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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549



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FORM 10-Q



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(Mark One)

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

For the quarterly period ended March 31, 2006

OR



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

For the transition period from  to
.

Commission file number 0-20251



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Crescent
Banking Company

(Exact Name of Registrant as Specified in its Charter)



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

(678) 454-2266

(Registrants Telephone Number, Including Area Code)

Not applicable

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



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

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated Filer  x

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

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

As of May 12, 2006, Crescent Banking Company had 2,595,073 shares of its common stock, par value $1.00 per share, issued and outstanding, of which
16,668 shares were held by Crescent Banking Company as treasury stock.



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##### Table of Contents

CRESCENT BANKING COMPANY

INDEX



|         |  |                                                                                       |  |         
|-------- |  | ------------------------------------------------------------------------------------- |  | --------
|         |  |                                                                                       |  | Page No.
|Part I.  |  | Financial Information                                                                 |  |         
|         |  |                                                                                      
|Item 1.  |  | Consolidated Financial Statements                                                     |  |         
|         |  |                                                                                      
|         |  | Consolidated Balance Sheets                                                           |  | 1       
|         |  |                                                                                      
|         |  | Consolidated Statements of Operations and Comprehensive Income                        |  | 2       
|         |  |                                                                                      
|         |  | Consolidated Statements of Cash Flows                                                 |  | 4       
|         |  |                                                                                      
|         |  | Notes to Consolidated Financial Statements                                            |  | 6       
|         |  |                                                                                      
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11      
|         |  |                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 27      
|         |  |                                                                                      
|Item 4.  |  | Controls and Procedures                                                               |  | 29      
|         |  |                                                                                      
|Part II. |  | Other Information                                                                     |  |         
|         |  |                                                                                      
|Item 1.  |  | Legal Proceedings                                                                     |  | 30      
|         |  |                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 30      
|         |  |                                                                                      
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  | 30      
|         |  |                                                                                      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 30      
|         |  |                                                                                      
|Item 5.  |  | Other Information                                                                     |  | 30      
|         |  |                                                                                      
|Item 6.  |  | Exhibits                                                                              |  | 30      



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##### Table of Contents

PART IFINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)



|                                                                                                                  |  |                |             |   |                  |   |             |  
|----------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                  |  | March 31, 2006 |             |   | December 31,2005 |  
|Assets                                                                                                            |  |                |             |   |                  |   |             |  
|Cash and due from banks                                                                                           |  | $              | 8,129,471   |   |                  | $ | 12,793,467  |  
|Interest-bearing deposits in banks                                                                                |  |                | 806,366     |   |                  |   | 146,623     |  
|Federal funds sold                                                                                                |  |                | 38,928,000  |   |                  |   | 40,030,000  |  
|Investment securities available-for-sale                                                                          |  |                | 18,031,567  |   |                  |   | 14,765,618  |  
|Investment securities held-to-maturity, at cost (fair value approximates $2,047,835 and $2,049,030, respectively) |  |                | 2,067,634   |   |                  |   | 2,068,066   |  
|Restricted equity securities                                                                                      |  |                | 3,680,775   |   |                  |   | 3,473,975   |  
|Mortgage loans held for sale                                                                                      |  |                | 549,508     |   |                  |   | 1,511,535   |  
|Loans                                                                                                             |  |                | 611,635,187 |   |                  |   | 593,703,740 |  
|Less allowance for loan losses                                                                                    |  |                | (7,024,002  | ) |                  |   | (6,711,974  | )
|                                                                                                                  |  |                |             |   |                  |   |             |  
|Loans, net                                                                                                        |  |                | 604,611,185 |   |                  |   | 586,991,766 |  
|Premises and equipment                                                                                            |  |                | 17,690,505  |   |                  |   | 17,177,662  |  
|Other real estate owned                                                                                           |  |                | 1,006,393   |   |                  |   | 600,135     |  
|Mortgage servicing rights                                                                                         |  |                | 53,353      |   |                  |   | 56,832      |  
|Cash surrender value of life insurance                                                                            |  |                | 8,034,606   |   |                  |   | 7,964,640   |  
|Goodwill                                                                                                          |  |                | 3,442,714   |   |                  |   | 3,442,714   |  
|Deposit intangible                                                                                                |  |                | 524,845     |   |                  |   | 556,283     |  
|Deferred tax asset                                                                                                |  |                | 5,056,474   |   |                  |   | 5,027,783   |  
|Accounts receivable-brokers and escrow agents                                                                     |  |                | 308,160     |   |                  |   | 334,372     |  
|Other assets                                                                                                      |  |                | 6,694,226   |   |                  |   | 7,160,557   |  
|                                                                                                                  |  |                |             |   |                  |   |             |  
|Total Assets                                                                                                      |  | $              | 719,615,782 |   |                  | $ | 704,102,028 |  
|                                                                                                                  |  |                |             |   |                  |   |             |  
|Liabilities                                                                                                       |  |                |             |   |                  |   |             |  
|Deposits                                                                                                          |  |                |             |   |                  |   |             |  
|Noninterest-bearing                                                                                               |  | $              | 37,139,823  |   |                  | $ | 37,367,247  |  
|Interest-bearing                                                                                                  |  |                | 558,524,388 |   |                  |   | 543,131,531 |  
|                                                                                                                  |  |                |             |   |                  |   |             |  
|Total deposits                                                                                                    |  |                | 595,664,211 |   |                  |   | 580,498,778 |  
|Short-term borrowings                                                                                             |  |                | 12,000,000  |   |                  |   | 16,000,000  |  
|Long-term borrowings                                                                                              |  |                | 46,853,000  |   |                  |   | 44,853,000  |  
|Accrued interest and other liabilities                                                                            |  |                | 5,623,916   |   |                  |   | 4,701,592   |  
|Liabilities related to discontinued operations                                                                    |  |                | 2,787,097   |   |                  |   | 2,868,825   |  
|                                                                                                                  |  |                |             |   |                  |   |             |  
|Total liabilities                                                                                                 |  |                | 662,928,224 |   |                  |   | 648,922,195 |  
|Shareholders equity                                                                                              |  |                |             |   |                  |   |             |  
|Common stock, par value $1.00; 10,000,000 shares authorized; 2,595,073 and 2,580,455 issued, respectively         |  |                | 2,595,073   |   |                  |   | 2,580,455   |  
|Capital surplus                                                                                                   |  |                | 19,398,550  |   |                  |   | 19,026,514  |  
|Retained earnings                                                                                                 |  |                | 35,272,087  |   |                  |   | 34,107,980  |  
|Treasury stock, 16,668 shares                                                                                     |  |                | (296,091    | ) |                  |   | (296,091    | )
|Accumulated other comprehensive loss                                                                              |  |                | (282,061    | ) |                  |   | (239,025    | )
|                                                                                                                  |  |                |             |   |                  |   |             |  
|Total shareholders equity                                                                                        |  |                | 56,687,558  |   |                  |   | 55,179,833  |  
|                                                                                                                  |  |                |             |   |                  |   |             |  
|Total liabilities and shareholders equity                                                                        |  | $              | 719,615,782 |   |                  | $ | 704,102,028 |  
|                                                                                                                  |  |                |             |   |                  |   |             |  

See Notes to Consolidated Financial Statements.



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##### Table of Contents

CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(unaudited)



|                                                                                     |  |                                     |            |   |      |   |           |  
|------------------------------------------------------------------------------------ |  | ----------------------------------- | ---------- | - | ---- | - | --------- | -
|                                                                                     |  | For the three months endedMarch 31, |           
|                                                                                     |  | 2006                                |            |   | 2005 |  
|Interest income                                                                      |  |                                     |            |   |      |   |           |  
|Loans                                                                                |  | $                                   | 11,362,515 |   |      | $ | 6,934,399 |  
|Mortgage loans held for sale                                                         |  |                                     | 4,835      |   |      |   | 7,386     |  
|Taxable securities                                                                   |  |                                     | 266,021    |   |      |   | 189,036   |  
|Deposits in banks                                                                    |  |                                     | 8,540      |   |      |   | 38,690    |  
|Federal funds sold                                                                   |  |                                     | 474,723    |   |      |   | 121,911   |  
|                                                                                     |  |                                     |            |   |      |   |           |  
|Total interest income                                                                |  |                                     | 12,116,634 |   |      |   | 7,291,422 |  
|                                                                                     |  |                                     |            |   |      |   |           |  
|Interest expense                                                                     |  |                                     |            |   |      |   |           |  
|Deposits                                                                             |  |                                     | 5,320,788  |   |      |   | 2,926,860 |  
|Short-term borrowings                                                                |  |                                     | 111,616    |   |      |   | 107,874   |  
|Long-term borrowings                                                                 |  |                                     | 551,516    |   |      |   | 270,798   |  
|                                                                                     |  |                                     |            |   |      |   |           |  
|Total interest expense                                                               |  |                                     | 5,983,920  |   |      |   | 3,305,532 |  
|                                                                                     |  |                                     |            |   |      |   |           |  
|Net interest income                                                                  |  |                                     | 6,132,714  |   |      |   | 3,985,890 |  
|Provision for loan losses                                                            |  |                                     | 470,000    |   |      |   | 388,000   |  
|                                                                                     |  |                                     |            |   |      |   |           |  
|Net interest income after provision for loan losses                                  |  |                                     | 5,662,714  |   |      |   | 3,597,890 |  
|                                                                                     |  |                                    
|Non interest income                                                                  |  |                                     |            |   |      |   |           |  
|Service charges on deposit accounts                                                  |  |                                     | 247,365    |   |      |   | 214,179   |  
|Mortgage servicing fee income                                                        |  |                                     | 18,458     |   |      |   | 212,327   |  
|Gains on call of investment securities                                               |  |                                     |           |   |      |   | 259,248   |  
|Gains on sales of SBA loans                                                          |  |                                     | 92,330     |   |      |   | 178,467   |  
|Other operating income                                                               |  |                                     | 417,386    |   |      |   | 409,015   |  
|                                                                                     |  |                                     |            |   |      |   |           |  
|Total non interest income                                                            |  |                                     | 775,539    |   |      |   | 1,273,236 |  
|                                                                                     |  |                                    
|Non interest expenses                                                                |  |                                     |            |   |      |   |           |  
|Salaries and employee benefits                                                       |  |                                     | 2,261,160  |   |      |   | 1,584,879 |  
|Occupancy and equipment                                                              |  |                                     | 427,234    |   |      |   | 277,758   |  
|Supplies, postage, and telephone                                                     |  |                                     | 280,423    |   |      |   | 214,183   |  
|Advertising                                                                          |  |                                     | 121,839    |   |      |   | 105,629   |  
|Insurance expense                                                                    |  |                                     | 82,162     |   |      |   | 43,655    |  
|Depreciation and amortization                                                        |  |                                     | 346,198    |   |      |   | 311,484   |  
|Legal and professional                                                               |  |                                     | 270,107    |   |      |   | 282,260   |  
|Director fees                                                                        |  |                                     | 86,675     |   |      |   | 42,900    |  
|Mortgage subservicing expense                                                        |  |                                     | 8,475      |   |      |   | 101,193   |  
|Foreclosed asset (income) expense, net                                               |  |                                     | (7,250     | ) |      |   | 61,960    |  
|Other operating expenses                                                             |  |                                     | 281,500    |   |      |   | 192,303   |  
|                                                                                     |  |                                     |            |   |      |   |           |  
|Total non-interest expenses                                                          |  |                                     | 4,158,523  |   |      |   | 3,218,204 |  
|                                                                                     |  |                                    
|Income before income taxes                                                           |  |                                     | 2,279,730  |   |      |   | 1,652,922 |  
|Applicable income taxes                                                              |  |                                     | 871,019    |   |      |   | 635,962   |  
|                                                                                     |  |                                     |            |   |      |   |           |  
|Net income                                                                           |  |                                     | 1,408,711  |   |      |   | 1,016,960 |  
|                                                                                     |  |                                     |            |   |      |   |           |  
|Other comprehensive income                                                           |  |                                     |            |   |      |   |           |  
|Unrealized losses on securities available-for-sale arising during period, net of tax |  |                                     | (43,036    | ) |      |   | (100,605  | )
|                                                                                     |  |                                     |            |   |      |   |           |  
|Comprehensive income                                                                 |  | $                                   | 1,365,675  |   |      | $ | 916,355   |  
|                                                                                     |  |                                     |            |   |      |   |           |  

See Notes to Consolidated Financial Statements



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##### Table of Contents

CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)

(unaudited)



|                                         |  |                                      |        |      |   |       
|---------------------------------------- |  | ------------------------------------ | ------ | ---- | - | ------
|                                         |  | For the three months ended
March 31,
|                                         |  | 2006                                 |        | 2005
|Earnings per share                       |  |                                      |        |      |   |       
|Basic earnings per share                 |  | $                                    | 0.55   |      | $ | 0.41  
|Diluted earnings per share               |  | $                                    | 0.53   |      | $ | 0.40  
|Cash dividends per share of common stock |  | $                                    | 0.0950 |      | $ | 0.0850

