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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549



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FORM 10-Q



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(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, 2007

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



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Crescent
Banking Company

(Exact Name of Registrant as Specified in its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)



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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 is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act (Check one):

Large Accelerated Filer ̈Accelerated
Filer ̈Non-Accelerated Filer  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 4, 2007, Crescent Banking Company had 2,625,573 shares of its common stock, par value $1.00 per share, issued and outstanding, of which
16,668 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.  |  | Consolidated Financial Statements                                                     |  |         
|         |  |                                                                                      
|         |  | Consolidated Balance Sheets                                                           |  | 1       
|         |  |                                                                                      
|         |  | Consolidated Statements of Operations and Comprehensive Income                        |  | 2       
|         |  |                                                                                      
|         |  | Consolidated Statements of Cash Flows                                                 |  | 4       
|         |  |                                                                                      
|         |  | Notes to Consolidated Financial Statements                                            |  | 6       
|         |  |                                                                                      
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 9       
|         |  |                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 24      
|         |  |                                                                                      
|Item 4T. |  | Controls and Procedures                                                               |  | 26      
|         |  |                                                                                      
|Part II. |  | Other Information                                                                     |  |         
|         |  |                                                                                      
|Item 1.  |  | Legal Proceedings                                                                     |  | 27      
|         |  |                                                                                      
|Item 1A. |  | Risk Factors                                                                          |  | 27      
|         |  |                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 27      
|         |  |                                                                                      
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  | 27      
|         |  |                                                                                      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 27      
|         |  |                                                                                      
|Item 5.  |  | Other Information                                                                     |  | 27      
|         |  |                                                                                      
|Item 6.  |  | Exhibits                                                                              |  | 27      



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, 2007 |             |   | December 31,2006 |  
|Assets                                                                                                            |  |                |             |   |                  |   |             |  
|Cash and due from banks                                                                                           |  | $              | 7,301,750   |   |                  | $ | 7,581,450   |  
|Interest-bearing deposits in banks                                                                                |  |                | 2,136,138   |   |                  |   | 1,027,770   |  
|Federal funds sold                                                                                                |  |                | 22,299,000  |   |                  |   | 11,968,000  |  
|Investment securities available-for-sale                                                                          |  |                | 16,087,298  |   |                  |   | 17,494,279  |  
|Investment securities held-to-maturity, at cost (fair value approximates $1,724,179 and $1,720,116, respectively) |  |                | 1,728,241   |   |                  |   | 1,728,241   |  
|Restricted equity securities                                                                                      |  |                | 3,139,275   |   |                  |   | 3,365,775   |  
|Mortgage loans held for sale                                                                                      |  |                | 840,439     |   |                  |   | 545,769     |  
|Loans                                                                                                             |  |                | 712,496,557 |   |                  |   | 697,288,060 |  
|Less allowance for loan losses                                                                                    |  |                | (8,135,467  | ) |                  |   | (8,023,565  | )
|                                                                                                                  |  |                |             |   |                  |   |             |  
|Loans, net                                                                                                        |  |                | 704,361,090 |   |                  |   | 689,264,495 |  
|Premises and equipment                                                                                            |  |                | 21,664,470  |   |                  |   | 21,140,757  |  
|Other real estate owned                                                                                           |  |                | 340,778     |   |                  |   | 247,830     |  
|Cash surrender value of life insurance                                                                            |  |                | 8,326,719   |   |                  |   | 8,242,326   |  
|Goodwill                                                                                                          |  |                | 3,442,714   |   |                  |   | 3,442,714   |  
|Deposit intangible                                                                                                |  |                | 399,094     |   |                  |   | 430,532     |  
|Deferred tax asset                                                                                                |  |                | 5,381,147   |   |                  |   | 5,378,485   |  
|Accounts receivable-brokers and escrow agents                                                                     |  |                | 289,133     |   |                  |   | 284,978     |  
|Other assets                                                                                                      |  |                | 7,691,629   |   |                  |   | 7,527,490   |  
|Total Assets                                                                                                      |  | $              | 805,428,915 |   |                  | $ | 779,670,891 |  
|                                                                                                                  |  |                |             |   |                  |   |             |  
|Liabilities                                                                                                       |  |                |             |   |                  |   |             |  
|Deposits                                                                                                          |  |                |             |   |                  |   |             |  
|Non interest-bearing                                                                                              |  | $              | 45,176,195  |   |                  | $ | 46,040,938  |  
|Interest-bearing                                                                                                  |  |                | 639,470,816 |   |                  |   | 612,814,424 |  
|                                                                                                                  |  |                |             |   |                  |   |             |  
|Total deposits                                                                                                    |  |                | 684,647,011 |   |                  |   | 658,855,362 |  
|Short-term borrowings                                                                                             |  |                | 14,000,000  |   |                  |   | 14,000,000  |  
|Long-term borrowings                                                                                              |  |                | 32,857,000  |   |                  |   | 35,857,000  |  
|Accrued interest and other liabilities                                                                            |  |                | 8,574,839   |   |                  |   | 6,861,769   |  
|Liabilities related to discontinued operations                                                                    |  |                | 2,252,695   |   |                  |   | 2,318,896   |  
|                                                                                                                  |  |                |             |   |                  |   |             |  
|Total liabilities                                                                                                 |  |                | 742,331,545 |   |                  |   | 717,893,027 |  
|                                                                                                                  |  |               
|Shareholders equity                                                                                              |  |                |             |   |                  |   |             |  
|Common stock, par value $1.00; 10,000,000 shares authorized; 2,625,173 and 2,609,073 issued, respectively         |  |                | 2,625,173   |   |                  |   | 2,609,073   |  
|Capital surplus                                                                                                   |  |                | 19,728,859  |   |                  |   | 19,543,642  |  
|Retained earnings                                                                                                 |  |                | 41,177,650  |   |                  |   | 40,094,762  |  
|Treasury stock, 16,668 shares                                                                                     |  |                | (296,091    | ) |                  |   | (296,091    | )
|Accumulated other comprehensive loss                                                                              |  |                | (138,221    | ) |                  |   | (173,522    | )
|                                                                                                                  |  |                |             |   |                  |   |             |  
|Total shareholders equity                                                                                        |  |                | 63,097,370  |   |                  |   | 61,777,864  |  
|                                                                                                                  |  |                |             |   |                  |   |             |  
|Total liabilities and shareholders equity                                                                        |  | $              | 805,428,915 |   |                  | $ | 779,670,891 |  
|                                                                                                                  |  |                |             |   |                  |   |             |  

See Notes to Consolidated Financial Statements.



1



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CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(unaudited)



|                                                                                             |  |                                      |            |      |   |            |  
|-------------------------------------------------------------------------------------------- |  | ------------------------------------ | ---------- | ---- | - | ---------- | -
|                                                                                             |  | For the three months ended March 31, |           
|                                                                                             |  | 2007                                 |            | 2006 |  
|Interest income                                                                              |  |                                      |            |      |   |            |  
|Loans                                                                                        |  | $                                    | 14,598,212 |      | $ | 11,362,515 |  
|Mortgage loans held for sale                                                                 |  |                                      | 4,137      |      |   | 4,835      |  
|Taxable securities                                                                           |  |                                      | 272,278    |      |   | 266,021    |  
|Deposits in banks                                                                            |  |                                      | 16,195     |      |   | 8,540      |  
|Federal funds sold                                                                           |  |                                      | 184,982    |      |   | 474,723    |  
|                                                                                             |  |                                      |            |      |   |            |  
|Total interest income                                                                        |  |                                      | 15,075,804 |      |   | 12,116,634 |  
|                                                                                             |  |                                     
|Interest expense                                                                             |  |                                      |            |      |   |            |  
|Deposits                                                                                     |  |                                      | 7,525,196  |      |   | 5,320,788  |  
|Short-term borrowings                                                                        |  |                                      | 136,256    |      |   | 111,616    |  
|Long-term borrowings                                                                         |  |                                      | 443,751    |      |   | 551,516    |  
|                                                                                             |  |                                      |            |      |   |            |  
|Total interest expense                                                                       |  |                                      | 8,105,203  |      |   | 5,983,920  |  
|                                                                                             |  |                                     
|Net interest income                                                                          |  |                                      | 6,970,601  |      |   | 6,132,714  |  
|Provision for loan losses                                                                    |  |                                      | 490,000    |      |   | 470,000    |  
|                                                                                             |  |                                      |            |      |   |            |  
|Net interest income after provision for loan losses                                          |  |                                      | 6,480,601  |      |   | 5,662,714  |  
|                                                                                             |  |                                     
|Noninterest income                                                                           |  |                                      |            |      |   |            |  
|Service charges on deposit accounts                                                          |  |                                      | 307,796    |      |   | 247,365    |  
|Gains on sales of SBA loans                                                                  |  |                                      | 156,318    |      |   | 92,330     |  
|Other operating income                                                                       |  |                                      | 482,122    |      |   | 435,844    |  
|                                                                                             |  |                                      |            |      |   |            |  
|Total noninterest income                                                                     |  |                                      | 946,236    |      |   | 775,539    |  
|                                                                                             |  |                                     
|Noninterest expenses                                                                         |  |                                      |            |      |   |            |  
|Salaries and employee benefits                                                               |  |                                      | 2,880,835  |      |   | 2,261,160  |  
|Occupancy and equipment                                                                      |  |                                      | 374,995    |      |   | 427,234    |  
|Supplies, postage, and telephone                                                             |  |                                      | 282,451    |      |   | 280,423    |  
|Advertising                                                                                  |  |                                      | 138,055    |      |   | 121,839    |  
|Insurance expense                                                                            |  |                                      | 91,901     |      |   | 82,162     |  
|Depreciation and amortization                                                                |  |                                      | 403,099    |      |   | 346,198    |  
|Legal and professional                                                                       |  |                                      | 343,255    |      |   | 270,107    |  
|Director fees                                                                                |  |                                      | 120,675    |      |   | 86,675     |  
|Foreclosed asset (income) expense, net                                                       |  |                                      | 84,353     |      |   | (7,250     | )
|Other operating expenses                                                                     |  |                                      | 320,950    |      |   | 289,975    |  
|                                                                                             |  |                                      |            |      |   |            |  
|Total noninterest expenses                                                                   |  |                                      | 5,040,569  |      |   | 4,158,523  |  
|                                                                                             |  |                                     
|Income before income taxes                                                                   |  |                                      | 2,386,268  |      |   | 2,279,730  |  
|Applicable income taxes                                                                      |  |                                      | 886,553    |      |   | 871,019    |  
|                                                                                             |  |                                      |            |      |   |            |  
|Net income                                                                                   |  |                                      | 1,499,715  |      |   | 1,408,711  |  
|Other comprehensive income                                                                   |  |                                      |            |      |   |            |  
|Unrealized gains (losses) on securities available-for-sale arising during period, net of tax |  |                                      | 35,301     |      |   | (43,036    | )
|                                                                                             |  |                                      |            |      |   |            |  
|Comprehensive income                                                                         |  | $                                    | 1,535,016  |      | $ | 1,365,675  |  
|                                                                                             |  |                                      |            |      |   |            |  

