home construction and land lots that sold at a gain of approximately $59,000.

At March 31, 2009, the Bank held thirty-seven properties totaling approximately $23.7 million that were foreclosed on prior to 2009. Of these
properties, sixteen of the properties totaling approximately $8.7 million were related to residential home lots and raw land, six of the properties totaling approximately $2.4 million were related to residential homes, four of the properties
totaling approximately $5.1 million were related to commercial real estate, two of the properties totaling approximately $6.0 million were related to commercial land lots and raw land and nine of the properties totaling approximately $1.5 million
were related to residential homes under construction. During the first quarter of 2009, the Bank wrote down one of the commercial real estate properties approximately $280,000 based upon a negotiated sales price on the property. The Bank is
currently holding the foreclosed properties for sale. The foreclosed properties have been recorded at the lower of cost or market less the estimated costs to sell the properties. The Bank does not foresee any further material losses from these loans
and properties.

Potential problem loans represent commercial banking loans that are presently performing, but management has doubts
concerning the ability of the borrowers to meet contractual repayment terms. Potential problem commercial loans increased approximately $19.8 million, or 52%, from $38.4 million at December 31, 2008 to $58.2 million at March 31, 2009. The
increase in potential problem commercial loans from December 31, 2008 to March 31, 2009 was mainly related to the deterioration of our ADC loan portfolio. At December 31, 2008, $21.8 million of the Banks commercial potential
problem loans were related to the ADC loan portfolio, $20.3 million of which was related to residential real estate projects and $1.5 million of which was related to commercial real estate projects. At March 31, 2009, $36.9 million of the
Banks commercial potential problem loans were related to the ADC loan portfolio, $24.2 million of which was related to residential real estate projects and $12.7 million of which was related to commercial real estate projects. Of the $19.8
million increase in potential problem loans from December 31, 2008 to March 31, 2009, $21.0 million is related to six loan relationships, of which $17.7 million is related to ADC loans. All of these loans are currently performing; however,
because of the current deterioration in the real estate market and the economy, management has concerns about the ability of the borrowers to meet their contractual repayment terms if current market conditions continue for a prolonged period. These
loans could be reclassified as non-performing assets in the future. Management believes that the loans categorized as potential problem loans at March 31, 2009 are adequately collateralized and that any losses that may result from these loan
relationships have been considered in our determination of the loan loss allowance.

Total Investment Securities

The Bank invests in U.S. government and government agency obligations, mortgage-backed securities, corporate securities, restricted equity securities,
federal funds sold, and interest-bearing deposits with other banks. The Banks investments are managed in relation to loan demand and deposit growth, and are generally used to provide for the investment of funds not needed to make loans, while
providing liquidity to fund increases in loan demand or to offset fluctuations in deposits. Investment securities, federal funds sold, restricted equity securities and interest-bearing deposits with other banks totaled $192.8 million at
March 31, 2009, compared to $187.2 million at December 31, 2008 and $72.8 million at March 31, 2008. At March 31, 2009, the Bank had federal funds sold and interest-bearing deposits in banks of $153.5 million, compared to $146.3
million at December 31, 2008 and $42.0 million at March 31, 2008. The increase of $7.2 million from December 31, 2008 and $111.5 million from March 31, 2008 in federal funds sold and interest-bearing deposits with other banks is
due to the Companys strategic decision to increase short-term liquidity because of the tightening in the credit and liquidity markets and the deterioration in the real estate market. Investment securities and restricted equity securities
totaled $39.4 million at March 31, 2009, compared to $40.8 million at December 31, 2008 and $30.7 million at March 31, 2008. The increase in investment securities and restricted equity securities from March 31, 2008 was due to
the Bank purchasing a $4.0 million Pickens County School Bond and purchasing government-backed agency and mortgage-backed securities in order to increase our yield on our liquid funds. The restricted equity securities consist of shares held in the
Federal Home Loan Bank of Atlanta in the amount of approximately $3.3 million and shares held in Silverton Bank (formerly The Bankers Bank) in the amount of $165,975 at March 31, 2009. On May 1, 2009, the Office of the Comptroller of
Currency closed Silverton Bank and appointed the Federal Deposit Insurance Corporations as Receiver. Therefore, our 300 shares held in Silverton Bank valued at $165,975 were written-off during the second quarter of 2009.

Unrealized losses on securities available for sale amounted to $(8,210) at March 31, 2009, and $(31,766) and $(12,566) at December 31, 2008 and
March 31, 2008, respectively. We have not specifically identified any securities for sale in future periods, which, if so designated, would require a charge to operations if the market value would not be reasonably expected to recover prior to
the time of sale. The Banks management believes that the unrealized losses on particular securities have resulted from temporary changes in the interest rate market and not as a result of credit deterioration and that therefore all unrealized
losses represent, and in the future will represent, temporary impairment. In addition, total impairment represents less than 1% of amortized cost. All bonds held at March 31, 2009 that have unrealized losses are backed by the U.S. Government or
one of its agencies or quasi-agencies.



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Total Commercial Bank Deposits

The Banks commercial deposits totaled $965.8 million, $935.9 million and $821.6 million at March 31, 2009, December 31, 2008 and
March 31, 2008, respectively, representing increases of 3% and 18%, respectively, over December 31, 2008 and March 31, 2008. Commercial deposits averaged $959.7 million during the three-month period ended March 31, 2009, $804.4
million during the three-month period ended March 31, 2008 and $865.2 million during the twelve-month period ended December 31, 2008. The Bank made the strategic decision to increase short-term liquidity in 2008 and the first quarter of
2009 through growth in deposits because of the tightening in the credit and liquidity markets and the deterioration in the real estate market. The increase in deposits from December 31, 2008 to March 31, 2009 is due to an increase in
interest-bearing checking accounts. The Bank ran an interest-bearing checking account special from September 2008 through March 2009 that guaranteed a rate of 3.75% until March 31, 2009 and then 3.00% until June 30, 2009. The Bank grew
deposits in this account by $49.6 million during the first quarter of 2009. During 2007 and 2008, we attempted to offset potential decreases in our share of local deposits by accepting out-of-market and brokered deposits. During 2007 and 2008, the
Banks out-of-market and brokered deposits increased $161.6 million to $240.1 million at December 31, 2008. Since the end of 2008, we have let most of our maturing brokered and out-of market deposits run out of the Bank. We have reduced
our out-of-market and brokered deposits to $225.6 million as of March 31, 2009. The costs of out-of-market and brokered deposits can be volatile, and if our access to these markets is limited in any way, then our liquidity could be adversely
affected. Currently, because the Banks capital levels are below the regulatory requirements for well capitalized institutions, the Bank cannot acquire brokered deposits and is limited in the rates that it can offer on other
out-of-market deposits. From April 2009 to December 2009, the Bank has approximately $111 million in brokered and out-of market deposits maturing and if the Bank does not return to a well capitalized position, it will most likely not be able to
renew these deposits. Therefore, the Bank may have to increase deposit rates in its local markets in the future, which would adversely affect its net interest margin and net income. Interest-bearing deposits represented 96% of total deposits at
March 31, 2009, compared to 96% at December 31, 2008 and 95% at March 31, 2008. Certificate of deposits comprised 80% of total interest-bearing deposits for March 31, 2009, compared to 79% at December 31, 2008 and 81% at
March 31, 2008. The composition of these deposits is indicative of the interest rate-sensitive market in which the Bank operates. We cannot provide any assurance that the Bank can maintain or increase its market share of deposits in its highly
competitive service area.