See Notes to Consolidated Financial Statements



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##### Table of Contents

CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                  |  |                                      |             |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ------------------------------------ | ----------- | - | ---- | - | ----------- | -
|                                                                                  |  | For the three months ended March 31, |            
|                                                                                  |  | 2006                                 |             |   | 2005 |  
|Operating Activities                                                              |  |                                      |             |   |      |   |             |  
|Net income                                                                        |  | $                                    | 1,408,711   |   |      | $ | 1,016,960   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                      |             |   |      |   |             |  
|Amortization of discount on securities                                            |  |                                      | 6,145       |   |      |   | 4,722       |  
|Amortization of deposit intangible                                                |  |                                      | 31,438      |   |      |   | 18,532      |  
|Net gain on call of investment securities                                         |  |                                      |            |   |      |   | (259,248    | )
|Net (gain) loss on sale of other real estate owned                                |  |                                      | (26,227     | ) |      |   | 28,179      |  
|Net (gain) loss on sale/disposal of premises and equipment                        |  |                                      | 37,661      |   |      |   | (2,100      | )
|Amortization of mortgage servicing rights                                         |  |                                      | 3,480       |   |      |   | 74,440      |  
|Provision for loan losses                                                         |  |                                      | 470,000     |   |      |   | 388,000     |  
|Depreciation                                                                      |  |                                      | 311,285     |   |      |   | 218,512     |  
|Proceeds from sales of mortgage loans held for sale                               |  |                                      | 11,282,753  |   |      |   | 14,386,112  |  
|Originations of mortgage loans held for sale                                      |  |                                      | (10,320,726 | ) |      |   | (13,346,529 | )
|Income on life insurance policies                                                 |  |                                      | (69,966     | ) |      |   | (54,495     | )
|Increase in deferred income taxes                                                 |  |                                      | (5,925      | ) |      |   |            |  
|Increase in interest receivable                                                   |  |                                      | 285,901     |   |      |   | (363,703    | )
|Decrease in accounts receivable  brokers and escrow agents                       |  |                                      | 26,212      |   |      |   | 94,423      |  
|Increase in interest payable                                                      |  |                                      | 299,134     |   |      |   | 170,438     |  
|Stock compensation expense                                                        |  |                                      | 15,646      |   |      |   |            |  
|Net cash used in discontinued operations                                          |  |                                      | (81,728     | ) |      |   | (331,091    | )
|Net change in other assets, liabilities and other operating activities            |  |                                      | 810,044     |   |      |   | 65,536      |  
|                                                                                  |  |                                      |             |   |      |   |             |  
|Net cash provided by operating activities                                         |  |                                      | 4,483,838   |   |      |   | 2,108,688   |  
|                                                                                  |  |                                      |             |   |      |   |             |  
|Investing Activities                                                              |  |                                      |             |   |      |   |             |  
|Net (increase) decrease in interest-bearing deposits in banks                     |  |                                      | (659,743    | ) |      |   | 4,292,453   |  
|Purchase of securities available-for-sale                                         |  |                                      | (3,727,323  | ) |      |   | (1,036,114  | )
|Proceeds from maturities/calls of securities available-for-sale                   |  |                                      | 383,932     |   |      |   | 468,634     |  
|Proceeds from maturities/calls of securities held-to-maturity                     |  |                                      |            |   |      |   | 914,675     |  
|Purchase of other securities                                                      |  |                                      | (206,800    | ) |      |   | (332,200    | )
|Proceeds from sale of other real estate owned                                     |  |                                      | 350,028     |   |      |   | 715,006     |  
|Sale of premises and equipment                                                    |  |                                      | 3,000       |   |      |   | 2,100       |  
|Net (increase) decrease in federal funds sold                                     |  |                                      | 1,102,000   |   |      |   | (14,029,000 | )
|Net increase in loans                                                             |  |                                      | (18,819,977 | ) |      |   | (29,879,301 | )
|Purchase of premises and equipment                                                |  |                                      | (864,788    | ) |      |   | (1,656,055  | )
|                                                                                  |  |                                      |             |   |      |   |             |  
|Net cash used in investing activities                                             |  |                                      | (22,439,671 | ) |      |   | (40,539,802 | )
|                                                                                  |  |                                      |             |   |      |   |             |  

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 three months ended March 31, |           
|                                                                   |  | 2006                                 |            |   | 2005 |  
|Financing Activities                                               |  |                                      |            |   |      |   |            |  
|Net increase in deposits                                           |  |                                      | 15,165,433 |   |      |   | 33,591,067 |  
|Net decrease in borrowings                                         |  |                                      | (2,000,000 | ) |      |   |           |  
|Excess tax benefits from share-based payment arrangements          |  |                                      | 133,352    |   |      |   |           |  
|Proceeds from the exercise of stock options                        |  |                                      | 237,656    |   |      |   |           |  
|Dividends paid                                                     |  |                                      | (244,604   | ) |      |   |           |  
|                                                                   |  |                                      |            |   |      |   |            |  
|Net cash provided by financing activities                          |  |                                      | 13,291,837 |   |      |   | 33,591,067 |  
|                                                                   |  |                                      |            |   |      |   |            |  
|Net decrease in cash and due from banks                            |  |                                      | (4,663,996 | ) |      |   | (4,840,047 | )
|Cash and due from banks at beginning of year                       |  |                                      | 12,793,467 |   |      |   | 11,672,894 |  
|                                                                   |  |                                      |            |   |      |   |            |  
|Cash and due from banks at end of period                           |  | $                                    | 8,129,471  |   |      | $ | 6,832,847  |  
|                                                                   |  |                                      |            |   |      |   |            |  
|Supplemental Disclosure of Cash Flow Information                   |  |                                      |            |   |      |   |            |  
|Cash paid during period for interest                               |  | $                                    | 5,684,786  |   |      | $ | 3,135,094  |  
|Cash paid during period for taxes                                  |  |                                      | 44,000     |   |      |   | 80,135     |  
|Principal balances of loans transferred to other real estate owned |  |                                      | 730,558    |   |      |   | 300,000    |  
|Unrealized loss on securities available for sale, net              |  |                                      | (43,036    | ) |      |   | (100,605   | )

See Notes to Consolidated Financial Statements.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2006

NOTE 1GENERAL

The accompanying unaudited
consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These unaudited consolidated financial statements should be read in conjunction with the Companys consolidated
financial statements and notes thereto in the 2005 annual report on Form 10-K. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations of the interim periods have been made.
All such adjustments are of a normal recurring nature. Results of operations for the three months ended March 31, 2006 are not necessarily indicative of the results of operations for the full year or any other interim periods.

NOTE 2DISCONTINUED OPERATIONS

The consolidated
balance sheets at March 31, 2006 and December 31, 2005 include no assets and include liabilities of $2,787,097 and $2,868,825, respectively, related to discontinued wholesale residential mortgage operations. The liabilities included in the
consolidated balance sheets related to discontinued operations are the allowance for the recourse liability. When the Company operated its wholesale residential mortgage business, mortgage loans held for sale were carried at the lower of aggregate
cost or market price, and therefore no reserve for mortgage loans held for sale was carried. When a loan was sold, the Company typically made representations and warranties to the purchasers and insurers that the Company had properly originated and
serviced the loans under state laws, investor guidelines and program eligibility standards. Purchasers of loans typically conducted their own review of the loans, and the Company could be obligated to indemnify the purchaser for unpaid principal and
interest on defaulted loans if the Company had breached its representations and warranties with respect to the loans that it sold. The Company relied on the underwriting department to ensure compliance with individual investor standards prior to the
sale of loans along with reliance on the quality control department to randomly test loans that had been sold. At March 31, 2006 and December 31, 2005, the Company had approximately $6.9 million and $6.8 million, respectively, of mortgage
loans for which it had agreed to indemnify the purchaser for losses suffered by the purchaser. In the event that the purchaser of these loans experiences any losses with respect to the loans, the Company will be required to indemnify the purchaser
for its losses or to repurchase the loans from the purchaser. The Company has established a specific allowance for the recourse liability for the loans on which the Company has already become obligated to make indemnification payments to the
purchaser and an estimated allowance for the recourse liability for probable future losses from loans that the Company may have to indemnify. The estimated recourse liability at March 31, 2006 and December 31, 2005 for future losses was
approximately $2.8 million and $2.9 million, respectively, and was estimated based upon historical information on the number of loans indemnified and the average loss on an indemnified loan, including higher risk loans secured by manufactured
housing. The table below shows the changes in the allowance for recourse obligation from December 31, 2005 to March 31, 2006.

Changes in the allowance for recourse obligation are as follows:



|                                       |  |      |           |  
|-------------------------------------- |  | ---- | --------- | -
|                                       |  | 2006 |          
|Balance at December 31, 2005           |  | $    | 2,868,825 |  
|Provisions for recourse obligations    |  |      |          |  
|Refund from mortgage insurance company |  |      |          |  
|Losses indemnified                     |  |      | (81,728   | )
|                                       |  |      |           |  
|Balance at March 31, 2006              |  | $    | 2,787,097 |  
|                                       |  |      |           |  

NOTE 3CASH FLOW INFORMATION

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

NOTE 4SERVICING PORTFOLIO

The Company services
residential loans for various investors under contract for a fee. As of March 31, 2006, the Company was servicing loans for others with principal balances totaling $21 million.



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##### Table of Contents

NOTE 5EARNINGS PER SHARE

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



|                                              |  |                                   |           |                                     |           |                  |   |     
|--------------------------------------------- |  | --------------------------------- | --------- | ----------------------------------- | --------- | ---------------- | - | ----
|                                              |  | Three Months Ended March 31, 2006
|                                              |  | Net Income(Numerator)             |           | Weighted-AverageShares(Denominator) |           | Per-ShareAmount 
|Consolidated                                  |  |                                   |           |                                     |           |                  |   |     
|Basic earnings per share                      |  | $                                 | 1,408,711 |                                     | 2,568,724 |                  | $ | 0.55
|Effect of dilutive securities (stock options) |  |                                   |           |                                     | 85,151    |                  |   |     
|Diluted earnings per share                    |  | $                                 | 1,408,711 |                                     | 2,653,875 |                  | $ | 0.53
|                                              | 
|                                              |  | Three Months Ended March 31, 2005
|                                              |  | Net Income(loss)(Numerator)       |           | Weighted-AverageShares(Denominator) |           | Per-Share Amount
|Consolidated                                  |  |                                   |           |                                     |           |                  |   |     
|Basic earnings per share                      |  | $                                 | 1,016,960 |                                     | 2,483,067 |                  | $ | 0.41
|Effect of dilutive securities (stock options) |  |                                   |           |                                     | 71,994    |                  |   |     
|Diluted earnings per share                    |  | $                                 | 1,016,960 |                                     | 2,555,061 |                  | $ | 0.40

NOTE 6STOCK COMPENSATION PLANS

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment, (SFAS No. 123R)
which was issued by the FASB in December 2004. SFAS No. 123R revises SFAS No. 123 Accounting for Stock Based Compensation, and supersedes APB No. 25, Accounting for Stock Issued to Employees, (APB
No. 25) and its related interpretations. SFAS No. 123R requires recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required
to perform the services in exchange for the award (presumptively the vesting period). SFAS No. 123R also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award.
SFAS No. 123R also amends SFAS No. 95 Statement of Cash Flows, to require that excess tax benefits be reported as financing cash inflows, rather than as a reduction of taxes paid, which is included within operating cash flows.

The Company adopted SFAS No. 123R using the modified prospective application as permitted under SFAS No. 123R. Accordingly,
prior period amounts have not been restated. Under this application, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain
outstanding at the date of adoption.

Prior to the adoption of SFAS No. 123R, the Company used the intrinsic value method as
prescribed by APB No. 25 and thus recognized no compensation expense for options granted with exercise prices equal to the fair market value of the Companys common stock on the date of grant.

The Company has two share-based compensation plans in effect at March 31, 2006. The compensation cost that has been charged against income for those
plans was $15,646 for the three months ended March 31, 2006. The Company recorded no deferred tax benefit in the first quarter of 2006 because all of the compensation cost was related to incentive stock options.

The Company has a qualified stock option plan for key employees (the employee plan) and has reserved 300,000 shares of common stock under
that plan. Options are granted at the fair market value of the Companys common stock on the date of grant. All options under the employee plan expire ten years from the date of grant and the options at December 31, 2005 vest over periods
ranging from 12 months to 60 months. At March 31, 2006, 97,056 options were available for grant.

The Company also has non-qualified
stock option plans for directors (the director plans) and has reserved 198,000 shares of common stock. Options are granted at fair market value of the Companys common stock on the date of grant, except for certain options that are
granted with an exercise price of $8.00 per share. All options under these plans expire ten years from the date of grant and all of the options vest upon grant. At March 31, 2006, 54,008 options were available for grant at fair market value and
none were available to grant with an exercise price of $8.00 per share.



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##### Table of Contents

NOTE 6STOCK COMPENSATION PLANS (Continued)

The fair market value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The Company granted 500 options
for the quarter ended March 31, 2006 with an average fair value of $11.11 per option and granted no options for the quarter ended March 31, 2005.