See Notes to Consolidated Financial Statements



2



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CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)

(unaudited)



|                                         |  |                                     |       |      |   |      
|---------------------------------------- |  | ----------------------------------- | ----- | ---- | - | -----
|                                         |  | For the three months endedMarch 31,
|                                         |  | 2007                                |       | 2006
|Earnings per share                       |  |                                     |       |      |   |      
|Basic earnings per share                 |  | $                                   | 0.58  |      | $ | 0.55 
|Diluted earnings per share               |  | $                                   | 0.56  |      | $ | 0.53 
|Cash dividends per share of common stock |  | $                                   | 0.160 |      | $ | 0.095

See Notes to Consolidated Financial Statements



3



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CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                  |  |                                     |             |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ----------------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                  |  | For the three months endedMarch 31, |            
|                                                                                  |  | 2007                                |             |   | 2006 |  
|Operating Activities                                                              |  |                                     |             |   |      |   |             |  
|Net income                                                                        |  | $                                   | 1,499,715   |   |      | $ | 1,408,711   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                     |             |   |      |   |             |  
|Amortization of discount on securities                                            |  |                                     | 3,762       |   |      |   | 6,145       |  
|Amortization of deposit intangible                                                |  |                                     | 31,438      |   |      |   | 31,438      |  
|Net gain on sale of other real estate owned                                       |  |                                     |            |   |      |   | (26,227     | )
|Net loss on sale/disposal of premises and equipment                               |  |                                     |            |   |      |   | 37,661      |  
|Amortization of mortgage servicing rights                                         |  |                                     | 3,480       |   |      |   | 3,480       |  
|Provision for loan losses                                                         |  |                                     | 490,000     |   |      |   | 470,000     |  
|Depreciation                                                                      |  |                                     | 368,181     |   |      |   | 311,285     |  
|Proceeds from sales of mortgage loans held for sale                               |  |                                     | 11,297,348  |   |      |   | 11,282,753  |  
|Originations of mortgage loans held for sale                                      |  |                                     | (11,592,018 | ) |      |   | (10,320,726 | )
|Income on life insurance policies                                                 |  |                                     | (84,393     | ) |      |   | (69,966     | )
|Increase in deferred income taxes                                                 |  |                                     | (26,195     | ) |      |   | (5,925      | )
|Decrease in interest receivable                                                   |  |                                     | 443,189     |   |      |   | 285,901     |  
|(Increase) decrease in accounts receivable  brokers and escrow agents            |  |                                     | (4,155      | ) |      |   | 26,212      |  
|Increase in interest payable                                                      |  |                                     | 149,194     |   |      |   | 299,134     |  
|Stock-based compensation expense                                                  |  |                                     | 95,173      |   |      |   | 15,646      |  
|Net cash used in discontinued operations                                          |  |                                     | (66,201     | ) |      |   | (81,728     | )
|Net change in other assets, liabilities and other operating activities            |  |                                     | 953,069     |   |      |   | 810,044     |  
|                                                                                  |  |                                     |             |   |      |   |             |  
|Net cash provided by operating activities                                         |  |                                     | 3,561,587   |   |      |   | 4,483,838   |  
|                                                                                  |  |                                     |             |   |      |   |             |  
|Investing Activities                                                              |  |                                     |             |   |      |   |             |  
|Net increase in interest-bearing deposits in banks                                |  |                                     | (1,108,368  | ) |      |   | (659,743    | )
|Purchase of securities available-for-sale                                         |  |                                     |            |   |      |   | (3,727,323  | )
|Proceeds from maturities/calls of securities available-for-sale                   |  |                                     | 1,462,053   |   |      |   | 383,932     |  
|Proceeds from maturities of other securities                                      |  |                                     | 226,500     |   |      |   |            |  
|Purchase of other securities                                                      |  |                                     |            |   |      |   | (206,800    | )
|Proceeds from sale of other real estate owned                                     |  |                                     | 52,529      |   |      |   | 350,028     |  
|Sale of premises and equipment                                                    |  |                                     |            |   |      |   | 3,000       |  
|Net (increase) decrease in federal funds sold                                     |  |                                     | (10,331,000 | ) |      |   | 1,102,000   |  
|Net increase in loans                                                             |  |                                     | (15,732,073 | ) |      |   | (18,819,977 | )
|Purchase of premises and equipment                                                |  |                                     | (891,894    | ) |      |   | (864,788    | )
|                                                                                  |  |                                     |             |   |      |   |             |  
|Net cash used in investing activities                                             |  |                                     | (26,322,253 | ) |      |   | (22,439,671 | )
|                                                                                  |  |                                     |             |   |      |   |             |  

See Notes to Consolidated Financial Statements.



4



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CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS(continued)

(unaudited)



|                                                                   |  |                                      |            |   |      |   |            |  
|------------------------------------------------------------------ |  | ------------------------------------ | ---------- | - | ---- | - | ---------- | -
|                                                                   |  | For the three months ended March 31, |           
|                                                                   |  | 2007                                 |            |   | 2006 |  
|Financing Activities                                               |  |                                      |            |   |      |   |            |  
|Net increase in deposits                                           |  |                                      | 25,791,648 |   |      |   | 15,165,433 |  
|Net decrease in borrowings                                         |  |                                      | (3,000,000 | ) |      |   | (2,000,000 | )
|Excess tax benefits from share-based payment arrangements          |  |                                      | 42,171     |   |      |   | 133,352    |  
|Proceeds from the exercise of stock options                        |  |                                      | 63,973     |   |      |   | 237,656    |  
|Dividends paid                                                     |  |                                      | (416,826   | ) |      |   | (244,604   | )
|                                                                   |  |                                      |            |   |      |   |            |  
|Net cash provided by financing activities                          |  |                                      | 22,480,966 |   |      |   | 13,291,837 |  
|                                                                   |  |                                      |            |   |      |   |            |  
|Net decrease in cash and due from banks                            |  |                                      | (279,700   | ) |      |   | (4,663,996 | )
|Cash and due from banks at beginning of year                       |  |                                      | 7,581,450  |   |      |   | 12,793,467 |  
|                                                                   |  |                                      |            |   |      |   |            |  
|Cash and due from banks at end of period                           |  | $                                    | 7,301,750  |   |      | $ | 8,129,471  |  
|                                                                   |  |                                      |            |   |      |   |            |  
|Supplemental Disclosure of Cash Flow Information                   |  |                                      |            |   |      |   |            |  
|Cash paid during period for interest                               |  | $                                    | 7,956,009  |   |      | $ | 5,684,786  |  
|Cash paid during period for taxes                                  |  |                                      | 5,000      |   |      |   | 44,000     |  
|Principal balances of loans transferred to other real estate owned |  |                                      | 145,477    |   |      |   | 730,558    |  
|Unrealized loss on securities available for sale, net              |  |                                      | 35,301     |   |      |   | (43,036    | )

See Notes to Consolidated Financial Statements



5



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

NOTE 1GENERAL

The accompanying unaudited
consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 2006 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, 2007 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 March 31, 2007 and December 31, 2006 include liabilities of $2,252,695 and $2,318,896, respectively, related to discontinued operations. The liabilities included in the consolidated balance sheets related to discontinued
operations are the allowance for the recourse liability. When the Company operated its wholesale residential mortgage business, mortgage loans held for sale were carried at the lower of aggregate cost or market price, and therefore no reserve for
mortgage loans held for sale was carried. When a loan was sold, 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. Purchasers of loans typically conducted their own review of the loans, and 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. The Company relied on the underwriting department to ensure compliance with individual investor standards prior to the sale of loans along with reliance on the
quality control department to randomly test loans that had been sold. At March 31, 2007 and December 31, 2006, the Company had approximately $3.3 million and $3.6 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 the 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 the recourse liability for probable future losses from loans that the Company may have to indemnify. The estimated recourse liability at March 31, 2007 and December 31, 2006 for future losses was $2.3 million and $2.3 million,
respectively, and was estimated based upon historical information on the number of loans indemnified and the average loss on an indemnified loan, including higher risk loans secured by manufactured housing. The table below shows the changes in the
allowance for recourse obligation from December 31, 2006 to March 31, 2007.

