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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549





FORM 10-Q

(Mark One)



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

For the quarterly period ended September 30, 2009

OR



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

For the transition period from  to
.

Commission File Number 0-20251





Crescent Banking
Company

(Exact Name of Registrant as Specified in its Charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Georgia                                                        |  | 58-1968323                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|7 Caring Way, Jasper, GA                                       |  | 30143                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          

(678) 454-2266

(Registrants Telephone Number, Including Area Code)

Not applicable

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

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

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

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



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

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 November 16, 2009, Crescent Banking Company had 5,326,567 shares of its common stock, par value $1.00 per share,
issued and outstanding, of which 33,336 shares were held by Crescent Banking Company as treasury stock.









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##### Table of Contents

CRESCENT BANKING COMPANY

INDEX



|         |  |                                                                                       |  |        
|-------- |  | ------------------------------------------------------------------------------------- |  | -------
|         |  |                                                                                       |  | PageNo.
|Part I.  |  | Financial Information                                                                 |  |        
|         |  |                                                                                      
|Item 1.  |  | Consolidated Financial Statements                                                     |  |        
|         |  |                                                                                      
|         |  | Consolidated Balance Sheets                                                           |  | 2      
|         |  |                                                                                      
|         |  | Consolidated Statements of Operations and Comprehensive Loss                          |  | 3      
|         |  |                                                                                      
|         |  | Consolidated Statements of Cash Flows                                                 |  | 5      
|         |  |                                                                                      
|         |  | Notes to Consolidated Financial Statements                                            |  | 7      
|         |  |                                                                                      
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations |  | 17     
|         |  |                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 44     
|         |  |                                                                                      
|Item 4T. |  | Controls and Procedures                                                               |  | 44     
|         |  |                                                                                      
|Part II. |  | Other Information                                                                     |  |        
|         |  |                                                                                      
|Item 1.  |  | Legal Proceedings                                                                     |  | 45     
|         |  |                                                                                      
|Item 1A. |  | Risk Factors                                                                          |  | 45     
|         |  |                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 49     
|         |  |                                                                                      
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  | 49     
|         |  |                                                                                      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 49     
|         |  |                                                                                      
|Item 5.  |  | Other Information                                                                     |  | 49     
|         |  |                                                                                      
|Item 6.  |  | Exhibits                                                                              |  | 49     



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PART IFINANCIAL INFORMATION



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

CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                                                                                  |  |                              |               |   |                  |   |               |  
|----------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------------- | - | ---------------- | - | ------------- | -
|                                                                                                                  |  | (unaudited)September 30,2009 |               |   | December 31,2008 |  
|Assets                                                                                                            |  |                              |               |   |                  |   |               |  
|Cash and due from banks                                                                                           |  | $                            | 2,535,586     |   |                  | $ | 6,680,289     |  
|Interest-bearing deposits in banks                                                                                |  |                              | 162,102,394   |   |                  |   | 63,078,645    |  
|Federal funds sold                                                                                                |  |                              | 17,050,000    |   |                  |   | 83,269,000    |  
|Investment securities available-for-sale                                                                          |  |                              | 28,468,930    |   |                  |   | 33,593,627    |  
|Investment securities held-to-maturity, at cost (fair value approximates $3,615,000 and $3,874,400, respectively) |  |                              | 3,650,000     |   |                  |   | 4,000,000     |  
|Restricted equity securities                                                                                      |  |                              | 3,275,000     |   |                  |   | 3,210,675     |  
|Mortgage loans held for sale                                                                                      |  |                              | 1,008,696     |   |                  |   | 979,130       |  
|Loans                                                                                                             |  |                              | 753,349,599   |   |                  |   | 785,389,240   |  
|Less allowance for loan losses                                                                                    |  |                              | (25,134,806   | ) |                  |   | (22,280,041   | )
|                                                                                                                  |  |                              |               |   |                  |   |               |  
|Loans, net                                                                                                        |  |                              | 728,214,793   |   |                  |   | 763,109,199   |  
|Premises and equipment                                                                                            |  |                              | 21,720,767    |   |                  |   | 22,756,531    |  
|Other real estate owned                                                                                           |  |                              | 37,053,081    |   |                  |   | 25,815,072    |  
|Cash surrender value of life insurance                                                                            |  |                              | 14,538,484    |   |                  |   | 14,133,412    |  
|Deposit intangibles                                                                                               |  |                              | 103,248       |   |                  |   | 179,030       |  
|Deferred tax asset                                                                                                |  |                              |              |   |                  |   | 2,435,074     |  
|Other assets                                                                                                      |  |                              | 10,751,302    |   |                  |   | 15,729,536    |  
|                                                                                                                  |  |                              |               |   |                  |   |               |  
|Total Assets                                                                                                      |  | $                            | 1,030,472,281 |   |                  | $ | 1,038,969,220 |  
|                                                                                                                  |  |                              |               |   |                  |   |               |  
|Liabilities                                                                                                       |  |                              |               |   |                  |   |               |  
|Deposits                                                                                                          |  |                              |               |   |                  |   |               |  
|Noninterest-bearing                                                                                               |  | $                            | 36,976,694    |   |                  | $ | 40,637,774    |  
|Interest-bearing                                                                                                  |  |                              | 917,232,800   |   |                  |   | 895,223,907   |  
|                                                                                                                  |  |                              |               |   |                  |   |               |  
|Total deposits                                                                                                    |  |                              | 954,209,494   |   |                  |   | 935,861,681   |  
|Short-term borrowings                                                                                             |  |                              | 10,568,509    |   |                  |   | 10,018,509    |  
|Long-term borrowings                                                                                              |  |                              | 45,167,000    |   |                  |   | 48,167,000    |  
|Deferred tax liability                                                                                            |  |                              | 312,393       |   |                  |   |              |  
|Accrued interest and other liabilities                                                                            |  |                              | 6,441,603     |   |                  |   | 6,476,004     |  
|Liabilities related to discontinued operations                                                                    |  |                              | 1,369,686     |   |                  |   | 1,694,496     |  
|                                                                                                                  |  |                              |               |   |                  |   |               |  
|Total liabilities                                                                                                 |  | $                            | 1,018,068,685 |   |                  | $ | 1,002,217,690 |  
|                                                                                                                  |  |                              |               |   |                  |   |               |  
|Shareholders equity                                                                                              |  |                              |               |   |                  |   |               |  
|Preferred stock, par value $1.00; 1,000,000 shares authorized; no shares issued or outstanding, respectively      |  | $                            |              |   |                  | $ |              |  
|Common stock, par value $1.00; 50,000,000 shares authorized; 5,324,162 and 5,384,547 issued, respectively         |  |                              | 5,324,162     |   |                  |   | 5,384,547     |  
|Capital surplus                                                                                                   |  |                              | 18,593,827    |   |                  |   | 19,180,530    |  
|Retained earnings (accumulated deficit)                                                                           |  |                              | (11,686,891   | ) |                  |   | 12,166,918    |  
|Treasury stock, 33,336 shares                                                                                     |  |                              | (296,091      | ) |                  |   | (296,091      | )
|Accumulated other comprehensive income                                                                            |  |                              | 468,589       |   |                  |   | 315,626       |  
|                                                                                                                  |  |                              |               |   |                  |   |               |  
|Total shareholders equity                                                                                        |  |                              | 12,403,596    |   |                  |   | 36,751,530    |  
|                                                                                                                  |  |                              |               |   |                  |   |               |  
|Total liabilities and shareholders equity                                                                        |  | $                            | 1,030,472,281 |   |                  | $ | 1,038,969,220 |  
|                                                                                                                  |  |                              |               |   |                  |   |               |  

See Notes to Consolidated Financial Statements.



2



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##### Table of Contents

CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)



|                                                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|----------------------------------------------------------------------------------- |  | --------------------------------------- | ---------- | - | -------------------------------------- | - | ---------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                                    |  | For the three months endedSeptember 30, |            |   | For the nine months endedSeptember 30, |  
|                                                                                    |  | 2009                                    |            |   | 2008                                   |   |            | 2009 |  |   | 2008        |  
|Interest income                                                                     |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Loans including fees                                                                |  | $                                       | 10,273,898 |   |                                        | $ | 12,788,580 |      |  | $ | 31,719,156  |   |  | $ | 39,686,557  |  
|Mortgage loans held for sale                                                        |  |                                         | 5,404      |   |                                        |   | 1,713      |      |  |   | 19,213      |   |  |   | 3,029       |  
|Taxable securities                                                                  |  |                                         | 326,680    |   |                                        |   | 296,287    |      |  |   | 1,077,653   |   |  |   | 961,871     |  
|Non-taxable securities                                                              |  |                                         | 20,562     |   |                                        |   | 23,500     |      |  |   | 64,625      |   |  |   | 53,528      |  
|Deposits in banks                                                                   |  |                                         | 357,067    |   |                                        |   | 162,751    |      |  |   | 1,174,263   |   |  |   | 204,501     |  
|Federal funds sold                                                                  |  |                                         | 5,773      |   |                                        |   | 341,587    |      |  |   | 51,072      |   |  |   | 805,515     |  
|                                                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Total interest income                                                               |  |                                         | 10,989,384 |   |                                        |   | 13,614,418 |      |  |   | 34,105,982  |   |  |   | 41,715,001  |  
|Interest expense                                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Deposits                                                                            |  |                                         | 7,606,765  |   |                                        |   | 8,538,946  |      |  |   | 24,524,809  |   |  |   | 25,874,196  |  
|Short-term borrowings                                                               |  |                                         | 164,390    |   |                                        |   | 119,075    |      |  |   | 484,017     |   |  |   | 394,482     |  
|Long-term borrowings                                                                |  |                                         | 395,147    |   |                                        |   | 539,414    |      |  |   | 1,243,225   |   |  |   | 1,706,178   |  
|                                                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Total interest expense                                                              |  |                                         | 8,166,302  |   |                                        |   | 9,197,435  |      |  |   | 26,252,051  |   |  |   | 27,974,856  |  
|Net interest income                                                                 |  |                                         | 2,823,082  |   |                                        |   | 4,416,983  |      |  |   | 7,853,931   |   |  |   | 13,740,145  |  
|Provision for loan losses                                                           |  |                                         | 7,200,000  |   |                                        |   | 1,972,354  |      |  |   | 15,080,000  |   |  |   | 11,698,354  |  
|                                                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Net interest income (loss) after provision for loan losses                          |  |                                         | (4,376,918 | ) |                                        |   | 2,444,629  |      |  |   | (7,226,069  | ) |  |   | 2,041,791   |  
|                                                                                    |  |                                         |            |  
|Noninterest income                                                                  |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Service charges on deposit accounts                                                 |  |                                         | 354,575    |   |                                        |   | 354,458    |      |  |   | 1,018,249   |   |  |   | 1,078,545   |  
|Gains on sales of SBA loans                                                         |  |                                         |           |   |                                        |   | 94,368     |      |  |   | 116,308     |   |  |   | 276,635     |  
|Other operating income                                                              |  |                                         | 512,672    |   |                                        |   | 505,111    |      |  |   | 1,592,328   |   |  |   | 1,491,938   |  
|                                                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Total noninterest income                                                            |  |                                         | 867,247    |   |                                        |   | 953,937    |      |  |   | 2,726,885   |   |  |   | 2,847,118   |  
|                                                                                    |  |                                         |            |  
|Noninterest expenses                                                                |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Salaries and employee benefits (Note 9)                                             |  |                                         | 227,581    |   |                                        |   | 2,938,873  |      |  |   | 5,573,612   |   |  |   | 8,681,195   |  
|Occupancy and equipment                                                             |  |                                         | 443,522    |   |                                        |   | 437,389    |      |  |   | 1,274,989   |   |  |   | 1,302,467   |  
|Supplies, postage, and telephone                                                    |  |                                         | 217,518    |   |                                        |   | 231,785    |      |  |   | 689,128     |   |  |   | 760,578     |  
|Advertising                                                                         |  |                                         | 52,234     |   |                                        |   | 102,874    |      |  |   | 203,924     |   |  |   | 303,472     |  
|Insurance expense                                                                   |  |                                         | 2,380,084  |   |                                        |   | 247,633    |      |  |   | 4,421,735   |   |  |   | 675,203     |  
|Depreciation and amortization                                                       |  |                                         | 389,552    |   |                                        |   | 423,816    |      |  |   | 1,240,787   |   |  |   | 1,263,016   |  
|Legal and professional                                                              |  |                                         | 618,641    |   |                                        |   | 445,117    |      |  |   | 2,113,358   |   |  |   | 1,410,226   |  
|Director fees                                                                       |  |                                         | 66,225     |   |                                        |   | 76,875     |      |  |   | 188,875     |   |  |   | 236,400     |  
|Foreclosed asset expense, net                                                       |  |                                         | 722,859    |   |                                        |   | 255,849    |      |  |   | 2,137,303   |   |  |   | 1,071,440   |  
|Other operating expenses                                                            |  |                                         | 360,113    |   |                                        |   | 333,133    |      |  |   | 1,510,914   |   |  |   | 1,201,145   |  
|                                                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Total noninterest expenses                                                          |  |                                         | 5,478,329  |   |                                        |   | 5,493,344  |      |  |   | 19,354,625  |   |  |   | 16,905,142  |  
|                                                                                    |  |                                         |            |  
|Loss from continuing operations before income tax benefit                           |  |                                         | (8,988,000 | ) |                                        |   | (2,094,778 | )    |  |   | (23,853,809 | ) |  |   | (12,016,233 | )
|Applicable income tax benefit                                                       |  |                                         |           |   |                                        |   | (735,937   | )    |  |   |            |   |  |   | (4,642,454  | )
|                                                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Net loss                                                                            |  |                                         | (8,988,000 | ) |                                        |   | (1,358,841 | )    |  |   | (23,853,809 | ) |  |   | (7,373,779  | )
|                                                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|                                                                                    |  |                                         |            |  
|Other comprehensive income                                                          |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Unrealized gains on securities available-for-sale arising during period, net of tax |  |                                         | 135,066    |   |                                        |   | 249,561    |      |  |   | 152,963     |   |  |   | 87,527      |  
|                                                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Comprehensive loss                                                                  |  | $                                       | (8,852,934 | ) |                                        | $ | (1,109,280 | )    |  | $ | (23,700,846 | ) |  | $ | (7,286,252  | )
|                                                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  

See Notes to Consolidated Financial Statements.



3



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CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Continued)

(unaudited)



|                                         |  |                                         |       |   |                                        |   |       |      |  |   |       |   |  |   |       |  
|---------------------------------------- |  | --------------------------------------- | ----- | - | -------------------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                         |  | For the three months endedSeptember 30, |       |   | For the nine months endedSeptember 30, |  
|                                         |  | 2009                                    |       |   | 2008                                   |   |       | 2009 |  |   | 2008  |  
|Loss per share                           |  |                                         |       |   |                                        |   |       |      |  |   |       |   |  |   |       |  
|Basic loss per share                     |  | $                                       | (1.70 | ) |                                        | $ | (0.26 | )    |  | $ | (4.52 | ) |  | $ | (1.41 | )
|Diluted loss per share                   |  | $                                       | (1.70 | ) |                                        | $ | (0.26 | )    |  | $ | (4.52 | ) |  | $ | (1.41 | )
|Cash dividends per share of common stock |  | $                                       | 0.00  |   |                                        | $ | 0.04  |      |  | $ | 0.00  |   |  | $ | 0.16  |  

See Notes to Consolidated Financial Statements.



4



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CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                            |  |                                        |             |   |      |   |              |  
|--------------------------------------------------------------------------- |  | -------------------------------------- | ----------- | - | ---- | - | ------------ | -
|                                                                            |  | For the nine months endedSeptember 30, |            
|                                                                            |  | 2009                                   |             |   | 2008 |  
|Operating Activities                                                        |  |                                        |             |   |      |   |              |  
|Net loss                                                                    |  | $                                      | (23,853,809 | ) |      | $ | (7,373,779   | )
|Adjustments to reconcile net loss to net cash used by operating activities: |  |                                        |             |   |      |   |              |  
|Amortization (accretion) of premium/discount on securities                  |  |                                        | 75,437      |   |      |   | (2,025       | )
|Amortization of deposit intangible                                          |  |                                        | 75,782      |   |      |   | 94,314       |  
|Net gain on sale of other real estate owned                                 |  |                                        | (119,969    | ) |      |   | (67,384      | )
|Provision for loan losses                                                   |  |                                        | 15,080,000  |   |      |   | 11,698,354   |  
|Depreciation                                                                |  |                                        | 1,154,566   |   |      |   | 1,158,264    |  
|Proceeds from sales of mortgage loans held for sale                         |  |                                        | 29,199,234  |   |      |   | 22,961,666   |  
|Originations of mortgage loans held for sale                                |  |                                        | (29,228,800 | ) |      |   | (23,065,817  | )
|Income on life insurance policies                                           |  |                                        | (405,072    | ) |      |   | (398,991     | )
|Deferred tax                                                                |  |                                        | 2,333,099   |   |      |   | (1,289,908   | )
|Decrease in interest receivable                                             |  |                                        | 537,967     |   |      |   | 1,644,459    |  
|Decrease in interest payable                                                |  |                                        | (111,864    | ) |      |   | (765,998     | )
|Stock-based compensation expense                                            |  |                                        | (698,949    | ) |      |   | 525,415      |  
|Impairment on other securities                                              |  |                                        | 165,975     |   |      |   |             |  
|Impairment on trust preferred securities                                    |  |                                        | 176,000     |   |      |   |             |  
|Net cash used in discontinued operations                                    |  |                                        | (324,810    | ) |      |   | (228,830     | )
|Net change in other assets, liabilities and other operating activities      |  |                                        | 5,174,433   |   |      |   | (5,815,552   | )
|                                                                            |  |                                        |             |   |      |   |              |  
|Net cash used by operating activities                                       |  |                                        | (770,780    | ) |      |   | (925,812     | )
|                                                                            |  |                                        |             |   |      |   |              |  
|                                                                            |  |                                       
|Investing Activities                                                        |  |                                        |             |   |      |   |              |  
|Net increase in interest-bearing deposits in banks                          |  |                                        | (99,023,748 | ) |      |   | (25,953,816  | )
|Purchase of securities available-for-sale                                   |  |                                        | (7,236,010  | ) |      |   | (5,167,659   | )
|Purchase of securities held-to-maturity                                     |  |                                        | (150,000    | ) |      |   | (4,000,000   | )
|Proceeds from maturities/calls of securities available-for-sale             |  |                                        | 12,540,208  |   |      |   | 5,774,446    |  
|Proceeds from maturities/calls of securities held-to-maturity               |  |                                        | 500,000     |   |      |   |             |  
|Proceeds from maturities of other securities                                |  |                                        |            |   |      |   | 225,000      |  
|Purchase of other securities                                                |  |                                        | (230,300    | ) |      |   | (251,400     | )
|Proceeds from sale of other real estate owned and repossessed assets        |  |                                        | 11,972,608  |   |      |   | 2,974,751    |  
|Net (increase) decrease in federal funds sold                               |  |                                        | 66,219,000  |   |      |   | (81,886,000  | )
|Net increase in loans                                                       |  |                                        | (3,796,553  | ) |      |   | (18,800,476  | )
|Purchase of premises and equipment                                          |  |                                        | (118,802    | ) |      |   | (2,789,053   | )
|                                                                            |  |                                        |             |   |      |   |              |  
|Net cash used in investing activities                                       |  |                                        | (19,323,597 | ) |      |   | (129,874,207 | )
|                                                                            |  |                                        |             |   |      |   |              |  

See Notes to Consolidated Financial Statements.