Total Commercial Bank Borrowings

At March 31, 2009, the Bank had borrowed $31.0 million in FHLB advances at maturity terms ranging from six months to ten years and with an average
interest rate of 3.89%. These advances were borrowed for use with the commercial banking business and are secured by a blanket lien on the Banks 14 family first lien mortgage loans, by a blanket lien on the Banks commercial real
estate loans, by investment securities and by FHLB stock. As of March 31, 2009, the Bank had the capacity to borrow an additional $7.4 million from the FHLB. However, during the second quarter of 2009, the FHLB suspended our line of credit due
to the financial condition of the Bank. The Bank can renew its current advances as they mature, however we cannot borrow additional advances at this time. There were $36.0 million and $31.0 million, respectively, in Federal Home Loan Bank advances
outstanding at March 31, 2008 and December 31, 2008.

At March 31, 2009, the Bank had approximately $18.5 million of federal
funds lines of credit available from correspondent institutions. There were no amounts outstanding on these federal funds lines of credit at during the first quarter of 2009. Based upon the Companys weakened financial condition and capital
levels, the Companys access to these federal funds will likely be restricted in 2009 and may not be available at all.

Discontinued Operations

Prior to the sale of our wholesale residential mortgage business on December 31, 2003,
the Company sold loans that it originated. The Companys consolidated balance sheets at both March 31, 2009 and December 31, 2008 include no assets and include liabilities of $1,694,496, related to discontinued operations. The Company
typically made representations and warranties to the purchasers and insurers that the Company had properly originated and serviced the loans under state laws, investor guidelines and program eligibility standards. The Company could be obligated to
indemnify the purchaser for unpaid principal and interest on defaulted loans if the Company had breached its representations and warranties with respect to the loans that it sold. These liabilities consist of the allowance for recourse liability.
This reserve remained with the Company after the sale of the wholesale mortgage operation, as did the risk and the liability from the indemnified loans. At March 31, 2009 and December 31, 2008, the Company had approximately $1.4 million
and $1.5 million, respectively, of mortgage loans for which it had agreed to indemnify the purchaser for losses suffered by the purchaser. In the event that the purchaser of these loans experiences any losses with respect to the loans, the Company
will be required to indemnify the purchaser for its losses or to repurchase the loans from the purchaser. The Company has established a specific allowance for recourse liability for the loans on which the Company has already become obligated to make
indemnification payments to the purchaser and an estimated allowance for recourse liability for probable future losses from loans that the Company may have to indemnify. The estimated recourse liability for



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future losses at both March 31, 2009 and December 31, 2008 was approximately $1.7 million and is based upon historical information on the number of
loans indemnified and the average loss on an indemnified loan. We evaluated the allowance for recourse liability during the first quarter of 2009 and determined that no adjustments are needed at this time.

Capital

Our capital adequacy
is measured by risk-based and leverage capital guidelines. Developed by regulatory authorities to establish capital requirements, the risk-based capital guidelines assign weighted levels of risk to various asset categories. Among other things, these
guidelines currently require us to maintain a minimum ratio of 8.0% of total capital to risk-adjusted assets. Under the guidelines, one-half of our required capital must consist of tier 1 capital, which includes common equity, retained earnings and
a limited amount of qualifying perpetual preferred stock and trust preferred securities, less goodwill and intangibles. The remainder may consist of tier 2 capital, which includes non-qualifying preferred stock, qualifying subordinated, perpetual or
mandatory convertible debt, term subordinated debt and intermediate term preferred stock and up to 45% of the pre-tax unrealized holding gains on available-for-sale equity securities with readily determinable market values that are prudently valued,
and a limited amount of any loan loss allowance. Tier 1 and tier 2 capital are together referred to as total capital.

The
leverage guidelines provide for a minimum ratio of tier 1 capital to total assets of 3.0% if we meet certain requirements, including having the highest regulatory rating, and require us to cushion the ratio by an additional 1.0% to 2.0% if we do not
meet those requirements. The guidelines also specify that bank holding companies that are experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels
without significant reliance on intangible assets. Higher capital ratios also may be required depending upon the organizations risk profile. Furthermore, the guidelines indicate that the Federal Reserve will continue to consider a
tangible tier 1 leverage ratio, calculated without the inclusion of intangible assets, in evaluating proposals for expansion or new activity. The Federal Reserve has not advised us, and the FDIC has not advised the Bank, of any specific
minimum leverage ratio or tangible tier 1 leverage ratio that we are required to meet.

