##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549



---

FORM 10-Q



---

(Mark One)

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

For the quarterly period ended June 30, 2007

OR



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

For the transition period from  to
.

Commission file number 0-20251



---

Crescent
Banking Company

(Exact Name of Registrant as Specified in its Charter)



---



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



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

(678) 454-2266

(Registrants Telephone Number, Including Area Code)

Not applicable

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



---

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

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

Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated Filer  x

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

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

As of August 10, 2007, Crescent Banking Company had 2,628,073 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.



---



---

##### 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 |  | 10      
|         |  |                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 26      
|         |  |                                                                                      
|Item 4.  |  | Controls and Procedures                                                               |  | 28      
|         |  |                                                                                      
|Part II. |  | Other Information                                                                     |  |         
|         |  |                                                                                      
|Item 1.  |  | Legal Proceedings                                                                     |  | 29      
|         |  |                                                                                      
|Item 1A. |  | Risk Factors                                                                          |  | 29      
|         |  |                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 29      
|         |  |                                                                                      
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  | 29      
|         |  |                                                                                      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 29      
|         |  |                                                                                      
|Item 5.  |  | Other Information                                                                     |  | 29      
|         |  |                                                                                      
|Item 6.  |  | Exhibits                                                                              |  | 29      



i



---

##### Table of Contents

PART IFINANCIAL INFORMATION



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

CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)



|                                                                                                                |  |               |             |   |                  |   |             |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                |  | June 30, 2007 |             |   | December 31,2006 |  
|Assets                                                                                                          |  |               |             |   |                  |   |             |  
|Cash and due from banks                                                                                         |  | $             | 10,175,070  |   |                  | $ | 7,581,450   |  
|Interest-bearing deposits in banks                                                                              |  |               | 3,019,989   |   |                  |   | 1,027,770   |  
|Federal funds sold                                                                                              |  |               | 17,887,000  |   |                  |   | 11,968,000  |  
|Investment securities available-for-sale                                                                        |  |               | 20,210,063  |   |                  |   | 17,494,279  |  
|Investment securities held-to-maturity, at cost (fair value approximates $728,241 and $1,720,116, respectively) |  |               | 728,241     |   |                  |   | 1,728,241   |  
|Restricted equity securities                                                                                    |  |               | 3,139,275   |   |                  |   | 3,365,775   |  
|Mortgage loans held for sale                                                                                    |  |               | 658,585     |   |                  |   | 545,769     |  
|Loans                                                                                                           |  |               | 767,463,728 |   |                  |   | 697,288,060 |  
|Less allowance for loan losses                                                                                  |  |               | (8,819,528  | ) |                  |   | (8,023,565  | )
|                                                                                                                |  |               |             |   |                  |   |             |  
|Loans, net                                                                                                      |  |               | 758,644,200 |   |                  |   | 689,264,495 |  
|Premises and equipment                                                                                          |  |               | 21,554,255  |   |                  |   | 21,140,757  |  
|Other real estate owned                                                                                         |  |               | 3,538,088   |   |                  |   | 247,830     |  
|Cash surrender value of life insurance                                                                          |  |               | 13,334,974  |   |                  |   | 8,242,326   |  
|Goodwill                                                                                                        |  |               | 3,442,714   |   |                  |   | 3,442,714   |  
|Deposit intangible                                                                                              |  |               | 367,656     |   |                  |   | 430,532     |  
|Deferred tax asset                                                                                              |  |               | 5,688,616   |   |                  |   | 5,378,485   |  
|Accounts receivable-brokers and escrow agents                                                                   |  |               | 265,850     |   |                  |   | 284,978     |  
|Other assets                                                                                                    |  |               | 8,536,747   |   |                  |   | 7,527,490   |  
|                                                                                                                |  |               |             |   |                  |   |             |  
|Total Assets                                                                                                    |  | $             | 871,191,323 |   |                  | $ | 779,670,891 |  
|                                                                                                                |  |               |             |   |                  |   |             |  
|Liabilities                                                                                                     |  |               |             |   |                  |   |             |  
|Deposits                                                                                                        |  |               |             |   |                  |   |             |  
|Non interest-bearing                                                                                            |  | $             | 52,077,644  |   |                  | $ | 46,040,938  |  
|Interest-bearing                                                                                                |  |               | 698,091,851 |   |                  |   | 612,814,424 |  
|                                                                                                                |  |               |             |   |                  |   |             |  
|Total deposits                                                                                                  |  |               | 750,169,495 |   |                  |   | 658,855,362 |  
|Short-term borrowings                                                                                           |  |               | 15,000,000  |   |                  |   | 14,000,000  |  
|Long-term borrowings                                                                                            |  |               | 31,857,000  |   |                  |   | 35,857,000  |  
|Accrued interest and other liabilities                                                                          |  |               | 7,890,483   |   |                  |   | 6,861,769   |  
|Liabilities related to discontinued operations                                                                  |  |               | 2,001,578   |   |                  |   | 2,318,896   |  
|                                                                                                                |  |               |             |   |                  |   |             |  
|Total liabilities                                                                                               |  | $             | 806,918,556 |   |                  | $ | 717,893,027 |  
|                                                                                                                |  |               |             |   |                  |   |             |  
|Shareholders equity                                                                                            |  |               |             |   |                  |   |             |  
|Common stock, par value $1.00; 10,000,000 shares authorized; 2,626,073 and 2,609,073 issued, respectively       |  | $             | 2,626,073   |   |                  | $ | 2,609,073   |  
|Capital surplus                                                                                                 |  |               | 19,988,260  |   |                  |   | 19,543,642  |  
|Retained earnings                                                                                               |  |               | 42,276,166  |   |                  |   | 40,094,762  |  
|Treasury stock, 16,668 shares                                                                                   |  |               | (296,091    | ) |                  |   | (296,091    | )
|Accumulated other comprehensive loss                                                                            |  |               | (321,641    | ) |                  |   | (173,522    | )
|                                                                                                                |  |               |             |   |                  |   |             |  
|Total shareholders equity                                                                                      |  |               | 64,272,767  |   |                  |   | 61,777,864  |  
|                                                                                                                |  |               |             |   |                  |   |             |  
|Total liabilities and shareholders equity                                                                      |  | $             | 871,191,323 |   |                  | $ | 779,670,891 |  
|                                                                                                                |  |               |             |   |                  |   |             |  