The risk-free interest rate is based upon a U.S. Treasury instrument with a life that is similar to the expected life of the option grant. Expected volatility is based upon the historical volatility of the Company
based upon the previous 2 years trading history. The expected term of the options is based upon the average life of previously issued stock options. The expected dividend yield is based upon current yield on date of grant. No post-vesting
restrictions exist for these options. The following table illustrates the average assumptions for the Black-Scholes model used in determining the fair value of options granted to employees in the quarter ended March 31, 2006.



|                        |  |                             |  
|----------------------- |  | --------------------------- | -
|                        |  | Quarter EndedMarch 31, 2006 |  
|Dividend yield          |  | 1.01                        | %
|Risk-free interest rate |  | 4.38                        | %
|Volatility              |  | 24.80                       | %
|Expected life           |  | 5.75 years                  |  

A summary of option activity under the stock option plans as of March 31, 2006, and changes
during the three month period ended March 31, 2006 is presented below:



|                                 |  |         |   |  |                              |       |                                         |            |                         |   |          
|-------------------------------- |  | ------- | - |  | ---------------------------- | ----- | --------------------------------------- | ---------- | ----------------------- | - | ---------
|                                 |  | Shares  |   |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractualTerm |            | AggregateIntrinsicValue
|Outstanding at December 31, 2005 |  | 273,629 |   |  | $                            | 24.29 |                                         |           |                         |   |         
|                                 |  |         |   | 
|Options Exercised                |  | (14,618 | ) |  | $                            | 16.26 |                                         |           |                         |   |         
|Options Forfeited                |  | (2,000  | ) |  | $                            | 26.24 |                                         |           |                         |   |         
|Options Granted                  |  | 500     |   |  | $                            | 37.75 |                                         |           |                         |   |         
|                                 |  |         |   |  |                              |       |                                         |            |                         |   |          
|Outstanding at March 31, 2006    |  | 257,511 |   |  | $                            | 24.75 |                                         | 7.55 Years |                         | $ | 4,179,532
|                                 |  |         |   | 
|Exerciseable at March 31, 2006   |  | 198,177 |   |  | $                            | 23.80 |                                         | 7.39 Years |                         | $ | 3,419,136

For the quarter ended March 31, 2006, the intrinsic value of options exercised was
approximately $316,967. There were no shares exercised for the quarter ended March 31, 2005. The fair value of options vested during the periods was approximately $15,646 and $25,720, respectively.

Cash received from option exercise under all share-based payment arrangements for the three month period ended March 31, 2006 was $237,656. The
actual tax benefit in stockholders equity realized for the tax deductions from option exercise of the share-based payment arrangements totaled $133,352 for the three months ended March 31, 2006.

As of March 31, 2006, there was $215,899 of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That
cost is expected to be recognized over a weighted-average period of 2 years.



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##### Table of Contents

NOTE 6STOCK COMPENSATION PLANS (Continued)

The adoption of SFAS 123R and its fair value compensation cost recognition provisions are different from the nonrecognition provisions under SFAS 123 and
the intrinsic value method for compensation cost allowed under APB No. 25. The effect (increase/(decrease)) of the adoption of SFAS 123R is as follows:



|                                    |  |   |         |  
|----------------------------------- |  | - | ------- | -
|Income before income tax expense    |  | $ | (15,646 | )
|Net Income                          |  | $ | (15,646 | )
|                                    | 
|Cash flow from operating activities |  | $ | 15,646  |  
|Cash flow from financing activities |  | $ | 133,352 |  
|                                    | 
|Basic earnings per share            |  | $ | (0.01   | )
|Diluted earnings per share          |  | $ | (0.01   | )

The following table illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation to the quarter ended March 31, 2005:



|                                                                                                                                            |  |                                          |          
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ---------
|                                                                                                                                            |  | For the three months endedMarch 31, 2005
|Net income, as reported                                                                                                                     |  | $                                        | 1,016,960
|                                                                                                                                            | 
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                          | 15,689   
|                                                                                                                                            |  |                                          |          
|Pro forma net income                                                                                                                        |  | $                                        | 1,001,271
|                                                                                                                                            | 
|Consolidated earnings per share:                                                                                                            |  |                                          |          
|Basic  as reported                                                                                                                         |  | $                                        | 0.41     
|Basic  pro forma                                                                                                                           |  | $                                        | 0.40     
|Diluted  as reported                                                                                                                       |  | $                                        | 0.40     
|Diluted  pro forma                                                                                                                         |  | $                                        | 0.39     

NOTE 7DERIVATIVE FINANCIAL INSTRUMENTS

In order to manage its interest rate sensitivity, the Company uses off-balance sheet contracts that are considered derivative financial instruments.
Derivative financial instruments can be a cost-effective and capital effective means of modifying the repricing characteristics of on-balance sheet assets and liabilities. At March 31, 2006, the Company was a party to interest rate swap
contracts under which it pays a fixed rate and receives a variable rate. The notional amount of the interest rate swaps was approximately $2,361,000 with a fair value of approximately $120,000 at March 31, 2006. The Company has an embedded
derivative in one loan agreement that relates to the swap agreements. These derivatives are recorded in other assets and other liabilities. The net effect of recording the derivatives at fair value through earnings was immaterial to the
Companys financial condition and results of operations as of and for the three months ended March 31, 2006. If a counterparty 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 will fail to perform; however, management believes
that this risk associated with using derivative financial instruments to mitigate interest rate risk sensitivity is minimal and should not have any material unintended impact on the financial condition or results of operations.



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##### Table of Contents

NOTE 8TRUST PREFERRED SECURITIES

During the third quarter of 2005, the Company organized Crescent Capital Trust II (the Trust II), a statutory business trust that issued an
additional $8,000,000 of trust preferred securities. As a result of this transaction, the Company records additional long term liability of $8,248,000 related to the issuance by the Company of $8,248,000 of junior subordinated debentures to the
Trust II and other assets of $248,000 related to the Companys purchase of 100% of the common stock of the Trust II. The Company contributed $4,180,000 of the proceeds from the sale of the trust preferred securities to the Bank and repaid
$3,680,000 outstanding on its line of credit with the Bankers Bank with the remaining proceeds. We believe the trust preferred securities qualify as Tier 1 regulatory capital under the Federal Reserves newly adopted capital rules.

During the fourth quarter of 2001, the Company organized Crescent Capital Trust I (the Trust I), a statutory business trust that issued
$3,500,000 of trust preferred securities. As a result of this transaction, the Company recorded additional long term liability of $3,605,000 related to the issuance by the Company of $3,605,000 of junior subordinated debentures to the Trust I and
other assets of $105,000 related to the Companys purchase of 100% of the common stock of the Trust I. We believe the trust preferred securities qualify as Tier 1 regulatory capital under the Federal Reserves newly adopted capital rules.



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

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

All statements other
than statements of historical fact are statements that may be forward-looking statements. Readers can identify these forward-looking statements through our use of words such as may, will, anticipate,
assume, should, indicate, would, believe, contemplate, expect, estimate, continue, plan, point to,
project, could, intend, target, and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:



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



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



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



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



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



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



| |  |  | the risks of mergers, acquisitions and divestitures (including the sale to Carolina Financial Corporation of the wholesale residential mortgage business conducted by CMS and
the merger with Futurus Financial Services, Inc.), including, without limitation, the related time and costs of implementing such transactions and the possible failure to achieve expected gains, revenue growth and/or expense savings expected from
such transactions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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

All written or oral forward-looking statements that are made by or are
attributable to us are expressly qualified in their entirety by this cautionary notice. We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date of this report, or after the
respective dates on which such statements otherwise are made.



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##### Table of Contents

Overview

The Company is made up of the following five entities:



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



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



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



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



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

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

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

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

As of
March 31, 2006, the Company had total consolidated assets of approximately $719.6 million, total deposits of approximately $595.7 million, total consolidated liabilities, including deposits, of approximately $662.9 million and consolidated
shareholders equity of approximately $56.7 million. The Companys operations are discussed below under Results of Operations.

Commercial Banking Business

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

Through the Bank, the Company provides a broad
range of banking and financial services to those areas surrounding Jasper, Georgia. As its primary market area, the Bank focuses on Pickens, Bartow, Forsyth and Cherokee Counties, Georgia and nearby Dawson, Cobb, Walton and Gilmer Counties, Georgia,
which are situated to the north of Atlanta, Georgia. The Banks commercial banking operations are primarily retail-oriented and aimed at individuals and small- to medium-sized businesses located within its market area. While the Bank provides
most traditional banking services, its principal activities as a community bank are the taking of demand and time deposits and the making of secured and unsecured consumer loans and commercial loans to its target customers. The retail nature of the
Banks commercial banking operations allows for diversification of depositors and borrowers, and the Banks management believes it is not dependent upon a single or a few customers. The Bank does not have a significant portion of
commercial banking loans concentrated within a single industry or group of related industries. However, approximately 92% of the Banks loan portfolio is secured by commercial and residential real estate in its primary market area. The Company
does not consider its commercial banking operations to be seasonal in nature. The Bank makes loans to acquire and develop commercial and residential real estate. Real estate activity and values tend to be cyclical and vary over time with interest
rates and economic activity.



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##### Table of Contents

Continued Expansion

Consistent with the Companys efforts to better service its market, the Company has engaged in recent expansion of its business. The sale of the
Companys wholesale residential mortgage business on December 31, 2003 made available $27 million in capital that we are using to expand our commercial banking business through our ongoing branching initiatives. During 2004 and 2005, we
opened three new full service branches and two new loan production offices in our market area, and on April 1, 2005 we completed a merger with Futurus Financial Services, Inc. (Futurus Financial) and Futurus Bank, N.A. in which we
acquired one full service branch and one loan production office. We completed construction of our new Cumming, Georgia branch office in January of 2006 and we concurrently closed our existing Cumming branch location that was being operated out of
leased space in a shopping center. Also, in the fourth quarter of 2005, we began construction on two new full service branches in Cherokee County, one located in south Cherokee County near Woodstock, Georgia and one located in Canton, Georgia. We
expect to complete construction of these two branches in the second quarter of 2006. With the completion of these two branches, the Bank will have four full service branches in Cherokee County, which is one of the fastest growing counties in
Georgia.

Challenges for the Commercial Banking Business

The Bank has four primary challenges for the future: interest rate risk, a competitive marketplace, liquidity and credit risk. The Banks principal
source of income is its net interest income. Net interest income is the difference between the interest income we receive on our interest-earning assets, such as investment securities and loans, and the interest expense we pay on our
interest-bearing liabilities, such as deposits and borrowings. The greatest risk to our net interest margin is interest rate risk from the potential movement in interest rates, which if not anticipated and managed, can result in a decrease in
earnings or earnings volatility. We manage interest rate risk by maintaining what we believe to be the proper balance of rate sensitive assets and rate sensitive liabilities. Rate sensitive assets and rate sensitive liabilities are those that can be
repriced to current rates within a relatively short time period. Many economists feel that interest rates will continue to slowly rise in the first half of 2006 and then remain stable thereafter. During the 0-90 day period, during which we are most
sensitive to interest rate changes, the Bank is considered asset sensitive, and if rates rise, our net interest margin is expected to improve.

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

The third challenge for the Companys commercial
banking business is liquidity, or our ability to raise funds to support asset growth and sustain our operations. Due to the projected high volume of loan growth for 2006 and future years and the competitive pricing by competitors in several of our
market areas, the Banks liquidity could come under pressure. The Bank has the ability to acquire out of market deposits to supplement deposit growth in our market areas and can borrow an additional $11.0 million in Federal Home Loan Bank
advances, if necessary. However, if access to these funds is limited in any way, then our liquidity and ability to support commercial loan demand could be affected. The Bank may have to increase its deposit rates in the future, which would adversely
affect its net interest margin and net income.

The fourth challenge for the Companys commercial banking business is maintaining
sound credit quality. The Banks loan portfolio grew 37% during 2005. Also, during the last six months of 2004 and during 2005, the Bank added approximately 15 new loan officers which were mainly related to the addition of three new full
service branches and two new loan production offices. With the current focus on growth, the Bank must put into place the proper procedures to be able to monitor the loan growth including the quality of the loan growth. If the credit quality of the
Banks loan portfolio declines, then the Banks ability to raise capital and expand could be limited.



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##### Table of Contents

Accounting Standards

In November 2005, the Financial Accounting Standards Board (FASB) issued Staff Position (FSP) FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments,which amends SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,and No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB Opinion
No. 18, The Equity Method of Accounting for Investments in Common Stock. This FSP addresses the determination as to when an investment is considered impaired, whether the impairment is other than temporary, and the measurement of an
impairment loss. FSP FAS 115-1 and FAS 124-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. The guidance in this FSP is effective for reporting periods beginning after December 15, 2005. The adoption of FSP FAS 115-1 and FAS 124-1 did not have a material impact on the Companys financial
condition or results of operations.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections.This
statement replaces APB Opinion No. 20, Accounting Changesand SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements.SFAS No. 154 changes the requirements for the accounting for and reporting of a
voluntary change in accounting principle. SFAS No. 154 requires retrospective application to prior periods for changes in accounting principles or error corrections, unless it is impractical to determine the period-specific effects or when a
pronouncement includes specific transition provisions. This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 (revised 2004) did not
have a material impact on its financial condition or result of operations of the Company.