The Company and Banks actual capital amounts
and ratios for March 31, 2009 and December 31, 2008 are presented in the following table.



|                                        |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|--------------------------------------- |  | ------ | ------ | ----- | --------------------------- | - | ------ | ------------------------------------------------------------- | ------ |  | - | ------ |  | ----- | ------ |  | --- | -
|                                        |  | Actual |        |       | For CapitalAdequacyPurposes |   |        | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions |       
|(Dollars in Thousands)                  |  | Amount |        | Ratio |                             |   | Amount |                                                               | Ratio  |  |   | Amount |  | Ratio |       
|As of March 31, 2009:                   |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|                                        |  |        |        |       |                             |  
|Total Capital to Risk Weighted Assets:  |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Company                                 |  | $      | 63,575 |       | 7.44                        | % |        | $                                                             | 68,404 |  | 8 | %      |  | $     | N/A    |  | N/A |  
|Bank                                    |  | $      | 66,211 |       | 7.77                        | % |        | $                                                             | 68,150 |  | 8 | %      |  | $     | 85,187 |  | 10  | %
|                                        |  |        |        |       |                             |  
|Tier I Capital to Risk Weighted Assets: |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Company                                 |  | $      | 44,651 |       | 5.22                        | % |        | $                                                             | 34,202 |  | 4 | %      |  | $     | N/A    |  | N/A |  
|Bank                                    |  | $      | 55,428 |       | 6.51                        | % |        | $                                                             | 34,075 |  | 4 | %      |  | $     | 51,112 |  | 6   | %
|                                        |  |        |        |       |                             |  
|Tier I Capital to Average Assets:       |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Company                                 |  | $      | 44,651 |       | 4.20                        | % |        | $                                                             | 42,567 |  | 4 | %      |  | $     | N/A    |  | N/A |  
|Bank                                    |  | $      | 55,428 |       | 5.25                        | % |        | $                                                             | 42,264 |  | 4 | %      |  | $     | 52,831 |  | 5   | %



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##### Table of Contents

|                                        |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|--------------------------------------- |  | ------ | ------ | ----- | --------------------------- | - | ------ | ------------------------------------------------------------- | ------ |  | - | ------ |  | ----- | ------ |  | --- | -
|                                        |  | Actual |        |       | For CapitalAdequacyPurposes |   |        | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions |       
|(Dollars in Thousands)                  |  | Amount |        | Ratio |                             |   | Amount |                                                               | Ratio  |  |   | Amount |  | Ratio |       
|As of December 31, 2008:                |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|                                        |  |        |        |       |                             |  
|Total Capital to Risk Weighted Assets:  |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Company                                 |  | $      | 68,548 |       | 8.01                        | % |        | $                                                             | 68,434 |  | 8 | %      |  | $     | N/A    |  | N/A |  
|Bank                                    |  | $      | 70,788 |       | 8.31                        | % |        | $                                                             | 68,144 |  | 8 | %      |  | $     | 85,179 |  | 10  | %
|                                        |  |        |        |       |                             |  
|Tier I Capital to Risk-Weighted Assets: |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Company                                 |  | $      | 45,357 |       | 5.39                        | % |        | $                                                             | 34,217 |  | 4 | %      |  | $     | N/A    |  | N/A |  
|Bank                                    |  | $      | 59,997 |       | 7.04                        | % |        | $                                                             | 34,072 |  | 4 | %      |  | $     | 51,108 |  | 6   | %
|                                        |  |        |        |       |                             |  
|Tier I Capital to Average Assets:       |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Company                                 |  | $      | 45,357 |       | 4.32                        | % |        | $                                                             | 41,949 |  | 4 | %      |  | $     | N/A    |  | N/A |  
|Bank                                    |  | $      | 59,997 |       | 5.72                        | % |        | $                                                             | 41,943 |  | 4 | %      |  | $     | 52,429 |  | 5   | %

The Company and the Bank were not adequately capitalized under all applicable regulatory capital
measurements as of March 31, 2009. As noted above, the Companys and the Banks Tier 1 Capital Ratios were 5.22% and 6.51%, respectively, and Total Risk Based Capital Ratios were 7.44% and 7.77%, respectively, as of March 31,
2009. Pursuant to the Order, we are required to increase our capital so that we have a minimum Tier 1 Capital Ratio of 8.0% and a minimum Total Risk Based Capital Ratio of at least 10.0% within 120 days of the effective date of the Order.

At March 31, 2009, the Companys and Banks leverage ratio was 4.20% and 5.25%, respectively, compared to 4.32% and 5.72% at
December 31, 2008 and 8.31% and 8.41%, respectively, at March 31, 2008. On June 27, 2008, the Company entered into an agreement with another financial institution for a $6.0 million line of credit. This line of credit matures in 12
months and pays interest quarterly at prime rate, as reported in The Wall Street Journal, floating with a 6.00% floor. The line of credit is secured by all of the issued and outstanding shares of the common stock of the Bank. In the event of an
uncured default under this line of credit, the lender could foreclose upon the common stock of the Bank and deprive Crescent of its principal source of income. On the same day that the Company entered into the line of credit, it drew $2.5 million on
the line of credit and contributed that $2.5 million to the Bank. On September 30, 2008, the Company drew an additional $2.5 million on the line of credit and contributed that amount to the Bank. The Company has drawn an additional $550,000 on
the line of credit in the first quarter of 2009. Also, in June 2008, CMS distributed $1.3 million in available capital to the Company and the Company subsequently contributed the $1.3 million to the Bank. The Company contributed this $6.3 million in
capital to the Bank in an effort to keep the Bank adequately-capitalized in light of the Banks net loss and deterioration in asset quality during 2008.

At March 31, 2009, our total consolidated shareholders equity was $31.9 million, or 3.00% of total consolidated assets, compared to $65.8 million, or 6.90% of total consolidated assets, at March 31,
2008, and $36.8 million, or 3.54% of total consolidated assets, at December 31, 2008. The decrease in the consolidated shareholders equity to total consolidated assets ratio in the first quarter of 2009 was due to the Companys
consolidated net loss of approximately $5.1 million in the first quarter of 2009 and due to the growth of total consolidated assets, which grew approximately $25.9 million, or 2%, in the first quarter of 2009.

At March 31, 2009, the Companys ratio of total consolidated capital to risk-adjusted assets was 7.44%, 5.22% of which consisted of tier 1
capital and the Banks ratio of total consolidated capital to risk-adjusted assets was 7.77%, 6.51% of which consisted of tier 1 capital. No dividends have been paid or declared in 2009. Both the Companys and Banks ratio of total
consolidated capital to risk-adjusted assets were considered below adequately capitalized levels for regulatory capital requirements at March 31, 2009.

As of March 31, 2008, the Companys ratio of total consolidated capital to risk-adjusted assets was 10.73%, 8.91% of which consisted of tier 1 capital, and, as of December 31, 2008, total consolidated
capital to risk-adjusted assets was 8.01%, 5.30% of which consisted of tier 1 capital. As of March 31, 2008, the Banks ratio of total capital to risk-adjusted assets was 10.18%, 9.83% of which consisted of tier 1 capital, and, as of
December 31, 2008, total capital to risk-adjusted assets was 8.31%, 7.04% of which consisted of tier 1 capital.