Changes in the allowance for recourse obligation are
as follows:



|                                    |  |      |           |  
|----------------------------------- |  | ---- | --------- | -
|                                    |  | 2007 |          
|Balance at December 31, 2006        |  | $    | 2,318,896 |  
|Provisions for recourse obligations |  |      |          |  
|Losses indemnified                  |  |      | (66,201   | )
|                                    |  |      |           |  
|Balance at March 31, 2007           |  | $    | 2,252,695 |  
|                                    |  |      |           |  

NOTE 3CASH FLOW INFORMATION

For purpose of the statements of cash flows, cash equivalents include amounts due from banks.



6



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NOTE 4EARNINGS PER SHARE

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



|                                              |  |                                   |           |                                     |           |                 |   |     
|--------------------------------------------- |  | --------------------------------- | --------- | ----------------------------------- | --------- | --------------- | - | ----
|                                              |  | Three Months Ended March 31, 2007
|                                              |  | Net Income(Numerator)             |           | Weighted-AverageShares(Denominator) |           | Per-ShareAmount
|Consolidated                                  |  |                                   |           |                                     |           |                 |   |     
|Basic earnings per share                      |  | $                                 | 1,499,715 |                                     | 2,579,084 |                 | $ | 0.58
|Effect of dilutive securities (stock options) |  |                                   |           |                                     | 92,268    |                 |   |     
|                                              |  |                                   |           |                                     |           |                 |   |     
|Diluted earnings per share                    |  | $                                 | 1,499,715 |                                     | 2,671,352 |                 | $ | 0.56
|                                              |  |                                   |           |                                     |           |                 |   |     



|                                              |  |                                   |           |                                     |           |                 |   |     
|--------------------------------------------- |  | --------------------------------- | --------- | ----------------------------------- | --------- | --------------- | - | ----
|                                              |  | Three Months Ended March 31, 2006
|                                              |  | Net Income(Numerator)             |           | Weighted-AverageShares(Denominator) |           | Per-ShareAmount
|Consolidated                                  |  |                                   |           |                                     |           |                 |   |     
|Basic earnings per share                      |  | $                                 | 1,408,711 |                                     | 2,568,724 |                 | $ | 0.55
|Effect of dilutive securities (stock options) |  |                                   |           |                                     | 85,151    |                 |   |     
|Diluted earnings per share                    |  | $                                 | 1,408,711 |                                     | 2,653,875 |                 | $ | 0.53

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, 2007 and December 31, 2006, the Company was a party to
interest rate swap contracts (back-end derivative) 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 $9,516,000 with a fair value of approximately
$(411,000) at March 31, 2007 and approximately $9,604,000 with a fair value of approximately $(391,000) at December 31, 2006. 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, 2007. 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 this 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INCOME TAXES

Effective January 1, 2007, Crescent adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (the Interpretation). This Interpretation provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax
returns. The initial adoption of this Interpretation had no impact on Crescents financial statements.

Unrecognized tax benefits may
increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in managements



7



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judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax
positions.

Crescents policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax expense
in the Consolidated Statements of Income.

Crescents federal and state income tax returns are open and subject to examination from
the 2003 tax return year and forward.



8



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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 statements made or
incorporated by reference in this report, including those under this Item and elsewhere, 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, 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 the Company, or the commercial banking industry 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. Readers 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, point to,
project, could, intend, target, and other similar words and expressions regarding the outlook for the Companys future business and financial performance and/or the performance and conditions of
the commercial banking industry generally. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:



| |  |  | the effects of future economic or business conditions;
| | - |  | ------------------------------------------------------



| |  |  | governmental monetary and fiscal policies, as well as legislative and regulatory changes, including changes in tax laws and regulations;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | credit risks of borrowers;
| | - |  | --------------------------



| |  |  | the effects of competition from a wide variety of local, regional and national providers of financial, investment and insurance services;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the failure of assumptions underlying the establishment of the allowance for loan losses and other estimates;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | the risks of mergers, acquisitions and divestitures, including, without limitation, the related time and costs of implementing such transactions and the possible
failure to achieve expected gains, revenue growth and/or expense savings expected from such transactions;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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. We have no obligation and do not undertake to 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, except as may otherwise be required by law.



9



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Overview

As of March 31, 2007, the Company was made up of the following five entities:



| |  |  | Crescent Banking Company (Crescent), which is the parent holding company of Crescent Bank & Trust Company (Crescent Bank or the
Bank) 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; and
| | - |  | -------------------------------------------------------------------



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

For purposes of the following discussion, 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 and Crescent Capital Trust III (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. All of the outstanding trust preferred securities currently qualify 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, 2007, the Company had total consolidated assets of approximately $805.4 million, total deposits of approximately $684.6 million, total consolidated liabilities, including deposits, of $742.3 million and consolidated
stockholders equity of approximately $63.1 million. The Companys operations are discussed below under 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 Federal Deposit Insurance Corporation (the FDIC). Effective March 31, 2006, the FDICs Bank Insurance Fund and Savings
Association Insurance Fund were merged into one fund, the Deposit Insurance Fund (DIF). The Banks deposits are insured by 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 and Cherokee 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 aimed at individuals and small to medium-sized businesses located within its 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. The Bank makes loans to acquire and develop commercial and residential real estate. 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 rates and economic activity.



10



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Continued Expansion

Consistent with the Companys efforts to better serve its market, the Company has engaged in recent expansion of its business. We completed
construction of our new Cumming, Georgia branch office in January of 2006 and we concurrently closed our existing Cumming branch location that was being operated out of leased space in a shopping center. We completed construction of our new office
in Canton, Georgia in the third quarter of 2006, and we concurrently closed our existing Canton branch location and our Canton loan production office that were being operated out of leased space. We completed construction of a new office in south
Cherokee County near Woodstock, Georgia in the first quarter of 2007. With the completion of these two branches, the Bank has three full service branches in Cherokee County, which is one of the fastest growing counties in Georgia.

Challenges for the Commercial Banking Business

The Bank 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 difference between the interest income we receive on our interest-earning assets, such as investment securities and loans, and the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings. The greatest risk
to our net interest margin is interest rate risk from the potential movement in interest rates, which if not anticipated and managed, can result in a decrease in earnings or earnings volatility. We manage interest rate risk by maintaining what we
believe 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. Many economists
feel that interest rates may remain stable in the second and third quarters of 2007 and then could begin to decline. The Federal Reserves actions with respect to interest rates will depend on many factors which are not known at this time.
During the 0-90 day period, during which we are most sensitive to interest rate changes, the Bank is considered asset sensitive, and if rates rise, our net interest margin is expected to improve. Conversely, if interest rates fall, our net interest
margin is expected to decline based on the Companys present asset 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 commercial banking market 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, computer 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 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 market
area. Virtually every type of competitor for business of the type served 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. In addition, these institutions may be able to better afford and make broader use of media advertising, support services and electronic technology
than the Company. 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.

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 projected high volume of loan growth for 2007 and future years and the competitive
pricing by competitors in several of our market areas, the Banks liquidity could come under pressure. The Bank has the ability to acquire out-of-market deposits to supplement deposit growth in our market areas and can borrow an additional
$13.5 million in Federal Home Loan Bank advances, if necessary. However, if access to these funds is limited in any way, then our liquidity and ability to support commercial loan demand could be affected. The Bank may have to increase its deposit
rates in the future, which would adversely affect its net interest margin and net income.

The fourth challenge for the Companys
commercial banking business is maintaining sound credit quality. The Banks loan portfolio grew 37% during 2005 and 17% during 2006. Also, during the last six months of 2004 and during 2005 and 2006, the Bank added approximately 16 new loan
officers, which were mainly related to the addition of four new full service branches and two new loan production offices. With the current focus on growth, the Bank must maintain the proper procedures to be able to monitor the loan growth including
the quality of the loan growth. If the credit quality of the Banks loan portfolio declines, then the Banks ability to raise capital and expand could be limited.



11



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Accounting Standards

In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.
This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. The interpretation
prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition. FASB Interpretation No. 48 is effective for fiscal years beginning after December 31, 2006. The Company adopted Interpretation No. 48
effective January 1, 2007, resulting in no adjustment to beginning retained earnings. See Note 6 in the Notes to Consolidated Financial Statements for further information regarding the adoption of this standard.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This statement
permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of this standard is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is effective as of the beginning of fiscal years beginning after November 15, 2007, with early
adoption permitted under certain circumstances. The Company did not choose to early adopt this standard.

In February 2006, the FASB issued
SFAS No. 155, Accounting for Certain Hybrid Financial Instruments-an amendment of FASB statements No. 133 and 140. This statement permits fair value remeasurement of certain hybrid financial instruments, clarifies the
scope of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities regarding interest-only and principal-only strips, and provides further guidance on certain issues regarding beneficial interests in
securitized financial assets, concentrations of credit risk and qualifying special purpose entities. SFAS No. 155 is effective as of the beginning of the first fiscal year that begins after September 15, 2006. The adoption of
SFAS No. 155 did not have an impact on the Companys financial condition or results of operations.

Critical Accounting Policies and
Estimates

The Companys consolidated financial statements are prepared in accordance with accounting principles generally accepted
in the United States of America, or 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 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.

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. Evaluation of these factors involves subjective estimates and judgments that may change.