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##### Table of Contents

CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(unaudited)



|                                                                   |  |                                        |            |   |      |   |             |  
|------------------------------------------------------------------ |  | -------------------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                                   |  | For the nine months endedSeptember 30, |           
|                                                                   |  | 2009                                   |            |   | 2008 |  
|Financing Activities                                               |  |                                        |            |   |      |   |             |  
|Net increase in deposits                                           |  |                                        | 18,347,813 |   |      |   | 132,067,686 |  
|Net increase (decrease) in borrowings                              |  |                                        | (2,450,000 | ) |      |   | 18,509      |  
|Excess tax benefits from share-based payment arrangements          |  |                                        |           |   |      |   | 155,112     |  
|Issuance of common stock for dividend reinvestment plan            |  |                                        |           |   |      |   | 410,806     |  
|Issuance of common stock for stock purchase plan                   |  |                                        | 51,861     |   |      |   | 48,263      |  
|Proceeds from the exercise of stock options                        |  |                                        |           |   |      |   | 240,533     |  
|Dividends paid                                                     |  |                                        |           |   |      |   | (846,394    | )
|                                                                   |  |                                        |            |   |      |   |             |  
|Net cash provided by financing activities                          |  |                                        | 15,949,674 |   |      |   | 132,094,515 |  
|                                                                   |  |                                        |            |   |      |   |             |  
|Net increase (decrease) in cash and due from banks                 |  |                                        | (4,144,703 | ) |      |   | 1,294,496   |  
|Cash and due from banks at beginning of year                       |  |                                        | 6,680,289  |   |      |   | 7,700,345   |  
|                                                                   |  |                                        |            |   |      |   |             |  
|Cash and due from banks at end of period                           |  | $                                      | 2,535,586  |   |      | $ | 8,994,841   |  
|                                                                   |  |                                        |            |   |      |   |             |  
|Supplemental Disclosure of Cash Flow Information                   |  |                                        |            |   |      |   |             |  
|Cash paid during period for interest                               |  | $                                      | 26,363,916 |   |      | $ | 28,740,854  |  
|Cash paid during period for taxes                                  |  |                                        |           |   |      |   | 1,766,000   |  
|Principal balances of loans transferred to other real estate owned |  |                                        | 23,610,959 |   |      |   | 19,846,873  |  
|Unrealized gain on securities available for sale, net              |  |                                        | 152,963    |   |      |   | 87,527      |  

See Notes to Consolidated Financial Statements.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

NOTE
1GENERAL

The accompanying unaudited consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP
for complete financial statements. These unaudited consolidated financial statements should be read in conjunction with the Companys consolidated financial statements and notes thereto contained in the Companys 2008 annual report on Form
10-K. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations of the interim periods have been made. All such adjustments are of a normal recurring nature. Results of
operations for the three and nine months ended September 30, 2009 are not necessarily indicative of the results of operations for the full year or any other interim periods.

NOTE 2DISCONTINUED OPERATIONS

The consolidated balance sheets at
September 30, 2009 and December 31, 2008 include liabilities of $1,369,686 and $1,694,496, respectively, related to discontinued operations. The liabilities included in the consolidated balance sheets related to discontinued operations are
the allowance for the recourse liability remaining from the sale of the Companys wholesale mortgage operation in 2003. The estimated recourse liability at both September 30, 2009 and December 31, 2008 for future losses is $1.4
million and $1.7 million, respectively, and is estimated and adjusted based upon historical information on the number of loans indemnified and the average loss on an indemnified loan. The table below shows the changes in the allowance for recourse
obligation from December 31, 2008 to September 30, 2009.

Changes in the allowance for recourse obligation are as
follows:



|                              |  |      |           |  
|----------------------------- |  | ---- | --------- | -
|                              |  | 2009 |          
|Balance at December 31, 2008  |  | $    | 1,694,496 |  
|Losses indemnified            |  |      | (324,810  | )
|                              |  |      |           |  
|Balance at September 30, 2009 |  | $    | 1,369,686 |  
|                              |  |      |           |  

NOTE 3LOANS

The composition of loans is summarized as follows:



|                                                          |  |                   |             |   |                  |   |             |  
|--------------------------------------------------------- |  | ----------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                          |  | September 30,2009 |             |   | December 31,2008 |  
|Commercial                                                |  | $                 | 33,355,138  |   |                  | $ | 36,184,933  |  
|Real estate  construction and land development           |  |                   | 291,369,574 |   |                  |   | 347,117,835 |  
|Real estate  residential real estate                     |  |                   | 179,238,397 |   |                  |   | 154,128,503 |  
|Real estate  commercial real estate  owner occupied     |  |                   | 127,674,344 |   |                  |   | 131,406,871 |  
|Real estate  commercial real estate  non owner occupied |  |                   | 108,670,747 |   |                  |   | 101,637,601 |  
|Consumer installment and other                            |  |                   | 13,041,399  |   |                  |   | 14,913,497  |  
|                                                          |  |                   |             |   |                  |   |             |  
|                                                          |  |                   | 753,349,599 |   |                  |   | 785,389,240 |  
|Allowance for loan losses                                 |  |                   | (25,134,806 | ) |                  |   | (22,280,041 | )
|                                                          |  |                   |             |   |                  |   |             |  
|Loans, net                                                |  | $                 | 728,214,793 |   |                  | $ | 763,109,199 |  
|                                                          |  |                   |             |   |                  |   |             |  

Changes in the allowance for loan losses are as follows:



|                                           |  |   |             |  
|------------------------------------------ |  | - | ----------- | -
|Balance at December 31, 2008               |  | $ | 22,280,041  |  
|Provision for loan losses                  |  |   | 15,080,000  |  
|Loans charged off                          |  |   | (12,351,705 | )
|Recoveries of loans previously charged off |  |   | 126,470     |  
|                                           |  |   |             |  
|Balance at September 30, 2009              |  | $ | 25,134,806  |  
|                                           |  |   |             |  



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NOTE 3LOANS (CONTINUED)

The investment in non-performing loans, consisting of renegotiated and non-accrual loans, was $54,816,391 and $36,778,482 at September 30, 2009 and December 31, 2008, respectively. Total
non-performing loans outstanding that required a specific allowance were $18,315,872 and $21,994,274, respectively, as of September 30, 2009 and December 31, 2008. Total allowances of approximately $2,769,000 and $4,680,000 have been
established for non-performing loans outstanding as of September 30, 2009 and December 31, 2008, respectively. Of the non-performing loans without a specific allowance at September 30, 2009, the Company has already charged-off amounts
totaling $5,398,918. Of the $54,816,391 and $36,778,482 in non-performing loans at September 30, 2009 and December 31, 2008, $10,183,979 and $17,896,747, respectively, was related to renegotiated loans. With respect to these loans, the
Company has either reduced interest rates or deferred interest payments in order to provide the borrowers time to reorganize their finances and seek to satisfy their loan obligations. Total renegotiated loans outstanding that required a specific
allowance were $7,058,378 and $17,760,378 at September 30, 2009 and December 31, 2008, respectively. The total specific allowance on these renegotiated loans was approximately $1,105,000 and $3,384,000 at September 30, 2009 and
December 31, 2008, respectively.

Total impaired loans, which include our total non-performing loans of $54,816,391
discussed above, was $215,580,685 at September 30, 2009. This compares to total impaired loans of $65,620,890 at December 31, 2008, or an increase of approximately 229%. Of our total impaired loans, $74,976,363 have required a specific
allowance totaling approximately $13,797,000 and $18,678,436 (net) have required specific charge-offs totaling $5,398,918. This $18,678,436 in impaired loans that have required specific charge-offs also required $510,000 in additional specific
allowances. Of the $215,580,685 in impaired loans, $121,925,886 did not require a specific allowance or specific charge-off at September 30, 2009. Of the $121,925,886 in impaired loans that did not require a specific allowance or specific
charge-offs, $74,416,892 was related to construction and land development loans, $25,403,162 was related to residential and multi-family real estate loans and $14,426,679 was related to commercial real estate loans. The significant increase in
impaired loans is due to loans we previously disclosed in Managements Discussion and Analysis of Financial Condition and Results of Operations as potential problem loans that have migrated to impaired loans. Based upon further
deterioration in these loans since December 31, 2008, management now considers it probable that these loans will not perform to their original contractual terms and has evaluated these loans as impaired loans under the requisite accounting
guidance.

NOTE 4EARNINGS (LOSS) PER SHARE

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



|                                  |  |                                       |            |   |                                     |           |                 |    |      |  
|--------------------------------- |  | ------------------------------------- | ---------- | - | ----------------------------------- | --------- | --------------- | -- | ---- | -
|                                  |  | Three Months Ended September 30, 2009 |           
|                                  |  | Net Loss(Numerator)                   |            |   | Weighted-AverageShares(Denominator) |           | Per-ShareAmount |   
|Consolidated                      |  |                                       |            |   |                                     |           |                 |    |      |  
|Basic loss per share              |  | ($                                    | 8,988,000  | ) |                                     | 5,286,134 |                 | ($ | 1.70 | )
|Effect of dilutive securities (1) |  |                                       |           |   |                                     |          |                 |    |      |  
|Diluted loss per share            |  | ($                                    | 8,988,000  | ) |                                     | 5,286,134 |                 | ($ | 1.70 | )
|                                  | 
|                                  |  | Three Months Ended September 30, 2008 |           
|                                  |  | Net Loss(Numerator)                   |            |   | Weighted-AverageShares(Denominator) |           | Per-ShareAmount |   
|Consolidated                      |  |                                       |            |   |                                     |           |                 |    |      |  
|Basic loss per share              |  | ($                                    | 1,358,841  | ) |                                     | 5,249,383 |                 | ($ | 0.26 | )
|Effect of dilutive securities (1) |  |                                       |           |   |                                     |          |                 |    |      |  
|Diluted loss per share            |  | ($                                    | 1,358,841  | ) |                                     | 5,249,383 |                 | ($ | 0.26 | )
|                                  | 
|                                  |  | Nine Months Ended September 30, 2009  |           
|                                  |  | Net Loss(Numerator)                   |            |   | Weighted-AverageShares(Denominator) |           | Per-ShareAmount |   
|Consolidated                      |  |                                       |            |   |                                     |           |                 |    |      |  
|Basic loss per share              |  | ($                                    | 23,853,809 | ) |                                     | 5,278,275 |                 | ($ | 4.52 | )
|Effect of dilutive securities (1) |  |                                       |            |   |                                     |          |                 |    |      |  
|Diluted loss per share            |  | ($                                    | 23,853,809 | ) |                                     | 5,278,275 |                 | ($ | 4.52 | )



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NOTE 4EARNINGS (LOSS) PER SHARE (CONTINUED)



|                                  |  |                                      |           |   |                                     |           |                 |    |      |  
|--------------------------------- |  | ------------------------------------ | --------- | - | ----------------------------------- | --------- | --------------- | -- | ---- | -
|                                  |  | Nine Months Ended September 30, 2008 |          
|                                  |  | Net Loss(Numerator)                  |           |   | Weighted-AverageShares(Denominator) |           | Per-ShareAmount |   
|Consolidated                      |  |                                      |           |   |                                     |           |                 |    |      |  
|Basic loss per share              |  | ($                                   | 7,373,779 | ) |                                     | 5,219,432 |                 | ($ | 1.41 | )
|Effect of dilutive securities (1) |  |                                      |           |   |                                     |          |                 |    |      |  
|Diluted loss per share            |  | ($                                   | 7,373,779 | ) |                                     | 5,219,432 |                 | ($ | 1.41 | )



|(1) | Diluted loss per share is calculated by using the weighted average common shares outstanding, instead of the diluted weighted average shares outstanding, because they
are anti-dilutive. For the three and nine months ended September 30, 2008, -0- and 40,745 shares, respectively, were excluded. For the three and nine months ended September 30, 2009, 98,638 and 88,869 shares, respectively, were excluded.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 September 30, 2009 and December 31, 2008, the
Company was a party to interest rate swap contracts (back-end derivatives) under which it pays a fixed rate of interest and receives a variable rate of interest. The notional amount of the interest rate swaps was approximately $8,349,000, with a
fair value of approximately $(1,079,000) at September 30, 2009 and approximately $8,764,000 with a fair value of approximately $(1,407,000) at December 31, 2008. The Company also has an embedded derivative in each of the loan agreements
(front-end derivative) that requires the borrower to pay or receive from Crescent Bank and Trust Company (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
September 30, 2009. If a counterparty, in particular a 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 investment policy requires all derivative financial instruments be used only for asset/liability
management through the hedging of specific transactions or positions, and not for trading or speculative purposes. The Company is subject to the risk that a counterparty, in particular our borrower, will fail to perform; however, management believes
that the risk associated with using derivative financial instruments to mitigate interest rate risk sensitivity is minimal and should not have any material unintended impact on our financial condition or results of operations.

NOTE 6INVESTMENT SECURITIES

The carrying value and fair value of investment securities summarized as follows:



|                                      |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|------------------------------------- |  | ------------- | ---------- | -------------------- | - | --------------------- |  | - | --------- | - |  | - | ----------
|                                      |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|Securities Available-for-Sale         |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|September 30, 2009                    |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|U. S. Government agencies             |  | $             | 4,595,332  |                      | $ | 71,432                |  | $ |          |   |  | $ | 4,666,764 
|Mortgage-backed agency securities     |  |               | 19,402,802 |                      |   | 654,829               |  |   | (2,311    | ) |  |   | 20,055,320
|Mortgage-backed CMO agency securities |  |               | 3,689,815  |                      |   | 58,476                |  |   | (1,445    | ) |  |   | 3,746,846 
|                                      |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|                                      |  | $             | 27,687,949 |                      | $ | 784,737               |  | $ | (3,756    | ) |  | $ | 28,468,930
|                                      |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|December 31, 2008                     |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|U. S. Government agencies             |  | $             | 8,999,090  |                      | $ | 163,421               |  | $ |          |   |  | $ | 9,162,511 
|Mortgage-backed agency securities     |  |               | 20,002,443 |                      |   | 389,342               |  |   | (11,512   | ) |  |   | 20,380,273
|Mortgage-backed CMO agency securities |  |               | 4,066,051  |                      |   | 5,046                 |  |   | (20,254   | ) |  |   | 4,050,843 
|                                      |  |               |            |                      |   |                       |  |   |           |   |  |   |           
|                                      |  | $             | 33,067,584 |                      | $ | 557,809               |  | $ | (31,766   | ) |  | $ | 33,593,627
|                                      |  |               |            |                      |   |                       |  |   |           |   |  |   |           



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NOTE 6INVESTMENT SECURITIES (CONTINUED)



|                               |  |               |           |                      |   |                       |  |   |           |   |  |   |          
|------------------------------ |  | ------------- | --------- | -------------------- | - | --------------------- |  | - | --------- | - |  | - | ---------
|                               |  | AmortizedCost |           | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|Securities Held-to-Maturity    |  |               |           |                      |   |                       |  |   |           |   |  |   |          
|September 30, 2009             |  |               |           |                      |   |                       |  |   |           |   |  |   |          
|State and municipal securities |  |               | 3,650,000 |                      |   |                      |  |   | (35,000   | ) |  |   | 3,615,000
|                               |  |               |           |                      |   |                       |  |   |           |   |  |   |          
|                               |  | $             | 3,650,000 |                      | $ |                      |  | $ | (35,000   | ) |  | $ | 3,615,000
|                               |  |               |           |                      |   |                       |  |   |           |   |  |   |          
|December 31, 2008              |  |               |           |                      |   |                       |  |   |           |   |  |   |          
|State and municipal securities |  |               | 4,000,000 |                      |   |                      |  |   | (125,600  | ) |  |   | 3,874,400
|                               |  |               |           |                      |   |                       |  |   |           |   |  |   |          
|                               |  | $             | 4,000,000 |                      | $ |                      |  | $ | (125,600  | ) |  | $ | 3,874,400
|                               |  |               |           |                      |   |                       |  |   |           |   |  |   |          

The amortized cost and estimated fair value of debt securities at September 30,
2009, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single
maturity, primarily mortgage-backed securities, are shown separately.



|                                       |  |                    |            |                     |   |           
|-------------------------------------- |  | ------------------ | ---------- | ------------------- | - | ----------
|                                       |  | September 30, 2009
|                                       |  | AmortizedCost      |            | EstimatedFair Value
|Due in one year or less                |  | $                  | 2,500,292  |                     | $ | 2,546,614 
|Due after one year through five years  |  |                    | 3,499,252  |                     |   | 3,476,034 
|Due after five years through ten years |  |                    | 1,068,916  |                     |   | 1,078,333 
|Due after ten years                    |  |                    | 1,176,871  |                     |   | 1,180,782 
|Mortgage-backed securities             |  |                    | 23,092,618 |                     |   | 23,802,167
|                                       |  |                    |            |                     |   |           
|                                       |  | $                  | 31,337,949 |                     | $ | 32,083,930
|                                       |  |                    |            |                     |   |           

Securities with an approximate carrying value of $26,611,460 and $18,207,299 at
September 30, 2009 and December 31, 2008, respectively, were pledged to secure public funds as required by law, and for other purposes.

The fair value of securities with unrealized losses at September 30, 2009 is shown below:



|                                                                                         |  |                     |           |                  |                     |          |                     |  |                  |           |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------- | --------- | ---------------- | ------------------- | -------- | ------------------- |  | ---------------- | --------- |  | - | ------- | -
|                                                                                         |  | Less Than 12 Months |           |                  | More Than 12 Months |         
|                                                                                         |  | EstimatedFair Value |           | UnrealizedLosses |                     |          | EstimatedFair Value |  | UnrealizedLosses |          
|State and municipal securities                                                           |  |                     |          |                  |                     |         |                     |  |                  | 3,465,000 |  |   | (35,000 | )
|Mortgage backed agency securities                                                        |  |                     | 529,200   |                  |                     | (2,311   | )                   |  |                  |          |  |   |        |  
|Mortgage backed CMO agency securities                                                    |  |                     | 273,959   |                  |                     | (1,445   | )                   |  |                  |          |  |   |        |  
|                                                                                         |  |                     |           |                  |                     |          |                     |  |                  |           |  |   |         |  
|Total                                                                                    |  | $                   | 803,159   |                  | $                   | (3,756   | )                   |  | $                | 3,465,000 |  | $ | (35,000 | )
|                                                                                         |  |                     |           |                  |                     |          |                     |  |                  |           |  |   |         |  
|                                                                                        
|The fair value of securities with unrealized losses at December 31, 2008 is shown
below: | 
|                                                                                         |  | Less Than 12 Months |           |                  | More Than 12 Months |         
|                                                                                         |  | EstimatedFair Value |           | UnrealizedLosses |                     |          | EstimatedFair Value |  | UnrealizedLosses |          
|State and municipal securities                                                           |  |                     | 3,874,400 |                  |                     | (125,600 | )                   |  |                  |          |  |   |        |  
|Mortgage backed agency securities                                                        |  |                     | 851,507   |                  |                     | (6,618   | )                   |  |                  | 322,307   |  |   | (4,893  | )
|Mortgage backed CMO agency securities                                                    |  |                     | 1,278,605 |                  |                     | (13,724  | )                   |  |                  | 687,389   |  |   | (6,531  | )
|                                                                                         |  |                     |           |                  |                     |          |                     |  |                  |           |  |   |         |  
|Total                                                                                    |  | $                   | 6,004,512 |                  | $                   | (145,942 | )                   |  | $                | 1,009,696 |  | $ | (11,424 | )
|                                                                                         |  |                     |           |                  |                     |          |                     |  |                  |           |  |   |         |  



10



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NOTE 6INVESTMENT SECURITIES (CONTINUED)

Management of the Company presently believes that all unrealized losses as of September 30, 2009 and December 31, 2008 represent
temporary impairment. The unrealized losses have resulted from temporary changes in the interest rate market and not as a result of credit deterioration. In addition, total impairment represents less than 1% of amortized cost.

The Company also had an investment of $352,000, which was recorded in other assets on the balance sheet and is held at the holding company.
This investment consisted of trust preferred securities in various community bank holding companies. The Company recorded an other than temporary impairment on this investment of $176,000 during the fourth quarter of 2008, which brought down the
carrying value of this investment to $176,000 at December 31, 2008. During the second quarter of 2009, the Company recorded an additional other than temporary impairment on the investment of $176,000, which brought down the carrying value of
this investment to $0 at June 30, 2009 from its original basis of $352,000.

The Company also had an investment of
$165,975 in Community Financial Services, Inc. which was the holding company for Silverton Bank. On May 1, 2009, the Office of the Comptroller of Currency closed Silverton Bank and appointed the Federal Deposit Insurance Corporations as
receiver. As a result, our 300 shares held in Community Financial Services, Inc., valued at $165,975, were written-off during the second quarter of 2009.