See Notes to Consolidated Financial Statements.



1



---

##### Table of Contents

CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(unaudited)



|                                                                                                                                                                        |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------- | ---------- | - | -------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                                                                        |  | For the three months endedJune 30, |            |   | For the six months endedJune 30, |  
|                                                                                                                                                                        |  | 2007                               |            |   | 2006                             |   |            | 2007 |  |   | 2006       |  
|Interest income                                                                                                                                                         |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Loans                                                                                                                                                                   |  | $                                  | 15,508,556 |   |                                  | $ | 12,516,376 |      |  | $ | 30,106,768 |   |  | $ | 23,878,891 |  
|Mortgage loans held for sale                                                                                                                                            |  |                                    | 6,368      |   |                                  |   | 2,945      |      |  |   | 10,505     |   |  |   | 7,780      |  
|Taxable securities                                                                                                                                                      |  |                                    | 296,792    |   |                                  |   | 280,298    |      |  |   | 569,070    |   |  |   | 546,319    |  
|Deposits in banks                                                                                                                                                       |  |                                    | 29,180     |   |                                  |   | 7,702      |      |  |   | 45,375     |   |  |   | 16,242     |  
|Federal funds sold                                                                                                                                                      |  |                                    | 183,174    |   |                                  |   | 414,473    |      |  |   | 368,156    |   |  |   | 889,196    |  
|                                                                                                                                                                        |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Total interest income                                                                                                                                                   |  |                                    | 16,024,070 |   |                                  |   | 13,221,794 |      |  |   | 31,099,874 |   |  |   | 25,338,428 |  
|Interest expense                                                                                                                                                        |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Deposits                                                                                                                                                                |  |                                    | 8,109,855  |   |                                  |   | 5,683,012  |      |  |   | 15,635,051 |   |  |   | 11,003,800 |  
|Short-term borrowings                                                                                                                                                   |  |                                    | 163,514    |   |                                  |   | 108,519    |      |  |   | 293,517    |   |  |   | 220,134    |  
|Long-term borrowings                                                                                                                                                    |  |                                    | 437,102    |   |                                  |   | 602,891    |      |  |   | 887,106    |   |  |   | 1,154,407  |  
|                                                                                                                                                                        |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Total interest expense                                                                                                                                                  |  |                                    | 8,710,471  |   |                                  |   | 6,394,422  |      |  |   | 16,815,674 |   |  |   | 12,378,341 |  
|                                                                                                                                                                        |  |                                    |            |  
|Net interest income                                                                                                                                                     |  |                                    | 7,313,599  |   |                                  |   | 6,827,372  |      |  |   | 14,284,200 |   |  |   | 12,960,087 |  
|Provision for loan losses                                                                                                                                               |  |                                    | 715,000    |   |                                  |   | 395,000    |      |  |   | 1,205,000  |   |  |   | 865,000    |  
|                                                                                                                                                                        |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Net interest income after provision for loan losses                                                                                                                     |  |                                    | 6,598,599  |   |                                  |   | 6,432,372  |      |  |   | 13,079,200 |   |  |   | 12,095,087 |  
|                                                                                                                                                                        |  |                                    |            |  
|Noninterest income                                                                                                                                                      |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Service charges on deposit accounts                                                                                                                                     |  |                                    | 401,348    |   |                                  |   | 261,900    |      |  |   | 709,144    |   |  |   | 509,265    |  
|Gains on sales of SBA loans                                                                                                                                             |  |                                    | 128,555    |   |                                  |   | 157,054    |      |  |   | 284,873    |   |  |   | 249,384    |  
|Other operating income                                                                                                                                                  |  |                                    | 498,510    |   |                                  |   | 737,251    |      |  |   | 980,632    |   |  |   | 1,173,094  |  
|                                                                                                                                                                        |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Total noninterest income                                                                                                                                                |  |                                    | 1,028,413  |   |                                  |   | 1,156,205  |      |  |   | 1,974,649  |   |  |   | 1,931,743  |  