12



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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. The establishment of the recourse obligation reserve is based upon our assessments of information available to us at the time of determination, and depends upon a number of factors, including our historical experience, industry trends and
economic conditions. Before 2002, the Banks history of losses in connection with mortgage loans sold into the secondary market was minimal. The Company established this recourse obligation reserve initially during 2003 with the increase in the
number of loans indemnified and the increase in the occurrence of losses from these loans. The trend of such losses experienced in 2003 increased in 2004 and we added an additional $2.9 million to the recourse obligation reserve. During 2005 and
2006, our losses related to indemnified loans stabilized and we have not made any more additions to the recourse obligation reserve. 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 non-interest bearing deposits, and our ability to match our liabilities to fund our
assets.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



13



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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, 2007 and 2006:



|                                     |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|------------------------------------ |  | ---------------- | ------- | - | ------------- | - | ------- | ---------------- |  | -------- | ---- |  | ------------- | ---- |  | ---- | ------ | ---------- | - | ------ | ---- | - | ----- | ------ |  | - | ----- | - |  | - | ----- | -
|                                     |  | Average Balances |         |   | Yields /Rates |   |         | Income / Expense |  | Increase |      |  | Change Due to |     
|                                     |  | 2007             |         |   | 2006          |   |         | 2007             |  |          | 2006 |  |               | 2007 |  | 2006 |        | (Decrease) |   |        | Rate |   |       | Volume | 
|Assets                               |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Loans, including fee income          |  | $                | 702,850 |   |               | $ | 593,566 |                  |  | 8.42     | %    |  | 7.76          | %    |  | $    | 14,598 |            | $ | 11,362 |      | $ | 3,236 |        |  | $ | 967   |   |  | $ | 2,269 |  
|Mortgage loans held for sale         |  |                  | 300     |   |               |   | 297     |                  |  | 5.59     | %    |  | 6.61          | %    |  |      | 4      |            |   | 5      |      |   | (1    | )      |  |   | (1    | ) |  |   |      |  
|Taxable securities                   |  |                  | 22,103  |   |               |   | 22,927  |                  |  | 5.00     | %    |  | 4.71          | %    |  |      | 273    |            |   | 266    |      |   | 7     |        |  |   | 17    |   |  |   | (10   | )
|Federal funds sold                   |  |                  | 14,371  |   |               |   | 43,488  |                  |  | 5.22     | %    |  | 4.43          | %    |  |      | 185    |            |   | 475    |      |   | (290  | )      |  |   | 85    |   |  |   | (375  | )
|Interest bearing deposits in banks   |  |                  | 1,269   |   |               |   | 785     |                  |  | 5.18     | %    |  | 4.41          | %    |  |      | 16     |            |   | 9      |      |   | 7     |        |  |   | 1     |   |  |   | 6     |  
|                                     |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Total earning assets                 |  |                  | 740,893 |   |               |   | 661,063 |                  |  | 8.25     | %    |  | 7.43          | %    |  |      | 15,076 |            |   | 12,117 |      |   | 2,959 |        |  |   | 1,069 |   |  |   | 1,890 |  
|                                     |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Cash and due from banks              |  |                  | 5,778   |   |               |   | 13,880  |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Allowance for loan losses            |  |                  | (8,162  | ) |               |   | (6,682  | )                |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Other assets                         |  |                  | 52,660  |   |               |   | 48,556  |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|                                     |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Total                                |  | $                | 791,169 |   |               | $ | 716,817 |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|                                     |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Liabilities and Equity               |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Interest bearing demand              |  | $                | 80,323  |   |               | $ | 90,669  |                  |  | 3.22     | %    |  | 3.18          | %    |  | $    | 637    |            | $ | 711    |      | $ | (74   | )      |  | $ | 9     |   |  | $ | (83   | )
|Savings                              |  |                  | 49,960  |   |               |   | 47,455  |                  |  | 3.72     | %    |  | 2.69          | %    |  |      | 459    |            |   | 315    |      |   | 144   |        |  |   | 121   |   |  |   | 23    |  
|Certificates of deposit              |  |                  | 493,531 |   |               |   | 414,609 |                  |  | 5.28     | %    |  | 4.20          | %    |  |      | 6,429  |            |   | 4,295  |      |   | 2,134 |        |  |   | 1,105 |   |  |   | 1,029 |  
|                                     |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Total interest bearing deposits      |  |                  | 623,814 |   |               |   | 552,733 |                  |  | 4.89     | %    |  | 3.90          | %    |  |      | 7,525  |            |   | 5,321  |      |   | 2,204 |        |  |   | 1,235 |   |  |   | 969   |  
|Borrowings                           |  |                  | 47,837  |   |               |   | 60,453  |                  |  | 4.92     | %    |  | 4.45          | %    |  |      | 580    |            |   | 663    |      |   | (83   | )      |  |   | 70    |   |  |   | (153  | )
|                                     |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Total interest bearing liabilities   |  |                  | 671,651 |   |               |   | 613,186 |                  |  | 4.89     | %    |  | 3.96          | %    |  |      | 8,105  |            |   | 5,984  |      |   | 2,121 |        |  |   | 1,305 |   |  |   | 816   |  
|                                     |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Noninterest bearing demand deposits  |  |                  | 46,586  |   |               |   | 40,262  |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Other liabilities                    |  |                  | 10,212  |   |               |   | 7,078   |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Shareholders equity                 |  |                  | 62,720  |   |               |   | 56,291  |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|                                     |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Total                                |  | $                | 791,169 |   |               | $ | 716,817 |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|                                     |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Net interest income                  |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  | $    | 6,971  |            | $ | 6,133  |      | $ | 838   |        |  | $ | (236  | ) |  | $ | 1,074 |  
|                                     |  |                  |         |   |               |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Net interest yield on earning assets |  |                  |         |   |               |   |         |                  |  | 3.82     | %    |  | 3.76          | %    |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  
|Net interest spread                  |  |                  |         |   |               |   |         |                  |  | 3.36     | %    |  | 3.47          | %    |  |      |        |            |   |        |      |   |       |        |  |   |       |   |  |   |       |  

Interest Income

Our interest income related to commercial banking increased 24% to $15.1 million for the three months ended March 31, 2007 from $12.1 million for the
three months ended March 31, 2006. The increase in 2007 in interest income was the result of increases in both the average commercial banking loans and the yield from commercial banking loans. Average commercial banking loans increased $109.3
million, or 18%, for the quarter ended March 31, 2007 over the same periods for 2006. This growth in commercial banking loans was the result of higher loan demand in our service area, as well as the expansion of the Banks operations in
both its current markets and into new markets in north Fulton, Walton and Cobb Counties. The yield from commercial banking loans increased from 7.76% for the three months ended March 31, 2006 to 8.42% for the three months ended March 31,
2007. The increase in the yield from commercial banking loans during the quarter ended March 31, 2007 compared to the same period for 2006 was mainly the result of the repricing of the commercial banking loan portfolio as the Federal Reserve
increased interest rates 125 basis points during the first six month of 2006. Since the second quarter of 2006, the Federal Reserve has left interest rates unchanged. Approximately 61% of our commercial banking loan portfolio is variable rate and
adjusts with changes in the prime rate.



14



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Interest Expense

Our interest expense related to the commercial banking business for the three months ended March 31, 2007 amounted to $8.1 million compared to $6.0 million for the three months ended March 31, 2006, an
increase of 35%. Interest expense related to commercial banking deposits for the three months ended March 31, 2007 was $7.5 million compared to $5.3 million for the three months ended March 31, 2006, an increase of 41%. The increase in
interest expense from interest-bearing deposits resulted from both the increase in the average balance of interest-bearing deposits and the increase in the cost of funds of interest-bearing deposits. Average interest-bearing deposits increased
approximately $71.1 million, or 12.9%, from $552.7 million for the three months ended March 31, 2006 to $623.8 million for the three months ended March 31, 2007. During the first quarter of 2007, the Bank has mainly used out-of-market and
brokered deposits to fund its loan growth. The Banks out-of-market and brokered deposits increased $29.4 million, or 40%, in the first quarter of 2007 from $72.8 million at December 31, 2006 to $102.2 million at March 31, 2007. We
witnessed the cost of out-of-market and brokered deposits increase to levels equal to or even exceeding the costs in our local market during 2006, and therefore, out-of-market and brokered deposits were rarely used as a funding source. Therefore,
during 2006, the Bank ran several certificate of deposit promotions in its local markets in order to fund its loan growth. As a result, certificates of deposit within our market area increased $88.2 million in 2006. However, since the fourth quarter
of 2006, we saw the cost of out-of-market and brokered deposits fall to approximately 15 to 20 basis points below the cost of deposits of similar maturity in our local market, and the Bank began to use out of market and brokered deposits in order to
fund its loan growth during the first quarter of 2007. Also, the cost of funds from commercial banking deposits increased from 3.90% for the three months ended March 31, 2006 to 4.89% for the three months ended March 31, 2007. This
increase was mainly related to the repricing of time deposits, which average cost increased 108 basis points for the three months ended March 31, 2007 compared to the same period in 2006. The Bank had to run higher costing deposit specials
during 2006 due to strong competition in its market area for local deposits, and it has mainly used out-of-market time deposits in the first quarter of 2007 to fund its loan growth. In the first quarters of 2007 and 2006, interest expense accounted
for 59% and 56%, respectively, of our total commercial banking business expenses. The increase in this percentage resulted from an increase in the cost of funds of interest-bearing deposits and an increase in the average balance of interest-bearing
deposits.