NOTE 7FAIR VALUE MEASUREMENT

Fair value is defined as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also
establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure
fair value:

Level 1

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

Level 2

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

Level 3

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

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

Investment
Securities Available-for-Sale

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



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##### Table of Contents

NOTE 7FAIR VALUE MEASUREMENT (CONTINUED)

Mortgage Loans Held for Sale

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

Impaired Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an
allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as
individually impaired, management measures impairment in accordance with Generally Accepted Accounting Principles (GAAP). The fair value of impaired loans is estimated using one of several methods, including collateral value, market
value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments
in such loans. At September 30, 2009, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require
classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not
available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Other Real Estate

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

Derivative Assets and Liabilities

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

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Below
is a table that presents information about certain assets and liabilities measured at fair value on a recurring basis for both September 30, 2009 and December 31, 2008:



|                              |  |                              |  |                                                        |        |   |                                         |   |  |   |        |   |  |   |        |  
|----------------------------- |  | ---------------------------- |  | ------------------------------------------------------ | ------ | - | --------------------------------------- | - |  | - | ------ | - |  | - | ------ | -
|                              |  | September 30, 2009           | 
|                              |  | Fair Value Measurement using |  | Total Carrying Amountin Statement ofFinancial Position |        |   | Assets/LiabilitiesMeasured at FairValue |  
|Description                   |  | Level 1                      |  | Level 2                                                |        |   | Level 3                                 |   | 
|                              |  | (Amounts in Thousands)       | 
|Securities available-for-sale |  |                             |  | $                                                      | 28,469 |   |                                         |  |  | $ | 28,469 |   |  | $ | 28,469 |  
|Derivative assets             |  |                             |  | $                                                      | 1,079  |   |                                         |  |  | $ | 1,079  |   |  | $ | 1,079  |  
|Derivative liabilities        |  |                             |  | $                                                      | (1,079 | ) |                                         |  |  | $ | (1,079 | ) |  | $ | (1,079 | )



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NOTE 7FAIR VALUE MEASUREMENT (CONTINUED)



|                              |  |                              |  |                                                        |        |   |                                         |   |  |   |        |   |  |   |        |  
|----------------------------- |  | ---------------------------- |  | ------------------------------------------------------ | ------ | - | --------------------------------------- | - |  | - | ------ | - |  | - | ------ | -
|                              |  | December 31, 2008            | 
|                              |  | Fair Value Measurement using |  | Total Carrying Amountin Statement ofFinancial Position |        |   | Assets/LiabilitiesMeasured at FairValue |  
|Description                   |  | Level 1                      |  | Level 2                                                |        |   | Level 3                                 |   | 
|                              |  | (Amounts in Thousands)       | 
|Securities available-for-sale |  |                             |  | $                                                      | 33,594 |   |                                         |  |  | $ | 33,594 |   |  | $ | 33,594 |  
|Derivative assets             |  |                             |  | $                                                      | 1,407  |   |                                         |  |  | $ | 1,407  |   |  | $ | 1,407  |  
|Derivative liabilities        |  |                             |  | $                                                      | (1,407 | ) |                                         |  |  | $ | (1,407 | ) |  | $ | (1,407 | )

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP.
These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value at September 30, 2009 and December 31, 2008 on a nonrecurring basis
are included in the table below.



|                  |  |                              |  |                                                        |  |                                         |        |  |   |        |  |   |       
|----------------- |  | ---------------------------- |  | ------------------------------------------------------ |  | --------------------------------------- | ------ |  | - | ------ |  | - | ------
|                  |  | September 30, 2009          
|                  |  | Fair Value Measurement using |  | Total Carrying Amountin Statement ofFinancial Position |  | Assets/LiabilitiesMeasured at FairValue
|Description       |  | Level 1                      |  | Level 2                                                |  | Level 3                                 |        | 
|                  |  | (Amounts in Thousands)      
|Impaired loans    |  |                             |  |                                                       |  | $                                       | 79,603 |  | $ | 79,603 |  | $ | 79,603
|Other Real Estate |  |                             |  |                                                       |  | $                                       | 1,927  |  | $ | 1,927  |  | $ | 1,927 



|                                          |  |                              |  |                                                        |     |                                         |   |        |  |   |        |  |   |       
|----------------------------------------- |  | ---------------------------- |  | ------------------------------------------------------ | --- | --------------------------------------- | - | ------ |  | - | ------ |  | - | ------
|                                          |  | December 31, 2008           
|                                          |  | Fair Value Measurement using |  | Total Carrying Amountin Statement ofFinancial Position |     | Assets/LiabilitiesMeasured at FairValue
|Description                               |  | Level 1                      |  | Level 2                                                |     | Level 3                                 |   |       
|                                          |  | (Amounts in Thousands)      
|Impaired loans                            |  |                             |  |                                                        |    |                                         | $ | 50,273 |  | $ | 50,273 |  | $ | 50,273
|Other Assets  Trust Preferred Investment |  |                             |  | $                                                      | 176 |                                         |   |       |  | $ | 176    |  | $ | 176   

The following methods and assumptions were used to estimate the fair values for
financial instruments that are not disclosed under above.

Cash, Due From Banks, Interest-Bearing Deposits in Banks and
Federal Funds Sold:

The carrying amounts of cash, due from banks, interest-bearing deposits in banks and federal funds
sold approximate fair value.

Restricted Equity Securities:

The carrying amount of restricted equity securities approximates their fair values. Our restricted equity securities consist of Federal Home
Loan Bank of Atlanta stock.

Loans:

For mortgage loans held for sale and variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. For other loans, the fair values
are estimated using discounted



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NOTE 7FAIR VALUE MEASUREMENT (CONTINUED)

cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality and
credit risk.

Cash Surrender Value of Life Insurance:

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

Deposits:

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

Borrowings:

Fair values of borrowings are estimated using a discounted cash flow calculation that applies interest rates currently available for similar terms. The carrying amount on variable rate borrowings
approximates their fair value.

Accrued Interest:

The carrying amounts of accrued interest approximate their fair values.

Off-Balance Sheet
Instruments:

Fair values of the Companys off-balance sheet financial instruments are based on fees currently charged
to enter into similar agreements. Since the majority of the Companys other off-balance sheet instruments consist of non fee-producing, variable-rate commitments, the Company has determined they do not have a distinguishable fair value.

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



|                                                                                   |  |                    |             |                   |   |                |  |           |             |  |   |            
|---------------------------------------------------------------------------------- |  | ------------------ | ----------- | ----------------- | - | -------------- |  | --------- | ----------- |  | - | -----------
|                                                                                   |  | September 30, 2009 |             | December 31, 2008
|                                                                                   |  | CarryingAmount     |             | FairValue         |   | CarryingAmount |  | FairValue
|Financial assets:                                                                  |  |                    |             |                   |   |                |  |           |             |  |   |            
|Cash and due from banks, interest-bearing deposits in banks and federal funds sold |  | $                  | 181,687,980 |                   | $ | 181,687,980    |  | $         | 153,027,934 |  | $ | 153,027,934
|Securities available-for-sale                                                      |  |                    | 28,468,930  |                   |   | 28,468,930     |  |           | 33,593,627  |  |   | 33,593,627 
|Securities held-to-maturity                                                        |  |                    | 3,650,000   |                   |   | 3,615,000      |  |           | 4,000,000   |  |   | 3,874,400  
|Cash surrender value of life insurance                                             |  |                    | 14,538,484  |                   |   | 14,538,484     |  |           | 14,133,412  |  |   | 14,133,412 
|Restricted equity securities                                                       |  |                    | 3,275,000   |                   |   | 3,275,000      |  |           | 3,210,675   |  |   | 3,210,675  
|Mortgage loans held for sale                                                       |  |                    | 1,008,696   |                   |   | 1,008,696      |  |           | 979,130     |  |   | 979,130    
|Loans, net                                                                         |  |                    | 728,214,793 |                   |   | 716,813,000    |  |           | 763,109,199 |  |   | 761,834,000
|Accrued interest receivable                                                        |  |                    | 4,311,010   |                   |   | 4,311,010      |  |           | 4,848,977   |  |   | 4,848,977  
|Financial liabilities:                                                             |  |                    |             |                   |   |                |  |           |             |  |   |            
|Deposits                                                                           |  |                    | 954,209,494 |                   |   | 963,076,000    |  |           | 935,861,681 |  |   | 943,381,000
|Borrowings                                                                         |  |                    | 55,735,509  |                   |   | 56,794,000     |  |           | 58,185,509  |  |   | 59,691,000 
|Accrued interest payable                                                           |  |                    | 1,626,046   |                   |   | 1,626,046      |  |           | 1,737,910   |  |   | 1,737,910  



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NOTE 8  GOING CONCERN OPINION

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

NOTE 9EMPLOYEE BENEFIT PLANS

The Bank provided a supplemental retirement plan for selected officers in
1999. The directors were added to the plan in 2000. This plan was a non-qualified, indexed retirement plan including an endorsement split dollar agreement. During the third quarter of 2007, the Bank restated the plan due to new accounting
interpretations and tax laws. The restated supplemental retirement plan is a non-qualifying deferred compensation plan with a defined benefit for the Banks officers and directors. As of September 30, 2009, the Bank had approximately $14.5
million in bank owned life insurance on the participating officers and directors, which is expected to provide funding for future benefit payments. The life insurance policies were designed to offset the programs cost during the lifetime of
the participant and to provide complete recovery of all the programs costs at their death. The benefits for each officer and director participating in the plan would have accrued and vested during the period of employment and would have been
distributed as monthly benefit payments for fifteen years when the covered officer and director reached his or her retirement age. The new plan provides that the retirement age is 65 for officers and 70 for directors. The benefits from the new plan
for officers and directors were established as of the implementation of the new plan and did not depend on the performance of the life insurance policies, as provided in the former plan. The monthly payments were based upon a percentage of the
projected base salary for officers or projected compensation for directors, as appropriate, at retirement. The percentage of base salary applied to officers was between 50% and 15%, depending on the level of the officer. The percentage of annual
compensation applied to directors was 30%. The plan also provided for payment of disability or death benefits in the event a participating officer or director became permanently disabled or dies prior to attainment of retirement age. If the Company
had a change in control before the officer or director, as appropriate, reaches retirement age, then the participating officer or director would have been entitled to a benefit.

On April 1, 2009, a majority of the officers and directors agreed to freeze their balance in the retirement plan at the balance accrued
at March 31, 2009, instead of continuing to accrue benefits to the meet the defined benefit originally agreed upon at the restatement of the plan in 2007. This reduced employee benefit expense approximately $38,000 a month, or $342,000, for the
remainder of 2009. On September 30, 2009, the officers who agreed to freeze their balance in the retirement plan also agree to waive their rights to their defined retirement plan benefit, their disability benefits and their benefits received
under a change of control. The only benefit that remained for this group of officers is the death benefit if the officer dies prior to attainment of retirement age. These waivers allowed the Bank to reverse previous retirement benefit accruals on
these officers of approximately $1,093,000 at September 30, 2009, which is recorded as a reduction in Salaries and Employee Benefits in our statement of operations.

On September 30, 2009, all of the Bank officers that held restricted stock that had not vested agreed to waive their rights to this stock benefit. The restrictions on this stock award were to expire
within the vesting period, which ranges from 12 months to 48 months. At September 30, 2009, there were 81,500 shares of unvested restricted stock outstanding that were forfeited. These waivers allowed the Bank to reverse previous stock
compensation expense on these unvested stock awards of approximately $994,000 at September 30, 2009, which is recorded as a reduction in Salaries and Employee Benefits in our statement of operations. The waivers also allowed the Bank to reduce
future stock compensation expense by approximately $507,000 for the unrecognized costs on the restricted stock that would have been expensed over the next three years.

NOTE 10HOLDING COMPANY LINE OF CREDIT

On June 27, 2008, the
Company entered into an agreement with another financial institution for a $6.0 million line of credit. This line of credit matured on June 27, 2009 and paid interest quarterly at prime rate, as reported in The Wall Street Journal, floating
with a 6.00% floor. On June 27, 2009, the Company was granted a 90 day extension on the line of credit until September 27, 2009. As of November 13, 2009, the Company has not renewed its line of credit with this financial institution
and the Company was charged the default rate of 12.00% beginning September 27, 2009. The Company continues to negotiate with this financial institution while it reviews all of its strategic options and capital raising efforts. The line of
credit is secured by all of the issued and outstanding shares of the common stock of the Bank. In the event of an uncured default under this line of credit, the lender could foreclose upon the common stock of the Bank and deprive Crescent of its
principal source of income. The Company is currently in default related to its minimum capital ratios covenants and its minimum book value covenant and has not received a waiver from the lender related to falling below these minimum covenant levels.
On November 12, 2009, the Company



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NOTE 10HOLDING COMPANY LINE OF CREDIT (CONTINUED)

received notice from the financial institution that an event of default exists under the agreement and demanding payment of the amount outstanding.

NOTE 11SUBSEQUENT EVENTS

Management evaluated subsequent events through November 16, 2009, the date the financial statements were available to be issued. Material events or transactions occurring after September 30,
2009 but prior to November 16, 2009 that provided additional evidence about conditions that existed at September 30, 2009 have been recognized in the financial statements for the period ended September 30, 2009. Events or transactions
that provided evidence about conditions that did not exist at September 30, 2009 but arose before the financial statements were available to be issued have not been recognized in the financial statements for the period ended September 30,
2009.

On November 6, 2009, The Worker, Homeownership, and Business Assistance Act of 2009 was enacted. The
new law expands the five-year net operating loss (NOLs) carryback period to allow all businesses to carryback NOLs for up to five years for losses incurred in either 2008 or 2009 (at the election of the taxpayer), but not for both years. Small
businesses that have already elected to carryback NOLs in 2008 under the ARRA may also elect to carryback losses from 2009. Based on the Companys initial analysis of additional NOL carryback capacity, the benefit to the Company from this
legislation appears to be approximately $3 million which would be reflected in our fourth quarter 2009 income tax analysis.



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##### Table of Contents

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

Special Cautionary Notice Regarding Forward-Looking Statements

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

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

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



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



| |  |  | the imposition of enforcement orders, capital directives or other enforcement actions by our regulators, including restrictions and limitations
contained in the order issued by the Federal Deposit Insurance Corporation (the FDIC) and the Georgia Department of Banking and Finance (the Georgia Department) requiring Crescent Bank and Trust Company (Crescent
Bank or the Bank) to cease and desist from certain unsafe and unsound practices (the Order) and the Written Agreement (the Agreement) with the Federal Reserve Bank of Atlanta (the FRB Atlanta)
and the Banking Commissioner of the State of Georgia (the Georgia Commissioner) limiting the Companys ability to directly or indirectly receive dividends from the Bank;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | governmental monetary and fiscal policies, as well as legislative and regulatory changes, including changes in banking, securities and tax laws and
regulations, including interest rate policies of the Federal Reserve Board (the Federal Reserve) as well as changes affecting financial institutions ability to lend and otherwise do business with consumers;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



| |  |  | risks related to loans secured by real estate, including further adverse developments in the real estate markets that would decrease the value and
marketability of collateral and may result in further write-downs of assets and may result in the liquidation of non-performing assets at less than the fair value of such assets
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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| |  |  | managements ability to develop and execute plans to effectively respond to the Order and the Agreement and any unexpected regulatory enforcement
actions;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



| |  |  | the Companys ability to maintain adequate liquidity to fund its operations, especially in light of competition from other institutions, the
inability to originate brokered deposits and other potential regulatory limitations;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the inability of the Company to raise additional capital or to pursue other strategic initiatives;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | increases in regulatory capital requirements for banking organizations generally;
| | - |  | ---------------------------------------------------------------------------------



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



| |  |  | changes in technology and/or products affecting the nature or delivery of financial products or services which may be more difficult, 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;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | the effectiveness of the Emergency Economic Stabilization Act of 2008 (EESA), the American Recovery and Reinvestment Act (ARRA)
and other legislative and regulatory efforts to help stabilize the U.S. financial markets; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the impact of the EESA and the ARRA and related rules and regulations on the Companys business operations and competitiveness; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



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

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

Regulatory Matters

General

During 2008 and the
first nine months of 2009, turmoil within the financial services industry, the economy and the effect on real estate generally contributed to a substantial increase in the Companys non-performing assets and a substantial decrease in the
Companys earnings. In response, the Company has taken what it believes to be an aggressive approach with respect to determining the probability of losses in its loan portfolio. The Company has attempted to strengthen its credit structure to
assure sound operating practices during these challenging times. The Company and its wholly owned subsidiary, Crescent Bank, were not adequately capitalized under all applicable regulatory capital measurements as of September 30, 2009.



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In addition, the FDIC, as the Banks primary federal regulator and deposit insurer, and
the Georgia Department, as the Banks chartering authority, have issued the Order, as described more fully below, requiring the Bank to cease and desist from certain unsafe and unsound practices and to adopt a program of corrective action as a
means to address the identified deficiencies. Finally, the Company entered into the Agreement with the FRB Atlanta and the Georgia Commissioner, as described more fully below, restricting the Companys ability to receive dividends from the
Bank and requiring the Company to adopt and maintain a written capital plan to maintain sufficient capital at the Company on a consolidated basis and at the Bank on a stand-alone basis.

In light of the foregoing, the Company is making all efforts to increase its capital ratios and improve its liquidity. As part of those
efforts, the Company has retained the services of investment bankers to review all strategic opportunities available to the Company and the Bank. In addition, during the second quarter of 2009, we exercised our rights under our trust preferred
securities agreements for Crescent Capital Trust II, Crescent Capital Trust III and Crescent Capital Trust IV to defer, for up to 20 consecutive quarters, payment of interest and principal on these securities. We currently anticipate that we will
continue to exercise this deferral right for all of our interest payments that would otherwise be due in 2009 and into 2010.

The Company is continuing to pursue a variety of capital-raising and other strategic alternatives; however, there is no assurance that the Companys efforts will be successful, particularly in the current economic environment. In the
event we are unable to raise additional capital, our ability to continue to operate may be significantly impacted. In addition, we must continue to generate sufficient liquidity to fund our operations, which may be difficult in light of the intense
competition, our inability to originate brokered deposits and/or as a result of other potential regulatory limitations.

Cease and Desist
Order

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

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

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

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



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

Written Agreement with Federal Reserve and Georgia Commissioner

Effective July 16, 2009, the Company entered into the Agreement with the FRB Atlanta and the Georgia Commissioner. The Agreement limits
the Companys ability to directly or indirectly receive from the Bank dividends or any form of payment representing a reduction in capital of the Bank without the prior written approval of the FRB Atlanta and the Georgia Commissioner. The
Agreement also limits the Companys ability to declare or pay any dividends unless: (i) such declaration or payment is consistent with the Federal Reserves Policy Statement on the Payment of Cash Dividends by State Member Banks and
Bank Holding Companies, dated November 14, 1985, and the Georgia Department of Banking and Finances Statement of Policies; and (ii) the Company has received the prior written approval of the FRB Atlanta, the Director of the Division
of Banking Supervision and Regulation of the Federal Reserve (the Director) and the Georgia Commissioner. The Agreement further limits the Companys and its nonbank subsidiaries ability to make any distributions of interest,
principal or other sums on subordinated debentures or trust preferred securities without the prior written approval of the FRB Atlanta, the Director and the Georgia Commissioner. All requests for prior approval must be received by the FRB Atlanta
and the Georgia Commissioner at least 30 days prior to the proposed dividend declaration date, the date of any proposed distribution on subordinated debentures and/or the date of any required notice of deferral on trust preferred securities, as
applicable. Any such notice must contain certain current and projected financial information, including the Companys capital, earnings and cash flow and the Banks capital, asset quality, earnings and allowance for loan and lease losses,
and also must identify the sources of funds for the proposed payment or distribution.

The Agreement prohibits the Company and
any nonbank subsidiary from directly or indirectly: (i) incurring, increasing or guaranteeing any debt; and (ii) purchasing or redeeming any shares of its common stock, in each case, without the prior written approval of the FRB Atlanta
and the Georgia Commissioner.

Within 60 days of the Agreement, the Company must submit to the FRB Atlanta and the
Georgia Commissioner a written capital plan to maintain sufficient capital at the Company on a consolidated basis, and at the Bank on a stand-alone basis. The Company must adopt the capital plan within 10 days of the approval of such plan by
the FRB Atlanta and the Georgia Commissioner, and subsequently implement and comply with the provisions of the approved plan. During the term of the Agreement, the approved capital plan may not be amended or rescinded without the prior written
approval of the FRB Atlanta and the Georgia Commissioner. Further, the Company must provide the FRB Atlanta and the Georgia Commissioner with written notice no more than 30 days after the end of any quarter in which the consolidated entitys or
the Banks capital ratio falls below the capital plans minimum ratios, along with a capital plan to increase such ratios above the plans minimum.

The Companys board of directors must, within 30 days after the end of each calendar quarter, submit a written progress report to the FRB Atlanta and the Georgia Commissioner detailing the form and
manner of all actions taken to secure the Companys compliance with the Agreement and the results of such actions, as well as a the Companys balance sheet, income statement, and, as applicable, report of changes in stockholders
equity.

The Agreement also requires the Company to provide written notice to the Georgia Commissioner prior to the
appointment of any new director or senior executive officer, or changing the responsibilities of any senior executive officer so that the officer would assume a different senior executive position. The Company must comply with the notice provisions
of Section 32 of the Federal Deposit Insurance Act, as amended (the FDI Act) and Subpart H of the Federal Reserves Regulation Y, and further comply with the restrictions on indemnification and severance payments set forth
in Section 18(k) of the FDI Act and Part 359 of the Federal Deposit Insurance Corporations (the FDIC) regulations.

Overview

As of September 30, 2009, the Company was made up of the following entities:



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



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



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



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



20



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



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

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

In accordance with Financial Accounting Standards Board Interpretation No. 46R (FIN 46) (ASC 810, Consolidation), Crescent Capital Trust II, Crescent Capital Trust III and Crescent Capital Trust IV
(together, the Trusts) are not consolidated with the Company. Accordingly, the Company does not report the securities issued by the Trusts as liabilities, and instead reports as liabilities the junior subordinated debentures issued by
the Company and held by the Trusts. The Company further reports its investment in the common shares of the Trusts as other assets. The Company has fully and unconditionally guaranteed the payment of interest and principal on the trust preferred
securities to the extent that the Trusts have sufficient assets to make such payments but fail to do so. Of the $21.5 million in trust preferred securities currently outstanding, approximately $4.0 million qualifies as tier 1 capital for regulatory
capital purposes. During the second quarter of 2009, as part of the Companys efforts to retain and increase its liquidity, we exercised our rights under the trust preferred securities agreements to defer our interest payments, and therefore,
did not make any payments on the three Trusts that were due after May 2009. We currently anticipate that we will continue to exercise this right for our interest payments in 2009 and into 2010.