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Currently, the Company is making all efforts to increase its capital ratios. As part of those efforts,
the Company has retained the services of investment bankers to review all strategic opportunities available to the Company and the Bank. We have been actively pursuing a number of capital-raising alternatives including, without limitation, through a
Private Placement described above under the heading Recent Events, as well as participation in the Capital Purchase Program. Consummation of the Private Placement was subject to a number of closing conditions, including, without
limitation, the Treasurys approval of our Capital Purchase Program application. On March 3, 2009, we voluntarily withdrew our application to participate in the Capital Purchase Program and this condition was not waived by the Purchasers.
As a result, on March 31, 2009, the Company and the Purchasers mutually agreed to terminate the purchase agreement with respect to the Private Placement and the purchase price, which had been held in escrow, was returned to the Purchasers. The
Company is continuing to pursue a variety of strategic alternatives, however, there is no assurance that the Companys capital raising efforts will be successful, particularly in the current economic environment. In the event we are unable to
raise additional capital, our ability to operate may be significantly impacted.

In prior years, the Company maintained sufficient cash to
inject into the Bank if its assets grew faster than its capital and such an injection was needed to maintain well-capitalized status. Due to the operating losses we incurred in 2008 and the first quarter of 2009, the Company did not have sufficient
cash to keep the Bank at the adequately capitalized level. If the Company cannot raise additional capital either through private or public equity, there will be no further injections to the Bank. Due to its capital levels and operating losses in
2008 and the first quarter of 2009, the Bank is unable to pay dividends to the Company. If the Company or the Bank is not able to raise additional capital, the Company may not have sufficient capital to fund its operations. The Companys
ability to preserve and increase its capital will depend on various factors, including general economic and real estate market conditions in our service areas, our ability to raise additional capital, regulatory considerations, the level of consumer
confidence in our institution and the banking sector generally, and the Companys ability to manage and limit the adverse effects of losses on existing loans.

Liquidity

Liquidity involves our ability to raise funds to support asset growth, meet deposit
withdrawals and other borrowing needs, maintain reserve requirements, and otherwise sustain our operations. This is accomplished through maturities and repayments of our loans and investments, our deposit growth, and our access to sources of funds
other than deposits, such as the federal funds market and borrowings from the FHLB and other lenders.

Our average liquid assets consist of
cash and amounts due from banks, interest-bearing deposits in other banks, federal funds sold, mortgage loans held for sale net of borrowings, investment securities held for maturity and securities held for sale. These average liquid assets totaled
$205.2 million, $116.7 million and $65.2 million during the three months ended March 31, 2009, the twelve months ended December 31, 2008 and the three months ended March 31, 2008, respectively, representing 21%, 13% and 8% of average
deposits and borrowings, respectively, for those periods. Average liquid assets increased by approximately $88.5 million, or 76%, from the twelve months ended December 31, 2008 to the three months ended March 31, 2009 and average liquid
assets as a percentage of average deposits and borrowings increased approximately 8% from the same time frame. Our average liquid assets and the percentage of average liquid assets as a percentage of average deposits and borrowings increased due to
the Companys strategic decision to increase short-term liquidity because of the tightening in the credit and liquidity markets and the deterioration in the real estate market. The Company, on average, held $81.4 million more in federal funds
sold, interest-bearing deposits in other banks and due from banks during the three months ended March 31, 2009 compared to the twelve months ended December 31, 2008. Average commercial banking loans were 80%, 91% and 97% of average
commercial bank deposits and borrowings during the three months ended March 31, 2009, the twelve months ended December 31, 2008 and the three months ended March 31, 2008, respectively. The ratio of average commercial banking loans to
average commercial banking deposits and borrowings decreased during the first quarter of 2009 compared to the twelve months ended December 31, 2008 and the three months ended March 31, 2008. The decrease in the ratio of average commercial
banking loans to average commercial banking deposits and borrowings was due to the Companys strategic decision to increase short-term liquidity because of the tightening in the credit and liquidity markets and the deterioration in the real
estate market. The Bank grew average deposits approximately $94.5 million during the three months ended March 31, 2009 compared to the twelve months ended December 31, 2008 while average commercial banking loans decreased by $27.2 million
during the same time frame. The Companys decision to increase short-term liquidity and the growth of deposits resulted in the Bank holding, on average, approximately $81.4 million more in federal funds sold, interest-bearing deposits and due
from banks during the three months ended March 31, 2009 compared to the twelve months ended December 31, 2008.

The Bank actively
manages the levels, types and maturities of interest-earning assets in relation to the sources available to fund current and future needs. The Bank maintained a line of credit up to approximately $41.5 million at the FHLB at March 31, 2009.
However, based upon the Companys weakened financial condition and capital levels, the FHLB suspended our line of credit due to the financial condition of the Bank during the second quarter of 2009. The Bank can renew its current advances as
they mature, however we cannot borrow additional advances at this time. Additionally, during the first quarter of 2009, the



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FHLB required the Bank to have 125% of collateral to total advances outstanding. The Bank also maintains federal funds lines of credit with correspondent
institutions, totaling $18.5 million at March 31, 2009. However, based upon the Companys weakened financial condition and capital levels, the Companys access to these federal funds will likely be restricted in 2009, and may not be
available at all. At March 31, 2009, we had $31.0 million in the FHLB advances outstanding and no amounts outstanding on our federal funds lines of credit. During the first quarter of 2009, the average balance in FHLB advances was $31.0 million
and the Bank had no amounts outstanding on its federal funds purchased lines during the first quarter of 2009. All of the $31.0 million in advances outstanding are secured by the Banks 1  4 family first lien mortgage loans, commercial
real estate loans and multi-family mortgage loans, by investment securities and by FHLB Stock. The Bank has an additional $15.0 million in unpledged securities that could be used to borrow additional funds at the Federal Reserve Bank.

The Banks liquidity is under pressure due to the tightening in the liquidity and credit markets, regulatory limits on brokered and out-of-market
deposits and the competitive pricing for deposits in the Banks market. The Bank could experience increased liquidity pressure if these economic conditions continue or worsen in 2009. During 2007 and 2008, we attempted to offset potential
decreases in our share of local deposits by accepting out-of-market and brokered deposits. The cost of these brokered and out-of-market deposits were approximately 15 to 30 basis points less than our local deposits during the same period. During
2007 and 2008, the Banks out-of-market and brokered deposits increased $161.6 million to $240.1 million at December 31, 2008. We have since reduced our out-of-market and brokered deposits to $225.6 million as of March 31, 2009.