|                                                                                                                                                                        |  |                                    |            |  
|Noninterest expenses                                                                                                                                                    |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Salaries and employee benefits                                                                                                                                          |  |                                    | 3,114,840  |   |                                  |   | 2,319,478  |      |  |   | 5,995,675  |   |  |   | 4,580,638  |  
|Occupancy and equipment                                                                                                                                                 |  |                                    | 418,966    |   |                                  |   | 409,141    |      |  |   | 793,961    |   |  |   | 836,375    |  
|Supplies, postage, and telephone                                                                                                                                        |  |                                    | 265,201    |   |                                  |   | 234,239    |      |  |   | 547,652    |   |  |   | 514,662    |  
|Advertising                                                                                                                                                             |  |                                    | 118,999    |   |                                  |   | 131,742    |      |  |   | 257,054    |   |  |   | 253,580    |  
|Insurance expense                                                                                                                                                       |  |                                    | 93,576     |   |                                  |   | 77,562     |      |  |   | 185,477    |   |  |   | 159,723    |  
|Depreciation and amortization                                                                                                                                           |  |                                    | 430,054    |   |                                  |   | 335,063    |      |  |   | 833,153    |   |  |   | 681,262    |  
|Legal and professional                                                                                                                                                  |  |                                    | 376,905    |   |                                  |   | 304,427    |      |  |   | 720,160    |   |  |   | 574,534    |  
|Director fees                                                                                                                                                           |  |                                    | 120,000    |   |                                  |   | 86,625     |      |  |   | 240,675    |   |  |   | 173,300    |  
|Foreclosed asset expense, net                                                                                                                                           |  |                                    | 57,678     |   |                                  |   | 50,163     |      |  |   | 142,031    |   |  |   | 42,913     |  
|Other operating expenses                                                                                                                                                |  |                                    | 349,153    |   |                                  |   | 354,840    |      |  |   | 670,103    |   |  |   | 644,816    |  
|                                                                                                                                                                        |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Total noninterest expenses                                                                                                                                              |  |                                    | 5,345,372  |   |                                  |   | 4,303,280  |      |  |   | 10,385,941 |   |  |   | 8,461,803  |  
|                                                                                                                                                                        |  |                                    |            |  
|Income from continuing operations before income taxes                                                                                                                   |  |                                    | 2,281,640  |   |                                  |   | 3,285,297  |      |  |   | 4,667,908  |   |  |   | 5,565,027  |  
|Applicable income taxes                                                                                                                                                 |  |                                    | 840,302    |   |                                  |   | 1,234,708  |      |  |   | 1,726,855  |   |  |   | 2,105,727  |  
|                                                                                                                                                                        |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Income from continuing operations                                                                                                                                       |  |                                    | 1,441,338  |   |                                  |   | 2,050,589  |      |  |   | 2,941,053  |   |  |   | 3,459,300  |  
|Income from operations of discontinued mortgage subsidiary, net of tax expense of $43,799 and $0 for the three months ended and $43,799 and
$0 for the six months ended |  |                                    | 74,595     |   |                                  |   |           |      |  |   | 74,595     |   |  |   |           |  
|                                                                                                                                                                        |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Net income                                                                                                                                                              |  |                                    | 1,515,933  |   |                                  |   | 2,050,589  |      |  |   | 3,015,648  |   |  |   | 3,459,300  |  
|                                                                                                                                                                        |  |                                    |            |  
|Other comprehensive income                                                                                                                                              |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Unrealized losses on securities available-for-sale arising during period, net of tax                                                                                    |  |                                    | (183,420   | ) |                                  |   | (83,497    | )    |  |   | (148,119   | ) |  |   | (126,534   | )
|                                                                                                                                                                        |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Comprehensive income                                                                                                                                                    |  | $                                  | 1,332,513  |   |                                  | $ | 1,967,092  |      |  | $ | 2,867,529  |   |  | $ | 3,332,766  |  
|                                                                                                                                                                        |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  

See Notes to Consolidated Financial Statements.