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, 2007 were $7.0 million, 3.82% and 3.36%, respectively. Our net interest income, net interest
margin and interest spread for our commercial banking business for the three months ended March 31, 2006 were $6.1 million, 3.76% and 3.47%, respectively. The increase in net interest income from 2006 to 2007 was mainly due to both an increase
in average commercial banking loans and to an increase in the net interest margin. For the three months ended March 31, 2007 compared to the same period in 2006, average commercial banking loans increased 18% and the net interest margin
increased 6 basis points. This growth in commercial banking loans was the result of higher loan demand in our service area, as well as the expansion of the Banks operations in both its current markets and into new markets in north Fulton,
Walton and Cobb Counties. The increase in net interest margin during the three months ended March 31, 2007 compared to the same period in 2006 was due the Company reducing its liquidity in 2007. The growth in average interest-earning assets of
$79.8 million outpaced the growth in average interest-bearing liabilities of $58.5 million from the first quarter of 2006 to the first quarter of 2007. Therefore, the Bank held less in federal funds sold and earned a higher margin on its
interest-bearing assets during the first quarter of 2007 in comparison with the same period in 2006. Although net interest income and the net interest margin increased in the first quarter of 2007 in comparison to the first quarter of 2006, the net
interest spread decreased by 11 basis points during this same time period. The decrease in the net interest spread was due to the increase of 93 basis points on the cost of interest-bearing liabilities being more than the increase of 82 basis points
on the yield on the interest-earning assets. The increase in the cost on the Banks interest-bearing liabilities was mainly related to the repricing of its certificate of deposits, the cost of which increased 108 basis points, while the
increase in the yield on the Banks interest-earning assets was mainly related to the repricing of its commercial banking loans, whose yield only increased 66 basis points.

Loan Loss Provisions

For the three
months ended March 31, 2007, we made a provision for loan losses of $490,000 and incurred net charge-offs of $378,097 of commercial banking loans. For the three months ended March 31, 2006, we made a provision for loan losses of $470,000
and incurred net charge-offs of $157,972 of commercial banking loans. The ratios of net charge-offs to average commercial banking loans outstanding were 0.22% (annualized) for the three months ended March 31, 2007, 0.12% for the year ended
December 31, 2006 and 0.11% (annualized) for the three months ended March 31, 2006. During the first quarter of 2007, the Bank had one commercial loan charge-off for $328,185 related to a commercial loan relationship originated in 2003
with a finance company. In 2004, the principle owner and manager of the company died. The primary collateral for the loan was the accounts receivable of the finance company; however internal fraud was detected within the company. The balance of the
accounts receivable was not adequate to cover the outstanding loan. The Bank relied on the personal guarantee of the principal owner as well as the assets in the deceased principal owners estate to recover some of the difference. The Bank
settled with the



15



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estate in the first quarter of 2007 and charged off $328,185 of the outstanding balance of $965,685. During the first quarter of 2006, the Bank had a
recovery of $166,375 from a commercial real estate loan that was charged-off during 2005. The recovery of this charge-off came from the payout on a title insurance claim. If this recovery was not included in the totals for the three months ended
March 31, 2006, the Bank would have incurred net charge-offs of $324,347 for the period, and the ratio of net charge-offs to average commercial banking loans outstanding during the period would have been 0.22% (annualized). The Banks
charge-offs in the first three months of 2007 consisted of one commercial loan charge-off of $328,185, two residential real estate loan charge-offs of $95,927 and various installment and other consumer loans charge-offs, while the charge-offs in the
first three months of 2006 consisted of one commercial real estate loan charge-off of $96,435, one residential construction loan charge-off of $73,048, three commercial loan charge-offs of $17,237 and various installment and other consumer loans
charge-offs. The provision for loan losses of $490,000 for the three months ended March 31, 2007 increased slightly in comparison to the provision for loans losses of $470,000 for the three months ended March 31, 2006. During the first
quarter of 2007 the Banks loan portfolio grew approximately $15.2 million compared to growth of approximately $17.9 million in the first quarter of 2006. As a result of the growth in the loan portfolio and our analysis of our criticized loans,
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 1.14%, 1.15% and 1.15% at March 31,
2007, December 31, 2006 and March 31, 2006, respectively.

Noninterest Income

Our noninterest income related to our commercial banking business was approximately $946,000 during the three months ended March 31, 2007 compared to
approximately $776,000 during the three months ended March 31, 2006, a 22% increase. The increase in noninterest income for the three month period ending March 31, 2007 compared to the same period in 2006 was primarily due to an increase
in service charge income of approximately $60,000, an increase in gains on sale of SBA loans of approximately $64,000 and an increase in mortgage origination income of $35,000. The increase in service charge income was primarily related to an
increase in overdraft and NSF charges. This increase was primarily due to our growth in our demand deposit checking accounts and due to our new overdraft privilege program that was introduced in the first quarter of 2007. The increase in the gains
on sale of SBA loans was due to the Bank selling a larger dollar volume in SBA loans in the first quarter of 2007 in comparison to the first quarter of 2006. During the first quarter of 2007, the Bank sold $2.1 million in SBA loans while in the
first quarter of 2006 the Bank sold $1.2 million in SBA loans. The increase in the mortgage origination income was due to an increase in the volume of mortgage loans originated. In the first quarter of 2007, the Bank originated $11.6 million in
mortgage loans compared to $10.3 million in the first quarter of 2006.

Noninterest Expense

Our noninterest expenses related to our commercial banking business (other than income tax expenses) were $5.0 million for the three months ended
March 31, 2007 compared to $4.2 million for the three months ended March 31, 2006, an increase of 21%. The increase in noninterest expense for the three month period ended March 31, 2007 compared to the same period in 2006 was
attributable to an increase in salaries and benefits of approximately $620,000, an increase in foreclosed asset expense of $92,000, and an increase in legal and professional expense of $73,000. The increase in salaries and other payroll expenses in
the first quarter of 2007 over the same period in 2006 are due to several factors. One factor is an increase in salaries, including payroll taxes, of approximately $487,000 which is due to the addition of ten new employees, including six new banking
officers, due to regular annual raises and the introduction of the Companys new bonus plan. Another factor is an increase in stock-based compensation expenses of approximately $80,000. This increase was due to the issuance of 26,000 shares of
restricted stock since December 2006, which created stock-based compensation expenses of approximately $69,000 in the first quarter of 2007. The expense for the restricted stock is recognized over the vesting period for such shares. The increase in
foreclosed asset expense in the first quarter of 2007 over the same period in 2006 was mainly due to $65,000 of improvements on a house that was foreclosed on by the Bank in 2006. The increase in legal and professional fee expense in the first
quarter of 2007 over the same period in 2006 was mainly attributable to an increase in attorney and accounting fees related to the increased regulatory and disclosure requirements for a public company.

Pretax Net Income

In the three
months ended March 31, 2007, our commercial banking pre-tax income was $2.4 million compared to pre-tax income of approximately $2.3 million for the three months ending March 31, 2006. Pretax income for the three months ended
March 31, 2007 increased approximately $107,000, or 5%, compared to the three months ended March 31, 2006. The slight increase in pretax income was due to an increase in net interest income of approximately $838,000 and an increase in
noninterest income $171,000 for the three months ended March 31, 2007 compared to the same periods in 2006. These increases were mostly offset by an increase of approximately $882,000 in noninterest expense. The increase in the net interest
income was due to both an increase in average commercial banking loans of 18% and an increase in the net interest margin of 6 basis points. The increase in noninterest income was mainly due to an increase in service charge income and an increase in
gains on sale of SBA loans. The increase in noninterest expense was mainly due to an increase in salaries and benefits related to the Banks expansion



16



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efforts in 2006 and 2007. See further discussion above under Net Interest Income, Noninterest Income, and
Noninterest Expense.

Income Taxes

The effective income tax rate for our commercial banking business for the three months ended March 31, 2007 and 2006 was 37.15% and 38.21%, respectively. The commercial banking business had permanent income tax
differences in 2007 and 2006 related to state income tax credits paid and bank-owned life insurance income. Based upon our analysis of these permanent differences for 2007, the effective tax rate in 2007 decreased in comparison to the same period in
2006.

Financial Condition

General Discussion

Total Assets

Our total assets increased $25.8 million, or 3%, from $779.7 million as of December 31, 2006 to $805.4 million as of March 31, 2007. The increase in total assets was mainly comprised of a $15.2 million, or
2%, increase in the Banks commercial loans and a $10.3 million, or 86% increase in federal funds sold. The growth in commercial banking loans was the result of higher loan demand in our service area, as well as the expansion of the Banks
operations in its current markets. The growth in federal funds sold was due to the Bank having several unexpected large loan pay-offs during the quarter. Our increase in total assets corresponded with a $25.8 million, or 4%, increase in deposits. At
March 31, 2006, we had total assets of $719.6 million.

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, 2007, interest-earning assets totaled $758.7 million and represented 94% of total assets. This represents a $25.3 million, or 3%, increase from December 31, 2006, when interest-earning assets totaled $733.4 million and
represented 94% of total assets. This increase was mainly related to a $15.2 million increase in the Banks commercial banking loan portfolio and a $10.3 million increase in federal funds sold. See Commercial Banking Business
below. At March 31, 2006, our interest-earning assets totaled $675.7 million and represented 94% of our total assets.

Allowance
for Loan Losses

Our assessment of the risk 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 Commercial Banking BusinessLoan Loss Allowance.

Premises and Equipment

We had
premises and equipment of $21.7 million at March 31, 2007, compared to $21.1 million at December 31, 2006 and $17.7 million at March 31, 2006. The increase in premises and equipment from March 31, 2006 was primarily due to the
remaining construction costs of approximately $2.1 million to complete our new full service branch in Canton, Georgia, which opened in September 2006, and due to the remaining construction costs of approximately $1.6 million for the new full service
branch in Woodstock, Georgia which opened in January 2007. The Bank also purchased a parcel of land in Cobb County, Georgia during the second quarter of 2006 for approximately $1.1 million. These increases were partially offset by depreciation
expense from the premises and equipment of approximately $1.3 million.

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 2000, we added our
directors to the supplemental retirement plan. At March 31, 2007, the total cash value of the life



17



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insurance was $8.3 million. At December 31, 2006 and March 31, 2006, the total cash value of the life insurance was $8.2 million and $8.0 million,
respectively. The increase of approximately $300,000 from March 31, 2006 to March 31, 2007 was due to policy earnings.