Currently, because the Banks capital levels are below the regulatory requirements for adequately capitalized
institutions, the Bank cannot acquire brokered deposits and is limited in the rates that it can offer on other out-of-market deposits. From April 2009 to December 2009, the Bank has approximately $111 million in brokered and out-of market deposits
maturing and if the Bank does not return to a well capitalized position, it will most likely not be able to renew these deposits which will adversely affect the Banks liquidity position in 2009. Paying off all of these deposits will greatly
diminish the liquidity position of the Company, and we may be unable to fund our business operations. Even if we become eligible to receive a waiver from the FDIC on brokered deposits, we cannot guarantee that we will be granted such waiver.
Management has found that most non-relationship oriented retail certificates of deposit are interchangeable with wholesale funding sources such as brokered deposits and wholesale certificates of deposit and as a result, the Company alternates
between these funding sources depending on the relative costs, but our access to brokered deposits as a funding source may be limited in the future.

There can be no assurance that our liquidity level will be sufficient if we have to pay off all of our maturing brokered deposits and out-of-market deposits in 2009. We increased our liquidity because of the negative
publicity surrounding both the banking industry and the Company. The banking industry has come under significant scrutiny due to government funding through the EESA and TARP. The Company has endured adverse publicity due to our increasing levels of
nonperforming assets, goodwill impairment, drop in stock price during 2008 and our net loss in 2008. Because the Bank will not be able to accept, renew or rollover brokered deposits, our liquidity could be adversely and significantly affected, and
we may not be able to fund our operations or continue as a going concern. Additionally, the current volatility and disruptions in the capital markets could impact the Companys ability to access alternative liquidity sources in the same manner
as the Company had in the past. Finally, our entry into the Order with the Georgia Department and the FDIC, as well as our independent registered public accountants inclusion in their audit report for fiscal year 2008 of their doubt about our
ability to continue as a going concern, could impact our ability to access alternative liquidity sources or raise additional capital.

Commercial Commitments

The following table presents our other commercial commitments at March 31, 2009. These
commitments are not included in our consolidated balance sheet.

Commercial Commitments



|                                 |  |                                            |        |                |   |           |  |           |        |               |   |       |  |   |    
|-------------------------------- |  | ------------------------------------------ | ------ | -------------- | - | --------- |  | --------- | ------ | ------------- | - | ----- |  | - | ---
|                                 |  | Amount of Commitment Expiration Per Period
|                                 |  | Total                                      |        | Under 1 Year   |   | 1-3 Years |  | 4-5 Years |        | After 5 Years
|                                 |  |                                            |        | (in thousands)
|Commitments to extend credit (1) |  | $                                          | 58,502 |                | $ | 29,018    |  | $         | 24,530 |               | $ | 4,521 |  | $ | 433
|Letters of Credit (2)            |  |                                            | 2,498  |                |   | 2,416     |  |           | 82     |               |   |      |  |   |   
|                                 |  |                                            |        |                |   |           |  |           |        |               |   |       |  |   |    
|                                 |  |                                            |        |                |  
|Total commercial commitments     |  | $                                          | 61,000 |                | $ | 31,434    |  | $         | 24,612 |               | $ | 4,521 |  | $ | 433
|                                 |  |                                            |        |                |   |           |  |           |        |               |   |       |  |   |    



|(1) | Commitments to extend credit are agreements to lend to customers in accordance with contractual provisions. These commitments usually are for specific periods or contain termination
clauses and may require the payment of a fee. The total amounts of unused commitments do not necessarily represent future cash requirements, in that commitments often expire without being drawn upon.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | Letters of credit and financial guarantees are agreements whereby we guarantee the performance of a customer to a third party. Collateral may be required to support letters of
credit in accordance with managements evaluation.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Off-Balance Sheet Arrangements

In order to manage its interest rate sensitivity, the Company uses off-balance sheet contracts that are considered derivative financial instruments.
Derivative financial instruments can be a cost-effective and capital effective means of modifying the repricing characteristics of on-balance sheet assets and liabilities. At March 31, 2009 and December 31, 2008, the Company was a party to
interest rate swap contracts (back-end derivatives) under which it pays a fixed rate of interest and receives a variable rate of interest. The notional amount of the interest rate swaps was approximately $8,560,000 with a fair value of approximately
$(1,331,000) at March 31, 2009 and approximately $8,764,000 with a fair value of approximately $(1,407,000) at December 31, 2008. The Company also has an embedded derivative in each of the loan agreements (front-end derivative) that would
require the borrower to pay or receive from the Bank an amount equal to and offsetting the value of the interest rate swaps. These front-end and back-end derivatives are recorded in other assets and other liabilities. The net effect of recording the
derivatives at fair value through earnings was immaterial to the Companys financial condition and results of operations as of and for the three months ended March 31, 2009. If a counterparty, in particular our borrower, fails to perform
and the market value of the financial derivative is negative, the Company would be obligated to pay the settlement amount for the financial derivative. If the market value is positive, the Company would receive a payment for the settlement amount
for the financial derivative. The settlement amount of the financial derivative could be material to the Company and is determined by the fluctuation of interest rates.

The Companys policy requires all derivative financial instruments be used only for asset/liability management through the hedging of specific transactions or positions, and not for trading or speculative
purposes. The Company is subject to the risk that a counterparty, in particular our borrower, will fail to perform; however, management believes that the risk associated with using derivative financial instruments to mitigate interest rate risk
sensitivity is minimal and should not have any material unintended impact on the financial condition or results of operations.

Effects of Inflation

Inflation generally increases the cost of funds and operating overhead, and, to the extent loans and other assets bear variable rates,
the yields on such assets. Unlike most industrial companies, virtually all of our assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on our performance than the effects of general
levels of inflation. Although interest rates do not necessarily move in the same direction, or to the same extent, as the prices of goods and services, low inflation or deflation generally results in decreased interest rates while high inflation
generally results in increased interest rates. During 2005, the Federal Reserve raised rates by a total of 200 basis points and raised rates by an additional 100 basis points in the first six months of 2006. The Federal Reserve then left rates
unchanged until the third quarter of 2007. From September 2007 through the end of 2007, the Federal Reserve reduced interest rates by 100 basis points and during 2008 reduced rates further by 400 basis points. The Federal Reserve has indicated that
further changes in interest rates would be dependent on economic data. The decrease in interest rates in 2008 will likely have a negative impact on our net interest income during the first half of 2009.