Critical Accounting Policies and Estimates

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



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



| |  |  | the recourse obligation reserve; and
| | - |  | ------------------------------------



| |  |  | the value of mortgage servicing rights.
| | - |  | ---------------------------------------

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

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

Allowance for Loan Losses

The establishment of our allowance for loan losses is based upon our assessments of information available to us at the time of determination, and depends
upon a number of factors, including our historical experience, economic conditions and issues with respect to individual borrowers. Evaluation of these factors involves subjective estimates and judgments that may change.



14



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##### Table of Contents

Recourse Obligation Reserve

In the wholesale mortgage business that we operated prior to December 31, 2003, we regularly made representations and warranties to purchasers of our
mortgage loans and insurers that, if breached, would require us to indemnify the purchaser for losses or to repurchase the loans, and we considered this practice to be customary and routine. The Company records a specific reserve for the recourse
liability for the loans on which the Company has already become obligated to make indemnification payments to the purchaser and an estimated reserve for the recourse liability for probable future losses from loans that the Company may have to
indemnify. The establishment of the recourse obligation reserve is based upon our assessments of information available to us at the time of determination, and depends upon a number of factors, including our historical experience, industry trends and
economic conditions. Before 2002, the Banks history of losses in connection with mortgage loans sold into the secondary market was minimal. The Company established this recourse obligation reserve initially during 2003 with the increase in the
number of loans indemnified and the increase in the occurrence of losses from these loans. The trend of such losses experienced in 2003 increased in 2004 and we added an additional $2.9 million to the recourse obligation reserve. During 2005 and the
first quarter of 2006, our losses related to indemnified loans stabilized and we have not made any more additions to the recourse obligation reserve. Given the limited historical information available to management with respect to the Companys
potential obligations to make indemnification payments, the evaluation of these factors involves subjective estimates and judgments that may change.

Mortgage Servicing Rights

Mortgage servicing rights represent the cost of
acquiring the rights to service mortgage loans. We amortize those rights in proportion to, and over the period of, estimated future net servicing income. Gains related to the sales of mortgage servicing rights represent the difference between the
sales proceeds and the related capitalized mortgage servicing rights. Mortgage servicing rights are amortized over a life of approximately 5 years. Mortgage servicing rights are evaluated for impairment based upon the fair value of the rights as
compared to the amortized cost. Impairment is determined by stratifying mortgage servicing rights by predominant characteristics, such as interest rates and terms. Impairment is recognized through a valuation allowance for an individual stratum, to
the extent that the fair value is less than the amortized cost. Quarterly, we have an independent third party determine the fair value of our mortgage servicing rights and evaluate the mortgage servicing rights portfolio for impairment. At
March 31, 2006, no valuation allowances were required for our mortgage servicing rights.

Results of Operations

General Discussion

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



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



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

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



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



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



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



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



15



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##### Table of Contents

The following table sets forth a distribution of the assets, liabilities and shareholders equity
for the three months ended March 31, 2006 and 2005:



|                                     |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|------------------------------------ |  | ---------------- | ------- | - | -------------- | - | ------- | ---------------- |  | ------------------- | ---- |  | ------------- | ---- |  | ---- | ------ |  | ---- | ----- |  | ------ | ----- | - |  | - | ----- | - |  | - | -----
|                                     |  | Average Balances |         |   | Yields / Rates |   |         | Income / Expense |  | Increase (Decrease) |      |  | Change Due to
|                                     |  | 2006             |         |   | 2005           |   |         | 2006             |  |                     | 2005 |  |               | 2006 |  | 2005 |        |  | Rate |       |  | Volume
|Assets                               |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Loans, including fee income          |  | $                | 593,566 |   |                | $ | 449,962 |                  |  | 7.76                | %    |  | 6.25          | %    |  | $    | 11,362 |  | $    | 6,934 |  | $      | 4,428 |   |  | $ | 2,750 |   |  | $ | 1,678
|Mortgage loans held for sale         |  |                  | 297     |   |                |   | 498     |                  |  | 6.61                | %    |  | 6.01          | %    |  |      | 5      |  |      | 7     |  |        | (2    | ) |  |   | (3    | ) |  |   | 1    
|Taxable securities                   |  |                  | 22,927  |   |                |   | 18,739  |                  |  | 4.71                | %    |  | 4.09          | %    |  |      | 266    |  |      | 189   |  |        | 77    |   |  |   | 48    |   |  |   | 29   
|Federal funds sold                   |  |                  | 43,488  |   |                |   | 20,236  |                  |  | 4.43                | %    |  | 2.44          | %    |  |      | 475    |  |      | 122   |  |        | 353   |   |  |   | 254   |   |  |   | 99   
|Interest bearing deposits in banks   |  |                  | 785     |   |                |   | 6,870   |                  |  | 4.41                | %    |  | 2.28          | %    |  |      | 9      |  |      | 39    |  |        | (30   | ) |  |   | (66   | ) |  |   | 36   
|                                     |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Total earning assets                 |  |                  | 661,063 |   |                |   | 496,305 |                  |  | 7.43                | %    |  | 5.96          | %    |  |      | 12,117 |  |      | 7,291 |  |        | 4,826 |   |  |   | 2,983 |   |  |   | 1,843
|                                     |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Cash and due from banks              |  |                  | 13,880  |   |                |   | 8,971   |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Allowance for loan losses            |  |                  | (6,682  | ) |                |   | (5,912  | )                |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Other assets                         |  |                  | 48,556  |   |                |   | 40,908  |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|                                     |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Total                                |  | $                | 716,817 |   |                | $ | 540,272 |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|                                     |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Liabilities and Equity               |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Interest bearing demand              |  | $                | 90,669  |   |                | $ | 41,697  |                  |  | 3.18                | %    |  | 1.77          | %    |  | $    | 711    |  | $    | 182   |  | $      | 529   |   |  | $ | 384   |   |  | $ | 145  
|Savings                              |  |                  | 47,455  |   |                |   | 58,984  |                  |  | 2.69                | %    |  | 2.54          | %    |  |      | 315    |  |      | 370   |  |        | (55   | ) |  |   | (77   | ) |  |   | 22   
|Certificates of deposit              |  |                  | 414,609 |   |                |   | 292,808 |                  |  | 4.20                | %    |  | 3.29          | %    |  |      | 4,295  |  |      | 2,375 |  |        | 1,920 |   |  |   | 1,262 |   |  |   | 658  
|                                     |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Total interest bearing deposits      |  |                  | 552,733 |   |                |   | 393,489 |                  |  | 3.90                | %    |  | 3.02          | %    |  |      | 5,321  |  |      | 2,927 |  |        | 2,394 |   |  |   | 1,569 |   |  |   | 825  
|Borrowings                           |  |                  | 60,453  |   |                |   | 46,285  |                  |  | 4.45                | %    |  | 3.32          | %    |  |      | 663    |  |      | 378   |  |        | 285   |   |  |   | 156   |   |  |   | 129  
|                                     |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Total interest bearing liabilities   |  |                  | 613,186 |   |                |   | 439,774 |                  |  | 3.96                | %    |  | 3.05          | %    |  |      | 5,984  |  |      | 3,305 |  |        | 2,679 |   |  |   | 1,725 |   |  |   | 954  
|                                     |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Noninterest bearing demand deposits  |  |                  | 40,262  |   |                |   | 38,601  |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Other liabilities                    |  |                  | 7,078   |   |                |   | 11,124  |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Shareholders equity                 |  |                  | 56,291  |   |                |   | 50,773  |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|                                     |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Total                                |  | $                | 716,817 |   |                | $ | 540,272 |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|                                     |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Net interest income                  |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  | $    | 6,133  |  | $    | 3,986 |  | $      | 2,147 |   |  | $ | 1,258 |   |  | $ | 889  
|                                     |  |                  |         |   |                |   |         |                  |  |                     |      |  |               |      |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Net interest yield on earning assets |  |                  |         |   |                |   |         |                  |  | 3.76                | %    |  | 3.26          | %    |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      
|Net interest spread                  |  |                  |         |   |                |   |         |                  |  | 3.48                | %    |  | 2.91          | %    |  |      |        |  |      |       |  |        |       |   |  |   |       |   |  |   |      

Interest Income

Our interest income related to commercial banking increased 66% to $12.1 million for the three months ended March 31, 2006 from $7.3 million for the
three months ended March 31, 2005. The increase in 2006 in interest income was the result of both a higher volume of average commercial banking loans and a higher yield from commercial banking loans. Average commercial banking loans increased
$143.6 million, or 32%, for the quarter ended March 31, 2006 over the same periods for 2005. This growth in commercial banking loans was the result of higher loan demand in our service area, as well as the expansion of the Banks
operations in both its current markets and into new markets in north Fulton, Walton and Cobb Counties. As a result of the merger with Futurus Financial, the Bank acquired a loan portfolio of approximately $51.0 million in the second quarter of 2005.
The yield from commercial banking loans increased from 6.25% for the three months ended March 31, 2005 to 7.76% for the three months ended March 31, 2006. The increase in the yield from commercial banking loans during 2006 compared to 2005
was mainly the result of the repricing of the commercial banking loan portfolio as the Federal Reserve increased interest rates 250 basis points during 2005 and the first three months of 2006. Approximately 68% of our commercial banking loan
portfolio is variable rate and adjusts with changes in the prime rate.



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##### Table of Contents

Interest Expense

Our interest expense related to the commercial banking business for the three months ended March 31, 2006 amounted to $6.0 million compared to $3.3 million for the three months ended March 31, 2005. Interest
expense related to commercial banking deposits for the three months ended March 31, 2006 was $5.3 million compared to $2.9 million for the three months ended March 31, 2005. The increase in interest expense from interest-bearing deposits
resulted from both the increase in the average balance of interest-bearing deposits and the increase in the cost of funds of interest-bearing deposits. Average interest-bearing deposits increased approximately $159.2 million, or 40%, from $393.5
million for the three months ended March 31, 2005 to $552.7 million for the three months ended March 31, 2006. During 2005 and first three months of 2006, the Bank ran several deposit promotions, including a high yield interest-bearing
checking account and several certificate of deposit specials, in order to fund the high level of loan growth the Bank has experienced. Also, as a result of the merger with Futurus Financial, the Bank acquired approximately $47.8 million in
interest-bearing deposits during the second quarter of 2005. The cost of funds from commercial banking deposits increased from 3.02% for the three months ended March 31, 2005 to 3.90% for the three months ended March 31, 2006. This
increase in the cost of deposits was primarily due to the Banks promotion of its high yield interest-bearing checking account, which increased the average cost of our interest-bearing checking accounts by approximately 141 basis points for the
three months ended March 31, 2006 compared to the same period in 2005. The cost of deposits was also affected by the repricing of time deposits, whose average cost increased 91 basis points for the three months ended March 31, 2006
compared to the same period in 2005. The Bank has had to run higher costing deposit specials during 2005 and in the first three months of 2006 due to strong competition in its market area for local deposits. The increase in interest expense from
2005 to 2006 was also attributable to an increase in average borrowings. Average borrowings increased approximately $14.2 million for the three months ended March 31, 2006 compared to the same period in 2005. This increase was primarily
attributable to the Bank borrowing an additional $10.0 million in Federal Home Loan Bank advances during the last three quarters in 2005 and the Company issuing an additional $8.2 million in junior subordinated debentures related to the trust
preferred securities issued by Crescent Capital Trust II during the third quarter of 2005. The increase was offset by the Company paying down an amount outstanding of $3.7 million on its line of credit with The Bankers Bank during the fourth quarter
of 2005. In the first quarter of 2006 and 2005, interest expense accounted for 56% and 48%, respectively, of our total commercial banking business expenses. The increase in this percentage resulted from an increase in the cost of funds of
interest-bearing deposits and an increase in the average balance of interest-bearing deposits.

Net Interest Income

Our net interest income, net interest margin and interest spread for our commercial banking business for the three months ended March 31, 2006 were
$6.1 million, 3.76% and 3.48%. Our net interest income, net interest margin and interest spread for our commercial banking business for the three months ended March 31, 2005 were $4.0 million, 3.26% and 2.91%. The increase in net interest
income from 2005 to 2006 was mainly due to an increase of 32% in average commercial banking loans and due to an increase of 50 basis points in the net interest margin for the three months ended March 31, 2006 compared to the same period in
2005. The increase in net interest margin and interest spread during the three months ended March 31, 2006 compared to the same period in 2005 was due to the increase of 147 basis points in yield on the Banks interest earning assets being
greater than the increase of 91 basis points in cost on the Banks interest bearing liabilities. The increase in the yield on the Banks interest-earning assets was mainly related to the repricing of the commercial banking loan portfolio.
Approximately 68% percent of the commercial banking loan portfolio is floating rate and tied to changes in prime rate. During 2005 and the first three months of 2006, the federal reserve has increased interest rates 250 basis points, causing the
prime rate to also increase by 250 basis points. Strong pressure on the cost of deposits resulting from competition in our market area has partially offset the increase in the yield on the Banks interest-earning assets and the effects of the
Bank maintaining an asset sensitive position.