Commercial Banking Business

Total Commercial Banking Loans

During the first quarter of 2007, our average commercial banking loans were $702.8 million. These loans constituted 95% of our average consolidated
earning assets and 89% of our average consolidated total assets. For the first quarter of 2006, we had average commercial banking loans of $593.6 million, or 90% of our average consolidated earning assets and 83% of our average consolidated total
assets. For the year ended December 31, 2006, we had average commercial banking loans of $636.7 million, or 91% of our average consolidated earning assets and 85% of our average consolidated total assets. Commercial banking loans at the periods
ending March 31, 2007, December 31, 2006 and March 31, 2006 were $712.5 million, $697.3 million and $611.6 million, respectively. The 18% increase in average commercial banking loans from the three month period ended
March 31, 2006 to the three month period ended March 31, 2007 was the result of higher loan demand in our service area, as well as the expansion of the Banks operations in both its current markets and into new markets in north
Fulton, Walton and Cobb Counties.

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 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 of Banking and Finance, or 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.



18



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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 $8.1 million, or 1.14% of total commercial banking loans, at March 31, 2007, $7.0 million, or 1.15% of total commercial banking loans at March 31, 2006, and $8.0
million, or 1.15% of total loans at December 31, 2006. During the first quarter of 2007, we made a provision for loan losses of $490,000, which was mainly due to the $15.2 million increase we experienced in commercial banking loans during that
period. Net charge-offs for the three months ended March 31, 2007 were $378,097, or 0.22% (annualized) of average loans outstanding. Net charge-offs for the year ended December 31, 2006 were $771,410, or 0.12% of average loans outstanding
and for the three months ended March 31, 2006 were $157,972, or 0.11% (annualized) of average loans outstanding. During the first quarter of 2007, the Bank had one commercial loan charge-off for $328,185 related to a commercial loan
relationship originated in 2003 with a finance company. In 2004, the principle owner and manager of the company died. The primary collateral for the loan was the accounts receivable of the finance company; however internal fraud was detected within
the company. The balance of the accounts receivables was not adequate to cover the outstanding loan. The Bank relied on the personal guarantee of the principal owner as well as the assets in the deceased principal owners estate to recover some
of the difference. The Bank settled with the estate in the first quarter of 2007. During the first quarter of 2006, the Bank had a recovery of $166,375 from a commercial real estate loan that was charged-off during 2005. The recovery of this
charge-off came from the payout on a title insurance claim. If this recovery was not included in the totals for the three months ended March 31, 2006, the Bank would have incurred net charge-offs of $324,347 for that period, and the ratio of
net charge-offs to average commercial banking loans outstanding during the period would have been 0.22% (annualized). The Banks charge-offs in the first three months of 2007 consisted of one commercial loan charge-off of $328,185, two
residential real estate loan charge-offs of $95,927 and various installment and other consumer loans charge-offs, while the charge-offs in the first three months of 2006 consisted of one commercial real estate loan charge-off of $96,435, one
residential construction loan charge-off of $73,048, three commercial loan charge-offs of $17,237 and various installment and other consumer loans charge-offs. The increase in net charge-offs and in the ratio of net loan charge to average commercial
banking loans is mainly related to one commercial loan relationship described above.

The increase in the provision and the determination
of the allowance for loan losses as a percentage of commercial banking loans 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 rests upon our judgment about factors affecting loan quality, assumptions about the economy and historical experience. Our judgment as to the adequacy of the allowance for loan losses is evaluated periodically
based on a review of all significant loans, with a particular focus on loans that are past due and other loans that we believe require attention. We believed that the allowance at March 31, 2007 was adequate at that time 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, 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 a general slowdown in the economy and uncertainties in the economy, including those related to the slowdown in the
real estate market and including those created by the war against terrorism and natural disasters, additions to the allowance 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.



19



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Total Non-Performing Commercial Banking Assets

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, 2007 |           |   | December 31,2006 |   |           | March 31, 2006 | 
|Non-performing loans (1)                                                                                         |  | $              | 2,890,508 |   |                  | $ | 3,977,439 |                |  | $ | 3,057,332 |  
|Foreclosed properties                                                                                            |  |                | 340,778   |   |                  |   | 247,830   |                |  |   | 1,006,393 |  
|                                                                                                                 |  |                |           |   |                  |   |           |                |  |   |           |  
|Total non-performing assets                                                                                      |  | $              | 3,231,286 |   |                  | $ | 4,225,269 |                |  | $ | 4,063,725 |  
|                                                                                                                 |  |                |           |   |                  |   |           |                |  |   |           |  
|Loans 90 days or more past due on accrual status                                                                 |  | $              | 49,449    |   |                  | $ | 28,921    |                |  | $ | 98,683    |  
|Potential problem loans (2)                                                                                      |  | $              | 2,767,614 |   |                  | $ | 2,350,245 |                |  | $ | 6,403,413 |  
|Potential problem loans/total loans                                                                              |  |                | 0.39      | % |                  |   | 0.34      | %              |  |   | 1.05      | %
|Non-performing assets/total loans and foreclosed properties                                                      |  |                | 0.45      | % |                  |   | 0.61      | %              |  |   | 0.66      | %
|Non-performing assets and loans 90 days or more past due on accrual status/total loans and foreclosed properties |  |                | 0.46      | % |                  |   | 0.61      | %              |  |   | 0.67      | %

---

|(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. The Bank had approximately $49,000 of commercial banking loans contractually past due more than 90 days and still accruing interest
as of March 31, 2007 compared to approximately $29,000 and $99,000, respectively, as of December 31, 2006 and March 31, 2006. Our non-performing commercial banking loans at March 31, 2007 amounted to $2.9 million compared to $4.0
million at December 31, 2006 and $3.1 million at March 31, 2006. The Bank had no renegotiated commercial banking loans at March 31, 2007, December 31, 2006 or March 31, 2006. The decrease in non-performing commercial
banking loans from December 31, 2006 to March 31, 2007 was mainly related to one loan relationship. In 2004, the Bank placed a loan relationship on non-accrual status related to a finance company. In 2004, the principle owner and manager
of the company died. The primary collateral for the loan was the accounts receivable of the finance company; however internal fraud was detected within the company. The balance of the accounts receivable was not adequate to cover the outstanding
loan. The Bank relied on the personal guarantee of the principal owner as well as the assets in the deceased principal owners estate to recover some of the difference. The Bank settled with the estate in the first quarter of 2007 and charged
off $328,185 of the outstanding balance of $965,685. We have evaluated these loan relationships and foreclosed properties, and, based on available information, we presently feel that the Bank is in a well secured position on most of these
relationships. The Banks loan portfolio is predominantly secured by commercial and residential real estate in its primary market areas. We presently believe that any losses that may come from these loan relationships have been considered in
our determination of the loan loss allowance. As of March 31, 2007, loan loss allowance reserves related to non-performing commercial banking loans totaled $722,627.

Total non-performing commercial assets totaled $3.2 million at March 31, 2007. This compares to total non-performing commercial assets of approximately $4.2 million at December 31, 2006 and $4.1 million at
March 31, 2006. The Bank foreclosed on one property totaling approximately $145,000 in the first quarter of 2007. This property consisted of three land lots with mobile homes. During the first quarter of 2007, the Bank sold one property
totaling approximately $53,000 that was foreclosed upon in 2006. This property consisted of a land lot with a mobile home and was sold at no gain or loss. The Banks remaining foreclosed properties totaling $341,000 that have not been sold are
related to three loan relationships. One of the properties totaling approximately $251,000 is five mobile homes with land lots located in Murray County, Georgia. One of the properties totaling approximately $50,000 is a residential home lot located
in Forsyth County, Georgia. The remaining property totaling approximately $40,000 consists of one residential condominium in Fulton County, Georgia. 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 where management has doubts concerning the ability of the
respective borrowers to meet contractual repayment terms. Potential problem commercial loans increased approximately $400,000, or 18%, from December 31, 2006 to March 31, 2007. The increase in potential problem commercial loans from
December 31, 2006 to March 31, 2007 was mainly related to one loan relationship totaling approximately $408,000. This loan relationship is secured by residential homes that are under construction, and the builder is currently having cash
flow problems. Management feels that the loans categorized as potential problem loans at March 31, 2007 are adequately collateralized and believes that any losses that may result from these loan relationships have been considered in our
determination of the loan loss allowance.



20



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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 $45.4 million at
March 31, 2007, compared to $35.6 million at December 31, 2006 and $63.5 million at March 31, 2006. At March 31, 2007, the Bank had federal funds sold and interest-bearing deposits with other banks of $24.4 million, compared to
$13.0 million at December 31, 2006 and $39.7 million at March 31, 2006. The decrease in the federal funds sold and interest-bearing deposits with other banks of $15.3 million was the reason for the $15.1 million decrease in the Banks
total investments from March 31, 2006. The reduction in federal funds sold and interest-bearing deposits with other banks is due to an increased effort to reduce the Banks liquidity in order to improve its net interest margin. Investment
securities and restricted equity securities totaled $21.0 million at March 31, 2007, compared to $22.6 million at December 31, 2006 and $23.8 million at March 31, 2006. The restricted equity securities consist of shares held in the
Federal Home Loan Bank of Atlanta in the amount of approximately $3.0 million and shares held in The Bankers Bank in the amount of $165,975 at March 31, 2007.

Unrealized losses on securities amounted to $(230,369) at March 31, 2007, and $(470,102) and $(289,203) at March 31, 2006 and December 31, 2006, 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 all unrealized losses
as of March 31, 2007 represent temporary impairment as a result of temporary changes in the interest rate market and not as a result of credit deterioration. Also, total impairment represents approximately 2% of amortized cost. All bonds held
at March 31, 2007 that have unrealized losses are backed by the U.S. Government or one of its agencies/quasi-agencies.