In addition, inflation results in the increased cost of goods and services purchased, cost of salaries and benefits, occupancy expense and similar items.
Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect the liquidity and earnings of our commercial banking and mortgage banking businesses, and our
stockholders equity.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

The Company has omitted disclosure related to quantitative and qualitative market risk pursuant to the smaller reporting company regulatory relief and simplification rules.



|ITEM 4T. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

As of the end of the period covered by this report, the Companys Chief Executive Officer and the Chief Financial
Officer evaluated the effectiveness of the Companys disclosure controls and procedures in accordance with Rule 13a-15 under the Exchange Act. Based on their evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that
the Companys disclosure controls and procedures are effective in recording, processing, summarizing and reporting in a timely manner the information that the Company is required to disclose in its Exchange Act reports.



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Managements Quarterly Report on Internal Control Over Financial Reporting

The Companys management, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining
adequate internal control over the Companys financial reporting. The Companys management assesses the effectiveness of the Companys internal control over financial reporting to ensure the reliability of the Companys financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and to ensure such internal controls include those policies and procedures that: (i) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Companys management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements. Based on this evaluation,
the Chief Executive Officer and the Chief Financial Officer concluded that the Companys internal controls over financial reporting are effective and that there are no material weaknesses in the Companys internal control over financial
reporting, as of the end of the period covered by this report.

The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of December 31, 2008 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal ControlIntegrated Framework. Based on
this assessment, the Chief Executive Officer and the Chief Financial Officer concluded that the Companys internal controls over financial reporting are effective and that there are no material weaknesses in the Companys internal control
over financial reporting, as of the end of the period covered by this report.

This quarterly report does not include an attestation report
of the Companys registered public accounting firm regarding internal control over financial reporting. The Companys management report was not subject to attestation by the Companys registered public accounting firm pursuant to
temporary rules of the Commission that permit the Company to provide only managements report on internal control over financial reporting in this quarterly report.

Changes in Internal Control over Financial Reporting

There were no changes in the Companys
internal control over financial reporting that occurred during the three months ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.

PART IIOTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

Not Applicable.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Other than the risk factors set forth
below, there were no material changes during the period covered by this quarterly report to the risk factors previously disclosed in the Companys annual report on Form 10-K for the year ended December 31, 2008.

We Have Stipulated to a Cease and Desist Order with the FDIC and the Georgia Department, Which Will Restrict our Operations;
Failure to Comply with this Order Can Result in Significant Penalties

Under applicable laws, the FDIC, as our
deposit insurer, and the Georgia Department, as our chartering authority, have the ability to impose substantial sanctions, restrictions and requirements on us if they determine, upon examination or otherwise, violations of laws with which we must
comply, or weaknesses or failures with respect to general standards of safety and soundness. Applicable law prohibits disclosure of specific examination findings by the institution, although formal enforcement actions are routinely disclosed by the
regulatory authorities.

Following examinations of the operations of the Bank that was completed in July 2008 and based upon the
Banks June 30, 2008 financial information, the FDIC and the Georgia Department issued the Bank the Order. On May 11, 2009, we stipulated to the Order. The Order alleged, among other things, the following unsafe and unsound practices
and violations of law and/or regulations: operating with a board of directors that has failed to provide adequate supervision over and direction to the management of the Bank; operating with management whose policies and practices are detrimental to
the Bank and jeopardize the safety of its deposits; operating with marginally adequate equity capital and reserves in relation to the volume and quality of assets held by the Bank; operating with an excessive level of adversely classified items;
operating with inadequate provisions for



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liquidity and funds management; operating with hazardous loan underwriting and administration practices; operating in such a manner as to produce operating
losses; and operating in apparent violation of certain laws, regulations and/or statements of policy.

The Order requires that we implement
a number of actions, including developing a written analysis and assessment of our management and staffing needs; increasing our board of directors participation in our affairs; having and retaining qualified management, including a chief
executive officer responsible for the supervision of the lending function and a senior lending officer with experience in upgrading a low quality loan portfolio. The Order further requires us to increase our capital so that we have a minimum Tier 1
Capital Ratio of 8.0% and a minimum Total Risk Based Capital Ratio of at least 10.0% within 120 days of the effective date of the Order; eliminate certain classified assets not previously collected or charged-off; reduce risk exposure with respect
to certain problem assets; cease the extension of additional credit to certain borrowers; implement a plan to improve our lending practices; implement a plan for reducing credit concentration; establish and maintain a policy to ensure the adequacy
of the allowance for loan losses; formulate and implement a plan to improve earnings; implement an assets/liability management policy; develop and implement a written liquidity contingency funding plan; obtain a waiver from the FDIC prior to
accepting, renewing or rolling over brokered deposits; review and implement Bank Secrecy Act compliance; and eliminate or correct all apparent violations of law.

In the event we are in material non-compliance with the terms of the Order, our regulators have the authority to subject us to the terms of a more restrictive enforcement order, to impose civil money penalties on us
and our directors and officers, and to remove directors and officers from their positions with the Bank. In addition, due to the imposition of the Order, we will be subject to heightened scrutiny by regulatory authorities and could suffer damage to
our reputation.

Our Liquidity Continues to Suffer, and Funding to Provide Liquidity May Not Be Available to Us on Favorable Terms or
At All

In recent periods, a number of factors have placed significant stress on our liquidity, including increases in our
non-performing assets, increases in our allowance for loan losses, increases in loan demand, increased competition for deposits in our primary market area and decreases in interest rates. These factors also have contributed to compression of our net
interest margin and net income. We have historically had access to a number of alternative sources of liquidity, but given the recent and dramatic downturn in the credit and liquidity markets and our entry into the Order with the FDIC and the
Georgia Department, there is no assurance that we will be able to obtain such liquidity on terms that are favorable to us, or at all. For example, the cost of out-of-market deposits may continue to exceed the cost of deposits of similar maturity in
our local market area, making them unattractive sources of funding; financial institutions may be unwilling to extend credit to banks because of concerns about the banking industry and the economy generally; and, given recent downturns in the
economy, there may not be a viable market for raising equity capital. If funding continues to be available on a limited basis, or only on unfavorable terms, then our liquidity, net interest margin and net income, will be adversely affected.