Loan Loss Provisions

For the three months ended March 31, 2006, we made a provision for loan losses of $470,000 and incurred net charge-offs of $157,972 of commercial
banking loans. For the three months ended March 31, 2005, we made a provision for loan losses of $388,000 and incurred net charge-offs of $249,044 of commercial banking loans. The ratios of net charge-offs (recoveries) to average commercial
banking loans outstanding during the year were 0.11% (annualized) for the three months ended March 31, 2006, 0.41% for the year ended December 31, 2005 and 0.22% (annualized) for the three months ended March 31, 2005. During the first
quarter of 2006, the Bank had a recovery of $166,375 from a commercial real estate loan that was charged-off during 2005. The recovery of this charge-off came from the payout on a title insurance claim. If this recovery was not included in the
totals for the three months ended March 31, 2006, the Bank would have incurred net charge-offs of $324,347 for the period, and the ratio of net charge-offs to average commercial banking loans outstanding during the period would have been 0.22%
(annualized). The Banks charge-offs in the first three months of 2006 consisted of one commercial real estate loan charge-off of $96,435, one residential construction loan charge-off of $73,048, three commercial loan charge-offs of $17,237 and
various installment and other consumer loans charge-offs, while the charge-offs in the first three months of 2005 mainly consisted of one residential real estate loan charge-off of $103,705, two residential construction loan charge-offs of $66,851
and various



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##### Table of Contents

installment and other consumer loans charge-offs. The increase in the amount of the provision for loan losses for the
three months ended March 31, 2006 from the three months ended March 31, 2005 was mainly related to the increase in criticized loans from $7.9 million at March 31, 2005 and $5.5 million at December 31, 2005 to $9.4 million at
March 31, 2006. This increase in criticized loans is mainly related to one loan relationship, which is discussed further under Financial ConditionCommercial Banking BusinessTotal Non-Performing Commercial Banking Assets
below. This increase in the provision for loan losses related to the change in criticized loans was partially offset due to the growth in the loan portfolio decreasing 39% in the first quarter of 2006 compared to the same period in 2005. During the
first quarter of 2006 the Banks loan portfolio grew approximately $17.9 million compared to $29.3 million in the first quarter of 2005. As a result of the growth in the loan portfolio and the increase in criticized loans in our commercial loan
portfolio, we adjusted our allowance for loan losses accordingly. The allowance for loan losses as a percentage of total commercial banking loans was 1.15%, 1.13% and 1.29% at March 31, 2006, December 31, 2005 and March 31, 2005,
respectively. The decrease in the allowance for loan losses as a percentage of total commercial banking loans from 1.29% at March 31, 2005 to 1.15% at March 31, 2006 was mainly related to charge-offs from one loan relationship that was
discovered and reserved for in 2004. The Bank charged-off $738,680 in the third and fourth quarters of 2005 related to this one loan relationship.

Non-interest Income

Our non-interest income related to our commercial banking business was $776,000 during the three months ended
March 31, 2006 compared to $1.3 million during the three months ended March 31, 2005. The decrease in non-interest income for the three months period ending March 31, 2006 was primarily due to a decrease in mortgage servicing fee
income and a decrease in gains on calls of investment securities. Mortgage servicing fee income was approximately $18,000 during the three months ended March 31, 2006 compared to approximately $212,000 during the three months ended
March 31, 2005. The decrease in the mortgage servicing fee income was due to a decrease in the size of the servicing portfolio from $263 million at March 31, 2005 to $21 million at March 31, 2006. The Company sold approximately $190
million of the servicing portfolio in the fourth quarter of 2005. Also, in the first quarter of 2005, the Bank had a gain on call of investment securities of approximately $259,000 compared to none in the first quarter of 2006.

Non-interest Expense

Our
non-interest expenses related to our commercial banking business (other than income tax expenses) were $4.2 million for the three months ended March 31, 2006 compared to $3.2 million for the three months ended March 31, 2005. The increase
in non-interest expense for the three month period ended March 31, 2006 compared to the same periods in 2005 was attributable to an increase in salaries and benefits of approximately $676,000, an increase in occupancy and equipment expense of
$149,000, an increase in supplies, postage and telephone expense of $66,000 and an increase in other operating expenses of $89,000. These increases were offset by a decrease in our mortgage subservicing expense of $93,000. The increase in salaries
and other payroll expenses in the first quarter of 2006 over the same period in 2005 are due to the addition of forty-one new employees, including twenty-five new banking officers, to our commercial banking staff since March 31, 2005 and due to
regular annual raises. This increase in employees is due to the Bank opening two new full service branches and two new loan production offices since April 1, 2005, including the full service branch in North Fulton and the loan production office
in Walton County acquired in the merger with Futurus Financial. The increase in occupancy and equipment expense and in supplies, postage and telephone expense in 2006 compared to 2005 was also mainly attributable the Banks expansion efforts.
With the Banks expansion efforts, its lease expense, depreciation expense, maintenance expense and utility costs have all increased. Also, with the Banks expansion efforts and the increase in the number of offices, the Bank has seen an
increase in its supplies expense, courier expense, postage expense and telephone expense. The increase in other operating expenses was mainly related to an increase in loan expenses, ATM processing expense and director board and committee fees.
These increases were also due to the Banks expansion efforts including adding two new directors with the merger with Futurus Financial. Mortgage subservicing expense decreased in 2006 compared to 2005 due to a decrease in the Banks
servicing portfolio from $263 million at March 31, 2005 to $21 million at March 31, 2006. The Company sold approximately $190 million of the servicing portfolio in the fourth quarter of 2005.

Effective January 1, 2006, the Company adopted SFAS No. 123R, Share-Based Payment. SFAS No. 123R requires recognition of the cost
of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). The Company
adopted SFAS No. 123R using the modified prospective application as permitted under SFAS No. 123R. Accordingly, prior period amounts have not been restated. Under this application, the Company is required to record compensation expense for
all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Prior to the adoption of SFAS No. 123R, the Company used the intrinsic value method as
prescribed by APB No. 25, and thus recognized no compensation expense for options granted with the exercise prices equal to the fair market value of the Companys common stock on the date of grant. The compensation cost that was charged
against income for our stock option plans was $15,646 for the three months ended March 31, 2006. The amount of compensation



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##### Table of Contents

cost that would have been recognized and charged against income for the three months ended March 31, 2005 if SFAS
No. 123R had been adopted was $25,720. The total compensation cost related to nonvested awards not yet recognized at March 31, 2006 is $215,899, which will be recognized over the weighted average period of approximately 2 years. See
Note 6Stock Compensation Plans in the consolidated financial statements for further information.

Pretax Net Income

In the three months ended March 31, 2006, our commercial banking pre-tax income was $2.3 million compared to pre-tax income of
approximately $1.7 million for the three months ending March 31, 2005. Pretax income for the three months ended March 31, 2006 increased approximately $627,000, or 38%, compared to the three months ended March 31, 2005. An increase in
net interest income of approximately $2.1 million for the three months ended March 31, 2006 compared to the same periods in 2005 was the main reason for the increases in pretax income. The increase in net interest income was mainly due to an
increase of 32% in average commercial banking loans over the three months ended March 31, 2005 compared to the same periods in 2006. The increase in the net interest margin was partially offset by an increase of approximately $940,000 in
non-interest expense and a decrease in non-interest income of approximately $498,000. The increase in non-interest expense was primarily due to an increase in salaries and benefits and occupancy and equipment expense related to the Banks
expansion efforts in 2005 and 2006. The decrease in non-interest income was primarily due to a decrease in mortgage servicing fee income and gains on calls of investment securities. See further discussion above under Net Interest
Income, Non-interest Income, and Non-interest Expense.

Income Taxes

The effective income tax rate for our commercial banking business for the three months ended March 31, 2006 and 2005 was 38.21% and 38.47%,
respectively. The lower effective rates in 2006 resulted from the Companys analysis of its tax accruals.

Financial Condition

General Discussion

Total Assets

Our total assets increased $15.5 million, or 2%, during the first three months of 2006 from $704.1 million as
of December 31, 2005 to $719.6 million as of March 31, 2006. The increase in total assets was mainly comprised of a $17.9 million, or 30%, increase in the Banks commercial loans. The growth in commercial banking loans was the result
of higher loan demand in our service area, as well as the expansion of the Banks operations in its current markets. Our increase in total assets corresponded with a $15.2 million, or 3%, increase in deposits. At March 31, 2005, we had
total assets of $548.3 million.

Interest-Earning Assets

Our interest-earning assets are comprised of:



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



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



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



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



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

At March 31, 2006,
interest-earning assets totaled $675.7 million and represented 94% of total assets. This represents a $20.0 million, or 3%, increase from December 31, 2005, when interest-earning assets totaled $655.7 million, or 93%, of total assets. This
increase was mainly related to a $17.9 million increase in the Banks commercial banking loan portfolio. See Commercial Banking Business below. At March 31, 2005, our interest-earning assets totaled $515.0 million and
represented 94% of our total assets.

Allowance for Loan Losses

Our assessment of the risk associated with extending credit and our evaluation of the quality of our loan portfolio is reflected in the allowance for loan
losses. We maintain an allowance for our commercial banking loan portfolio, as detailed below under Discontinued Operations.



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##### Table of Contents

Premises and Equipment

We had premises and equipment of $17.7 million at March 31, 2006, compared to $17.2 million at December 31, 2005 and $12.9 million at
March 31, 2005. The increase in premises and equipment from March 31, 2005 was primarily due to the acquisition of approximately $1.9 million of premises and equipment from Futurus Financial, the construction of a full service branch in
Adairsville, Georgia at a total cost of approximately $724,000, the construction of a full service branch in Cumming, Georgia at a total cost of approximately $1.2 million and the construction in process costs of approximately $789,000 for the new
full service branch in Canton, Georgia.

Cash Surrender Value of Life Insurance

In 1999, the Bank provided a supplemental retirement plan to its banking officers funded with life insurance. In the first quarter 2000, we added our
directors to the supplemental retirement plan. At March 31, 2006, the total cash value of life insurance was $8.0 million. At December 31, 2005 and March 31, 2005, the total cash value of the life insurance was $8.0 million and $6.3
million, respectively. The increase of $1.7 million from March 31, 2005 to March 31, 2006 was due to policy earnings and the purchase of additional life insurance with a total cash value of $1.4 million related to the merger with Futurus
Financial.

Commercial Banking Business

Total Commercial Banking Loans

During
the first quarter of 2006, our average commercial banking loans were $593.6 million. These loans constituted 90% of our average consolidated earning assets and 83% of our average consolidated total assets. For the first quarter of 2005, we had
average commercial banking loans of $450.0 million, or 91% of our average consolidated earning assets and 83% of our average consolidated total assets. For the year ended December 31, 2005, we had average commercial banking loans of $539.5
million, or 92% of our average consolidated earning assets and 84% of our average consolidated total assets. Commercial banking loans at the periods ending March 31, 2006, December 31, 2005 and March 31, 2005 were $611.6 million,
$593.7 million and $462.7 million, respectively. The 32% increase in average commercial banking loans from the three month period ended March 31, 2005 compared to the three month period ended March 31, 2006 was the result of higher loan
demand in our service area, as well as the expansion of the Banks operations in both its current markets and into new markets in north Fulton, Walton and Cobb Counties. As a result of the merger with Futurus Financial, the Bank acquired a loan
portfolio of approximately $51.0 million in the second quarter of 2005.

Loan Loss Allowance

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



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



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



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

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



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



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



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



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

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

The general component of the methodology involves an analysis of actual loan loss experience, a
comparison of the actual loss experience of banks in the Banks peer group, and carefully developed assumptions about the economy generally. We



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also consider 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 guidance 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 losses based upon the methodology.

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 Federal Deposit Insurance Corporation, or the FDIC, and the Georgia Department of Banking and Finance, or the
Georgia Department, may require a bank to make additional provisions to its allowance for loan losses when, in their opinion, their credit evaluations and allowance for loan loss methodology differ materially from ours.