2



---

##### Table of Contents

CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Continued)

(unaudited)



|                                                        |  |                                    |       |                                  |   |      |  |      |       |  |   |      
|------------------------------------------------------- |  | ---------------------------------- | ----- | -------------------------------- | - | ---- |  | ---- | ----- |  | - | -----
|                                                        |  | For the three months endedJune 30, |       | For the six months endedJune 30,
|                                                        |  | 2007                               |       | 2006                             |   | 2007 |  | 2006
|Earnings per share                                      |  |                                    |       |                                  |   |      |  |      |       |  |   |      
|Basic earnings per share                                |  | $                                  | 0.59  |                                  | $ | 0.80 |  | $    | 1.17  |  | $ | 1.34 
|Diluted earnings per share                              |  | $                                  | 0.57  |                                  | $ | 0.77 |  | $    | 1.13  |  | $ | 1.30 
|                                                        |  |                                    |       |                                 
|Earnings per share from continuing operations           |  |                                    |       |                                  |   |      |  |      |       |  |   |      
|Basic earnings per share from continuing operations     |  | $                                  | 0.56  |                                  | $ | 0.80 |  | $    | 1.14  |  | $ | 1.34 
|Diluted earnings per share from continuing operations   |  | $                                  | 0.54  |                                  | $ | 0.77 |  | $    | 1.10  |  | $ | 1.30 
|                                                        |  |                                    |       |                                 
|Earnings per share from discontinued operations         |  |                                    |       |                                  |   |      |  |      |       |  |   |      
|Basic Earnings per share from discontinued operations   |  | $                                  | .03   |                                  | $ | .00  |  | $    | .03   |  | $ | .00  
|Diluted Earnings per share from discontinued operations |  | $                                  | .03   |                                  | $ | .00  |  | $    | .03   |  | $ | .00  
|                                                        |  |                                    |       |                                 
|Cash dividends per share of common stock                |  | $                                  | 0.160 |                                  | $ | 0.12 |  | $    | 0.320 |  | $ | 0.215

See Notes to Consolidated Financial Statements.



3



---

##### Table of Contents

CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                  |  |                                   |             |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | --------------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                  |  | For the six months ended June 30, |            
|                                                                                  |  | 2007                              |             |   | 2006 |  
|Operating Activities                                                              |  |                                   |             |   |      |   |             |  
|Net income                                                                        |  | $                                 | 3,015,648   |   |      | $ | 3,459,300   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                   |             |   |      |   |             |  
|Amortization of premium on securities                                             |  |                                   | 9,383       |   |      |   | 12,161      |  
|Amortization of deposit intangible                                                |  |                                   | 62,876      |   |      |   | 62,875      |  
|Net gain on sale of other real estate owned                                       |  |                                   |            |   |      |   | (11,508     | )
|Net loss on sale/disposal of premises and equipment                               |  |                                   |            |   |      |   | 37,661      |  
|Amortization of mortgage servicing rights                                         |  |                                   | 6,959       |   |      |   | 6,959       |  
|Provision for loan losses                                                         |  |                                   | 1,205,000   |   |      |   | 865,000     |  
|Depreciation                                                                      |  |                                   | 763,318     |   |      |   | 611,431     |  
|Proceeds from sales of mortgage loans held for sale                               |  |                                   | 21,634,203  |   |      |   | 20,143,248  |  
|Originations of mortgage loans held for sale                                      |  |                                   | (21,747,019 | ) |      |   | (19,341,248 | )
|Income on life insurance policies                                                 |  |                                   | (192,648    | ) |      |   | (139,206    | )
|Decrease in deferred income taxes                                                 |  |                                   | (425,812    | ) |      |   | (42,865     | )
|Increase in interest receivable                                                   |  |                                   | (524,815    | ) |      |   | (110,436    | )
|Decrease in accounts receivable  brokers and escrow agents                       |  |                                   | 19,128      |   |      |   | 51,629      |  
|Decrease in interest payable                                                      |  |                                   | (504,612    | ) |      |   | (20,860     | )
|Stock-based compensation expense                                                  |  |                                   | 346,878     |   |      |   | 126,937     |  
|Net cash used in discontinued operations                                          |  |                                   | (317,318    | ) |      |   | (290,019    | )
|Net change in other assets, liabilities and other operating activities            |  |                                   | 1,256,355   |   |      |   | 1,213,955   |  
|                                                                                  |  |                                   |             |   |      |   |             |  
|Net cash provided by operating activities                                         |  |                                   | 4,607,524   |   |      |   | 6,635,014   |  
|                                                                                  |  |                                   |             |   |      |   |             |  
|Investing Activities                                                              |  |                                   |             |   |      |   |             |  
|Net increase in interest-bearing deposits in banks                                |  |                                   | (1,992,219  | ) |      |   | (449,390    | )
|Purchase of securities available-for-sale                                         |  |                                   | (4,958,005  | ) |      |   | (4,706,828  | )
|Proceeds from maturities/calls of securities available-for-sale                   |  |                                   | 1,985,972   |   |      |   | 765,761     |  
|Proceeds from maturities of other securities                                      |  |                                   | 226,500     |   |      |   |            |  
|Proceeds from maturities/calls of securities held-to-maturity                     |  |                                   | 1,000,000   |   |      |   |            |  
|Purchase of other securities                                                      |  |                                   |            |   |      |   | (206,800    | )
|Proceeds from sale of other real estate owned                                     |  |                                   | 105,219     |   |      |   | 642,796     |  
|Sale of premises and equipment                                                    |  |                                   |            |   |      |   | 3,000       |  
|Net increase in federal funds sold                                                |  |                                   | (5,919,000  | ) |      |   | (5,875,000  | )
|Net increase in loans                                                             |  |                                   | (73,980,182 | ) |      |   | (37,132,070 | )
|Purchase of life insurance policies                                               |  |                                   | (4,900,000  | ) |      |   |            |  
|Purchase of premises and equipment                                                |  |                                   | (1,176,816  | ) |      |   | (2,859,826  | )
|                                                                                  |  |                                   |             |   |      |   |             |  
|Net cash used in investing activities                                             |  |                                   | (89,608,531 | ) |      |   | (49,818,357 | )
|                                                                                  |  |                                   |             |   |      |   |             |  