Our Access to Certain Lines of Credit May be Restricted or Unavailable

At March 31, 2009, we had the capacity to borrow up to approximately $7.4 million in total FHLB advances. At March 31, 2009, we had
approximately $39.5 million of federal funds lines of credit available from correspondent institutions. However, during the second quarter of 2009, the FHLB suspended our line of credit due to the financial condition of the Bank. The Bank can renew
its current advances as they mature, however we cannot borrow additional advances at this time. Based upon our financial condition and weak capital position, our access to the federal funds lines of credit could also be restricted in 2009 and may
not be available at all, which will negatively impact our liquidity and general financial condition.

The Current and Further
Deterioration of the Residential Mortgage Market Likely Will Result In Further Increases In Our Non-Performing Assets and Allowance for Loan Losses, and Make It More Difficult For Us to Recover Our Losses with Respect to Defaulted Loans

Beginning in the third quarter of 2007, there were well-publicized developments in the credit, liquidity and real estate markets, beginning
with a decline in the sub-prime mortgage lending market, which later extended to the markets for collateralized mortgage obligations, mortgage-backed securities and the lending markets generally. This dramatic decline in the real estate markets,
with falling home prices and increasing foreclosures and unemployment, which continued throughout 2008, has resulted in significant write-downs of asset values by financial institutions, including government-sponsored and major commercial investment
banks. There have also been restrictions in the resale markets for non-conforming loans and it has had an adverse effect on retail mortgage lending operations in many markets.

In light of these market conditions, we regularly reassess the market value of our loan portfolio, the creditworthiness of our borrowers and the
sufficiency of our allowance for loan losses. Our allowance for loan losses increased from 1.57% of total commercial banking loans at March 31, 2008 to 2.77% at March 31, 2008. We made a provision for loan losses of approximately $2.68
million during the three months ended March 31, 2009, a decrease from approximately $3.6 million made during the three months ended March 31, 2008. We also charged-off approximately $3.45 million in loans during the three months ended
March 31,



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2009, which was significantly higher than $463,037 charged-off during the three months ended March 31, 2008. Of the total amount charged-off during the
first quarter of 2009, $2.7 million was related to impaired loans that the Bank had not taken into foreclosure at the time of charge-off. During the first quarter of 2009, the Bank determined that the losses related to these loans were
uncollectible. The Bank took an aggressive approach and charged-off the balances based upon the current downturn in the economy and real estate market. Of the total amount of charge-offs during 2008, $2.3 million was related to our ADC loan
portfolio, where the Bank has seen significant deterioration in asset quality, including an increase in the inability of some borrowers to make payments and declines in the value and marketability of the underlying collateral.

We will likely experience further increases in classified loans and non-performing assets in the foreseeable future, as well as related increases in loan
charge-offs, as the deterioration in the credit and real estate markets causes borrowers to default, and we expect to continue to employ the aggressive charge-off policy. The Banks criticized loans increased $75.0 million, or 569%, from $13.2
million at December 31, 2007 to $18.7 million at March 31, 2009, non-performing loans increased $24.7 million, or 439%, from $5.6 million at December 31, 2007 to $30.3 million at March 31, 2009 and foreclosed properties increased
$27.6 million, or 510%, from $5.4 million at December 31, 2007 to $33.0 million at March 31, 2009. The main sector of the Banks loan portfolio that experienced this deterioration was its ADC loans. The Banks criticized loans,
non-performing loans and foreclosed properties related to its ADC loan portfolio increased $49.1 million to $57.3 million, increased $17.1 million to $20.3 million and increased $24.1 million to $24.4 million, respectively, from December 31,
2007 compared to March 31, 2009.

Further, the value of the collateral underlying a given loan, and the realizable value of such
collateral in a foreclosure sale, likely will be negatively affected by the recent downturn in the real estate market, and therefore may result in our inability to realize a full recovery in the event that a borrower defaults on a loan. Any further
increase in our non-performing assets, any increase in our loan charge-offs, any further increase in our provision for loan losses, the continuation of aggressive charge-off policy or any inability by us to realize the full value of underlying
collateral in the event of a loan default, will negatively affect the our business, financial condition, liquidity, operating results, cash flow and the price of our securities.

Because a Significant Portion of Our Loan Portfolio Is Secured By Real Estate, Any Negative Conditions Affecting Real Estate May Harm Our Business

Approximately 93% of our loan portfolio consists of commercial and consumer loans that are secured by various types of real estate,
the value and marketability of which are sensitive to economic conditions and interest rates. In addition, these loans are subject to the risk that the local real estate markets will be overbuilt or will otherwise experience deterioration in value,
driving down the value and marketability of the real estate that secures these loans. The current decline in the real estate markets may cause a decrease in collateral values, which could increase our costs and time of collection as well as the
amount of potential losses we may incur on loans secured by real estate.

Commercial real estate or CRE is cyclical and poses
risks of possible loss due to concentration levels and similar risks. As of March 31, 2009, we had approximately $462.2 million in CRE loans, or approximately 60% of our loan portfolio. Our CRE loans have declined by approximately 31% since
December 31, 2007. The banking regulators are giving CRE lending greater scrutiny and may require banks with higher levels of CRE loans to implement improved underwriting, internal controls, risk management policies and portfolio stress
testing, as well as potentially higher levels of allowances for possible losses and capital levels as a result of CRE lending growth and exposures.

We Have a Significant Amount of Construction Loans That Pose Additional Risks to Those Risks Posed By Real Estate Loans Generally

Historically, our loan portfolio has included a significant number of construction loans consisting of one-to-four family residential construction loans, commercial construction loans and land loans for residential
and commercial development. As of March 31, 2009, approximately 42% of our total loan portfolio was in ADC loans. In addition to the risk of nonpayment by borrowers and risks associated with the fact that these loans generally bear interest at
variable rates, construction lending poses additional risks that affect the ability of borrowers to repay loans and that affect the value and marketability of real estate collateral, such as:



| |  |  | land values may decline;
| | - |  | ------------------------



| |  |  | developers, builders or owners may fail to complete or develop projects;
| | - |  | ------------------------------------------------------------------------



| |  |  | municipalities may place moratoriums on building, utility connections or required certifications;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | developers may fail to sell the improved real estate;
| | - |  | -----------------------------------------------------



| |  |  | there may be construction delays and cost overruns;
| | - |  | ---------------------------------------------------



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| |  |  | collateral may prove insufficient; or
| | - |  | -------------------------------------



| |  |  | permanent financing may not be obtained in a timely manner.
| | - |  | -----------------------------------------------------------

Any of these conditions could negatively affect our net income and our financial condition. Since December 31, 2007, we reduced our construction loans $88.4 million, or 21%. The Bank limited any new construction loans in the first
quarter of 2009 due to the declining real estate market.