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
September 30, 2009, the Company had total consolidated assets of approximately $1.0 billion, total deposits of approximately $954.2 million, total consolidated liabilities, including deposits, of $1.0 billion and consolidated stockholders
equity of approximately $12.4 million. The Companys operations are discussed below under the section captioned Results of Operations.

Commercial Banking Business

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

Through the Bank, the Company provides
a broad range of banking and financial services to those areas surrounding Jasper, Georgia. As its primary market area, the Bank focuses on Pickens, Bartow, Forsyth, Cherokee and north Fulton Counties, Georgia and nearby Dawson, Cobb, Walton and
Gilmer Counties, Georgia, which are situated to the north of Atlanta, Georgia. The Banks commercial banking operations are primarily retail-oriented and focused on individuals and small to medium-sized businesses located within its primary
market area. While the Bank provides most traditional banking services, its principal activities as a community bank are the taking of demand and time deposits and the making of secured and unsecured consumer loans and commercial loans to its target
customers. The retail nature of the Banks commercial banking operations allows for diversification of depositors and borrowers, and the Banks management believes it is not dependent upon a single or a few customers. The Bank does not
have a significant portion of commercial banking loans concentrated within a single industry or group of related industries. However, approximately 94% of the Banks loan portfolio is secured by commercial and residential real estate in its
primary market area. Our entire market area has experienced a significant weakening in the real estate markets during 2008 and the first nine months of 2009, in particular with respect to real estate related to acquisition, development and
construction, and we anticipate that such markets will continue to weaken into 2010. Acquisition, development and construction loans, or ADC, are cyclical and pose risks of possible loss due to concentration levels and similar risks of
the asset. As of September 30, 2009, we had approximately $291.4 million in ADC loans, or approximately 39% of our loan portfolio. The Bank has limited any new ADC loans in 2008 and the first nine months of 2009 due to the declining real estate
market and the Banks ADC loans have declined by approximately 30% since December 31, 2007. The Banks criticized loans (excluding non-performing loans), non-performing loans and foreclosed properties related to its ADC loan portfolio
increased $105.1 million to $110.1 million, increased $26.6 million to $29.9 million and increased $29.4 million to $29.7 million, respectively, from December 31, 2007 compared to September 30, 2009. The deterioration in our ADC loan
portfolio is due to the significant slowing of home and land sales, and subsequent decline in the prices of home and land in our market area during the last quarter



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of 2007 through the first nine months of 2009, which prohibits many of our borrowers who develop and construct real estate properties from servicing their loans because they are not generating
revenue.

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

Challenges for the
Commercial Banking Business

Our commercial banking business has four primary challenges for the future: interest rate
risk, a competitive marketplace, liquidity and credit risk. The Banks principal source of income is its net interest income. Net interest income is the difference between the interest income we receive on our interest-earning assets, such as
investment securities and loans, and the interest expense paid on our interest-bearing liabilities, such as deposits and borrowings. The greatest risk to our net interest margin is interest rate risk from interest rate fluctuation, which, if not
anticipated and managed, can result in a decrease in earnings or earnings volatility. The Company manages interest rate risk by maintaining what it believes to be the proper balance of rate sensitive assets and rate sensitive liabilities. Rate
sensitive assets and rate sensitive liabilities are those that can be repriced to current rates within a relatively short time period. The Federal Reserve decreased interest rates 500 basis points from September 2007 through the first quarter of
2009. Our net interest margin declined from 3.68% for 2007 to 1.85% during 2008, mainly as a result of the decreases in interest rates. Our net interest margin declined further during the first nine months of 2009 to 1.08%. The further decline in
our net interest margin during the first nine months of 2009 was due to the increase in non-performing assets and the subsequent write-off of approximately $1,928,000 in accrued interest on these assets and the Companys strategic decision to
increase its liquidity by increasing its short-term liquid assets that have lower yields. Further action by the Federal Reserve with respect to interest rates will depend on many factors that are not known at this time and which are beyond our
control and could further impact our net interest margin. During the 0- to 90-day period in which we are most sensitive to interest rate changes, the Company is considered asset sensitive, and if interest rates rise, our net interest margin would be
expected to improve. During the one year period, the Bank is considered liability sensitive and if interest rates rise, our net interest margin would be expected to decrease over the one year period.

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

The third challenge
for the Companys commercial banking business is liquidity, or our ability to raise funds to support asset growth, meet deposit withdrawals and other borrowing needs, maintain adequate reserves and sustain our operations. Due to the competitive
pricing by competitors in our primary market area, the Banks liquidity has, and will likely continue to, come under pressure. In addition, due to the decline in the confidence in the financial services industry, the Bank could see customers
withdrawing their deposits, which would put additional pressure on the Banks liquidity. The Bank has had the ability to acquire out-of-market deposits that are not considered brokered deposits to supplement deposit growth in its market areas
and can borrow an additional $1.8 million through the Federal Reserve Bank, if necessary. However, if access to these funds is limited in any way, then our liquidity could be adversely affected. Currently, because the Bank is below the well
capitalized requirements of the Federal Deposit Insurance Corporation Improvement Act of 1991 (the FDICIA), the Bank cannot originate any deposits that qualify as brokered deposits, and is limited in the rates that it can offer on
deposits generally. From October 2009 through September 2010, the Bank has approximately $153 million in brokered and out-of market deposits maturing, and, if the Bank does not return to a well capitalized position, then it will not be able to renew
these deposits. Therefore, the Bank may have to



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increase deposit rates in its local markets in the future, which would adversely affect its net interest margin and net income. However, there are regulatory and other limitations on the
Banks ability to raise interest rates in its local markets. If the Bank is unable to offer competitive rates to generate deposits in local markets, then its liquidity would be adversely affected. In addition, although the Company is currently
considering a variety of capital-raising and other strategic alternatives intended to bring the Company back into a well-capitalized position, the Company may be unable to consummate any such transactions and therefore, may be unable to continue to
generate sufficient liquidity. Finally, if the deterioration in the credit and real estate markets continues and causes additional borrowers to default on their loans or causes a further decline in the realizable value of underlying real estate
collateral, we may continue to experience an increase in non-performing assets and loan charge-offs, and may have to make additional provisions for loan losses, which could reduce our available capital and liquidity and impact our ability to fund
our operations.

The fourth challenge for the Companys commercial banking business is maintaining sound credit quality.
During 2008 and the first nine months of 2009, the Banks loan portfolio declined 4% and 4%, respectively. However, the Banks loan portfolio grew 17% during 2007, 17% during 2006 and 37% during 2005. From 2005 to 2007, the Bank added
approximately 26 new loan officers, which were mainly related to the addition of five full service branches and two loan production offices. The weakening of the real estate market had a significant effect on the Banks loan portfolio in 2008
and the first nine months of 2009, which led the Bank to slow down loan production in order to focus on asset quality. Approximately 94% of the Banks loan portfolio is secured by real estate at September 30, 2009. From December 31,
2007 to September 30, 2009, our non-performing assets increased from $11.0 million to $91.9 million, or 735%. Of the $91.9 million in non-performing assets at September 30, 2009, $59.6 million was related to ADC loans and $19.2 million was
related to residential real estate. Our entire market area has experienced a significant weakening in the real estate markets during 2008 and the first nine months of 2009, in particular with respect to real estate related to ADC. As of
September 30, 2009, ADC loans totaled approximately $291.4 million and represented approximately 39% of our loan portfolio. The Banks criticized loans (excluding non-performing loans), non-performing loans and foreclosed properties
related to its ADC loan portfolio increased $105.1 million to $110.1 million, increased $26.6 million to $29.9 million and increased $29.4 million to $29.7 million, respectively, from December 31, 2007 compared to September 30, 2009. The
deterioration in our ADC loan portfolio is due to an increased inability of some borrowers to make loan payments and the decrease in sales activity and property values within the residential real estate market in our market area during 2008 and the
first nine months of 2009.The Bank has adopted procedures and policies in order to maintain and monitor loan growth, including the quality of the loans, and its concentration in real estate secured loans. The Bank has limited any new ADC
loans in 2008 and 2009 due to the declining real estate market. Our ADC loans have declined by approximately 30% since December 31, 2007.Given the current condition of the credit, liquidity and real estate markets, we may experience
further increases in non-performing assets. If this occurs, we may make additional provision for loan losses and experience an increase in charge-offs, either of which would adversely impact our capital and liquidity and our ability to pursue
strategic alternatives.

Accounting Standards

In March 2008, the FASB issued a standard that expands quarterly disclosure requirements for an entitys derivative instruments and hedging activities. This standard became effective for the Company
on January 1, 2009 and did not have a material impact on the consolidated financial statements.

In April 2008, the FASB
issued a standard which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The objective of this standard is to improve the consistency
between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset under generally accepted accounting principles (GAAP). This standard applies to all intangible
assets, whether acquired in a business combination or otherwise and shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years and applied prospectively
to intangible assets acquired after the effective date. Early adoption is prohibited. The adoption of this standard did not have a material impact on the financial statements taken as a whole.

The FASB issued a standard on April 9, 2009, that affirms that the objective of fair value when the market for an asset is not active
is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that
asset is not active. This standard requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence and also amended previous standards to expand certain disclosure requirements. This standard is
effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted the provisions of this standard for the quarter ended June 30, 2009, as
required, and adoption did not have a material impact on the financial statements taken as a whole.

The FASB issued certain
standards on April 9, 2009 that (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entitys management



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assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and
(b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under these standards, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to
be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. These standards are
effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted the provisions of these standards for the quarter ended June 30, 2009, as
required, and adoption did not have a material impact on the financial statements taken as a whole.

The FASB issued certain
standards on April 9, 2009 that amends previous standards to require an entity to provide disclosures about fair value of financial instruments in interim financial information and to require those disclosures in summarized financial
information at interim reporting periods. Under these standards, a publicly traded company shall include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods.
In addition, entities must disclose, in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods, the fair value of all financial
instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position. The new interim disclosures required by these standards are included in the Companys interim financial
statements beginning with the second quarter of 2009.

In January 2009, the FASB finalized a standard that conforms the
guidance in GAAP by removing the requirement of management to consider a market participants assumptions about cash flows in assessing whether or not an adverse change in previously anticipated cash flows has occurred. The standard is
effective for interim and annual periods ending after December 15, 2008, applied prospectively. The adoption of the new standard did not have a significant impact on the determination or reporting of our financial results.

On May 28, 2009, the FASB issued a standard pursuant to which companies are required to evaluate events and transactions that occur
after the balance sheet date but before the date the financial statements are issued, or available to be issued in the case of non-public entities. This standard requires entities to recognize in the financial statements the effect of all events or
transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process. Entities shall not recognize the impact of events or transactions that provide
evidence about conditions that did not exist at the balance sheet date but arose after that date. This standard also requires entities to disclose the date through which subsequent events have been evaluated. This standard was effective for interim
and annual reporting periods ending after June 15, 2009. The Company adopted the provisions of this standard for the quarter ended June 30, 2009, as required, and adoption did not have a material impact on the financial statements taken as
a whole.

On June 12, 2009, the FASB issued a standard to enhance reporting about transfers of financial assets,
including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. This standard eliminates the concept of a qualifying special-purpose entity and changes the requirements for
derecognizing financial assets. This standard also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. This
standard will be effective January 1, 2010 and is not expected to have a significant impact on the Corporations financial statements.

On June 12, 2009, the FASB issued a standard that amends previous standards to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting
(or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entitys purpose and design and a companys ability to direct the activities of the
entity that most significantly impact the entitys economic performance. This standard requires additional disclosures about the reporting entitys involvement with variable-interest entities and any significant changes in risk exposure
due to that involvement as well as its affect on the entitys financial statements. This standard will be effective January 1, 2010 and is not expected to have a significant impact on the Corporations financial statements.

On June 29, 2009, the FASB issued a standard that establishes the FASB Accounting Standards Codification as the source
of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with US GAAP. This standard will be effective for financial statements issued for
interim and annual periods ending after September 15, 2009, for most entities. On the effective date, all non-SEC accounting and reporting standards will be superseded. The Company will adopt this standard for the quarterly period ended
September 30, 2009, as required, and adoption is not expected to have a material impact on the financial statements taken as a whole.



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Critical Accounting Policies and Estimates

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



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



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



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

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

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

Valuation of Other Real Estate Owned

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

Allowance for Loan Losses

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

Recourse Obligation Reserve

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



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Results of Operations

General Discussion

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



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



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

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



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



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



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



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

The following table sets forth a distribution of the assets, liabilities and
shareholders equity for the nine months ended September 30, 2009 and 2008:



|                                     |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------ |  | ---------------- | --------- | - | -------------- | - | ------- | ---------------- |  | -------- | ---- |  | ------------- | ---- |  | ---- | ------ | ---------- | - | ------ | ------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                     |  | Average Balances |           |   | Yields / Rates |   |         | Income / Expense |  | Increase |      |  | Change Due to |     
|                                     |  | 2009             |           |   | 2008           |   |         | 2009             |  |          | 2008 |  |               | 2009 |  | 2008 |        | (Decrease) |   |        | Volume |   |        | Rate | 
|Assets                               |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Loans, including fee income          |  | $                | 776,787   |   |                | $ | 822,168 |                  |  | 5.46     | %    |  | 6.45          | %    |  | $    | 31,719 |            | $ | 39,687 |        | $ | (7,968 | )    |  | $ | (1,866 | ) |  | $ | (6,102 | )
|Mortgage loans held for sale         |  |                  | 739       |   |                |   | 86      |                  |  | 3.48     | %    |  | 4.69          | %    |  |      | 19     |            |   | 3      |        |   | 16     |      |  |   | 17     |   |  |   | (1     | )
|Investment securities                |  |                  | 36,924    |   |                |   | 28,816  |                  |  | 4.14     | %    |  | 4.71          | %    |  |      | 1,142  |            |   | 1,015  |        |   | 127    |      |  |   | 250    |   |  |   | (123   | )
|Federal funds sold                   |  |                  | 41,076    |   |                |   | 49,012  |                  |  | 0.17     | %    |  | 2.20          | %    |  |      | 51     |            |   | 805    |        |   | (754   | )    |  |   | (10    | ) |  |   | (744   | )
|Interest bearing deposits in banks   |  |                  | 118,915   |   |                |   | 11,043  |                  |  | 1.32     | %    |  | 2.47          | %    |  |      | 1,175  |            |   | 205    |        |   | 970    |      |  |   | 1,065  |   |  |   | (95    | )
|                                     |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Total earning assets                 |  |                  | 974,441   |   |                |   | 911,125 |                  |  | 4.68     | %    |  | 6.12          | %    |  |      | 34,106 |            |   | 41,715 |        |   | (7,609 | )    |  |   | (544   | ) |  |   | (7,065 | )
|                                     |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Cash and due from banks              |  |                  | 15,359    |   |                |   | 7,366   |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Allowance for loan losses            |  |                  | (22,652   | ) |                |   | (11,669 | )                |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Other assets                         |  |                  | 84,953    |   |                |   | 75,170  |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Total                                |  | $                | 1,052,101 |   |                | $ | 981,992 |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Liabilities and Equity               |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Interest bearing demand              |  | $                | 135,247   |   |                | $ | 64,286  |                  |  | 2.43     | %    |  | 1.71          | %    |  | $    | 2,455  |            | $ | 824    |        | $ | 1,631  |      |  | $ | 1,287  |   |  | $ | 344    |  
|Savings                              |  |                  | 70,137    |   |                |   | 75,172  |                  |  | 2.48     | %    |  | 2.94          | %    |  |      | 1,299  |            |   | 1,652  |        |   | (353   | )    |  |   | (94    | ) |  |   | (259   | )
|Certificates of deposit              |  |                  | 714,483   |   |                |   | 658,785 |                  |  | 3.89     | %    |  | 4.74          | %    |  |      | 20,771 |            |   | 23,398 |        |   | (2,627 | )    |  |   | 1,591  |   |  |   | (4,218 | )
|                                     |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Total interest bearing deposits      |  |                  | 919,867   |   |                |   | 798,243 |                  |  | 3.56     | %    |  | 4.33          | %    |  |      | 24,525 |            |   | 25,874 |        |   | (1,349 | )    |  |   | 2,784  |   |  |   | (4,133 | )
|Borrowings                           |  |                  | 58,556    |   |                |   | 57,927  |                  |  | 3.94     | %    |  | 4.84          | %    |  |      | 1,727  |            |   | 2,101  |        |   | (374   | )    |  |   | 17     |   |  |   | (391   | )
|                                     |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Total interest bearing liabilities   |  |                  | 978,423   |   |                |   | 856,170 |                  |  | 3.59     | %    |  | 4.36          | %    |  |      | 26,252 |            |   | 27,975 |        |   | (1,723 | )    |  |   | 2,801  |   |  |   | (4,524 | )
|                                     |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Noninterest bearing demand deposits  |  |                  | 39,729    |   |                |   | 45,341  |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Other liabilities                    |  |                  | 6,928     |   |                |   | 16,138  |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Shareholders equity                 |  |                  | 27,021    |   |                |   | 64,343  |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Total                                |  | $                | 1,052,101 |   |                | $ | 981,992 |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|                                     |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Net interest income                  |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  | $    | 7,854  |            | $ | 13,740 |        | $ | (5,886 | )    |  | $ | (3,345 | ) |  | $ | (2,541 | )
|                                     |  |                  |           |   |                |   |         |                  |  |          |      |  |               |      |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Net interest yield on earning assets |  |                  |           |   |                |   |         |                  |  | 1.08     | %    |  | 2.01          | %    |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  
|Net interest spread                  |  |                  |           |   |                |   |         |                  |  | 1.09     | %    |  | 1.75          | %    |  |      |        |            |   |        |        |   |        |      |  |   |        |   |  |   |        |  



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Results of Our Commercial Banking Business

During the three and nine month periods ended September 30, 2009, the Company experienced a net loss of approximately $(9.0) million and
$(23.9) million, respectively, as compared with net loss of approximately $(1.4) million and $(7.4) million, respectively, for the three and nine month periods ended September 30, 2008. The increase in the net loss during both periods in 2009
was primarily due to an increase in provision for loan losses, a decrease in net interest income, an increase in noninterest expenses and a reduction in our income tax benefit, as described in more detail below.

Interest Income

Our interest income related to commercial banking decreased approximately $2.6 million, or 19%, to $11.0 million for the three months ended September 30, 2009 from $13.6 million for the three months ended September 30, 2008. Our
interest income related to commercial banking decreased approximately $7.6 million, or 18%, to $34.1 million for the nine months ended September 30, 2009 from $41.7 million for the nine months ended September 30, 2008. The decrease in
interest income during the three and nine months ended September 30, 2009 compared to the same periods in 2008 was the result of a decline in yield from commercial banking interest-earning assets, in particular from commercial banking loans,
impacted by the current declining interest rate environment. The yield from commercial banking loans decreased from 6.30% for the three months ended September 30, 2008 to 5.33% for the three months ended September 30, 2009 and decreased
from 6.45% for the nine months ended September 30, 2008 to 5.46% for the nine months ended September 30, 2009. This decrease in yield was mainly due to the repricing of our commercial banking loan portfolio in response to the Federal
Reserve decreasing interest rates 500 basis points from September 2007 through the end of 2008. At June 30, 2008, approximately 60% of our commercial banking loan portfolio was variable rate without a floor and which adjusted with changes in
the prime rate. During the third and fourth quarter of 2008, the Bank began requiring floors on most of its new and renewed loans and the percentage of variable rate loans without a floor declined to 42% of the loan portfolio at September 30,
2008, 28% at December 31, 2008 and 20% at September 30, 2009. The decrease in yield on the commercial banking loan portfolio was also due to the Banks non-performing assets increasing from $40.4 million at September 30, 2008 to
$91.9 million at September 30, 2009 and the subsequent write-off of approximately $1,928,000 in accrued interest or 33 basis points for the nine months ended September 30, 2009 and approximately $640,000 in accrued interest or 33 basis
points for the three months ended September 30, 2009 on loans that were placed on non-accrual status during the first nine months of 2009. The decline in interest income was also due to a decrease in average commercial banking loans. Average
commercial banking loans decreased $51.3 million, or 6%, for the quarter ended September 30, 2009 and $45.4 million, or 6%, for the nine months ended September 30, 2009 over the same periods for 2008. The decrease in average commercial
banking loans from the three and nine month periods ended September 30, 2008 to the three and nine month periods ended September 30, 2009 was the result of the Company foreclosing on approximately $32.0 million in commercial banking loans
since September 30, 2008 and of the Company making the strategic decision to slow loan growth in 2008 and 2009 to focus on asset quality and core deposit growth.