See Notes to Consolidated Financial Statements.



4



---

##### Table of Contents

CRESCENT BANKING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS(continued)

(unaudited)



|                                                                   |  |                                  |            |   |      |   |            |  
|------------------------------------------------------------------ |  | -------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                   |  | For the six months endedJune 30, |           
|                                                                   |  | 2007                             |            |   | 2006 |  
|Financing Activities                                               |  |                                  |            |   |      |   |            |  
|Net increase in deposits                                           |  |                                  | 91,314,131 |   |      |   | 44,592,630 |  
|Net increase (decrease) in borrowings                              |  |                                  | (3,000,000 | ) |      |   | 1,609,000  |  
|Excess tax benefits from share-based payment arrangements          |  |                                  | 47,567     |   |      |   | 133,352    |  
|Proceeds from the exercise of stock options                        |  |                                  | 67,173     |   |      |   | 237,656    |  
|Dividends paid                                                     |  |                                  | (834,244   | ) |      |   | (554,009   | )
|                                                                   |  |                                  |            |   |      |   |            |  
|Net cash provided by financing activities                          |  |                                  | 87,594,627 |   |      |   | 46,018,629 |  
|                                                                   |  |                                  |            |   |      |   |            |  
|Net increase in cash and due from banks                            |  |                                  | 2,593,620  |   |      |   | 2,835,286  |  
|Cash and due from banks at beginning of year                       |  |                                  | 7,581,450  |   |      |   | 12,793,467 |  
|                                                                   |  |                                  |            |   |      |   |            |  
|Cash and due from banks at end of period                           |  | $                                | 10,175,070 |   |      | $ | 15,628,753 |  
|                                                                   |  |                                  |            |   |      |   |            |  
|Supplemental Disclosure of Cash Flow Information                   |  |                                  |            |   |      |   |            |  
|Cash paid during period for interest                               |  | $                                | 17,320,286 |   |      | $ | 12,399,201 |  
|Cash paid during period for taxes                                  |  |                                  | 1,624,000  |   |      |   | 1,913,000  |  
|Principal balances of loans transferred to other real estate owned |  |                                  | 3,395,477  |   |      |   | 1,356,078  |  
|Unrealized loss on securities available for sale, net              |  |                                  | (148,119   | ) |      |   | (126,534   | )

See Notes to Consolidated Financial Statements



5



---

##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

NOTE 1GENERAL

The accompanying unaudited
consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted accounting principles for complete financial statements. These unaudited consolidated financial statements should be read in conjunction with the Companys consolidated
financial statements and notes thereto in the 2006 annual report on Form 10-K. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations of the interim periods have been made.
All such adjustments are of a normal recurring nature. Results of operations for the three and six months ended June 30, 2007 are not necessarily indicative of the results of operations for the full year or any other interim periods.

NOTE 2DISCONTINUED OPERATIONS

The consolidated balance sheets at June 30, 2007 and December 31, 2006 include liabilities of $2,001,578 and $2,318,896, respectively, related to discontinued operations. The liabilities included in the consolidated balance sheets
related to discontinued operations are the allowance for 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 June 30, 2007 and December 31, 2006, the Company had approximately $2.2 million and $3.6 million, respectively, of mortgage loans for which it
had agreed to indemnify the purchaser for losses suffered by the purchaser. In the event that the purchaser of these loans experiences any losses with respect to the loans, the Company will be required to indemnify the purchaser for its losses or to
repurchase the loans from the purchaser. The Company has established a specific allowance for recourse liability for the loans on which the Company has already become obligated to make indemnification payments to the purchaser and an estimated
allowance for recourse liability for probable future losses from loans that the Company may have to indemnify. The estimated recourse liability at June 30, 2007 and December 31, 2006 for future losses is $2.0 million and $2.3 million,
respectively, and is estimated and adjusted based upon historical information on the number of loans indemnified and the average loss on an indemnified loan. The table below shows the changes in the allowance for recourse obligation from
December 31, 2006 to June 30, 2007.