Total
Commercial Bank Deposits

The Banks commercial deposits totaled $684.6 million, $658.9 million and $595.7 million at
March 31, 2007, December 31, 2006 and March 31, 2006, respectively, representing increases of 4% and 15%, respectively, over December 31, 2006 and March 31, 2006. Commercial deposits averaged $670.4 million during the
three-month period ended March 31, 2007, $593.0 million during the three-month period ended March 31, 2006 and $625.8 million during the twelve-month period ended December 31, 2006. The increase in deposits from December 31, 2006
to March 31, 2007 is mainly due an increase in out-of-market and brokered deposits. During the first quarter of 2007, the Bank mainly used out-of-market and brokered deposits to fund its loan growth. The Banks out-of-market and brokered
deposits increased $29.4 million in the first quarter of 2007 from $72.8 million at December 31, 2006 to $102.2 million at March 31, 2007. The Banks out-of-market and brokered deposits at March 31, 2006 was $82.5 million. For a
more detailed analysis of the increase in the cost of out-of-market and brokered deposits, see Results of OperationsInterest Expense above. We attempt to offset potential decreases in our share of local deposits by accepting
out-of-market and brokered deposits. 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 and ability to support commercial loan demand could be affected
adversely. Interest-bearing deposits represented 93% of total deposits at March 31, 2007, compared to 93% at December 31, 2006 and 94% at March 31, 2006. Certificate of deposits comprised 79% of total interest-bearing deposits for
March 31, 2007, compared to 79% at December 31, 2006 and 75% at March 31, 2006. 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, 2007, the Bank had borrowed $35.0 million pursuant to advances from the Federal Home Loan Bank of Atlanta (the
FHLB), at maturity terms ranging from six months to ten years and with an average rate of 3.98%. 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, 2007 the Bank has the capacity to borrow an additional $10.0 million or up to
approximately $45.0 million in total FHLB advances.There were $47.0 million and $38.0 million, respectively, in Federal Home Loan Bank advances outstanding at March 31, 2006 and December 31, 2006.

At March 31, 2007, the Bank had approximately $39.5 million of federal funds lines of credit available from correspondent institutions. There were
no amounts outstanding on these federal funds lines of credit at March 31, 2007 and the average balance outstanding during the first quarter of 2007 was approximately $46,000 with an average rate of 5.71%.



21



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Discontinued Operations

On December 31, 2003, the Company completed the sale of its wholesale residential mortgage business conducted by CMS to Carolina Financial
Corporation (Carolina Financial) and its subsidiary Crescent Mortgage Corporation (CMC). Carolina Financial and CMC are not affiliated with the Company or its subsidiaries. Carolina purchased all of CMSs mortgage loans,
pipeline mortgage loans, premises and equipment and assumed all leases and liabilities related to the transferred assets. The Companys consolidated balance sheets at March 31, 2007 and December 31, 2006 include no assets and include
liabilities of $2,252,695 and $2,318,895, respectively, related to discontinued operations. These liabilities consist of the allowance for the 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. When the Company sold loans in the course of its wholesale residential mortgage business, 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. At March 31, 2007 and December 31, 2006, the Company had approximately $3.3 million and $3.6 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 the 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 the recourse liability for probable future losses from loans that the Company may have to indemnify. The estimated recourse liability at both March 31, 2007 and December 31, 2006 for future
losses was approximately $2.3 million, and is based upon historical information on the number of loans indemnified and the average loss on an indemnified loan, including higher risk loans secured by manufactured housing. The loans that were
indemnified in 2006 and 2005 were primarily closed in 2002 and 2003. The Companys highest levels of mortgage production in its history were in 2002 and 2003, and therefore we could see an increase in our obligation to make indemnification
payments in 2007. If the balance of indemnified loans increases significantly, then the Company could have to make additional provisions to the recourse liability reserve.

Capital and Liquidity

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 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 pretax 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 2 capital and, together with tier 1 capital, 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 requires us to cushion the ratio by an additional 1.0% to
2.0% otherwise. 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 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.

At March 31, 2007, the Companys and Banks leverage ratio
was 9.00% and 8.48%, respectively, compared to 8.83% and 8.31% at December 31, 2006 and 9.05% and 8.39%, respectively, at March 31, 2006. On May 18, 2006, the Company, through Crescent Capital Trust III, completed an offering and sale
of $3.5 million of trust preferred securities. The proceeds from the sale of the trust preferred securities were used during the fourth quarter of 2006 to repay the junior subordinated debentures issued to Crescent Capital Trust I in connection with
a previous issuance of trust preferred securities in the fourth quarter of 2001.

At March 31, 2007, our total consolidated
shareholders equity was $63.1 million, or 7.83% of total consolidated assets, compared to $56.7 million, or 7.88% of total consolidated assets, at March 31, 2006, and $61.8 million, or 7.92% of total consolidated assets, at
December 31, 2006. The slight decrease in the consolidated shareholders equity to total consolidated assets ratio in the first quarter of 2007 was the result of the increase in the Banks total consolidated assets, which grew
approximately $25.8 million, or 3%, in the first quarter of 2007 and due to the payment of approximately $417,000 in dividends



22



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in the first quarter of 2007. The decrease in this ratio caused by the effects of the increase in our consolidated assets and the payment of dividends was
somewhat offset by the Companys increase in net income of $1.5 million and the exercise of 4,100 stock options during the first quarter of 2007.

At March 31, 2007, the Companys ratio of total consolidated capital to risk-adjusted assets was 10.34%, 9.27% of which consisted of tier 1 capital and the Banks ratio of total consolidated capital to
risk-adjusted assets was 9.76%, 8.69% of which consisted of tier 1 capital. A quarterly dividend of $0.16 was declared in February 2007 and paid on March 19, 2007. A quarterly dividend of $0.16 per share was declared in April 2007, and is
payable on May 31, 2007.

As of March 31, 2006, the Companys ratio of total consolidated capital to risk-adjusted assets
was 10.74%, 9.68% of which consisted of tier 1 capital, and, as of December 31, 2006, total consolidated capital to risk-adjusted assets was 10.45%, 9.37% of which consisted of tier 1 capital. As of March 31, 2006, the Banks ratio of
total capital to risk-adjusted assets was 11.35%, 10.15% of which consisted of tier 1 capital, and, as of December 31, 2006, total capital to risk-adjusted assets was 9.91%, 8.83% of which consisted of tier 1 capital.

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 investment securities held for sale. These average liquid assets totaled $40.6 million, $81.4 million and $65.9 million,
respectively, during the three month period ended March 31, 2007, the three month period ended March 31, 2006, and the twelve month period ended December 31, 2006, representing 6%, 13% and 10% of average deposits and borrowings,
respectively, for those periods. Average liquid assets decreased by approximately $25.3 million, or 39%, from December 31, 2006 to March 31, 2007 and average liquid assets as a percentage of average deposits and borrowings decreased
approximately 4% from December 31, 2006 to March 31, 2007. Our average liquid assets and the percentage of average liquid assets as a percentage of average deposits and borrowings decreased due to the Company reducing its liquidity in 2007
in trying to earn a higher net interest margin. The Company, on average, held $21.9 million less in federal funds sold in the first quarter of 2007 compared to year end 2006. Average commercial banking loans were 100%, 93% and 95% of average
commercial bank deposits and borrowings during the three month periods ended March 31, 2007 and March 31, 2006, and the twelve month period ended December 31, 2006, respectively. Average interest-earning assets were 105%, 104% and
104% of average commercial banking deposits and borrowings during the three month periods ended March 31, 2007 and March 31, 2006, and the twelve month period ended December 31, 2006, respectively. Both the ratio of average commercial
banking loans to average commercial banking deposits and borrowings and the ratio of average interest-earnings assets to average commercial banking deposits and borrowings increased slightly during the first quarter of 2007 compared to the first
quarter of 2006. The increase in the percentage is mainly due to the Company reducing its liquidity in 2007 in trying to earn a higher net interest margin. The growth in average interest-earning assets of $74.5 million outpaced the growth in average
interest-bearing liabilities of $58.5 million from the first quarter of 2006 to the first quarter of 2007. Therefore, the Bank held less in federal funds sold and earned a higher margin on its interest-bearing assets during the first quarter of 2007
in comparison with the same period in 2006.

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 maintains federal funds lines of credit totaling $39.5 million and maintains a line of credit up to approximately $45.0 million at the FHLB. At March 31, 2007 we had
$35.0 million in the FHLB advances outstanding and no amounts outstanding on our federal funds lines of credit. For the three months ended March 31, 2007, the average balance in FHLB advances was approximately $35.9 million. All of the $35.0
million in advances outstanding are secured by the Banks 1  4 family first lien mortgage loans and commercial real estate loans, by investment securities and by FHLB Stock. The Bank currently is holding approximately $3.6 million in
unpledged investment securities, which gives the Bank the ability to borrow an additional $13 million in FHLB advances at March 31, 2007. We presently believe that the Banks liquidity is under pressure due to the volume of commercial bank
loan production and the competitive pricing for deposits in the Banks market area. In the past, the Bank has used out-of market and brokered deposits to provide liquidity in order to fund loan growth but decreased its use of these deposits in
the second and third quarters of 2006. During the first quarter of 2007, the Bank mainly used out-of-market and brokered deposits to fund its loan growth. The Banks out-of-market and brokered deposits increased $29.4 million in the first
quarter of 2007 from $72.8 million at December 31, 2006 to $102.2 million at March 31, 2007. The Banks out-of-market and brokered deposits at March 31, 2006 was $82.5 million. We saw the cost of out of market and brokered
deposits increase to levels equal to or even exceeding that in our local market in 2006 and out-of-market and brokered deposits were used very little as a funding source during this time period. However, since the fourth quarter of 2006, we saw the
cost of out of market and brokered deposits fall to approximately 15 to 20 basis points below the cost of deposits of similar maturity in our local market, and the Bank began to use out of market and brokered deposits in order to fund its loan
growth



23



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during the first quarter of 2007. 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 and ability to support commercial loan demand could be affected adversely. The Bank may have to increase its deposit rates in the future in its local markets, as it did during 2006, if the Banks liquidity position remains
under pressure. The cost of funds of interest-bearing deposits increased from 4.83% in the fourth quarter of 2005 to 4.89% in the first quarter of 2007. An increase in deposit rates could affect our net interest margin and net income in the future.