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 $7.0 million, or 1.15% of total commercial banking loans, at March 31, 2006, $6.0 million, or 1.29% of total commercial banking loans at March 31, 2005, and $6.7 million, or 1.13% of total loans at December 31, 2005. During
the first quarter of 2006, we made a provision for loan losses of $470,000, which was due to both the $17.9 million increase we experienced in commercial banking loans during that period and the increase in criticized loans from $7.9 million at
March 31, 2005 and $5.5 million at December 31, 2005 to $9.4 million at March 31, 2006. This increase in criticized loans is mainly related to one loan relationship, which is discussed further under Total Non-Performing
Commercial Banking Assets below. Net charge-offs for the three months ended March 31, 2006 were $157,972, or 0.11% (annualized) of average loans outstanding. During the first quarter of 2006, the Bank had a recovery of $166,375 from a
commercial real estate loan that was charged-off during 2005. The recovery of this charge-off came from the payout on a title insurance claim. If this recovery was not included in the totals for the three months ended March 31, 2006, the Bank
would have incurred net charge-offs of $324,347 for that period, and the ratio of net charge-offs to average commercial banking loans outstanding during the period would have been 0.22% (annualized). Net charge-offs for the year ended
December 31, 2005 were $2,200,759, or 0.41% of average loans outstanding and for the three months ended March 31, 2005 were $249,044, or 0.22% (annualized) of average outstanding loans. The Banks charge-offs in the first three months
of 2006 consisted of one commercial real estate loan charge-off of $96,435, one residential construction loan charge-off of $73,048, three commercial loan charge-offs of $17,237 and various installment and other consumer loans charge-offs, while the
charge-offs in the first three months of 2005 mainly consisted of one residential real estate loan charge-off of $103,705, two residential construction loan charge-offs of $66,851 and various installment and other consumer loans charge-offs. The
increase in loan charge-offs and in the ratio of loan charge-offs to average commercial banking loans outstanding for the year ended December 31, 2005 was mainly related to one loan relationship discovered and reserved for in 2004. The loans
were secured by residential real estate land lots and mobile homes with respect to which the Bank discovered title problems. These properties were foreclosed upon in the third and fourth quarters of 2005 and a balance of $738,680 was charged-off. If
the loan charge-offs from this one loan relationship were excluded from the 2005 totals, the Bank would have incurred net charge-offs of $1,462,079 and the ratio of net charge-offs to average commercial banking loans outstanding during the year
would have been 0.27% for 2005.

The increase in the provision and the determination of the allowance for loan losses as a percentage of
commercial banking loans was based on our analysis and judgment of loan quality and our determination of what level of reserves were reasonable to cover the risk of loss in the loan portfolio. The determination of the reserve level rests upon our
judgment about factors affecting loan quality, assumptions about the economy and historical experience. Our judgment as to the adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a
particular focus on loans that are past due and other loans that we believe require attention. We believed that the allowance at March 31, 2006 was adequate at that time to cover risk of losses in our loan portfolio; however, our judgment is
based upon a number of assumptions, which we believed at that time to be reasonable, about events that may or may not actually be realized. There is no assurance that charge-offs will not exceed the allowance for loan losses or that additional
increases in the allowance for loan loss will not be required at any time in the future. As a result of a general slowdown in the economy and uncertainties in the economy, including those created by the war against terrorism and natural disasters,
additions to the allowances 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.



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Total Non-Performing Commercial Banking Assets

The following table shows the Banks commercial banking assets that we believe warrant special attention due to the potential for loss, in addition
to the non-performing commercial banking loans and foreclosed properties related to the commercial banking loans.



|                                                                                                                 |  |              |           |   |                  |   |           |               |  |   |           |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---------------- | - | --------- | ------------- |  | - | --------- | -
|                                                                                                                 |  | March31,2006 |           |   | December 31,2005 |   |           | March 31,2005 | 
|Non-performing loans (1)                                                                                         |  | $            | 3,057,332 |   |                  | $ | 2,847,645 |               |  | $ | 2,721,437 |  
|Foreclosed properties                                                                                            |  |              | 1,006,393 |   |                  |   | 600,135   |               |  |   | 1,653,793 |  
|                                                                                                                 |  |              |           |   |                  |   |           |               |  |   |           |  
|Total non-performing assets                                                                                      |  | $            | 4,063,725 |   |                  | $ | 3,447,780 |               |  | $ | 4,375,230 |  
|                                                                                                                 |  |              |           |   |                  |   |           |               |  |   |           |  
|Loans 90 days or more past due on accrual status                                                                 |  | $            | 98,683    |   |                  | $ | 159,772   |               |  | $ | 155,290   |  
|Potential problem loans (2)                                                                                      |  | $            | 6,403,413 |   |                  | $ | 2,742,759 |               |  | $ | 5,251,208 |  
|Potential problem loans/total loans                                                                              |  |              | 1.05      | % |                  |   | 0.46      | %             |  |   | 1.13      | %
|Non-performing assets/total loans and foreclosed properties                                                      |  |              | 0.66      | % |                  |   | 0.58      | %             |  |   | 0.94      | %
|Non-performing assets and loans 90 days or more past due on accrual status/total loans and foreclosed properties |  |              | 0.67      | % |                  |   | 0.61      | %             |  |   | 0.98      | %

---

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

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

We define non-performing commercial banking loans as non-accrual and renegotiated commercial banking loans. The Banks policy is to discontinue the
accrual of interest on loans that are 90 days past due unless they are well secured and in the process of collection. The Bank had approximately $99,000 of commercial banking loans contractually past due more than 90 days and still accruing interest
as of March 31, 2006 compared to approximately $160,000 and $155,000, respectively, as of December 31, 2005 and March 31, 2005. Our non-performing commercial banking loans at March 31, 2006 amounted to $3.1 million compared to
$2.8 million at December 31, 2005 and $2.7 million at March 31, 2005. The Bank had no renegotiated commercial banking loans at March 31, 2006, December 31, 2005 or March 31, 2005. The increase in non-performing
commercial banking loans from December 31, 2005 to March 31, 2006 was mainly related to three loan relationships. One of these loan relationships totaling approximately $240,000 is secured by mobile homes and land lots. The Bank is in the
process of taking the properties by deed in lieu of foreclosure from the borrower and does not foresee any significant loss from the relationship. The second loan relationship totaling approximately $97,000 is secured by a residential home. This
loan was renewed and placed on accrual status in the second quarter of 2006 through the strength of a guarantor on the loan. The third loan relationship totaling approximately $89,000 is also secured by a residential home. This property was
foreclosed upon in the second quarter of 2006 and subsequently sold for no loss. The Bank experienced a slight deterioration in the loan portfolio in 2004 and 2005. This deterioration was mainly attributable to the slow down in the economy in 2003
and 2004, and the related credit and repayment risks created by that slow down. We have evaluated these loan relationships and foreclosed properties, and, based on available information, we presently feel that the Bank is in a well secured position
on most of these relationships. The Banks loan portfolio is predominantly secured by commercial and residential real estate in its primary market areas. We presently believe that any losses that may come from these loan relationships have been
considered in our determination of the loan loss allowance. As of March 31, 2006, loan loss allowance reserves related to non-performing commercial banking loans totaled $483,915.

Total non-performing commercial assets totaled $4.1 million at March 31, 2006. This compares to total non-performing commercial assets of
approximately $3.4 million at December 31, 2005 and $4.4 million at March 31, 2005. The Bank foreclosed upon five commercial banking loans totaling approximately $731,000 during the first quarter of 2006. One of the properties is a
residential home under construction, two of the properties are mobile homes on land lots and two of the properties are residential homes on acreage. During the first quarter of 2006, the Bank sold one property totaling approximately $15,000 that was
foreclosed upon in 2003, two properties totaling approximately $219,000 that were foreclosed upon in 2005 and one property totaling approximately $89,000 that was foreclosed upon in the first quarter of 2006. The Bank sold two residential homes for
a gain of approximately $16,000 and two properties consisting of mobile homes and land lots for a gain of $10,000. Of the Banks $1.0 million in foreclosed properties that have not been sold, $659,000 is related to three loan relationships. One
of the properties totaling approximately $212,000 is mobile homes with land lots located in Murray County, Georgia. The other two properties totaling approximately $447,000 are residential homes in Pickens County, Georgia. Of the remaining
foreclosed properties that have not been sold, approximately $135,000 is residential homes, $102,000 is residential homes under construction, $38,000 is mobile homes with land lots and $61,000 is vacant land lots. The Bank is currently holding the
foreclosed properties for sale. The foreclosed properties have been recorded at the lower of cost or market less the estimated costs to sell the properties. The Bank does not foresee any further material losses from these loans and properties.



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Potential problem loans represent commercial banking loans that are presently performing, but where
management has doubts concerning the ability of the respective borrowers to meet contractual repayment terms. Potential problem commercial loans increased approximately $3.7 million from December 31, 2005 to March 31, 2006. The increase in
potential problem commercial loans from December 31, 2005 to March 31, 2006 was mainly related to one loan relationship totaling approximately $4.4 million. This loan relationship is secured by rental townhomes, land lots for the
construction of new townhomes and a residential house. In the second quarter of 2006 this borrower paid the loan current and provided more collateral to secure the loan. Management feels that the loans categorized as potential problem loans at
March 31, 2006 are adequately collateralized and believes that any losses that may result from these loan relationships have been considered in our determination of the loan loss allowance.

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 $63.5 million at March 31, 2006, compared to $60.5 million at December 31, 2005 and $51.3 million at March 31, 2005.
At March 31, 2006, the Bank had federal funds sold and interest-bearing deposits with other banks of $39.7 million, compared to $40.2 million at December 31, 2005 and $31.9 million at March 31, 2005. The increase in federal funds sold
and interest-bearing deposits with other banks of $7.8 million from March 31, 2005 was due to both the Bank increasing its local deposits in order to fund the high level of loan growth that the Bank is experiencing and due to the Bank having
several loans pay off unexpectedly during the first quarter of 2006. Investment securities and restricted equity securities totaled $23.8 million at March 31, 2006, compared to $20.3 million at December 31, 2005 and $19.4 million at
March 31, 2005. The restricted equity securities consist of shares held in the Federal Home Loan Bank of Atlanta in the amount of approximately $3.7 million and shares held in The Bankers Bank in the amount of $165,975 at March 31, 2006.

Unrealized gains (losses) on securities amounted to $(470,102) at March 31, 2006, and $(187,162) and $(398,375) at March 31,
2005 and December 31, 2005, 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. Management of the Bank believes all unrealized losses as of March 31, 2006 represent temporary impairment. The unrealized losses have resulted from temporary changes in the interest rate market and not as a
result of credit deterioration. Also, total impairment represents less than 3% of amortized cost. All bonds held at March 31, 2006 that have unrealized losses are rated AAA by Moodys and AAA by Standard and Poors rating agencies. In
addition, all of the securities are backed by the U.S. Government or one of its agencies/quasi-agencies.

Total Commercial Bank Deposits

The Banks commercial deposits totaled $595.7 million, $580.5 million and $443.7 million at March 31,
2006, December 31, 2005 and March 31, 2005, respectively, representing an increase of 3% and 34%, respectively, over December 31, 2005 and March 31, 2005. Commercial deposits averaged $593.0 million during the three-month
period ended March 31, 2006, $432.1 million during the three-month period ended March 31, 2005 and $522.7 million during the twelve-month period ended December 31, 2005. The increase in deposits from December 31, 2005 to
March 31, 2006 is due to the Bank running several deposit promotions during the first three months of 2006, including a high yield checking account and a certificate of deposit special. Certificates of deposit within the Banks market area
have increased approximately $19.3 million and the high yield checking accounts have increased approximately $13.9 million since December 31, 2005. The Bank has had to run higher costing deposit specials in the first quarter of 2006 due to the
strong competition in its market area for local deposits in order to fund the high level of loan growth that it has experienced. Interest-bearing deposits represented 94% of total deposits at March 31, 2006, compared to 94% at December 31,
2005 and 92% at March 31, 2005. Certificate of deposits comprised 75% of total interest-bearing deposits for March 31, 2006, compared to 74% at both December 31, 2005 and March 31, 2005. 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. We attempt to offset potential
decreases in our share of local deposits by accepting out of market and brokered deposits. The Bank had $82.5 million of out of market and brokered deposits as of March 31, 2006, compared to $85.2 million and $53.7 million at December 31,
2005 and March 31, 2005, respectively. The decrease in out of market and brokered deposits from December 31, 2005 to March 31, 2006 was mainly due to the Bank not renewing many of its out of market deposits due to the rising cost of
these deposits and due to the fact that the Bank had several loan pay-offs in the first quarter of 2006. The increase in out of market deposit from March 31, 2005 to March 31, 2006 was mainly due to the Bank acquiring $30.1 million in out
of market deposits in the merger with Futurus Financial. Out of market deposits actually decreased approximately $1.3 million from March 31, 2005 if the out of market



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deposits acquired in the Futurus Financial transaction are not included. The cost of brokered deposits has generally been
approximately 15 to 25 basis points lower than the costs of deposits of similar maturity in the local market. However, during 2005 and 2006, we have seen the cost of out of market and brokered deposits increase to levels equal to or even exceed that
in our local market. The costs of out of market and brokered deposits can be volatile, and if our access to these markets is limited in any way, then our liquidity and ability to support commercial loan demand could be affected adversely.

Total Commercial Bank Borrowings

At March 31, 2006, the Bank had borrowed $47.0 million Federal Home Loan Bank advances at maturity terms ranging from six months to ten years and with an average rate of 3.76%. 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 Federal Home
Loan Bank stock. There were $39.0 million and $49.0 million, respectively, in Federal Home Loan Bank advances outstanding at March 31, 2005 and December 31, 2005.