Changes in the allowance for recourse obligation are as follows:



|                                            |  |      |           |  
|------------------------------------------- |  | ---- | --------- | -
|                                            |  | 2007 |          
|Balance at December 31, 2006                |  | $    | 2,318,896 |  
|Reduction in estimated recourse obligations |  |      | (118,394  | )
|Losses indemnified                          |  |      | (198,924  | )
|                                            |  |      |           |  
|Balance at June 30, 2007                    |  | $    | 2,001,578 |  
|                                            |  |      |           |  

NOTE 3CASH FLOW INFORMATION

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



6



---

##### Table of Contents

NOTE 4EARNINGS PER SHARE

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



|                                              |  |                                  |           |                                       |           |                  |   |     
|--------------------------------------------- |  | -------------------------------- | --------- | ------------------------------------- | --------- | ---------------- | - | ----
|                                              |  | Three Months Ended June 30, 2007
|                                              |  | Net Income (Numerator)           |           | Weighted-Average Shares (Denominator) |           | Per-Share Amount
|Consolidated                                  |  |                                  |           |                                       |           |                  |   |     
|Basic earnings per share                      |  | $                                | 1,515,933 |                                       | 2,582,671 |                  | $ | 0.59
|Effect of dilutive securities (stock options) |  |                                  |           |                                       | 92,409    |                  |   |     
|Diluted earnings per share                    |  | $                                | 1,515,933 |                                       | 2,675,080 |                  | $ | 0.57
|                                              |  |                                  |          
|Continuing Operations                         |  |                                  |           |                                       |           |                  |   |     
|Basic earnings per share                      |  | $                                | 1,441,338 |                                       | 2,582,671 |                  | $ | 0.56
|Effect of dilutive securities (stock options) |  |                                  |           |                                       | 92,409    |                  |   |     
|Diluted earnings per share                    |  | $                                | 1,441,338 |                                       | 2,675,080 |                  | $ | 0.54
|                                              |  |                                  |          
|Discontinued Operations                       |  |                                  |           |                                       |           |                  |   |     
|Basic earnings per share                      |  | $                                | 74,595    |                                       | 2,582,671 |                  | $ | 0.03
|Effect of dilutive securities (stock options) |  |                                  |           |                                       | 92,409    |                  |   |     
|Diluted earnings per share                    |  | $                                | 74,595    |                                       | 2,675,080 |                  | $ | 0.03



|                                              |  |                                  |           |                                       |           |                  |   |     
|--------------------------------------------- |  | -------------------------------- | --------- | ------------------------------------- | --------- | ---------------- | - | ----
|                                              |  | Three Months Ended June 30, 2006
|                                              |  | Net Income (Numerator)           |           | Weighted-Average Shares (Denominator) |           | Per-Share Amount
|Consolidated                                  |  |                                  |           |                                       |           |                  |   |     
|Basic earnings per share                      |  | $                                | 2,050,589 |                                       | 2,578,405 |                  | $ | 0.80
|Effect of dilutive securities (stock options) |  |                                  |           |                                       | 86,965    |                  |   |     
|Diluted earnings per share                    |  | $                                | 2,050,589 |                                       | 2,665,370 |                  | $ | 0.77
|                                              |  |                                  |          
|Continuing Operations                         |  |                                  |           |                                       |           |                  |   |     
|Basic earnings per share                      |  | $                                | 2,050,589 |                                       | 2,578,405 |                  | $ | 0.80
|Effect of dilutive securities (stock options) |  |                                  |           |                                       | 86,965    |                  |   |     
|Diluted earnings per share                    |  | $                                | 2,050,589 |                                       | 2,665,370 |                  | $ | 0.77
|                                              |  |                                  |          
|Discontinued Operations                       |  |                                  |           |                                       |           |                  |   |     
|Basic earnings per share                      |  | $                                | 0         |                                       | 2,578,405 |                  | $ | 0.00
|Effect of dilutive securities (stock options) |  |                                  |           |                                       | 86,965    |                  |   |     
|Diluted earnings per share                    |  | $                                | 0         |                                       | 2,665,370 |                  | $ | 0.00



7



---

##### Table of Contents

NOTE 4EARNINGS PER SHARE (Continued)



|                                              |  |                                |           |                                       |           |                 |   |     
|--------------------------------------------- |  | ------------------------------ | --------- | ------------------------------------- | --------- | --------------- | - | ----
|                                              |  | Six Months Ended June 30, 2007
|                                              |  | Net Income (Numerator)         |           | Weighted-Average Shares (Denominator) |           | Per-ShareAmount
|Consolidated                                  |  |                                |           |                                       |           |                 |   |     
|Basic earnings per share                      |  | $                              | 3,015,648 |                                       | 2,580,970 |                 | $ | 1.17
|Effect of dilutive securities (stock options) |  |                                |           |                                       | 94,137    |                 |   |     
|Diluted earnings per share                    |  | $                              | 3,015,648 |                                       | 2,675,107 |                 | $ | 1.13
|                                              |  |                                |          
|Continuing Operations                         |  |                                |           |                                       |           |                 |   |     
|Basic earnings per share                      |  | $                              | 2,941,053 |                                       | 2,580,970 |                 | $ | 1.14
|Effect of dilutive securities (stock options) |  |                                |           |                                       | 94,137    |                 |   |     
|Diluted earnings per share                    |  | $                              | 2,941,053 |                                       | 2,675,107 |                 | $ | 1.10
|                                              |  |                                |          
|Discontinued Operations                       |  |                                |           |                                       |           |                 |   |     
|Basic earnings per share                      |  | $                              | 74,595    |                                       | 2,580,970 |                 | $ | 0.03
|Effect of dilutive securities (stock options) |  |                                |           |                                       | 94,137    |                 |   |     
|Diluted earnings per share                    |  | $                              | 74,595    |                                       | 2,675,107 |                 | $ | 0.03