The Impact of Recently Released Information about the Stress Test Results
from the 19 Largest Financial Institutions Cannot be Predicted at this Time

On February 10, 2009, the U.S. Treasury announced
the Financial Stability Plan promulgated under the EESA. As part of the Financial Stability Plan, each of the nations 19 largest financial institutions was subjected to a forward-looking assessment, or stress test, to evaluate the
capital needs of such institution under a more challenging economic environment. On April 24, 2009, the Federal Reserve Board published a report on the design and implementation used in these stress tests, including specific loss assumptions
related to multiple asset classes. The release of this report has created significant speculation as to the results of the stress tests performed on the largest 19 financial institutions and the hypothetical results if the stress test methodology
was applied to other financial institutions, including regional banks smaller in size. We cannot predict whether, or to what extent, other financial institutions, including the Bank, will be subjected to similar stress tests. Uncertainty over the
methodology used in the stress tests, and application of this methodology to other financial institutions, may result in a continuation or worsening of current financial market conditions that could materially and adversely affect our business,
financial condition, results of operations, access to credit or the trading price of our common stock.

We Will Realize Additional
Future Losses if the Proceeds we Receive Upon Liquidation of Non-Performing Assets are Less than the Fair Value of Such Assets

We
have developed a strategy to aggressively dispose of non-performing assets. However, the specific assets have not been yet identified. Non-performing assets are recorded on our financial statements at fair value, as required under GAAP, unless these
assets have been specifically identified for liquidation, in which case they are recorded at the lower of cost or estimated net realizable value. In current market conditions, dispositions of non-performing assets likely will result in proceeds that
are significantly less than the recorded fair value of such assets, which will result in additional future realized losses that negatively affect our financial results.

We are Heavily Regulated by Federal and State Agencies; Changes in Laws and Regulations or Failures to Comply with Such Laws and Regulations May Adversely Affect our Operations and our Financial Results

We are heavily regulated at the federal and state levels. This regulation is designed primarily to protect depositors, federal deposit
insurance funds and the banking system as a whole, not shareholders. Congress and state legislatures and federal and state regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes,
regulations or regulatory policies, including interpretation and implementation of statutes, regulations or policies, including EESA, the Financial Stability Plan, and the ARRA could affect us in substantial and unpredictable ways, including
limiting the types of financial services and products we may offer and/or increasing the ability of nonbanks to offer competing financial services and products. While we cannot predict the regulatory changes that may be borne out of the current
economic crisis, and we cannot predict whether we will become subject to increased regulatory scrutiny by any of these regulatory agencies, any regulatory changes or scrutiny could be expensive for us to address and/or could result in our changing
the way that we do business.

Federal and state regulators have the ability to impose substantial sanctions, restrictions and requirements
on our banking subsidiaries if they determine, upon examination or otherwise, violations of laws with which we must comply, or weaknesses or failures with respect to general standards of safety and soundness. Such enforcement may be formal or
informal and can include directors resolutions, memoranda of understanding, cease and desist orders, civil money penalties and termination of deposit insurance and bank closures. Enforcement actions may be taken regardless of the capital level
of the institution. In particular, institutions that are not sufficiently capitalized in accordance with regulatory standards may also face capital directives or prompt corrective action. Enforcement actions may require certain corrective steps
(including staff additions or changes), impose limits on activities (such as lending, deposit taking, acquisitions or branching), prescribe lending parameters (such as loan types, volumes and terms) and require additional capital to be raised, any
of which could adversely affect our financial condition and results of operations. The imposition of regulatory sanctions, including monetary penalties, may have a material impact on our financial condition and results of operations, and damage to
our reputation, and loss of our financial services holding company status. In addition, compliance with any such action could distract managements attention from our operations, cause us to incur significant expenses, restrict us from engaging
in potentially profitable activities, and limit our ability to raise capital.



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|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

Not Applicable.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

Not Applicable.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

Not Applicable.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.



|ITEM 6. | EXHIBITS
|------- | --------



|      |  |                                                                                                                                                                                                              
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1   |  | Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008, filed
April 13, 2009).                
|      | 
|3.2   |  | Amendment to the Companys Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Companys Registration Statement on Form S-2 filed October 26, 2001, File No.
333-72300, as amended).
|      | 
|3.3   |  | Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.1 to the Companys Current Report on Form 8-K, filed on April 25, 2007).                                                
|      | 
|31.1  |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                      
|      | 
|31.2  |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                      
|      | 
|32.1* |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                       
|      | 
|32.2* |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                       



|* | The certifications attached as Exhibits 32.1 and 32.2 accompany this Quarterly Report on Form 10-Q and are furnished to the SEC pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



39



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SIGNATURES

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



|                    |  |                                                            
|------------------- |  | -----------------------------------------------------------
|                    |  | CRESCENT BANKING COMPANY (Registrant)                      
|                    | 
|Date:  May 15,
2009 |  | /s/ J. Donald Boggus, Jr.                                  
|                    |  | J. Donald Boggus, Jr. President and Chief Executive Officer
|                    | 
|Date:  May 15,
2009 |  | /s/ Leland W. Brantley, Jr.                                
|                    |  | Leland W. Brantley, Jr. Chief Financial Officer            



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##### Table of Contents

EXHIBIT INDEX



|               |  |                                                                                                                                                                                                              
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                  
|3.1            |  | Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008, filed April 13, 2009).                
|               | 
|3.2            |  | Amendment to the Companys Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Companys Registration Statement on Form S-2 filed October 26, 2001, File No.
333-72300, as amended).
|               | 
|3.3            |  | Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.1 to the Companys Current Report on Form 8-K, filed on April 25, 2007).                                                
|               | 
|31.1           |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                      
|               | 
|31.2           |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                      
|               | 
|32.1           |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                       
|               | 
|32.2           |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.