Discontinued Operations

On December 31, 2003, the Company completed the sale of its wholesale residential mortgage business conducted by CMS to Carolina Financial Corporation (Carolina Financial) and its subsidiary Crescent Mortgage Corporation
(CMC). Carolina Financial and CMC are not affiliated with the Company or its subsidiaries. Carolina purchased all of CMSs mortgage loans, pipeline mortgage loans and premises and equipment and assumed all leases and liabilities
related to the transferred assets. The Companys consolidated balance sheets at March 31, 2006 and December 31, 2005 include no assets and include liabilities of $2,787,097 and $2,868,825, respectively, related to discontinued
operations. These liabilities consist of the allowance for the recourse liability. This reserve remained with the Company after the sale of the wholesale mortgage operation, as did the risk and the liability from the indemnified loans. When the
Company sold loans in the course of its wholesale residential mortgage business, the Company typically made representations and warranties to the purchasers and insurers that the Company had properly originated and serviced the loans under state
laws, investor guidelines and program eligibility standards. The Company could be obligated to indemnify the purchaser for unpaid principal and interest on defaulted loans if the Company had breached its representations and warranties with respect
to the loans that it sold. At March 31, 2006 and December 31, 2005, the Company had approximately $6.9 million and $6.8 million, respectively, of mortgage loans for which it had agreed to indemnify the purchaser for losses suffered by the
purchaser. In the event that the purchaser of these loans experiences any losses with respect to the loans, the Company will be required to indemnify the purchaser for its losses or to repurchase the loans from the purchaser. The Company has
established a specific allowance for the recourse liability for the loans on which the Company has already become obligated to make indemnification payments to the purchaser and an estimated allowance for the recourse liability for probable future
losses from loans that the Company may have to indemnify. The estimated recourse liability at March 31, 2006 and December 31, 2005 for future losses was approximately $2.8 million and $2.9 million, respectively, and is based upon
historical information on the number of loans indemnified and the average loss on an indemnified loan, including higher risk loans secured by manufactured housing. The loans that were indemnified in 2006 and 2005 were primarily closed in 2002 and
2003. The Companys highest levels of mortgage production in its history were in 2002 and 2003, and therefore, we could see an increase in our indemnification liability in 2006. If the balance of indemnified loan increases significantly, then
the Company could have to make additional provisions to the recourse liability reserve.

In connection with the sale of our wholesale
residential mortgage business, the Company retained certain mortgage servicing rights. At March 31, 2006, we carried approximately $53,000 of mortgage servicing rights on our balance sheet, compared to $57,000 at December 31, 2005 and $1.4
million at March 31, 2005. We held servicing rights with respect to loans with unpaid principal balances totaling $21 million at March 31, 2006, compared to $25 million at December 31, 2005 and $263 million at March 31, 2005.
There were no sales of mortgage servicing rights in the first quarter of 2006 or the first quarter of 2005. During the fourth quarter of 2005, we sold servicing rights with respect to approximately $190 million of mortgage loans carried on our
balance sheet for a gain of approximately $254,000.

The market value of our servicing portfolio is contingent upon many factors,
including, without limitation, the interest rate environment, the estimated life of the servicing portfolio, the loan quality of the servicing portfolio and the coupon rate of the loan portfolio. According to an independent valuation, the estimated
fair value of our mortgage servicing rights at March 31, 2006 was approximately $98,000, compared to the carrying value of $53,000. We cannot provide assurance that we will continue to experience a market value of our servicing portfolio in
excess of the cost to acquire the servicing rights, nor can we provide assurance as to the expected life of our servicing portfolio, or as to the timing or amount of any sales of our retained servicing rights.



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Capital and Liquidity

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

The leverage guidelines provide for a minimum ratio of tier 1 capital to total assets of 3.0% if we meet certain requirements, including
having the highest regulatory rating, and requires us to cushion the ratio by an additional 1.0% to 2.0% otherwise. The guidelines also specify that bank holding companies that are experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Higher capital also may be required, depending upon the organizations risk profile. Furthermore, the
guidelines indicate that the Federal Reserve will continue to consider a tangible tier 1 leverage ratio, calculated without the inclusion of intangible assets, in evaluating proposals for expansion or new activity. The Federal Reserve
has not advised us, and the FDIC has not advised the Bank, of any specific minimum leverage ratio or tangible tier 1 leverage ratio that we are required to meet. The Bank has agreed with the Georgia Department to maintain a leverage ratio of 8.0%.

At March 31, 2006, the Companys and Banks leverage ratio was 9.05% and 8.39%, respectively, compared to 9.08% and 8.38%
at December 31, 2005 and 10.06% and 9.65%, respectively, at March 31, 2005. On September 30, 2005, the Company, through Crescent Capital Trust II, completed an offering and sale of $8.0 million of trust preferred securities, and on
the same day the Company contributed approximately $4.2 million of the proceeds to the Bank. The Company subsequently in October 2005 repaid the entire outstanding balance of approximately $3.7 million on its line of credit with The Bankers Bank
with the remaining proceeds from the trust preferred securities offering. With the acquisition of Futurus Financial, $2.0 million in capital was contributed to both the Company and the Bank through the issuance of 74,029 shares of common stock to
certain Futurus Financial shareholders. Also, in 2005, CMS distributed $3.0 million in available capital to the Company, and the Company subsequently contributed $1.0 million of these funds to the Bank.

At March 31, 2006, our total consolidated shareholders equity was $56.7 million, or 7.88% of total consolidated assets, compared to $51.0
million, or 9.31% of total consolidated assets, at March 31, 2005, and $55.2 million, or 7.84% of total consolidated assets, at December 31, 2005. The increase in the consolidated shareholders equity to total consolidated assets
ratio in the first three months of 2006 was the result of the net income for the quarter of $1.4 million and the exercise of 14,618 stock options.

At March 31, 2006, the Companys ratio of total consolidated capital to risk-adjusted assets was 10.74%, 9.68% of which consisted of tier 1 capital. A quarterly dividend of $.095 was declared in February 2006 and paid on
March 16, 2006. A quarterly dividend of $0.12 per share was declared in April 2006, and is payable on May 31, 2006.

As of
March 31, 2005, the Companys ratio of total consolidated capital to risk-adjusted assets was 11.95%, 10.77% of which consisted of tier 1 capital, and, as of December 31, 2005, total consolidated capital to risk-adjusted assets was
10.81%, 9.77% of which consisted of tier 1 capital. As of March 31, 2006, the Banks ratio of total capital to risk-adjusted assets was 11.35%, 10.15% of which consisted of tier 1 capital, and, as of December 31, 2005, total capital
to risk-adjusted assets was 10.05%, 9.00% of which consisted of tier 1 capital.

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

Our average liquid assets consist of cash and amounts due from banks, interest-bearing deposits in other banks, federal funds sold, mortgage loans held for sale net of borrowings, investment securities held for maturity and investment
securities held for sale. These average liquid assets totaled $81.4 million, $52.8 million and $59.0 million, respectively, during the three month period ended March 31, 2006, the three month period ended March 31, 2005, and the twelve
month period ended December 31, 2005, representing 13%, 11% and 10% of average deposits and borrowings, respectively, for those periods. Average liquid assets increased by approximately $22.4 million, or 38%, from December 31, 2005 to
March 31, 2006 and average liquid assets as a percentage of average deposits and borrowings increased approximately 3% from December 31, 2005 to March 31, 2006. The



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Bank, on average, held a higher level of federal funds sold and interest-bearing deposits at other banks during the first
three months of 2006 in order to fund the high level of loan growth that the Bank is experiencing. In addition, the Bank had several unexpected loan pay-offs in the first quarter of 2006. Average commercial banking loans were 93%, 96% and 95% of
average commercial bank deposits and borrowings during the three month periods ended March 31, 2006 and March 31, 2005, and the twelve month period ended December 31, 2005, respectively. Average interest-earning assets were 104%, 105%
and 104% of average commercial banking deposits and borrowings during the three month periods ended March 31, 2006 and March 31, 2005, and the twelve month period ended December 31, 2005, respectively. Both the ratio of average
commercial banking loans to average commercial banking deposits and borrowings and the ratio of average interest-earnings assets to average commercial banking deposits and borrowings decreased slightly during the first quarter of 2006 compared to
the first quarter of 2005. The decrease in the percentage is mainly due to the Banks focus on deposit growth and the funding of commercial loan production in the first quarter of 2006 along with the fact that the Bank had several unexpected
loan pay-offs in the first quarter of 2006.

The Bank actively manages the levels, types and maturities of interest-earning assets in
relation to the sources available to fund current and future needs. The Bank maintains federal funds lines of credit totaling $18.5 million and maintains a line of credit up to approximately $47.0 million at the Federal Home Loan Bank secured by the
Banks 1  4 family first lien mortgage loans and commercial real estate loans. At March 31, 2006 we had $47.0 million in the Federal Home Loan Bank advances outstanding and no amounts outstanding on our federal funds lines of credit.
For the three months ended March 31, 2006, the average balance in Federal Home Loan Bank advances was approximately $48.6 million. Of the $47.0 million in advances outstanding at March 31, 2006, all of the advances are secured by a lien on
the Banks 1 - 4 family first lien mortgage loans, by a lien on commercial real estate loans, by its investment securities and by Federal Home Loan Bank stock. The Bank currently is holding approximately $16.0 million in unpledged investment
securities, which gives the Bank the ability to borrow an additional $16 million in Federal Home Loan Bank advances at March 31, 2006. We presently believe that the Banks liquidity is under pressure due to the volume of commercial bank
loan production and the competitive pricing for deposits in the Banks market area. In the past, the Bank has had to use out-of market and brokered deposits to provide liquidity in order to fund loan growth in that out-of market and brokered
deposits were usually approximately 10 to 15 basis points lower than the cost of deposits of similar maturity in the local market. However, in 2005, we have seen the cost of out of market and brokered deposits increase to levels equal to or even
exceeding that in our local market. The Bank had $82.5 million of out of market and brokered deposits as of March 31, 2006, compared to $85.2 million and $53.7 million, respectively, at December 31, 2005 and March 31, 2005. The
increase in out of market deposit from March 31, 2005 to December 31, 2005 was mainly due to the Bank acquiring $30.1 million in out of market deposits in the merger with Futurus Financial. Out of market deposits actually only increased by
approximately $1.4 million during 2005 if the out of market deposits acquired in the Futurus Financial transaction are not included. The decrease in out of market and brokered deposits from December 31, 2005 to March 31, 2006 was mainly
due to the Bank not renewing many of its out of market deposits due to the rising cost of these deposits and due to the fact that the Bank had several loan pay-offs in the first quarter of 2006. The costs of out of market and brokered deposits can
be volatile, and if our access to these markets is limited in any way, then our liquidity and ability to support commercial loan demand could be affected adversely. The Bank may have to increase its deposit rates in the future in its local markets,
as it did during 2005, if the Banks liquidity position remains under pressure. In the first three months of 2006, the Bank had to run several deposit promotions, including a high yield checking account and several certificate of deposit
specials, due to the strong competition in its market area for local deposits and the high level of loan growth. Certificates of deposit within the Banks market area have increased approximately $19.3 million and the high yield checking
accounts have increased approximately $13.9 million since December 31, 2005. The cost of funds of interest-bearing deposits increased from 3.70% in the fourth quarter of 2005 to 3.90% in the first quarter of 2006. An increase in deposit rates
could affect our net interest margin and net income in the future.



26



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##### Table of Contents

Commercial Commitments

The following table presents our other commercial commitments at March 31, 2006. These commitments are not included in our consolidated balance
sheet.

Commercial Commitments



|                                 |  |                                            |         |              |   |           |  |           |        |               |   |     |  |   |      
|-------------------------------- |  | ------------------------------------------ | ------- | ------------ | - | --------- |  | --------- | ------ | ------------- | - | --- |  | - | -----
|                                 |  | Amount of Commitment Expiration Per Period
|                                 |  | Total                                      |         | Under 1 Year |   | 1-3 Years |  | 4-5 Years |        | After 5 Years
|                                 |  | (in thousands)                            
|Commitments to extend credit (1) |  | $                                          | 120,177 |              | $ | 92,357    |  | $         | 25,863 |               | $ | 167 |  | $ | 1,790
|Letters of Credit (2)            |  |                                            | 3,192   |              |   | 2,479     |  |           | 713    |               |   |    |  |   |     
|                                 |  |                                            |         |              |   |           |  |           |        |               |   |     |  |   |      
|Total commercial commitments     |  | $                                          | 123,369 |              | $ | 94,836    |  | $         | 26,576 |               | $ | 167 |  | $ | 1,790
|                                 |  |                                            |         |              |   |           |  |           |        |               |   |     |  |   |      

---

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

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

Off-Balance Sheet Arrangements

In order to manage its interest rate sensitivity, the Company uses off-balance sheet contracts that are considered derivative financial
instruments. Derivative financial instruments can be a cost-effective and capital effective means of modifying the repricing characteristics of on-balance sheet assets and liabilities. At March 31, 2006, the Company was a party to interest rate
swap contracts under which it pays a fixed rate and receives a variable rate. The notional amount of the interest rate swaps was approximately $2,361,000 with a fair value of approximately $120,000 at March 31, 2006. The Company has an embedded
derivative in one loan agreement that relates to the swap agreements. These derivatives are recorded in other assets and other liabilities. The net effect of recording the derivatives at fair value through earnings was immaterial to the
Companys financial condition and results of operations as of and for the three months ended March 31, 2006. If a counterparty 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 will fail to perform; however,
management believes that this risk associated with using derivative financial instruments to mitigate interest rate risk sensitivity is minimal and should not have any material unintended impact on the financial condition or results of operations.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk

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



27



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##### Table of Contents

We manage interest rate risk by maintaining what we believe to be the proper balance of rate sensitive
assets and rate sensitive liabilities. The relationship between rate sensitive assets and rate sensitive liabilities is a key factor in projecting the effect of interest rate changes on net interest income. Rate sensitive assets and rate sensitive
liabilities are those that can be repriced to current rates within a relatively short time period. We monitor the rate sensitivity of earning assets and interest-bearing liabilities over the entire life of these instruments, but place particular
emphasis on the twelve-month interval. The following table shows our rate sensitive position at March 31, 2006. Approximately 76% of earning assets and 76% of funding for these earning assets is scheduled to reprice at least once during the
next twelve months. The total excess of interest-bearing assets over interest-bearing liabilities, based on a one-year cumulative time period, was $42.1 million, or 5.8% of total assets.