|                                              |  |                                |           |                                       |           |                 |   |     
|--------------------------------------------- |  | ------------------------------ | --------- | ------------------------------------- | --------- | --------------- | - | ----
|                                              |  | Six Months Ended June 30, 2006
|                                              |  | Net Income (Numerator)         |           | Weighted-Average Shares (Denominator) |           | Per-ShareAmount
|Consolidated                                  |  |                                |           |                                       |           |                 |   |     
|Basic earnings per share                      |  | $                              | 3,459,300 |                                       | 2,573,591 |                 | $ | 1.34
|Effect of dilutive securities (stock options) |  |                                |           |                                       | 85,345    |                 |   |     
|Diluted earnings per share                    |  | $                              | 3,459,300 |                                       | 2,658,936 |                 | $ | 1.30
|                                              |  |                                |          
|Continuing Operations                         |  |                                |           |                                       |           |                 |   |     
|Basic earnings per share                      |  | $                              | 3,459,300 |                                       | 2,573,591 |                 | $ | 1.34
|Effect of dilutive securities (stock options) |  |                                |           |                                       | 85,345    |                 |   |     
|Diluted earnings per share                    |  | $                              | 3,459,300 |                                       | 2,658,936 |                 | $ | 1.30
|                                              |  |                                |          
|Discontinued Operations                       |  |                                |           |                                       |           |                 |   |     
|Basic earnings per share                      |  | $                              | 0         |                                       | 2,573,591 |                 | $ | 0.00
|Effect of dilutive securities (stock options) |  |                                |           |                                       | 85,345    |                 |   |     
|Diluted earnings per share                    |  | $                              | 0         |                                       | 2,658,936 |                 | $ | 0.00

NOTE 5DERIVATIVE FINANCIAL INSTRUMENTS

In order to manage its interest rate sensitivity, the Company uses off-balance sheet contracts that are considered derivative financial instruments.
Derivative financial instruments can be a cost-effective and capital effective means of modifying the repricing characteristics of on-balance sheet assets and liabilities. At June 30, 2007 and December 31, 2006, the Company was a party to
interest rate swap contracts (back-end derivative) under which it pays a fixed rate of interest and receives a variable rate of interest. The notional amount of the interest rate swaps was approximately $9,430,000 with a fair value of approximately
$(185,000) at June 30, 2007 and approximately $9,604,000 with a fair value of approximately $(391,000) at December 31, 2006. The Company also has an embedded derivative in each of the loan agreements (front-end derivative) that would
require the borrower to pay or receive from the Bank an amount equal to and offsetting the value of the interest rate swaps. These front-end and back-end derivatives are recorded in other assets and other liabilities. The net effect of recording the
derivatives at fair value through earnings was immaterial to the Companys financial condition and results of operations as of and for the three and six months ended June 30, 2007. If a counterparty, in particular our borrower, fails to
perform and the market value of the financial derivative is negative, the Company would be obligated to pay the settlement amount for the financial derivative. If the market value is positive, the Company would receive a payment for the settlement
amount for the financial derivative. The settlement amount of the financial derivative could be material to the Company and is determined by the fluctuation of interest rates.



8



---

##### Table of Contents

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

NOTE 6INCOME TAXES

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

Unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration
of open income tax returns due to the statutes of limitation, changes in managements judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax
positions.

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

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



9



---

##### 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 this Item and elsewhere, may constitute forward-looking statements within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933,
as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).

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

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



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



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



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



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



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



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



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



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



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



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



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

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

Overview

As of June 30, 2007, the Company was made up of the following five entities:



10



---

##### Table of Contents

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



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



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



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



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

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

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

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

As of June 30, 2007, the Company had total consolidated assets of approximately $871.2 million, total deposits of approximately $750.2 million, total consolidated liabilities, including deposits, of $806.9 million and consolidated
stockholders equity of approximately $64.3 million. The Companys operations are discussed below under Results of Operations.

Commercial Banking Business

The Company currently conducts its traditional commercial banking operations through Crescent
Bank. The Bank is a Georgia banking corporation that was founded in August 1989. The Bank is a member of the Federal Deposit Insurance Corporation (the FDIC). Effective March 31, 2006, the FDICs Bank Insurance Fund and Savings
Association Insurance Fund were merged into one fund, the Deposit Insurance Fund (DIF). The Banks deposits are insured by DIF. The Bank is also a member of the Federal Home Loan Bank of Atlanta.