Interest Expense

Our interest expense related to the commercial banking
business for the three months ended September 30, 2009 amounted to $8.2 million, compared to $9.2 million for the three months ended September 30, 2008, a decrease of 11%. Our interest expense related to the commercial banking business for
the nine months ended September 30, 2009 amounted to $26.3 million, compared to $28.0 million for the nine months ended September 30, 2008, a decrease of 6%. Interest expense related to commercial banking deposits for the three months
ended September 30, 2009 amounted to $7.6 million, compared to $8.5 million for the three months ended September 30, 2008, a decrease of 11%. Interest expense related to commercial banking deposits for the nine months ended
September 30, 2009 amounted to $24.5 million, compared to $25.9 million for the nine months ended September 30, 2008, a decrease of 5%. Interest expense related to commercial bank borrowings for the three months ended September 30,
2009 amounted to $560,000, compared to $658,000 for the three months ended September 30, 2008, a decrease of 15%. Interest expense related to commercial bank borrowings for the nine months ended September 30, 2009 amounted to $1.7 million,
compared to $2.1 million for the nine months ended September 30, 2008, a decrease of 18%.

The decrease in interest
expense from interest-bearing deposits for 2009 compared to the same periods in 2008 resulted from a decrease in the cost of funds from commercial banking deposits. The cost of funds of commercial banking deposits decreased from 4.09% and 4.33%,
respectively for the three and nine months ended September 30, 2008 to 3.30% and 3.56%, respectively, for the three and nine months ended September 30, 2009. The cost of savings accounts (including money market accounts), and time deposits
decreased 60 basis points and 78 basis points, respectively, for the three months ended September 30, 2009 compared to the same period in 2008, and 46 basis points and 85 basis points, respectively, for the nine months ended September 30,
2009 compared to the same period in 2008. These decreases in average cost were due to the falling rate environment during which the Federal Reserve has decreased interest rates 500 basis points from September 2007 through the first quarter of 2009.
The decrease in interest expense related to the decrease in the cost of funds of commercial banking deposits was partially offset by an increase in the average balance of commercial banking deposits for the three and nine months ended



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September 30, 2009 compared to the same periods in 2008. Average interest-bearing deposits increased approximately $73.8 million, or 9%, from $840.3 million for the three months ended
September 30, 2008 to $914.1 million for the three months ended September 30, 2009. Average interest-bearing deposits increased approximately $121.6 million, or 15%, from $798.2 million for the nine months ended September 30, 2008 to
$919.9 million for the nine months ended September 30, 2009. The Bank ran several certificate of deposit specials in 2008 and the first nine months of 2009 in which the Bank increased its in-market certificates of deposit by approximately $23.6
million from September 30, 2008. The Bank also ran an interest-bearing checking account special from September 2008 to February 2009 that guaranteed a rate of 3.75% until March 31, 2009, 3.00% until June 30, 2009 and then 2.75% until
August 31, 2009. As of September 30, 2009, this special had brought in deposit balances totaling $99.1 million. The Bank made the strategic decision to increase short-term liquidity in 2008 and the first nine months of 2009 through deposit
growth because of the tightening in the credit and liquidity markets and the deterioration in the real estate market. The decrease in interest expense from borrowings for the three and nine month period ended September 30, 2009 compared to the
same periods in 2008 resulted from a decrease in the cost of borrowings. The cost of borrowings decreased from 4.62% and 4.84%, respectively, for the three and nine months ended September 30, 2008 to 3.80% and 3.94%, respectively, for the three
and nine months ended September 30, 2009. This decline is mainly related to the drop in interest rates on our trust preferred securities of $22.2 million, which all are either tied to the Wall Street prime rate or the three month LIBOR and
reprice quarterly.

Net Interest Income

Our net interest income, net interest margin and interest spread for our commercial banking business for the three and nine months ended September 30, 2009 were $2.8 million, 1.17% and 1.20% and $7.9
million, 1.08% and 1.09%, respectively. Our net interest income, net interest margin and interest spread for our commercial banking business for the three and nine months ended September 30, 2008 were $4.4 million, 1.89% and 1.69% and $13.7
million, 2.01% and 1.75%, respectively. The decrease in net interest income, net interest margin and interest spread from 2008 to 2009 was mainly due to the decrease in the yield on commercial banking loans. The yield from commercial banking loans
decreased from 6.30% for the three months ended September 30, 2008 to 5.33% for the three months ended September 30, 2009 and decreased from 6.45% for the nine months ended September 30, 2008 to 5.46% for the nine months ended
September 30, 2009. This decrease in yield was mainly due to the repricing of the commercial banking loan portfolio in response to the Federal Reserve decreasing interest rates 500 basis points from September 2007 through the end of 2008. At
June 30, 2008, approximately 60% of our commercial banking loan portfolio was variable rate without a floor and which adjusted with changes in the prime rate. During the third and fourth quarter of 2008, the Bank began requiring floors on most
of its new and renewed loans and the percentage of variable rate loans without a floor declined to 42% of the loan portfolio at September 30, 2008, 28% at December 31, 2008 and 20% at September 30, 2009. The decrease in yield on the
commercial banking loan portfolio was also due to the Banks non-performing assets increasing from $40.4 million at September 30, 2008 to $91.9 million at September 30, 2009 and the subsequent write-off of approximately $1,928,000 in
accrued interest or 33 basis points for the nine months ended September 30, 2009 and approximately $640,000 in accrued interest or 33 basis points for the three months ended September 30, 2009 on loans that were placed on non-accrual
status during the first nine months of 2009. The decrease in net interest income, net interest margin and interest spread during 2009 was also due to the Bank holding more short-term liquid assets, which provide a lower yield than investments and
loans. For the three and nine months ended September 30, 2009, in comparison to the same periods in 2008, the Bank held on average $64.8 million, or 68%, and $99.9 million, or 166%, respectively, more in interest-bearing deposits and federal
funds sold. The Company made the strategic decision to increase short-term liquidity to address the tightening in the credit and liquidity markets, as well as the deterioration in the real estate market. The yield on commercial banking assets
decreased 127 basis points while the cost of interest-bearing liabilities decreased only 79 basis points in the third quarter of 2009 compared to the third quarter of 2008. In comparing the first nine months of 2009 to the first nine months of 2008,
the yield on commercial banking assets decreased 144 basis points while the cost of interest-bearing liabilities decreased only 77 basis points. Even with the Federal Reserve decreasing interest rates 500 basis points from September 2007 through the
end of 2008, the average cost of time deposits has only decreased 78 basis points and 85 basis points, respectively, for the three and nine months ended September 30, 2009 compared to the same periods in 2008 due to strong competition in the
market area for local deposits and due to the fact that time deposits are slower to reprice than the loan portfolio.

Loan
Loss Provisions

For the three and nine months ended September 30, 2009, we made a provision for loan losses of $7.2
million and $15.1 million, respectively, and incurred net charge-offs of $7.1 million and $12.2 million, respectively, of commercial banking loans. For the three and nine months ended September 30, 2008, we made a provision for loan losses of
$2.0 million and $11.7 million, respectively, and incurred net charge-offs of $1.7 million and $9.0 million, respectively, of commercial banking loans. The ratios of net charge-offs to average commercial banking loans outstanding were 2.10%
(annualized) for the nine months ended September 30, 2009, 1.64% for the year ended December 31, 2008 and 1.45% (annualized) for the nine months ended September 30, 2008. Net charge-offs increased approximately $5.4 million from the
three months ended September 30, 2008 to the three months ended September 30, 2009. This increase was mainly the result of charge-offs related to four loans totaling $5.1 million. Three of the charge-offs totaling $4.7 million were related
to our ADC loan portfolio and one charge off, totaling $416,000, was related to a commercial loan. These charge-offs were related to non-accrual loans that the Bank had not currently taken into



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foreclosure. These charge-offs, for the most part, were accrued and included in our loan loss reserve analysis in the prior quarter. However, the Bank determined in the third quarter of 2009 that
the losses related to these loans were uncollectible and charged-off the balances based upon the current downturn in the economy and real estate market. Of the total amount of charge-offs during 2008 and 2009, $7.0 million and $7.6 million,
respectively, was related to our ADC loan portfolio, where the Bank has seen significant deterioration in asset quality, including an increase in the inability of some borrowers to make payments and declines in the value and marketability of the
underlying collateral. The Banks charge-offs in the first nine months of 2009 consisted of nine commercial real estate loan charge-offs of $895,000, thirty-seven commercial loan charge-offs of $1,701,000, forty-nine ADC loan charge-offs of
$7,586,000, thirty-seven residential real estate charge-offs of $1,724,000 and various installment and other consumer loans charge-offs, while the charge-offs in the first nine months of 2008 consisted of five commercial real estate loan charge-offs
of approximately $551,000, twenty-six commercial loan charge-offs of approximately $726,000, eleven residential real estate loan charge-offs of approximately $419,000, forty-six construction and acquisition and development loan charge-offs of $7.0
million and various installment and other consumer loans charge-offs.

The provision for loan losses of $7.2 million and $15.1
million for the three and nine months ended September 30, 2009 increased in comparison to the provision for loans losses of $2.0 million and $11.7 million for the three and nine months ended September 30, 2008. The increase in the
provision for loan loss was mainly due to the significant charge-offs in the third quarter of 2009 and the deterioration in real estate values during the past year which led to increases in our specific reserves on our impaired loans. During the
third quarter of 2009, we charged-off approximately $7.2 million in loans, which was significantly more than in previous quarters. Historical charge-offs are an important factor in calculating our allowance for loan losses on our general portfolio.
As a result, our general reserves in the third quarter of 2009 increased significantly. The provision for loan loss related to our general reserves during the third quarter of 2009 increased approximately 0.36%, or $2.7 million, from the second
quarter of 2009. We also increased our provision for loan losses for our specific reserves by approximately $4.5 million during the third quarter of 2009, which included a specific reserve on one loan of approximately $1.4 million. The Banks
specific reserves included in its allowance for loan losses related to its impaired loans declined $2.6 million during the third quarter of 2009, although it charged-off approximately $7.2 million in specific reserves during the quarter. With the
decline in real estate values in the Banks market area, we continue to see deterioration in our loan portfolio, which has required the Bank to continue to increase its specific reserves, particularly in its ADC portfolio. Based upon
managements analysis of its individual classified and non-performing loans, including the additions to non-performing loans since the end of the second quarter of 2009, and our analysis of the remaining loan portfolio, including historical
charge-offs and the composition of our loan portfolio, we adjusted our allowance for loan losses accordingly. The allowance for loan losses as a percentage of total commercial banking loans was 3.34%, 2.84% and 1.56% at September 30,
2009, December 31, 2008 and September 30, 2008, respectively.

Noninterest Income

Our noninterest income related to our commercial banking business was approximately $867,000 during the three months ended September 30,
2009 compared to approximately $954,000 during the three months ended September 30, 2008. During the three month period ending September 30, 2009 compared to the same period in 2008, the Banks service charge income remained stable
and gains on sale of SBA loans decreased approximately $94,000. The decrease in gains on sale of SBA loans is due to the Bank not selling any loans during the third quarter of 2009. Based upon the Order issued by the FDIC and the Georgia Department,
we were not allowed to sell any loans in the secondary market while the SBA conducted a review of the Bank during the third quarter of 2009. Based upon their review, the SBA authorized the Bank to resume selling loans in the secondary market
beginning in the fourth quarter of 2009.

Our noninterest income related to our commercial banking business was approximately
$2.7 million for the nine months ended September 30, 2009 compared to approximately $2.8 million during the nine months ended September 30, 2008. During the nine month period ending September 30, 2009 compared to the same period in
2008, service charge income decreased approximately $60,000, and gains on sale of SBA loans decreased approximately $160,000. The Banks other operating income increased approximately $100,000 during this same period. The decrease in deposit
service charges was mainly related to a $76,000 decrease in overdraft charges which is due to fewer overdrawn accounts and insufficient fund items because customers are being more diligent with their accounts. The decrease in gains on sale of SBA
loans is due to the Bank selling fewer loans at lower premiums during 2009 compared to the same period in 2008. The increase in the Banks other operating income was mainly related to an increase in mortgage origination fee income of
approximately $69,000 and an increase in ATM transaction fees of $46,000. The increase in the mortgage origination fee income was due to Bank closing more mortgage loans in this low mortgage interest rate environment. The increase in ATM transaction
fees was due an increase in non customer use of the Banks ATM network in 2009 compared to 2008.



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Noninterest Expense

Our noninterest expenses related to our commercial banking business (other than income tax expenses) were $5.5 million for both the three
months ended September 30, 2009 and 2008. Salaries and employee benefits decreased approximately $2.7 million during the third quarter of 2009 compared to the same period in 2008. This decrease was due to a 10% to 15% reduction in salaries for
executive officers and other select officers, the suspension of the Banks matching contributions to its 401(k) plan and the Banks suspension of its accruals on its supplemental retirement plan which was effective April 1, 2009. In
addition, during the third quarter of 2009, certain Bank officers waived their rights to their accrued benefits related to their defined benefit retirement plan and to their restricted stock awards. These waivers allowed the Bank to reverse previous
retirement plan benefit accruals of approximately $1,093,000 and to reverse previous stock compensation expense on these unvested stock awards of approximately $994,000 at September 30, 2009. (See further discussion in Note 9Employee
Benefit Plans). These expense reversals were recorded as a reduction in Salaries and Employee Benefits in our statement of operations. This decrease from salaries and employee benefits was offset by an increase in legal and professional expense of
approximately $174,000, an increase in insurance expense of approximately $2.1 million and an increase in foreclosed asset expense, net of approximately $467,000. The increase in legal and professional fees expense during the third quarter of 2009
compared to the same period in 2008 was mainly attributable to the increased regulatory and disclosure requirements for a public company, an increase in legal and consulting fees related to regulatory and capital issues, and an increase in legal
fees related to the collection of loans. The increase in insurance expense during the third quarter of 2009 compared to the same period in 2008 was mainly attributable to increases in our FDIC insurance assessments. The FDIC increased our regular
quarterly assessment during the third quarter of 2009 based upon the capital levels and financial condition of the Bank. The increase in foreclosed asset expense during the third quarter of 2009 compared to the same period in 2008 was attributable
to write-downs on foreclosed properties totaling approximately $291,000 and the costs to complete construction on several properties during the third quarter of 2009.

Our noninterest expenses related to our commercial banking business (other than income tax expenses) were $19.3 million for the nine months ended September 30, 2009, compared to $16.9 million for the
nine months ended September 30, 2008, an increase of 14%. The increase in noninterest expense for the nine month period ended September 30, 2009 compared to the same period in 2008 was attributable to an increase in legal and professional
expense of approximately $703,000, an increase in insurance expense of approximately $3.7 million, an increase in foreclosed asset expense, net of approximately $1.1 million and an increase in other operating expenses of approximately $310,000. The
increase in legal and professional fees expense during the first nine months of 2009 compared to the same period in 2008 was mainly attributable to the increased regulatory and disclosure requirements for a public company, an increase in legal and
consulting fees related to regulatory and capital issues, and an increase in legal fees related to the collection of loans. The increase in insurance expense during the first nine months of 2009 compared to the same period in 2008 was mainly
attributable to increases in our FDIC insurance assessments. During the second quarter of 2009, the FDIC assessed all banks a special assessment in order to replenish the deposit insurance fund. Our special assessment was approximately $500,000. The
FDIC also increased our regular quarterly assessment based upon the capital levels and financial condition of the Bank. The increase in foreclosed asset expense in the first nine months of 2009 over the same period in 2008 was attributable to
write-downs on foreclosed properties totaling approximately $652,000 and the costs to complete construction on several properties during the first nine months of 2009. The Bank has seen its foreclosed properties increase from $6.0 million at
June 30, 2008 to $37.1 million at September 30, 2009, which has directly impacted our foreclosed asset expense. The increase in other operating expense during the first nine months of 2009 compared to the same period in 2008 was mainly
attributable to the Company recording an other than temporary impairment of approximately $342,000 in two investments. One of the impairments recorded was for $176,000 on an investment consisting of trust preferred securities in various community
bank holding companies, representing the entire balance, and the other impairment recorded was for $165,975 in an investment in Community Financial Services, Inc. common stock which was the holding company for Silverton Bank, which was closed on
May 1, 2009 by the Office of the Comptroller of Currency. These increases were offset by a decrease in salaries and employee benefits of approximately $3.1 million. This decrease was due to a reduction of 21 employees from June 30, 2008 to
September 30, 2009 including six officers, a 10% to 15% reduction in salaries for executive officers and other select officers, the suspension of the Banks matching contribution to its 401(k) plan and the Banks suspension of its
accruals on its supplemental retirement plan which was effective April 1, 2009. In addition, during the third quarter of 2009, certain Bank officers waived their rights to their accrued benefits related to their defined benefit retirement plan
and to their restricted stock awards. These waivers allowed the Bank to reverse previous retirement plan benefit accruals of approximately $1,093,000 and to reverse previous stock compensation expense on these unvested stock awards of approximately
$994,000 at September 30, 2009. (See further discussion in Note 9Employee Benefit Plans). These expense reversals were recorded as a reduction in Salaries and Employee Benefits in our statement of operations.

Pretax Net Loss

For the three and nine months ended September 30, 2009, our commercial banking pre-tax loss was approximately $(9.0) million and $(23.9) million, respectively, compared to pre-tax loss of approximately $(2.1) million and $(12.0)
million for the three and nine months ending September 30, 2008. Pretax loss for the three months ended September 30, 2009 increased approximately $6.9 million, or 329%, compared to the three months ended September 30, 2008. Pretax
loss for the nine months



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ended September 30, 2009 increased approximately $11.8 million, or 99%, compared to the nine months ended September 30, 2008. The increase in pretax loss for the three months ended
September 30, 2009 compared to the same period in 2008 was due to a decrease in net interest income of approximately $1.6 million and an increase in provision for loan losses of approximately $5.2 million. The decrease in the net interest
income was due to both the Federal Reserve decreasing interest rates 500 basis points from September 2007 through the first quarter of 2009, and to non-performing assets increasing from $40.4 million at September 30, 2008 to $91.9 million at
September 30, 2009 and the subsequent write-off of approximately $640,000 in accrued interest on loans that were placed on non-accrual during the third quarter of 2009. The increase in the provision for loan losses was due to the significant
charge-offs in the third quarter of 2009 which led to increases in our general reserves and the deterioration in real estate values during the past year which led to increases in our specific reserves on our impaired loans.

The increase in pretax loss for the nine months ended September 30, 2009 compared to the same period in 2008 was due to a decrease in
net interest income of approximately $5.9 million, an increase in provision for loan losses of $3.4 million and an increase in noninterest expense of $2.4 million during this same period. The decrease in the net interest income was due to both the
Federal Reserve decreasing interest rates 500 basis points from September 2007 through the first quarter of 2009, and to non-performing assets increasing from $40.4 million at September 30, 2008 to $91.9 million at September 30, 2009 and
the subsequent write-off of approximately $1,928,000 in accrued interest on loans that were placed on non-accrual during the first nine months of 2009. The increase in the provision for loan losses was due to the significant charge-offs in the third
quarter of 2009, which led to increases in our general reserves and the significant deterioration in real estate values during the past year, which led to increases in our specific reserves on our impaired loans. The increase in noninterest expense
during the first nine months of 2009 compared to the same period in 2008 was mainly due to a net increase in legal and professional expenses, insurance expense, foreclosed asset expense, net and other operating expenses. See further discussion above
under Loan Loss Provisions, Net Interest Income, and Noninterest Expense.

Income Taxes

The Company recorded no income tax expense or benefit for the three and nine months ended
September 30, 2009. The effective income tax rate for our commercial banking business for the three and nine months ended September 30, 2008 was 35.13% and 38.63%, respectively. The Bank did not record any income tax expense or benefit for
the three and nine months ended September 30, 2009 due to its cumulative losses in 2008 and 2009.

Results of
Discontinued Operations From Our Mortgage Banking Business

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

Financial Condition

General Discussion

Total Assets

Our total assets decreased $8.5 million, or 0.8%, from $1.039
billion as of December 31, 2008 to $1.030 billion as of September 30, 2009. The decrease in total assets was mainly the result of a $34.9 million, or 5%, decrease in our commercial banking loans, net, a $5.1 million, or 15%, decrease in
investment securities available for sale, and a $2.4 million, or 100%, decrease in our deferred tax asset. The decrease in commercial banking loans was mainly due to property foreclosures totaling approximately $23.6 million during the first nine
months of 2009. The decrease in investment securities available for sale was due to several agency bonds being called and due to pay downs on our mortgage-backed securities during the first nine months of 2009. The decrease in the deferred tax asset
was a result of the implementation of an impairment reserve against the remaining balance in reaction to the cumulative losses sustained in 2009. These decreases were offset by a $28.7 million, or 19%, increase in cash and due from banks, federal
funds sold and interest-bearing deposits in banks. This increase was a result of the Banks strategic decision to increase short-term liquidity in response to the tightening in the credit and liquidity markets, along with the



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deterioration in the real estate market. In addition, other real estate owned increased $11.2 million, or 44%, during the first nine months of 2009. Our decrease in total assets corresponded with
a $24.3 million, or 66%, decrease in shareholders equity. This decrease was mostly related to our net loss of $23.9 million for the first nine months of 2009. This decrease in shareholders equity was offset by an increase in deposits of
$18.3 million, or 2%. At September 30, 2008, we had total assets of $1,043 billion.