Interest Rate Sensitivity Gaps

As of March 31, 2006



|                                         |  |                        |         |             |   |          |           |  |   |              |   |       |   |        |  |   |        
|---------------------------------------- |  | ---------------------- | ------- | ----------- | - | -------- | --------- |  | - | ------------ | - | ----- | - | ------ |  | - | -------
|                                         |  | Amounts Repricing In  
|                                         |  | 0-90 Days              |         | 91-365 Days |   |          | 1-5 Years |  |   | Over 5 Years |   | Total
|                                         |  | (thousands of dollars)
|Interest-earning assets                  |  |                        |         |             |   |          |           |  |   |              |   |       |   |        |  |   |        
|Commercial banking loans                 |  | $                      | 433,372 |             | $ | 34,367   |           |  | $ | 126,565      |   |       | $ | 17,331 |  | $ | 611,635
|Investment securities                    |  |                        | 405     |             |   | 3,140    |           |  |   | 8,938        |   |       |   | 7,616  |  |   | 20,099 
|Mortgage loans held for sale             |  |                        | 550     |             |   |         |           |  |   |             |   |       |   |       |  |   | 550    
|Federal funds sold                       |  |                        | 38,928  |             |   |         |           |  |   |             |   |       |   |       |  |   | 38,928 
|Interest-bearing deposits in other banks |  |                        | 806     |             |   |         |           |  |   |             |   |       |   |       |  |   | 806    
|                                         |  |                        |         |             |   |          |           |  |   |              |   |       |   |        |  |   |        
|Total interest-earning assets            |  | $                      | 474,061 |             | $ | 37,507   |           |  | $ | 135,503      |   |       | $ | 24,947 |  | $ | 672,018
|                                         |  |                        |         |             |   |          |           |  |   |              |   |       |   |        |  |   |        
|Interest-bearing liabilities             |  |                        |         |             |   |          |           |  |   |              |   |       |   |        |  |   |        
|Interest-bearing demand deposits         |  | $                      | 140,441 |             |   |         |           |  |   |             |   |       |   |       |  | $ | 140,441
|Time deposits                            |  |                        | 121,128 |             |   | 184,091  |           |  |   | 112,864      |   |       |   |       |  |   | 418,083
|Other borrowings                         |  |                        | 11,853  |             |   | 12,000   |           |  |   | 35,000       |   |       |   |       |  |   | 58,853 
|                                         |  |                        |         |             |   |          |           |  |   |              |   |       |   |        |  |   |        
|Total interest-bearing liabilities       |  | $                      | 273,422 |             | $ | 196,091  |           |  | $ | 147,864      |   |       | $ |       |  | $ | 617,377
|                                         |  |                        |         |             |   |          |           |  |   |              |   |       |   |        |  |   |        
|Interest sensitivity gap                 |  | $                      | 200,639 |             | $ | (158,584 | )         |  | $ | (12,361      | ) |       | $ | 24,947 |  | $ | 54,641 
|Interest sensitivity gap  cumulative    |  | $                      | 200,639 |             | $ | 42,055   |           |  | $ | 29,694       |   |       | $ | 54,641 |  | $ | 54,641 

We continually try to manage our interest rate sensitivity gap. Attempting to reduce the gap is a
constant challenge in a changing interest rate environment and one of the objectives of our asset/liability management strategy. We were in an asset-sensitive position on a cumulative basis for each time period represented on the table above. This
means that during each period, if interest rates increase, then the net interest margin will increase, and if interest rates decline, then the net interest margin will decline. At March 31, 2006, we were within our policy guidelines of
rate-sensitive assets to rate-sensitive liabilities of 80-140% at the one-year interval. Since all interest rates and yields do not adjust at the same time or rate, this is only a general indicator of rate sensitivity.

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

The Bank also uses financial derivative instruments for management of its interest rate sensitivity. The Board of Directors approves the use of interest rate swaps in balance sheet hedging activities and to help meet
the need of the Banks customers. Interest rate swaps are contractual agreements typically entered into to exchange fixed for variable streams of interest payments. The notional principal is not exchanged but is used as a reference for the size
of the interest payments. The Company is subject to the risk that a counterparty will fail to perform; however, management believes that this risk associated with using derivative financial instruments to mitigate interest rate risk sensitivity is
minimal and should not have any material unintended impact on the financial condition or results of operations.

Effects of Inflation

Inflation generally increases the cost of funds and operating overhead, and, to the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of our assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on our performance than the effects of general levels of inflation
have. 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 have resulted in decreased interest rates while high inflation generally
has



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##### Table of Contents

resulted in increased interest rates. The economy experienced deflation in 2001 and the Federal Reserve reduced interest
rates on eleven occasions for a total of 475 basis points in 2001. Inflation remained low in 2002 and 2003, which reflected that interest rates remained fairly steady in 2002 and 2003, only dropping 50 basis points in 2002 and 25 basis points in
2003. During 2004, inflation slowly started to increase with the improvement in the economy and the Federal Reserve increased interest rates by 125 basis points. During 2005, the Federal Reserve raised these rates by a total of 200 basis points and
raised these rates by an additional 50 basis points in the first quarter of 2006. The Federal Reserve has indicated that after the first quarter of 2006, further changes in rates would be determined by market information.

In addition, inflation results in an increased cost of goods and services purchased, cost of salaries and benefits, occupancy expense and similar items.
Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect the liquidity and earnings of our commercial banking and mortgage banking businesses, and our
shareholders equity. The value of mortgage servicing rights is also affected by changes in, and expectations of changes in, interest rates and prepayment rates on mortgage loans. Generally, if interest rates increase, the value of mortgage
servicing rights increases, and if prepayment rates increase, the value of mortgage servicing rights decreases.

Item 4. 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.

Changes in Internal Control over Financial Reporting

There were no changes in the Companys internal control over financial reporting that occurred during the three months ended March 31, 2006 that have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.



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##### Table of Contents

PART IIOTHER INFORMATION



|         |  |                                                                                                                                                                                                                          
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 1.  |  | Legal ProceedingsNot Applicable                                                                                                                                                                                         
|         | 
|Item 1A. |  | Risk FactorsThere were no material changes during the period covered by this quarterly report to the risk factors previously disclosed in the Companys annual report on Form 10-K for
the year ended December 31, 2005.
|         | 
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of ProceedsNot Applicable                                                                                                                                               
|         | 
|Item 3.  |  | Defaults Upon Senior SecuritiesNot Applicable                                                                                                                                                                           
|         | 
|Item 4.  |  | Submission of Matters to a Vote of Security Holders Not applicable                                                                                                                                                      
|         | 
|Item 5.  |  | Other Information                                                                                                                                                                                                        

On May 12, 2006, the Company entered into Change in Control Employment
Agreements (each, an Agreement and collectively, the Agreements) with each of J. Donald Boggus, Jr., President and Chief Executive Officer, Leland W. Brantley, Jr., Executive Vice President and Chief Financial
Officer, Anthony N. Stancil, Executive Vice President and Chief of Loan Production, A. Bradley Rutledge, Executive Vice President and Chief of Loan Administration, and Bonnie B. Boling, Executive Vice President and Retail Administrator (each, an
Executive and collectively, the Executives), which are intended to provide the Executives with compensation and benefits in the event of a change of control of the Company. Each Agreement has a term of three
years, which is automatically extended for an additional one-year term on each anniversary of the Agreement, unless the Company gives Executive notice at least 60 days prior to such anniversary that the Agreement shall not be extended.

Each Agreement provides that the Executive shall continue to be employed in his or her then-current capacity with the Company at a rate
equal to 12 times the highest monthly base salary paid to the Executives by the Company during the 12-month period immediately preceding the month in which the change of control occurs. In addition, each Executive shall be awarded a cash bonus at
least equal to his or her highest annual bonus for the previous three full fiscal years, and shall be eligible for participation in the Companys incentive, savings, retirement and benefit plans and is entitled to fringe benefits and
reimbursement of expenses in accordance with the Companys policies, practices and procedures.

Each Agreement is
terminable by the Company (including its successors and assigns) with or without cause and by the Executive for good reason (as such terms are defined in the Agreement). In the event of a change of control followed by termination (or a termination
within six months prior to the change of control, subject to certain conditions) by the Company without cause or by the Executive with good reason, the Company shall pay to the Executive, in lump sum, his then-current salary through the date of such
termination, his highest annual bonus for the previous three full fiscal years on a pro rata basis, any accrued vacation pay, deferred compensation as to which the Executive has not selected a specific payout date, and an amount equal to two times
the sum of his or her then-current salary plus the highest annual bonus paid to him or her during the most recent two years. In addition, the Company shall continue, for a period of two years, to provide benefits to each Executive and his or her
family and all unvested stock options shall vest as of the termination. In the event of termination by the Company with cause or by the Executive other than for good reason, the Company shall pay to the Executive accrued salary, vacation pay and
deferred compensation. Each Agreement further provides that if any payment to an Executive equals or exceeds three times his or her base salary, and is therefore subject to an excise tax under the Internal Revenue Code, then the Executive will
receive a gross up of any excise tax imposed, including income taxes and excise taxes on the gross up amount.

Each
Agreement contains a confidentiality provision that applies during each Executives employment and after his or her termination. Each Agreement also contains a provision that, except in the even of a termination by the Company without cause or
by the Executive for good reason, prohibits the Executive from engaging or participating in, as an executive officer, director or greater than 9.9% shareholder of an insured depository institution that has its main office or a branch in the
Companys market area for a period of twelve months following a change of control.

Item 6. Exhibits



|    |  |                                                                                                                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1 |  | Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Companys Registration Statement on Form S-4 dated January 27, 1992, File No. 33-45254
(the Form S-4)).                   
|    | 
|3.2 |  | Amendment to the Companys Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the Companys Registration Statement on Form S-2 filed October 26, 2001,
Commission File No. 333-72300, as amended).
|    | 
|3.3 |  | Bylaws of the Company (incorporated by reference from Exhibit 3.2 to the Form S-4).                                                                                                                                     



30



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##### Table of Contents

|     |  |                                                                                                                                                       
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Change in Control Employment Agreement, dated as of May 12, 2006, by and between the Company and J. Donald Boggus, Jr.                                
|     | 
|10.2 |  | Change in Control Employment Agreement, dated as of May 12, 2006, by and between the Company and Leland W. Brantley, Jr.                              
|     | 
|10.3 |  | Change in Control Employment Agreement, dated as of May 12, 2006, by and between the Company and Anthony N. Stancil.                                  
|     | 
|10.4 |  | Change in Control Employment Agreement, dated as of May 12, 2006, by and between the Company and A. Bradley Rutledge.                                 
|     | 
|10.5 |  | Change in Control Employment Agreement, dated as of May 12, 2006, by and between the Company and Bonnie B. Boling.                                    
|     | 
|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.



31



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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: May 15, 2006 |  | /s/ J. Donald Boggus, Jr..                                 
|                   |  | J. Donald Boggus, Jr. President and Chief Executive Officer
|                   | 
|Date: May 15, 2006 |  | /s/ Leland W. Brantley, Jr.                                
|                   |  | Leland W. Brantley, Jr. Chief Financial Officer            



---

##### Table of Contents

EXHIBIT INDEX



|               |  |                                                                                                                                                       
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                           
|10.1           |  | Change in Control Employment Agreement, dated as of May 12, 2006, by and between the Company and J. Donald Boggus, Jr.                                
|               | 
|10.2           |  | Change in Control Employment Agreement, dated as of May 12, 2006, by and between the Company and Leland W. Brantley, Jr.                              
|               | 
|10.3           |  | Change in Control Employment Agreement, dated as of May 12, 2006, by and between the Company and Anthony N. Stancil.                                  
|               | 
|10.4           |  | Change in Control Employment Agreement, dated as of May 12, 2006, by and between the Company and A. Bradley Rutledge.                                 
|               | 
|10.5           |  | Change in Control Employment Agreement, dated as of May 12, 2006, by and between the Company and Bonnie B. Boling.                                    
|               | 
|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.