Commercial Commitments

The following table presents our other commercial commitments at March 31, 2007. 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) |  | $                                          | 133,799 |              | $ | 105,744   |  | $         | 25,462 |               | $ | 224 |  | $ | 2,369
|Letters of Credit (2)            |  |                                            | 3,013   |              |   | 2,915     |  |           | 31     |               |   | 67  |  |   |     
|                                 |  |                                            |         |              |   |           |  |           |        |               |   |     |  |   |      
|Total commercial commitments     |  | $                                          | 136,812 |              | $ | 108,659   |  | $         | 25,493 |               | $ | 291 |  | $ | 2,369
|                                 |  |                                            |         |              |   |           |  |           |        |               |   |     |  |   |      

---

|(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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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, 2007 and December 31, 2006, the Company was a party to
interest rate swap contracts (back-end derivative) 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 $9,516,000 with a fair value of approximately
$(411,000) at March 31, 2007 and approximately $9,604,000 with a fair value of approximately $(391,000) at December 31, 2006. 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, 2007. 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 this 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.



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

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to a change in economic conditions, interest rates, regulations and laws. We are inherently affected by different market risks. Our
primary risk is interest rate risk. We do not conduct foreign exchange transactions or trading activities, which would produce price risk.



24



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Interest Rate Risk

Interest rate risk is the risk to earnings or market value of equity from the potential movement in interest rates. The primary purpose of managing interest rate risk is to reduce interest rate volatility and thereby
achieve reasonably stable earnings and preserve the value of our equity. Changes in interest rates affect our volume of mortgage production. Changes in interest rates also affect our net interest income and net interest margin because such changes
affect the amount of interest we receive on interest-bearing assets and the amount of interest we pay on interest-bearing liabilities.

We
manage interest rate risk by maintaining what we believe to be the proper balance of rate sensitive assets and rate sensitive liabilities. The relationship between rate sensitive assets and rate sensitive liabilities is a key factor in projecting
the effect of interest rate changes on net interest income. Rate sensitive assets and rate sensitive liabilities are those that can be repriced to current rates within a relatively short time period. We monitor the rate sensitivity of earning assets
and interest-bearing liabilities over the entire life of these instruments, but place particular emphasis on the twelve-month interval.

The following table shows our rate sensitive position at March 31, 2007. Approximately 75% of earning assets and 88% of funding for these earning assets is scheduled to reprice at least once during the next twelve months. The total
excess of interest-bearing liabilities over interest-bearing assets, based on a one-year cumulative time period, was $36.3 million, or 4.5% of total assets. At June 30, 2006, for the one-year cumulative period, the Bank had excess
interest-bearing assets over interest-bearing liabilities of approximately $79.5 million, or 10.5% of total assets. Since the second quarter of 2006, the Bank has offered several short-term certificate of deposit specials and also originated more
fixed-rate loans. This has changed our rate sensitivity position in the one year cumulative period from an asset-sensitive position to a liability-sensitive position. The Bank has used shorter-term funding and tried to originate more fixed rate
loans in anticipation of a possible decrease in interest rates during 2007.

Interest Rate Sensitivity Gaps

As of March 31, 2007



|                                         |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|---------------------------------------- |  | ---------------------- | ------- | ----------- | - | -------- | --------- |  | ------------ | ------- | ----- | - | ------ |  | - | -------
|                                         |  | Amounts Repricing In  
|                                         |  | 0-90 Days              |         | 91-365 Days |   |          | 1-5 Years |  | Over 5 Years |         | Total
|                                         |  | (thousands of dollars)
|Interest-earning assets                  |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|Commercial banking loans                 |  | $                      | 470,327 |             | $ | 70,770   |           |  | $            | 153,760 |       | $ | 17,640 |  | $ | 712,497
|Investment securities                    |  |                        | 1,462   |             |   | 1,085    |           |  |              | 6,133   |       |   | 9,136  |  |   | 17,816 
|Mortgage loans held for sale             |  |                        | 840     |             |   |         |           |  |              |        |       |   |       |  |   | 840    
|Federal funds sold                       |  |                        | 22,299  |             |   |         |           |  |              |        |       |   |       |  |   | 22,299 
|Interest-bearing deposits in other banks |  |                        | 2,136   |             |   |         |           |  |              |        |       |   |       |  |   | 2,136  
|                                         |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|Total interest-earning assets            |  | $                      | 497,064 |             | $ | 71,855   |           |  | $            | 159,893 |       | $ | 26,776 |  | $ | 755,588
|                                         |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|Interest-bearing liabilities             |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|Interest-bearing demand deposits         |  | $                      | 132,015 |             | $ |         |           |  | $            |        |       | $ |       |  | $ | 132,015
|Time deposits                            |  |                        | 126,107 |             |   | 318,249  |           |  |              | 63,100  |       |   |       |  |   | 507,456
|Other borrowings                         |  |                        | 13,857  |             |   | 15,000   |           |  |              | 18,000  |       |   |       |  |   | 46,857 
|                                         |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|Total interest-bearing liabilities       |  | $                      | 271,979 |             | $ | 333,249  |           |  | $            | 81,100  |       | $ |       |  | $ | 686,328
|                                         |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|Interest sensitivity gap                 |  | $                      | 225,085 |             | $ | (261,394 | )         |  | $            | 78,793  |       | $ | 26,776 |  | $ | 69,260 
|Interest sensitivity gap  cumulative    |  | $                      | 225,085 |             | $ | (36,309  | )         |  | $            | 42,484  |       | $ | 69,260 |  | $ | 69,260 

We continually try to manage our interest rate sensitivity gap. Attempting to reduce the gap is a
constant challenge in a changing interest rate environment and one of the objectives of our asset/liability management strategy. We were in an asset-sensitive position on a cumulative basis for each time period represented on the table above except
for the one year time frame. An asset sensitive position means that during each period, if interest rates increase, then the net interest margin will increase, and if interest rates decline, then the net interest margin will decline. A liability
sensitive position means that during each period, if interest rates increase, then the net interest margin will decrease, and if interest rates decline, the net interest margin will increase. At March 31, 2007, we were within our policy
guidelines of rate-sensitive assets to rate-sensitive liabilities of 80-140% at the one-year interval. Since all interest rates and yields do not adjust at the same time or rate, this is only a general indicator of rate sensitivity.

We use additional tools to monitor and manage interest rate sensitivity. One of our tools is the shock test. The shock test projects the effect of an
interest rate increase and decrease of 100 and 200 basis points on our rate sensitive assets and liabilities and mortgage production.



25



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The Bank also uses financial derivative instruments for management of its interest rate sensitivity. The
Board of Directors approves the use of interest rate swaps in balance sheet hedging activities and to help meet the need of the Banks customers. Interest rate swaps are contractual agreements typically entered into to exchange fixed for
variable streams of interest payments. The notional principal is not exchanged but is used as a reference for the size of the interest payments. The Company is subject to the risk that a counterparty will fail to perform; however, management
believes that this 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. The economy experienced deflation in 2001 and the Federal Reserve reduced interest rates on
eleven occasions for a total of 475 basis points in 2001. Inflation remained low in 2002 and 2003, which resulted in fairly steady interest rates in 2002 and 2003, dropping only 50 basis points in 2002 and 25 basis points in 2003. During 2004,
inflation gradually increased with the improvement in the economy and the Federal Reserve increased interest rates by 125 basis points. During 2005, the Federal Reserve raised rates by a total of 200 basis points and raised rates by an additional
125 basis points in the first six months of 2006. The Federal Reserve did not raise rates during the third and fourth quarters of 2006 and the first quarter of 2007, but indicated that further changes in rates would be determined by market
information.

In addition, inflation results in an 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. The value of mortgage servicing rights is also affected by changes in, and anticipated changes in, interest rates and prepayment rates on mortgage loans. Generally, if interest rates increase, the value
of mortgage servicing rights increases, and if prepayment rates increase, the value of mortgage servicing rights decreases.



|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 management, including the Chief Executive Officer and
the Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on this 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
and in accumulating and communicating to the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, such information as appropriate to allow timely decisions regarding required disclosure.

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, 2007 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.



26



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PART IIOTHER INFORMATION



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

Not Applicable.



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

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, 2006.



|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 Registration Statement on Form S-4 dated January 27, 1992, File No. 33-45254
(the Form S-4)).        
|      | 
|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   |  | Bylaws of the Company (incorporated by reference from Exhibit 3.2 to the Form S-4).                                                                                                                          
|      | 
|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.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



27



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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 4, 2007                           |  | /s/ J. Donald Boggus, Jr.  
|      |  | J. Donald Boggus, Jr.                
|      |  | President and Chief Executive Officer
|      |  |                                      
|Date: |  | May 4, 2007                           |  | /s/ Leland W. Brantley, Jr.
|      |  | Leland W. Brantley, Jr.              
|      |  | Chief Financial Officer              



---

EXHIBIT INDEX



|              |  |                                                                                                                                                       
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                           
|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.