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 September 30, 2009, interest-earning assets totaled $968.9 million and represented 94% of total assets. This represents a $4.6 million, or 1%, decrease from December 31, 2008, when
interest-earning assets totaled $973.5 million and represented 94% of total assets. This decrease was mainly related to a $34.9 million, or 5%, decrease in the Banks commercial banking loan portfolio and a $5.1 million, or 15%, decrease in
investment securities available for sale. The decrease in total commercial banking loans from December 31, 2008 is mainly the result of foreclosing upon $23.6 million in commercial banking loans during the first nine months of 2009. The
decrease in investment securities available for sale was due to several agency bonds being called and due to pay downs on our mortgage-backed securities during the first nine months of 2009. These decreases in interest-earning assets were partially
offset by a $32.8 million, or 22%, increase in federal funds sold and interest-bearing deposits in banks. This increase was due to the Bank making the strategic decision to increase short-term liquidity with the tightening in the credit and
liquidity markets along with the deterioration in the real estate market. See Financial Condition of Our Commercial Banking BusinessTotal Commercial Banking Loans. At September 30, 2008, our interest-earning assets
totaled $963.9 million and represented 92% of our total assets.

Allowance for Loan Losses

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

Premises and Equipment

We had premises and equipment of $21.7 million at September 30, 2009, compared to $22.8 million at December 31, 2008 and $22.6 million at September 30, 2008. The decrease of $0.9 million in
premises and equipment from September 30, 2008 was due to depreciation expense from the premises and equipment of approximately $1.5 million. This decrease in premises and equipment from depreciation was partially offset by the normal purchase
and replacement of technology and equipment throughout the period.

Cash Surrender Value of Life Insurance

In 1999, the Bank provided a supplemental retirement plan to its banking officers funded with life insurance. In the first quarter of
2000, we added our directors to the supplemental retirement plan. At September 30, 2009, the total cash value of the life insurance was $14.5 million. At December 31, 2008 and September 30, 2008, the total cash value of the life
insurance was $14.1 million and $14.0 million, respectively. The increase of approximately $0.5 million from September 30, 2008 to September 30, 2009 was due to policy earnings.

Financial Condition of Our Commercial Banking Business

Total Commercial Banking Loans

During the first nine months of 2009, our average commercial banking loans were $776.8 million. These loans constituted 80% of our average consolidated earning assets and 74% of our average consolidated
total assets. For the first nine months of 2008, we had average commercial banking loans of $822.2 million, or 90% of our average consolidated earning assets and 84% of our average consolidated total assets. For the year ended December 31,
2008, we had average commercial banking loans of $816.9 million, or 88% of our average consolidated earning assets and 82% of our average consolidated total assets. Commercial banking loans at the periods ending September 30,
2009, December 31, 2008 and September 30, 2008 were $753.3



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million, $785.4 million and $805.2 million, respectively. The $45.4 million or 6% decrease in average commercial banking loans and the $51.9 million or 6% decrease in period end commercial
banking loans from the nine month period ended September 30, 2008 to the nine month period ended September 30, 2009 was the result of the Company foreclosing on approximately $32.0 million in commercial banking loans and of the Company
making the strategic decision to slow loan growth in 2008 and 2009 to focus on asset quality and core deposit growth.

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 attempt to maintain our allowance for loan losses at a level that we believe is adequate to absorb the risk of loan losses in the loan portfolio. In determining
the appropriate level of the allowance for loan losses, we apply a methodology that has both a specific component and a general component. Under the specific component of the methodology, each loan is graded:



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



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



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

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



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



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



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



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

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

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

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

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

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

The allowance for loan losses totaled $25.1 million, or 3.34%, of total commercial banking loans, at September 30, 2009, $12.6 million, or 1.56%, of total commercial banking loans at September 30, 2008, and $22.3 million, or
2.84%, of total commercial banking loans at December 31, 2008. The provision for loan losses of $7.2 million and $15.1 million for the three and nine months ended September 30, 2009 increased in comparison to the provision for loans losses
of $2.0 million and $11.7 million for the three and nine months ended September 30, 2008. The increase in the provision for loan loss was mainly due to the significant charge-offs in the third quarter of 2009 and the deterioration in real
estate values during the past year, which led to increases in our specific reserves on our impaired loans. During the third quarter of 2009, we charged-off approximately $7.2



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million in loans, which was significantly more than in previous quarters. Net charge-offs increased approximately $5.4 million from the three months ended September 30, 2008 to the three
months ended September 30, 2009. This increase was mainly the result of charge-offs related to four loans totaling $5.1 million, of which three of the charge-offs totaling $4.7 million were related to our ADC loan portfolio and $416,000 was
related to a commercial loan. These charge-offs were related to non-accrual loans that the Bank had not taken into foreclosure. These charge-offs, were primarily accrued and included in our loan loss reserve analysis in the prior quarter. However,
the Bank determined in the third quarter of 2009 that the losses related to these loans were uncollectible and charged-off the balances based upon the current downturn in the economy and deteriorating real estate market. Historical charge-offs are
an important factor in calculating our allowance for loan losses on our general portfolio. As a result, our general reserves in the third quarter of 2009 increased significantly. The provision for loan loss related to our general reserves during the
third quarter of 2009 increased approximately 0.36%, or $2.7 million, from the second quarter of 2009. We also increased our provision for loan losses for our specific reserves by approximately $4.5 million during the third quarter of 2009, which
included a specific reserve on one loan of approximately $1.4 million. The Banks specific reserves included in its allowance for loan losses related to impaired loans declined $2.6 million during the third quarter of 2009, although the Bank
charged-off approximately $7.2 million in specific reserves during the quarter. With the decline in real estate values in our market area, we continue to see deterioration in our loan portfolio, which has required the Bank to continue to increase
its specific reserves, particularly in its ADC portfolio.

The Banks ratio of its allowance for loan losses to total
commercial banking loans of 3.34% at September 30, 2009 is considerably higher than historical levels and this ratio is expected to remain at this higher level throughout 2009 and into 2010. The main sector of the Banks loan portfolio
that experienced this deterioration was its ADC loans. The Banks potential problem loans, non-performing loans and foreclosed properties related to its ADC loan portfolio were $110.1 million, $29.9 million and $29.7 million, respectively, at
September 30, 2009. The deterioration in our ADC portfolio is due to the increase in the inability of some borrowers to make payments and the decrease in sales activity and property values within the residential real estate market in our market
area during 2008 and the first nine months of 2009. As of September 30, 2009, we had approximately $291.4 million in ADC loans, or approximately 39% of our loan portfolio. The Bank has limited any new ADC loans in 2008 and the first nine months
of 2009 due to the declining real estate market. Our ADC loans have declined by approximately 30% since December 31, 2007. Based upon managements analysis of its individual classified and non-performing loans, including any additions to
non-performing loans since the September 30, 2009, and our analysis of the remaining loan portfolio including historical charge-offs and the composition of our loan portfolio, we adjusted our allowance for loan losses accordingly. The
Banks charge-offs in the first nine months of 2009 consisted of nine commercial real estate loan charge-offs of $895,000, thirty-seven commercial loan charge-offs of $1,701,000, forty-nine ADC loan charge-offs of $7,586,000, thirty-seven
residential real estate charge-offs of $1,724,000 and various installment and other consumer loans charge-offs, while the charge-offs in the first nine months of 2008 consisted of five commercial real estate loan charge-offs of approximately
$551,000, twenty-six commercial loan charge-offs of approximately $726,000, eleven residential real estate loan charge-offs of approximately $419,000, forty-six construction and acquisition and development loan charge-offs of $7.0 million and
various installment and other consumer loans charge-offs.

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



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The increase in the provision for loan losses and the determination of the allowance for
loan losses as a percentage of commercial banking loans since the end of 2007 was based on our analysis and judgment of loan quality and our determination of what level of reserves were reasonable to cover the risk of loss in the loan portfolio. The
determination of the reserve level is based upon our assessment of the factors affecting loan quality, assumptions about the economy and historical experience. Our assessment as to the adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, which include all classified loans greater than $50,000 with a particular focus on loans that are past due and other loans that we believe require attention based upon the type of loan
collateral, the terms of the loan and the location of loan collateral. We believe that the allowance at September 30, 2009 is adequate to cover risk of losses in our loan portfolio; however, our judgment is based upon a number of assumptions
which we believed at that time to be reasonable and that may or may not actually be realized. There is no assurance that charge-offs will not exceed the allowance for loan losses or that additional increases in the allowance for loan loss will not
be required at any time in the future. As a result of uncertainties in the economy and the slowdown in the real estate market, additions to the allowance for loan losses and additional charge-offs may become necessary. Also, regulatory authorities
in the ordinary course of their examinations may require the Bank to increase its allowance for loan losses based on circumstances existing at the time of their review.

Total Non-Performing Commercial Banking Assets

Total non-performing
commercial assets totaled $91.9 million at September 30, 2009. This compares to total non-performing commercial assets of approximately $62.6 million at December 31, 2008 and $40.4 million at September 30, 2008. The following table
shows the Banks commercial banking assets that we believe warrant special attention due to the potential for loss, in addition to the non-performing commercial banking loans and foreclosed properties related to the commercial banking loans.



|                                                                                                                 |  |                   |             |   |                  |   |            |                   |  |   |            |  
|---------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ---------------- | - | ---------- | ----------------- |  | - | ---------- | -
|                                                                                                                 |  | September 30,2009 |             |   | December 31,2008 |   |            | September 30,2008 | 
|Non-performing loans (1)                                                                                         |  | $                 | 54,816,391  |   |                  | $ | 36,778,482 |                   |  | $ | 18,922,544 |  
|Foreclosed properties                                                                                            |  |                   | 37,053,081  |   |                  |   | 25,815,072 |                   |  |   | 21,521,008 |  
|                                                                                                                 |  |                   |             |   |                  |   |            |                   |  |   |            |  
|Total non-performing assets                                                                                      |  | $                 | 91,869,472  |   |                  |   | 62,593,554 |                   |  | $ | 40,443,552 |  
|                                                                                                                 |  |                   |             |   |                  |   |            |                   |  |   |            |  
|Loans 90 days or more past due on accrual status                                                                 |  | $                 | 82,345      |   |                  | $ | 389        |                   |  | $ | 4,554      |  
|Renegotiated loans                                                                                               |  | $                 | 10,183,979  |   |                  | $ | 17,896,747 |                   |  | $ | 3,029,862  |  
|Potential problem loans (2)                                                                                      |  | $                 | 152,809,080 |   |                  | $ | 38,436,888 |                   |  | $ | 58,529,227 |  
|Potential problem loans/total loans                                                                              |  |                   | 20.28       | % |                  |   | 4.89       | %                 |  |   | 7.27       | %
|Non-performing assets/total loans and foreclosed properties                                                      |  |                   | 11.62       | % |                  |   | 7.72       | %                 |  |   | 4.89       | %
|Non-performing assets and loans 90 days or more past due on accrual status/total loans and foreclosed properties |  |                   | 11.63       | % |                  |   | 7.72       | %                 |  |   | 4.89       | %



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



|(2) | Loans identified by management as potential problem loans (criticized loans) that are still accounted for on an accrual basis and are not considered restructured. Based
upon further deterioration in these loans since December 31, 2008, management now considers it probable that these loans will not perform to their original contractual terms and now evaluates these loans as impaired loans.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We define non-performing commercial banking loans as non-accrual and renegotiated commercial banking loans. The
Banks policy is to discontinue the accrual of interest on loans that are 90 days past due unless they are well secured and in the process of collection. Total non-performing commercial banking loans increased $18.0 million from $36.8 million
at December 31, 2008 to $54.8 million at September 30, 2009. The increase in non-performing commercial banking loans from December 31, 2008 to September 30, 2009 was mainly related to nine loan relationships totaling
approximately $22.1 million. Seven of the nine loan relationships totaling approximately $18.9 million are classified as non-accrual loans and two of the nine loan relationships totaling approximately $3.2 million are classified as renegotiated
loans. One of the seven non-accrual loan relationships totaling approximately $6.4 million is related to 26 acres of land for residential development located in Cherokee County, Georgia on which eleven residential townhomes and four residential
homes have been built to date. Fifty lots remain undeveloped on this land, to build residential homes and townhomes. This loan relationship also includes a 23 acre tract of land located in Pickens County, Georgia, which is being held for commercial
development. The second of the non-accrual loan relationships totaling approximately $1.1 million is related to a residential home under construction and another residential lot located in the same subdivision. The residential home is approximately
90% complete and is located in Fulton County, Georgia. The third of the non-accrual loan relationships totaling approximately $2.6 million is related to ten residential home lots, five completed residential homes which are currently rented and one
completed residential home currently for sale. All of these properties are located in Bartow County, Georgia. The fourth of the non-accrual loan relationships totaling approximately $1.6 million is related to two residential rental properties
located in East Point, Florida which is located in Franklin County on the Gulf



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Coast. The fifth of the non-accrual loan relationships totaling approximately $1.8 million is related to 18 residential rental properties located in Bartow County, Georgia. Currently, fourteen of
these properties are being rented, however several of them are at below market rates due to the current economic environment. The sixth of the non-accrual loan relationships totaling approximately $1.7 million is related to four commercial
buildings, currently rented, located in Cobb County, Georgia. The last of the non-accrual loan relationships totaling approximately $3.7 million is related to three retail shopping centers located in Bartow County, Georgia. Construction of one of
the shopping centers is complete while construction of the other two is approximately 95% complete.

One of the two
renegotiated loan relationships totaling approximately $1.5 million is related a commercial office/retail property located in Bartow County, Georgia. The second of the renegotiated loan relationships totaling approximately $1.7 million is secured by
two office condos located in Canton in Cherokee County, Georgia, one commercial/retail building located in Woodstock in Cherokee County, Georgia, one commercial /retail building located in Lithonia in DeKalb County, Georgia and 0.78 acre commercial
lot located in Canton in Cherokee County, Georgia. With respect to these two loan relationships, the Company has either reduced interest rates or deferred interest payments to provide the borrowers time to reorganize their finances in order to
satisfy their loan obligations. We have evaluated these loan relationships and based on available information, we presently believe that any losses that may come from these loan relationships have been considered in our determination of the loan
loss allowance.

The Bank has seen a significant deterioration in its ADC loan portfolio during 2008 and the first nine months
of 2009. Our entire market area has experienced a significant weakening in the real estate markets during 2008 and the first nine months of 2009, in particular with respect to real estate related to ADC. As of September 30, 2009, we had
approximately $291.4 million in ADC loans, or approximately 39% of our loan portfolio. The Banks non-performing loans related to its ADC loan portfolio increased $29.4 million to $29.7 million from December 31, 2007 compared to
September 30, 2009. The deterioration in our ADC loan portfolio was mainly due to a decline in sales activity and property values within the real estate market in our market area during the last quarter of 2007, 2008 and the first nine months
of 2009. The Bank has also seen a deterioration in its residential real estate portfolio during the first nine months of 2009. We have seen non-performing loans in this portfolio increase from $5.9 million at December 31, 2008 to $14.0 million
at September 30, 2009. As of September 30, 2009, we had approximately $167.2 million in residential real estate or 22% of our loan portfolio. With the unemployment rate continuing to rise in Georgia, along with the deterioration in the
real estate market, our non-performing loans in this portfolio could continue to increase.

Foreclosed properties totaled
approximately $37.1 million at September 30, 2009, as compared to approximately $25.8 million at December 31, 2008 and approximately $21.5 million at September 30, 2008. Foreclosed properties increased approximately $11.3 million or
44% during the first nine months of 2009. The Bank foreclosed on fifty properties, totaling approximately $23.6 million during the first nine months of 2009. This amount mainly consists of ten loan relationships, totaling approximately $16.1
million. The first of these ten loan relationships, totaling approximately $3.3 million, is secured by two properties which consist of 85 acres of undeveloped land being held for residential development located in Forsyth County, Georgia. The second
of these ten loan relationships, totaling approximately $1.5 million, is secured by 24 developed residential home lots located in Fannin County, Georgia. The third of these ten loan relationships, totaling approximately $1.1 million, is secured by
74 acres of undeveloped land being held for residential development located in Cherokee County, Georgia. The fourth of these ten loan relationships, totaling approximately $920,000, is secured by four completed residential homes being held for sale
and a residential home lot all located in Cherokee County, Georgia. The fifth of these ten loan relationships is secured by a residential home located in DeKalb County, Georgia, totaling approximately $514,000. The sixth of these ten loan
relationships, totaling approximately $871,000, is secured by 3.48 acres of commercial raw land located in Cherokee County, Georgia. The seventh of these ten loan relationships, totaling approximately $986,000, is secured by a residential condo
located in DeKalb County, Georgia and two residential homes located in Forsyth County, Georgia. The eighth of these ten loan relationships, totaling approximately $1.5 million, is secured by seven completed residential homes and three residential
home lots located in Cherokee County, Georgia. The ninth of these ten loan relationships, totaling approximately $1.7 million, is secured by a residential home under construction. This residential home is approximately 90% complete and is located in
Dawson County, Georgia. The last of these ten loan relationships, totaling approximately $3.7 million, is related to a participation bought from another financial institution that is secured by a commercial/retail/entertainment property that is
under construction in Pigeon Forge, Tennessee. Of the remaining properties that were foreclosed upon in the first nine months of 2009, seventeen of the properties, totaling $1.9 million, were related to residential home lots, ten of the properties,
totaling $1.7 million, were related to residential homes under construction, four of the properties, totaling $665,000, were related to residential homes with construction completed, eight of the properties, totaling $1.2 million, was related to
residential homes, and seven of the properties, totaling $1.7 million, were related to commercial real estate. During the first nine months of 2009, the Bank sold twenty-three properties that were foreclosed upon in 2008, totaling approximately $8.2
million, for an aggregate gain of approximately $134,000. The Bank sold eighteen properties that were foreclosed upon in 2009, totaling approximately $3.6 million, for an aggregate loss of approximately $14,000. Of the forty-one properties sold in
the first nine months of 2009, eight were residential homes that sold at an aggregate loss of approximately $22,000, four were commercial real estate properties that



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sold at a gain of approximately $30,000 and twenty-nine were related to residential home construction and land lots that sold at an aggregate gain of approximately $112,000.

At September 30, 2009, the Bank held twenty-four properties totaling approximately $17.3 million that were foreclosed on prior to 2009.
Of these properties, sixteen of the properties, totaling approximately $8.6 million, were related to residential home lots and raw land, three of the properties totaling approximately $2.2 million were related to residential homes, two of the
properties totaling approximately $472,000 were related to commercial real estate, two of the properties totaling approximately $6.0 million were related to commercial land lots and raw land and one of the properties totaling approximately $70,000
was related to residential homes under construction. 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 presently does not expect any further material losses from these loans and properties.

Potential problem loans represent
commercial banking loans that are presently accounted for on an accrual basis, and the borrowers are not expected to perform to the original contractual repayment terms. Potential problem commercial loans increased approximately $114.4 million, or
298%, from $38.4 million at December 31, 2008 to $152.8 million at September 30, 2009. The increase in potential problem commercial loans from December 31, 2008 to September 30, 2009 was mainly related to the deterioration of our
ADC loan portfolio. At December 31, 2008, $21.8 million of the Banks commercial potential problem loans were related to the ADC loan portfolio, $20.3 million of which was related to residential real estate projects and $1.5 million of
which was related to commercial real estate projects. At September 30, 2009, $110.1 million of the Banks commercial potential problem loans were related to the ADC loan portfolio, $62.6 million of which was related to residential real
estate projects and $47.5 million of which was related to commercial real estate projects. Of the $114.4 million increase in potential problem loans from December 31, 2008 to September 30, 2009, $103.3 million, or 90%, is related to nine
loan relationships, of which $90.2 million is related to ADC loans. All of these loans are currently performing; however, because of the current deterioration in the real estate market and the economy, management has concerns about the ability of
the borrowers to meet their contractual repayment terms if current market conditions continue for a prolonged period. These loans could be reclassified as non-performing assets in the future. Management believes that the loans categorized as
potential problem loans at September 30, 2009 are adequately collateralized and that any losses that may result from these loan relationships have been considered in our determination of the loan loss allowance. However, there is no guarantee
that such loans will remain adequately collateralized in the future in the event of continued deterioration in the real estate market and the economy generally.

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 $214.5 million at September 30, 2009, compared to $187.2 million at December 31, 2008 and $158.3 million at September 30, 2008. At September 30,
2009, the Bank had federal funds sold and interest-bearing deposits in banks of $179.2 million, compared to $146.3 million at December 31, 2008 and $129.1 million at September 30, 2008. The increase of $32.9 million from December 31,
2008 and $50.1 million from September 30, 2008 in federal funds sold and interest-bearing deposits with other banks is due to the Companys strategic decision to increase short-term liquidity because of the tightening in the credit and
liquidity markets and the deterioration in the real estate market. Investment securities and restricted equity securities totaled $35.4 million at September 30, 2009, compared to $40.8 million at December 31, 2008 and $29.1 million at
September 30, 2008. The decrease of $5.4 million in investment securities and restricted equity securities from December 31, 2008 was mainly due to the Bank having $5.5 million in government-backed agency bonds called during the first nine
months of 2009 in this low interest rate environment. The Bank has also had $6.0 million in pay downs on its mortgage-backed securities in the first nine months of 2009. The Bank purchased approximately $7.4 million in investment securities during
the first nine months of 2009 to reinvest these called and maturing funds from its investment securities portfolio. The restricted equity securities consist of shares held in the Federal Home Loan Bank of Atlanta in the amount of approximately $3.3
million.

The Company had an investment of $165,975 in Community Financial Services, Inc. which was the holding company for
Silverton Bank. On May 1, 2009, the Office of the Comptroller of Currency closed Silverton Bank and appointed the Federal Deposit Insurance Corporations as Receiver. Therefore, our 300 shares held in Community Financial Services, Inc. valued at
$165,975 were written-off during the second quarter of 2009.

Unrealized losses on securities available for sale amounted to
$(3,756) at September 30, 2009, and $(46,044) and $(321,184) at December 31, 2008 and September 30, 2008, respectively. We have not specifically identified any securities for sale in future periods, which, if so designated, would
require a charge to operations if the market value would not be reasonably expected to recover prior to the time of sale. The Banks management believes that the unrealized losses on particular securities



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have resulted from temporary changes in the interest rate market and not as a result of credit deterioration and that therefore all unrealized losses represent, and in the future will represent,
temporary impairment. In addition, total impairment represents less than 1% of amortized cost. All bonds held at September 30, 2009 that have unrealized losses are backed by the U.S. Government or one of its agencies or quasi-agencies.

Total Commercial Bank Deposits

The Banks commercial deposits totaled $954.2 million, $935.9 million and $916.3 million at September 30, 2009, December 31, 2008 and September 30, 2008, respectively,
representing increases of 2% and 4%, respectively, over December 31, 2008 and September 30, 2008. Commercial deposits averaged $959.6 million during the nine-month period ended September 30, 2009, $843.6 million during the nine-month
period ended September 30, 2008 and $865.2 million during the twelve-month period ended December 31, 2008. The Bank made the strategic decision to increase short-term liquidity in 2008 and the first nine months of 2009 through deposit
growth in response to the tightening in the credit and liquidity markets and the deterioration in the real estate market. The increase in deposits from December 31, 2008 to September 30, 2009 is due to an increase in interest-bearing
checking accounts. The Bank ran an interest-bearing checking account special from September 2008 through March 2009 that guaranteed a rate of 3.75% until March 31, 2009, 3.00% until June 30, 2009 and 2.75% until August 31, 2009. As of
September 30, 2009, this special generated deposit balances totaling $99.1 million. This increase in deposits from our interest-bearing checking accounts was partially offset by the Bank not renewing its brokered deposits and most of its
out-of-market deposits. During 2007 and 2008, we attempted to offset potential decreases in our share of local deposits by accepting out-of-market and brokered deposits. During 2007 and 2008, the Banks out-of-market and brokered deposits
increased $161.6 million to $240.1 million at December 31, 2008. Since the end of 2008, we have let most of our maturing brokered and out-of market deposits run out of the Bank. We have reduced our out-of-market and brokered deposits by $54.6
million from $240.1 at December 31, 2008 to $185.5 million as of September 30, 2009. The costs of out-of-market and brokered deposits can be volatile, and if our access to these markets is limited in any way, then our liquidity would be
adversely affected. Currently, because the Banks capital levels are below the regulatory requirements for well capitalized institutions, the Bank cannot originate or renew brokered deposits and is limited in the rates that it can
offer on other deposits generally. From October 2009 through September 2010, the Bank has approximately $153 million in brokered and out-of market deposits maturing, and, if the Bank does not return to a well capitalized position, then it will most
likely not be able to renew these deposits. Therefore, the Bank may have to seek to increase deposit rates in its local markets in the future to generate liquidity, which it may be unable to do as a result of competition and/or potential regulatory
limitations. Even if the Bank was able to generate deposits through an increase in deposit rates, such rate increase would adversely affect its net interest margin and net income. Interest-bearing deposits represented 96% of total deposits at
September 30, 2009, compared to 96% at December 31, 2008 and 95% at September 30, 2008. Certificate of deposits comprised 74% of total interest-bearing deposits for September 30, 2009, compared to 83% at December 31, 2008
and 84% at September 30, 2008. The composition of these deposits is indicative of the interest rate-sensitive market in which the Bank operates. We cannot provide any assurance that the Bank can maintain or increase its market share of deposits
in its highly competitive service area.

Total Commercial Bank Borrowings

At September 30, 2009, the Bank had borrowed $28.0 million in FHLB advances at maturity terms ranging from twelve months to ten years
and with an average interest rate of 3.80%. 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. During the second quarter of 2009, the FHLB suspended our line of credit due to the financial condition of the Bank. The Bank can renew its current advances as
they mature, however we cannot borrow additional advances at this time. There were $31.0 million in Federal Home Loan Bank advances outstanding at both September 30, 2008 and December 31, 2008.

At September 30, 2009, the Bank had approximately $14.5 million of federal funds lines of credit available from correspondent
institutions. There were no amounts outstanding on these federal funds lines of credit during the first nine months of 2009. Based upon the Companys weakened financial condition and capital levels, the Companys access to these federal
funds will likely be restricted in 2009 and may not be available at all. In addition, pursuant to the Agreement, the Company cannot incur or increase or guarantee any debt without the prior written approval of the FRB Atlanta and the Georgia
Commissioner.



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Discontinued Operations

Prior to the sale of our wholesale residential mortgage business on December 31, 2003, the Company sold loans that it originated. The
Companys consolidated balance sheets at both September 30, 2009 and December 31, 2008 include no assets and include liabilities of $1,369,686 and $1,694,496, respectively, related to discontinued operations. The Company typically
made representations and warranties to the purchasers and insurers that the Company had properly originated and serviced the loans under state laws, investor guidelines and program eligibility standards. The Company could be obligated to indemnify
the purchaser for unpaid principal and interest on defaulted loans if the Company had breached its representations and warranties with respect to the loans that it sold. These liabilities consist of the allowance for recourse liability. This reserve
remained with the Company after the sale of the wholesale mortgage operation, as did the risk and the liability from the indemnified loans. At September 30, 2009 and December 31, 2008, the Company had approximately $1.4 million and $1.5
million, respectively, of mortgage loans for which it had agreed to indemnify the purchaser for losses suffered by the purchaser. In the event that the purchaser of these loans experiences any losses with respect to the loans, the Company will be
required to indemnify the purchaser for its losses or to repurchase the loans from the purchaser. The Company has established a specific allowance for recourse liability for the loans on which the Company has already become obligated to make
indemnification payments to the purchaser and an estimated allowance for recourse liability for probable future losses from loans that the Company may have to indemnify. The estimated recourse liability for future losses at both September 30,
2009 and December 31, 2008 was approximately $1.4 million and $1.7 million, respectively, and is based upon historical information on the number of loans indemnified and the average loss on an indemnified loan. We evaluated the allowance for
recourse liability during the first nine months of 2009 and determined that no adjustments are needed at this time.

Capital

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

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

The Company and Banks actual capital amounts and ratios for September 30, 2009
and December 31, 2008 are presented in the following table.



|                                        |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|--------------------------------------- |  | ------ | ------ | ----- | --------------------------- | - | ------ | ------------------------------------------------------------- | ------ |  | - | ------ |  | ----- | ------ |  | --- | -
|                                        |  | Actual |        |       | For CapitalAdequacyPurposes |   |        | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions |       
|(Dollars in Thousands)                  |  | Amount |        | Ratio |                             |   | Amount |                                                               | Ratio  |  |   | Amount |  | Ratio |       
|As of September 30, 2009:               |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Total Capital to Risk Weighted Assets:  |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Company                                 |  | $      | 31,620 |       | 3.88                        | % |        | $                                                             | 65,212 |  | 8 | %      |  | $     | N/A    |  | N/A |  
|Bank                                    |  | $      | 47,244 |       | 5.81                        | % |        | $                                                             | 65,084 |  | 8 | %      |  | $     | 81,354 |  | 10  | %
|Tier I Capital to Risk Weighted Assets: |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Company                                 |  | $      | 15,810 |       | 1.94                        | % |        | $                                                             | 32,606 |  | 4 | %      |  | $     | N/A    |  | N/A |  
|Bank                                    |  | $      | 36,890 |       | 4.53                        | % |        | $                                                             | 32,542 |  | 4 | %      |  | $     | 48,813 |  | 6   | %



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##### Table of Contents

|                                        |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|--------------------------------------- |  | ------ | ------ | ----- | --------------------------- | - | ------ | ------------------------------------------------------------- | ------ |  | - | ------ |  | ----- | ------ |  | --- | -
|Tier I Capital to Average Assets:       |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Company                                 |  | $      | 15,810 |       | 1.52                        | % |        | $                                                             | 41,592 |  | 4 | %      |  | $     | N/A    |  | N/A |  
|Bank                                    |  | $      | 36,890 |       | 3.55                        | % |        | $                                                             | 41,521 |  | 4 | %      |  | $     | 51,902 |  | 5   | %
|                                        |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|                                        |  | Actual |        |       | For CapitalAdequacyPurposes |   |        | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions |       
|(Dollars in Thousands)                  |  | Amount |        | Ratio |                             |   | Amount |                                                               | Ratio  |  |   | Amount |  | Ratio |       
|As of December 31, 2008:                |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Total Capital to Risk Weighted Assets:  |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Company                                 |  | $      | 68,548 |       | 8.01                        | % |        | $                                                             | 68,434 |  | 8 | %      |  | $     | N/A    |  | N/A |  
|Bank                                    |  | $      | 70,788 |       | 8.31                        | % |        | $                                                             | 68,144 |  | 8 | %      |  | $     | 85,179 |  | 10  | %
|Tier I Capital to Risk-Weighted Assets: |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Company                                 |  | $      | 45,357 |       | 5.39                        | % |        | $                                                             | 34,217 |  | 4 | %      |  | $     | N/A    |  | N/A |  
|Bank                                    |  | $      | 59,997 |       | 7.04                        | % |        | $                                                             | 34,072 |  | 4 | %      |  | $     | 51,108 |  | 6   | %
|Tier I Capital to Average Assets:       |  |        |        |       |                             |   |        |                                                               |        |  |   |        |  |       |        |  |     |  
|Company                                 |  | $      | 45,357 |       | 4.32                        | % |        | $                                                             | 41,949 |  | 4 | %      |  | $     | N/A    |  | N/A |  
|Bank                                    |  | $      | 59,997 |       | 5.72                        | % |        | $                                                             | 41,943 |  | 4 | %      |  | $     | 52,429 |  | 5   | %

The Company and the Bank were not adequately capitalized under all applicable
regulatory capital measurements as of September 30, 2009. As noted above, the Companys and the Banks Tier 1 Capital to Average Assets Ratios were 1.52% and 3.55%, respectively, and Total Risk Based Capital Ratios were 3.88% and
5.81%, respectively, as of September 30, 2009. Pursuant to the Order, we are required to increase our capital so that the Bank has a minimum tier 1 capital to total assets ratio of 8.0% and a minimum total risk-based capital to total
risk-weighted assets ratio of at least 10.0% within 120 days of the effective date of the Order.

At September 30, 2009,
the Companys and Banks leverage ratio was 1.52% and 3.55% respectively, compared to 4.32% and 5.72% at December 31, 2008 and 7.06% and 7.93%, respectively, at September 30, 2008. On June 27, 2008, the Company entered into
an agreement with another financial institution for a $6.0 million line of credit. This line of credit matured on June 27, 2009 and paid interest quarterly at prime rate, as reported in The Wall Street Journal, floating with a 6.00% floor. On
June 27, 2009, the Company was granted a 90 day extension on the line of credit until September 27, 2009. As of November 13, 2009, the Company has not renewed its line of credit with this financial institution and the Company was
charged the default rate of 12.00% beginning September 27, 2009. The Company continues to negotiate with this financial institution while it reviews all of its strategic options and capital raising efforts. The line of credit is secured by all
of the issued and outstanding shares of the common stock of the Bank. In the event of an uncured default under this line of credit, the lender could foreclose upon the common stock of the Bank and deprive Crescent of its principal source of income.
The Company is currently in default related to its minimum capital ratios covenants and its minimum book value covenant and has not received a waiver from the lender related to falling below these minimum covenant levels. On November 12, 2009,
the Company received notice from the financial institution that an event of default exists under the agreement and demanding payment of the amount outstanding.

On the same day that the Company entered into the line of credit, it drew $2.5 million on the line of credit and contributed that $2.5 million to the Bank. On September 30, 2008, the Company drew an
additional $2.5 million on the line of credit and contributed that amount to the Bank. The Company has drawn an additional $550,000 on the line of credit in the first quarter of 2009 and contributed such capital to the Bank. Also, in June 2008, CMS
distributed $1.3 million in available capital to the Company and the Company subsequently contributed the $1.3 million to the Bank. The Company contributed this $6.3 million in capital to the Bank in an effort to keep the Bank adequately-capitalized
in light of the Banks net loss and deterioration in asset quality during 2008.

At September 30, 2009, our total
consolidated shareholders equity was $12.4 million, or 1.20% of total consolidated assets, compared to $60.7 million, or 5.82% of total consolidated assets, at September 30, 2008, and $36.8 million, or 3.54% of total consolidated assets,
at December 31, 2008. The decrease in the consolidated shareholders equity to total consolidated assets ratio in the first nine months of 2009 was due to the Companys consolidated net loss of approximately $23.9 million in the first
nine months of 2009.



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At September 30, 2009, the Companys ratio of total consolidated capital to
risk-adjusted assets was 3.88%, 1.94% of which consisted of tier 1 capital and the Banks ratio of total consolidated capital to risk-adjusted assets was 5.81%, 4.53% of which consisted of tier 1 capital. No dividends have been paid or declared
in 2009. Both the Companys and Banks ratio of total consolidated capital to risk-adjusted assets were considered below adequately capitalized levels for regulatory capital requirements at September 30, 2009.

As of September 30, 2008, the Companys ratio of total consolidated capital to risk-adjusted assets was 9.98%, 8.01% of which
consisted of tier 1 capital, and, as of December 31, 2008, total consolidated capital to risk-adjusted assets was 8.01%, 5.39% of which consisted of tier 1 capital. As of September 30, 2008, the Banks ratio of total capital to
risk-adjusted assets was 10.13%, 8.88% of which consisted of tier 1 capital, and, as of December 31, 2008, total capital to risk-adjusted assets was 8.31%, 7.04% of which consisted of tier 1 capital.

Currently, the Company is considering a variety of means of increasing its capital ratios. As part of those efforts, the Company has
retained the services of investment bankers to review any number of strategic opportunities available to the Company and the Bank. However, there is no assurance that the Companys strategic efforts will be successful, particularly in the
current economic environment. In the event we are unable to successfully identify and pursue a strategic alternative, and/or raise additional capital or generate sufficient liquidity, then the Company may not be able to continue to operate.

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

Liquidity

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

Our average liquid
assets consist of cash and amounts due from banks, interest-bearing deposits in other banks, federal funds sold, mortgage loans held for sale net of borrowings, investment securities held for maturity and securities held for sale. These average
liquid assets totaled $213.7 million, $116.7 million and $92.9 million during the nine months ended September 30, 2009, the twelve months ended December 31, 2008 and the nine months ended September 30, 2008, respectively, representing
22%, 13% and 11% of average deposits and borrowings, respectively, for those periods. Average liquid assets increased by approximately $97.0 million, or 83%, from the twelve months ended December 31, 2008 to the nine months ended
September 30, 2009 and average liquid assets as a percentage of average deposits and borrowings increased approximately 9% from the same time frame. Our average liquid assets and the percentage of average liquid assets as a percentage of
average deposits and borrowings increased due to the Companys strategic decision to increase short-term liquidity because of the tightening in the credit and liquidity markets and the deterioration in the real estate market. The Company, on
average, held $90.0 million more in federal funds sold, interest-bearing deposits in other banks and due from banks during the nine months ended September 30, 2009 compared to the twelve months ended December 31, 2008. Average commercial
banking loans were 78%, 91% and 94% of average commercial bank deposits and borrowings during the nine months ended September 30, 2009, the twelve months ended December 31, 2008 and the nine months ended September 30, 2008,
respectively. The ratio of average commercial banking loans to average commercial banking deposits and borrowings decreased during the first nine months of 2009 compared to the twelve months ended December 31, 2008 and the nine months ended
September 30, 2008. The decrease in the ratio of average commercial banking loans to average commercial banking deposits and borrowings was due to the Companys strategic decision to increase short-term liquidity in response to the
tightening in the credit and liquidity markets and the deterioration in the real estate market. The Bank grew average deposits approximately $94.4 million during the nine months ended September 30, 2009 compared to the twelve months ended
December 31, 2008 while average commercial banking loans decreased by $40.1 million during the same time frame. The Companys decision to increase short-term liquidity and the growth of deposits resulted in the Bank holding, on average,
approximately $90.0 million more in federal funds sold, interest-bearing deposits and due from banks during the nine months ended September 30, 2009 compared to the twelve months ended December 31, 2008.



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The Bank actively manages the levels, types and maturities of interest-earning assets in
relation to the sources available to fund current and future needs. The Bank maintained a line of credit up to approximately $41.5 million at the FHLB at March 31, 2009. However, based upon the Companys weakened financial condition and
capital levels, the FHLB suspended our line of credit due to the financial condition of the Bank during the second quarter of 2009. The Bank can renew its current advances as they mature, however we cannot borrow additional advances at this time.
Additionally, during the first quarter of 2009, the FHLB required the Bank to have 125% of collateral to total advances outstanding. The Bank also maintains federal funds lines of credit with correspondent institutions, totaling $14.5 million at
September 30, 2009. However, based upon the Companys weakened financial condition and capital levels, the Companys access to these federal funds will likely be restricted in 2009, and may not be available at all. At
September 30, 2009, we had $28.0 million in the FHLB advances outstanding and no amounts outstanding on our federal funds lines of credit. During the first nine months of 2009, the average balance in FHLB advances was $30.9 million and the Bank
had no amounts outstanding on its federal funds purchased lines during the first nine months of 2009. All of the $28.0 million in advances outstanding are secured by the Banks 1  4 family first lien mortgage loans, commercial real estate
loans and multi-family mortgage loans, by investment securities and by FHLB Stock. The Bank has an additional $1.8 million in unpledged securities that could be used to borrow additional funds at the Federal Reserve Bank.

The Banks liquidity is under significant pressure due to the tightening in the liquidity and credit markets, regulatory limits on
brokered and out-of-market deposits, the competitive pricing for deposits in the Banks market and other potential regulatory limitations. The Bank is likely to experience increased liquidity pressure for the remainder of 2009 and in 2010.
During 2007 and 2008, we attempted to offset potential decreases in our share of local deposits by accepting out-of-market and brokered deposits. The cost of these brokered and out-of-market deposits were approximately 15 to 30 basis points less
than our local deposits during the same period. During 2007 and 2008, the Banks out-of-market and brokered deposits increased $161.6 million to $240.1 million at December 31, 2008. We have since reduced our out-of-market and brokered
deposits to $185.5 million as of September 30, 2009.

Currently, because the Banks capital levels are below the
regulatory requirements for adequately capitalized institutions, the Bank cannot originate or renew brokered deposits and is limited in the rates that it can offer on deposits generally. From October 2009 through September 2010, the Bank
has approximately $153 million in brokered and out-of market deposits maturing, and, if the Bank does not return to a well capitalized position, it will most likely be unable to renew these deposits, which will adversely affect the Banks
liquidity position. Paying off all of these deposits will greatly diminish the liquidity position of the Company, and we may be unable to fund our business operations. Even if we become eligible to receive a waiver from the FDIC on brokered
deposits, we cannot guarantee that we will be granted such waiver. Management has found that most non-relationship oriented retail certificates of deposit are interchangeable with wholesale funding sources such as brokered deposits and wholesale
certificates of deposit and as a result, the Company alternates between these funding sources depending on the relative costs. However, our access to brokered deposits as a funding source may be limited in the future.

There can be no assurance that our liquidity level will be sufficient to fund the repayment of all of our maturing brokered deposits and
out-of-market deposits in 2009. As a result of our inability to accept, renew or rollover brokered deposits and the potential repayment obligation related to maturing brokered deposits and out-of-market deposits, we have explored alternative sources
to increase our liquidity. Access to these alternative sources may be hampered by the current negative publicity surrounding both the banking industry and the Company. The banking industry has come under significant scrutiny due to government
funding through the Emergency Economic Stabilization Act of 2008 and the U.S. Treasurys Troubled Asset Relief Program. In addition, the Company has endured adverse publicity due to its increasing levels of nonperforming assets, goodwill
impairment, decreasing stock price during 2008 and net losses in 2008. Additionally, the current volatility and disruptions in the capital markets could impact the Companys ability to access alternative liquidity sources in the same manner as
in the past. Finally, our entry into the Order with the Georgia Department and the FDIC, as well as our independent registered public accountants inclusion in their audit report for fiscal year 2008 of their doubt about our ability to continue
as a going concern, could impact our ability to access alternative liquidity sources or raise additional capital. As a result, our liquidity could be adversely and significantly affected, and we may not be able to fund our operations or continue as
a going concern.



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Commercial Commitments

The following table presents our other commercial commitments at September 30, 2009. These commitments are not included in our
consolidated balance sheet.

Commercial Commitments



|                                 |  |                                            |        |             |   |          |  |          |       |               |   |     |  |   |    
|-------------------------------- |  | ------------------------------------------ | ------ | ----------- | - | -------- |  | -------- | ----- | ------------- | - | --- |  | - | ---
|                                 |  | Amount of Commitment Expiration Per Period
|                                 |  | Total                                      |        | Under 1Year |   | 1-3Years |  | 4-5Years |       | After 5 Years
|                                 |  | (in thousands)                            
|Commitments to extend credit (1) |  | $                                          | 46,433 |             | $ | 37,140   |  | $        | 7,652 |               | $ | 968 |  | $ | 673
|Letters of Credit (2)            |  |                                            | 2,425  |             |   | 2,187    |  |          | 238   |               |   |    |  |   |   
|                                 |  |                                            |        |             |   |          |  |          |       |               |   |     |  |   |    
|Total commercial commitments     |  | $                                          | 48,858 |             | $ | 39,327   |  | $        | 7,890 |               | $ | 968 |  | $ | 673
|                                 |  |                                            |        |             |   |          |  |          |       |               |   |     |  |   |    



|(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 September 30, 2009 and
December 31, 2008, the Company was a party to interest rate swap contracts (back-end derivatives) under which it pays a fixed rate of interest and receives a variable rate of interest. The notional amount of the interest rate swaps was
approximately $8,349,000 with a fair value of approximately $(1,079,000) at September 30, 2009 and approximately $8,764,000 with a fair value of approximately $(1,407,000) at December 31, 2008. The Company also has an embedded derivative
in each of the loan agreements (front-end derivative) that would require the borrower to pay or receive from the Bank an amount equal to and offsetting the value of the interest rate swaps. These front-end and back-end derivatives are recorded in
other assets and other liabilities. The net effect of recording the derivatives at fair value through earnings was immaterial to the Companys financial condition and results of operations as of and for the three and nine months ended
September 30, 2009. If a counterparty, in particular our borrower, fails to perform and the market value of the financial derivative is negative, the Company would be obligated to pay the settlement amount for the financial derivative. If the
market value is positive, the Company would receive a payment for the settlement amount for the financial derivative. The settlement amount of the financial derivative could be material to the Company and is determined by the fluctuation of interest
rates.

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

Effects of Inflation

Inflation generally increases the cost of funds and operating overhead, and, to the extent loans and other assets bear variable rates, the yields on such assets. Unlike most industrial companies, virtually all of our assets and liabilities
are monetary in nature. As a result, interest rates generally have a more significant impact on our performance than the effects of general levels of inflation. Although interest rates do not necessarily move in the same direction, or to the same
extent, as the prices of goods and services, low inflation or deflation generally results in decreased interest rates while high inflation generally results in increased interest rates. From September 2007 through the first quarter of 2009, the
Federal Reserve reduced interest rates by 500 basis points. The Federal Reserve has indicated that further changes in interest rates would be dependent on economic data. The decrease in interest rates in 2008 has had a negative impact on our net
interest income during the first nine months of 2009.



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



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

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



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

Evaluation of
Disclosure Controls and Procedures

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

Managements Quarterly Report on Internal Control Over Financial Reporting

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

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

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

Changes in Internal Control over Financial Reporting

There were no changes in the Companys internal control over financial reporting that occurred during the three and nine months ended September 30, 2009 that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART IIOTHER INFORMATION



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

Not
Applicable.



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

Other than
the risk factors set forth below, there were no material changes during the period covered by this quarterly report to the risk factors previously disclosed in the Companys annual report on Form 10-K for the year ended December 31, 2008.
Additional risks not presently known, or that we currently deem immaterial, also may have a material adverse affect on the Companys business, financial condition and results of operation.

We have entered into a Written Agreement with the Federal Reserve Bank of Atlanta, which Places Significant Restrictions on our
Operations

We entered into the Agreement with the FRB Atlanta and the Georgia Commissioner, effective July 16,
2009. The Agreement limits our ability to directly or indirectly receive from the Bank dividends or any form of payment representing a reduction in capital of the Bank without the prior written approval of the FRB Atlanta and the Georgia
Commissioner. The Agreement also limits our ability to declare or pay any dividends unless certain conditions are satisfied. The Agreement further limits our ability to make any distributions of interest, principal or other sums on subordinated
debentures or trust preferred securities without the prior written approval of the FRB Atlanta, the Director and the Georgia Commissioner. In addition, we are prohibited from directly or indirectly incurring, increasing or guaranteeing any debt
and purchasing or redeeming any shares of our common stock, in each case, without the prior written approval of the FRB Atlanta and the Georgia Commissioner.

The Agreement requires us to implement a number of actions, including submitting to the FRB Atlanta and the Georgia Commissioner a written capital plan to maintain sufficient capital at the Company on a
consolidated basis, and at the Bank on a stand-alone basis and submitting a written progress report to the FRB Atlanta and the Georgia Commissioner within 30 days after the end of each calendar quarter.

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

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

Our
success and ongoing viability is dependent on our ability to raise sufficient capital and improve our liquidity position. In recent periods, a number of factors have placed significant stress on our liquidity, including increases in our
non-performing assets, increases in our allowance for loan losses, increases in loan demand, increased competition for deposits in our primary market area and decreases in interest rates. These factors also have contributed to compression of our net
interest margin and net income. We have historically had access to a number of alternative sources of liquidity, but given the recent and dramatic downturn in the credit and liquidity markets and our entry into the Order with the FDIC and the
Georgia Department, there is no assurance that we will be able to obtain such liquidity on terms that are favorable to us, or at all. For example, financial institutions may be unwilling to extend credit to banks because of concerns about the
banking industry and the economy generally and, given recent downturns in the economy, there may not be a viable market for raising equity capital.

In addition, because the Bank is below the well capitalized requirements of the FDICIA, the Bank cannot originate or renew brokered deposits and is limited in the rates that it can offer on deposits
generally. From October 2009 through September 2010, the Bank has approximately $153 million in brokered and out-of market deposits maturing, and, if the Bank does not return to a well capitalized position, then it will not be able to renew these
deposits. Therefore, the Bank may have to increase deposit rates in its local markets in the future, which would adversely affect its net interest margin and net income. However, there are regulatory limitations on the Banks ability to raise
interest rates in its local markets to attract deposits. If the Bank is unable to offer competitive rates on its deposits in local markets, then its liquidity would be adversely affected.Finally, as a result of our financial condition, the
FHLB suspended our line of credit during the second quarter of 2009, and our access to federal funds lines of credit from correspondent institutions may be restricted or unavailable in the future. If liquidity sources are unavailable to us, or are
available only on unfavorable terms, then our liquidity, net interest margin and net income, will be adversely affected and could impair our viability.



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The Agreement Currently Limits Our Ability to Receive Dividends from the Bank, a
Primary Source of our Liquidity

The primary source of our liquidity, as a bank holding company, is dividends from the
Bank, which is governed by certain rules and regulations of various state and federal banking regulatory agencies. The Agreement with the FRB Atlanta and the Georgia Commissioner limits our ability to directly or indirectly receive dividends from
the Bank, or any form of payment representing a reduction in capital of the Bank, without the prior written approval of the FRB Atlanta and the Georgia Commissioner. The loss of this source of liquidity will adversely affect our financial condition.

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

At September 30, 2009, we had approximately $14.5 million of federal funds lines of credit available from correspondent institutions. At
March 31, 2009, we had the capacity to borrow up to approximately $7.4 million in total FHLB advances. However, during the second quarter of 2009, the FHLB suspended our line of credit due to the financial condition of the Bank. The Bank can
renew its current advances as they mature, however we cannot borrow additional advances at this time. Based upon our financial condition and weak capital position, our access to the federal funds lines of credit could also be restricted in 2009 and
may not be available at all, which will negatively impact our liquidity and general financial condition.

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

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

In light of these market conditions, we regularly reassess the market value of our loan portfolio, the creditworthiness of our borrowers and
the sufficiency of our allowance for loan losses. Our allowance for loan losses increased from 1.56% of total commercial banking loans at September 30, 2008 to 3.34% at September 30, 2009. We made a provision for loan losses of
approximately $15.1 million during the nine months ended September 30, 2009 and we charged-off approximately $12.4 million in loans during the nine months ended September 30, 2009. The Bank has taken an aggressive approach and charged-off
balances on non-accrual loans before foreclosure based upon the current downturn in the economy and real estate market. Of the total amount of charge-offs during 2009, $7.6 million was related to our ADC loan portfolio, where the Bank has seen
significant deterioration in asset quality, including an increase in the inability of some borrowers to make payments and declines in the value and marketability of the underlying collateral.

We will likely experience further increases in classified loans and non-performing assets in the foreseeable future, as well as related
increases in loan charge-offs, as the deterioration in the credit and real estate markets causes borrowers to default, and we expect to continue to employ the aggressive charge-off policy. The Banks potential problem loans increased $114.4
million, or 298%, from $38.4 million at December 31, 2008 to $152.8 million at September 30, 2009, non-performing loans increased $18.0 million, or 49%, from $36.8 million at December 31, 2008 to $54.8 million at September 30,
2009 and foreclosed properties increased $11.3 million, or 44%, from $25.8 million at December 31, 2008 to $37.1 million at September 30, 2009. The main sector of the Banks loan portfolio that experienced this deterioration was its
ADC loans. The Banks potential problem loans related to its ADC loan portfolio increased $88.3 million to $110.1 million from December 31, 2008 compared to September 30, 2009.

Further, the value of the collateral underlying a given loan, and the realizable value of such collateral in a foreclosure sale, likely will
be negatively affected by the recent downturn in the real estate market, and therefore may result in our inability to realize a full recovery in the event that a borrower defaults on a loan. In addition, when we take collateral in foreclosures and
similar proceedings, we are required to mark the related loan to the then fair market value of the collateral, which is referred to as mark-to-market accounting. Any further increase in our non-performing assets, any increase in our loan
charge-offs, any further increase in our provision for loan losses (whether as the result of new real estate appraisals, loan evaluations or otherwise), the continuation of aggressive charge-off policy or any inability by us to realize the full
value of underlying collateral in the event of a loan default and mark-to-market valuation of collateral will negatively affect our business, financial condition, liquidity, capital position, operating results, cash flow and the price of our
securities.



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

Approximately 94% of our loan portfolio consists of
commercial and consumer loans that are secured by various types of real estate, the value and marketability of which are sensitive to economic conditions and interest rates. In addition, these loans are subject to the risk that the local real estate
markets will be overbuilt or will otherwise experience deterioration in value, driving down the value and marketability of the real estate that secures these loans. The current decline in the real estate markets may cause a decrease in collateral
values, which could increase our costs and time of collection as well as the amount of potential losses we may incur on loans secured by real estate.

Commercial real estate, or CRE, is cyclical and poses risks of possible loss due to concentration levels and similar risks. As of September 30, 2009, we had approximately $431.7 million
in CRE loans, or approximately 57% of our loan portfolio. Our CRE loans have declined by approximately $237.2 million or 35% since December 31, 2007. The banking regulators are giving CRE lending greater scrutiny and may require banks with
higher levels of CRE loans to implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as well as potentially higher levels of allowances for possible losses and capital levels as a result of CRE
lending growth and exposures, which would negatively impact our financial condition and results of operation.

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

Historically, our loan portfolio has included a significant number of construction loans consisting of one-to-four family residential construction loans, commercial construction loans and land loans for residential and commercial
development. As of September 30, 2009, approximately 39% of our total loan portfolio was in ADC loans. In addition to the risk of nonpayment by borrowers and risks associated with the fact that these loans generally bear interest at variable
rates, construction lending poses additional risks that affect the ability of borrowers to repay loans and that affect the value and marketability of real estate collateral, such as:



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



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



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



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



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



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



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

Any of these conditions could negatively affect our net income and our financial condition. Since December 31, 2007, we reduced our construction loans $126.4 million, or 30%. The Bank limited any new
construction loans in the first nine months of 2009 due to the declining real estate market.

We are Currently In
Default on a Line of Credit, Which is Secured by all of the Issued and Outstanding Shares of the Common Stock of the Bank

We received notice from a financial institution on November 12, 2009, that an event of default exists under our loan agreement with such financial institution, and demanding payment of the amount outstanding pursuant to the loan. The
line of credit is secured by all of the issued and outstanding shares of the common stock of the Bank. In the event we are unable to cure our default under this line of credit, the lender could foreclose upon the common stock of the Bank and deprive
us of our principal source of income.

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

We have developed a strategy to
aggressively dispose of non-performing assets. However, the specific assets we expect to sell have not been yet identified. Non-performing assets are recorded on our financial statements at fair value, as required under



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GAAP, unless these assets have been specifically identified for liquidation, in which case they are recorded at the lower of cost or estimated net realizable value. In current market conditions,
dispositions of non-performing assets likely will result in proceeds that are significantly less than the recorded fair value of such assets, which will result in additional future realized losses that negatively affect our financial results.

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

We are heavily regulated at the
federal and state levels. This regulation is designed primarily to protect depositors, federal deposit insurance funds and the banking system as a whole, not shareholders. Congress and state legislatures and federal and state regulatory agencies
continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including interpretation and implementation of statutes, regulations or policies, including EESA, the Financial
Stability Plan and the ARRA could affect us in substantial and unpredictable ways, including limiting the types of financial services and products we may offer. While we cannot predict the regulatory changes that may be borne out of the current
economic crisis, and we cannot predict whether we will become subject to increased regulatory scrutiny by any of these regulatory agencies, any regulatory changes or scrutiny could be expensive for us to address and/or could result in our changing
the way that we do business. Federal and state regulators have the ability to impose substantial sanctions, restrictions and requirements on us if they determine, upon examination or otherwise, violations of laws with which we must comply, or
weaknesses or failures with respect to general standards of safety and soundness. Such enforcement may be formal or informal and can include directors resolutions, memoranda of understanding, cease and desist orders, civil money penalties and
termination of deposit insurance and bank closures. Enforcement actions may be taken regardless of the capital level of the institution. In particular, institutions that are not sufficiently capitalized in accordance with regulatory standards may
also face capital directives or prompt corrective action. Enforcement actions may require certain corrective steps (including staff additions or changes), impose limits on activities (such as lending, deposit taking, acquisitions or branching),
prescribe lending parameters (such as loan types, volumes and terms) and require additional capital to be raised, any of which could adversely affect our financial condition and results of operations. The imposition of regulatory sanctions,
including monetary penalties, may have a material impact on our financial condition and results of operations, and damage to our reputation, and loss of our financial services holding company status. In addition, compliance with any such action
could distract managements attention from our operations, cause us to incur significant expenses, restrict us from engaging in potentially profitable activities, and limit our ability to raise capital.

Concern by Customers over Deposit Insurance May Cause a Decrease in Deposits and Changes in the Mix of Funding Sources Available to Us

With recent increased concerns about bank failures, customers increasingly are concerned about the extent to which
their deposits are insured by the FDIC. Customers may withdraw deposits in an effort to ensure that the amount they have on deposit with their bank is fully insured and some may seek deposit products or other bank savings and investment products
that are collateralized. Decreases in deposits and changes in the mix of funding sources may adversely affect our funding costs and net income.

Emergency Measures Designed to Stabilize the U.S. Banking System are Beginning to Wind Down

Since mid-2008, a host of legislation and regulatory actions have been implemented in response to the financial crisis and the recession. Some of the programs are beginning to expire and the impact of the
wind-down of these programs on the financial sector, including our counterparties, and on the economic recovery is unknown.



| |  |  | The Troubled Asset Relief Program, established pursuant to the EESA legislation, is scheduled to expire on December 31, 2009. The Treasury has
announced that it will likely extend it until October 31, 2010. TARP includes the Capital Purchase Program, pursuant to which the Treasury is authorized to purchase senior preferred stock and warrants to purchase common stock of participating
financial institutions. Also under TARP, the Treasury has the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments, from financial institutions for the
purpose of stabilizing and providing liquidity to the U.S. financial markets.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Treasury guarantee on money market mutual funds established on September 19, 2008 expired on September 18, 2009 and the Treasury did not
extend the program.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On September 9, 2009, the FDIC issued a notice of proposed rulemaking requesting comments on whether a temporary emergency facility should be left
in place following the expiration on October 31, 2009 of the Temporary
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | Liquidity Guarantee Program (the TLG Program), which guarantees certain senior unsecured debt of banks and certain holding companies. The Transaction Account Guarantee portion of the program,
which guarantees noninterest bearing bank transaction accounts on an unlimited basis, is scheduled to continue until June 30, 2010.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, a stall in the economic recovery or continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of
operations, access to credit or the trading price of our common stock.

We May be Required to Pay Significantly Higher
FDIC Premiums or Special Assessments that Could Adversely affect our Earnings

Market developments have significantly
depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits. As a result, we may be required to pay significantly higher premiums or additional special assessments that could adversely affect our earnings. In the
second quarter of 2009, the FDIC implemented a special assessment that resulted in approximately $500,000 of additional expense during that quarter. On November 12, 2009, the FDIC authorized a prepaid assessment, which requires banks to prepay
their insurance premiums for 2010-2012 on December 30, 2009. We anticipate that the Banks prepayment will be approximately $13.0 million, however the FDIC has provided an exemption from such payments for institutions it identifies as
not being financially able to fund the prepayment. This collection will not affect the Banks reporting of its net income, but will negatively affect the Banks cash flow if it does not receive an exemption from the assessment. In
addition, it is possible that the FDIC may impose further special assessments in the future as part of its restoration plan.



|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
|------- | ---------------------------------------------------

None.



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

On
June 27, 2008, the Company entered into an agreement with a financial institution for a $6.0 million line of credit. This line of credit matured on June 27, 2009 and paid interest quarterly at prime rate, as reported in The Wall Street
Journal, floating with a 6.00% floor. On June 27, 2009, the Company was granted a 90 day extension on the line of credit until September 27, 2009. As of November 16, 2009, the Company has not renewed its line of credit with this
financial institution and the Company was charged the default rate of 12.00% beginning September 27, 2009. The Company continues to negotiate with this financial institution while it reviews all of its strategic options and capital raising
efforts. The Company is currently in default related to its minimum capital ratios covenants and its minimum book value covenant and has not received a waiver from the lender related to falling below these minimum covenant levels. On
November 12, 2009, the Company received notice from the financial institution that an event of default exists under the agreement and demanding payment of the amount outstanding pursuant to the loan. The amount outstanding pursuant to the line
of credit totaled approximately $5.6 million at November 12, 2009. The line of credit is secured by all of the issued and outstanding shares of the common stock of the Bank. In the event we are unable to cure our default under this line of
credit, the lender could foreclose upon the common stock of the Bank and deprive us of our principal source of income.



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



|    |  |                                                                                                                                                                                                              
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | 
|3.1 |  | Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008,
filed April 13, 2009).                
|    | 
|3.2 |  | Amendment to the Companys Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Companys Registration Statement on Form S-2 filed October 26,
2001, File No. 333-72300, as amended).
|    | 
|3.3 |  | Amendment to the Companys Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Companys Current Report on Form 8-K, filed June 23,
2009).                                          



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|      |  |                                                                                                                                                              
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|3.4   |  | Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.1 to the Companys Current Report on Form 8-K, filed on April 25,
2007).
|      | 
|31.1  |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                      
|      | 
|31.2  |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                      
|      | 
|32.1* |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       
|      | 
|32.2* |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       



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



50



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##### Table of Contents

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: November 16, 2009 |  |  |  | /s/    J. Donald Boggus, Jr.                               
|                        |  |  |  | J. Donald Boggus, Jr. President and Chief Executive Officer
|                        |  | 
|Date: November 16, 2009 |  |  |  | /s/    Leland W. Brantley, Jr.                             
|                        |  |  |  | Leland W. Brantley, Jr. Chief Financial Officer            



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##### Table of Contents

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.