Through the Bank, the Company provides a broad range of banking and financial services to those areas surrounding Jasper, Georgia. As its primary market
area, the Bank focuses on Pickens, Bartow, Forsyth and Cherokee Counties, Georgia and nearby Dawson, Cobb, Walton and Gilmer Counties, Georgia, which are situated to the north of Atlanta, Georgia. The Banks commercial banking operations are
primarily retail-oriented and aimed at individuals and small to medium-sized businesses located within its market area. While the Bank provides most traditional banking services, its principal activities as a community bank are the taking of demand
and time deposits and the making of secured and unsecured consumer loans and commercial loans to its target customers. The retail nature of the Banks commercial banking operations allows for diversification of depositors and borrowers, and the
Banks management believes it is not dependent upon a single or a few customers. The Bank does not have a significant portion of commercial banking loans concentrated within a single industry or group of related industries. However,
approximately 93% of the Banks loan portfolio is secured by commercial and residential real estate in its primary market area. The Bank makes loans to acquire and develop commercial and residential real estate. The Company does not consider
its commercial banking operations to be seasonal in nature. Real estate activity and values tend to be cyclical and vary over time with interest rates and economic activity.

Continued Expansion

Consistent with the Companys efforts to better serve its market, the Company has engaged in recent expansion of its business. We completed construction of our new Cumming, Georgia branch office in January of 2006 and we concurrently
closed our existing Cumming branch location that was being operated out of leased space in a shopping center. We completed



11



---

##### Table of Contents

construction of our new office in Canton, Georgia in the third quarter of 2006, and we concurrently closed our existing Canton branch location and our Canton
loan production office that were being operated out of leased space. We completed construction of a new office in south Cherokee County near Woodstock, Georgia in the first quarter of 2007. With the completion of these two branches, the Bank has
three full service branches in Cherokee County, which is one of the fastest growing counties in Georgia.

Challenges for the
Commercial Banking Business

The Bank has four primary challenges for the future: interest rate risk, a competitive
marketplace, liquidity and credit risk. The Banks principal source of income is its net interest income. Net interest income is the difference between the interest income we receive on our interest-earning assets, such as investment securities
and loans, and the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings. The greatest risk to our net interest margin is interest rate risk from the potential movement in interest rates, which if not
anticipated and managed, can result in a decrease in earnings or earnings volatility. We manage interest rate risk by maintaining what we believe to be the proper balance of rate sensitive assets and rate sensitive liabilities. Rate sensitive assets
and rate sensitive liabilities are those that can be repriced to current rates within a relatively short time period. Many economists feel that interest rates may remain stable in the third and fourth quarters of 2007 and then could begin to
decline. The Federal Reserves actions with respect to interest rates will depend on many factors which are not known at this time. During the 0-90 day period, during which we are most sensitive to interest rate changes, the Bank is considered
asset sensitive, and if rates rise, our net interest margin is expected to improve. Conversely, if interest rates fall, our net interest margin is expected to decline based on the Companys present asset sensitive position.

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

The third challenge for the Companys commercial banking business is liquidity, or our ability to raise funds to support asset growth, meet deposit
withdrawals and other borrowing needs, maintain adequate reserves and sustain our operations. Due to the projected high volume of loan growth for 2007 and future years and the competitive pricing by competitors in several of our market areas, the
Banks liquidity could come under pressure. The Bank has the ability to acquire out-of-market deposits to supplement deposit growth in our market areas and can borrow an additional $15 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, 17% during 2006 and 20% (annualized) during the first six months of 2007. Also during this same time period, the Bank added approximately 24 new loan officers, which were mainly related to the
addition of five new full service branches and two new loan production offices. The weakening of the real estate market could have a significant effect on the Banks loan portfolio. Approximately 93% of the Banks loan portfolio is secured
by real estate, including 52% related to construction, acquisition and development loans. With the current focus on growth, the Bank must maintain the proper procedures to be able to monitor the loan growth, including the quality of the loans, and
its concentration in real estate secured loans. If the credit quality of the Banks loan portfolio declines, then the Banks ability to raise capital and expand could be limited.



12



---

##### Table of Contents

Accounting Standards

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

In September 2006, the FASB issued Statement of
Financial Accounting Standards No. 157 Fair Value Measurements. Statement 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Statement 157 does not
require any new fair value measurements, but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. Statement 157 will become effective on January 1, 2008. The Company does not anticipate that
Statement 157 will have a material impact on its consolidated financial statements.

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

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

Critical Accounting Policies and
Estimates

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



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



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

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

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



13



---

##### Table of Contents

Allowance for Loan Losses

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

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, 2006 and 2007, our losses related to indemnified loans
have gradually decreased and we have not made any further additions to the recourse obligation reserve. During the second quarter of 2007, we evaluated our allowance for the recourse obligation reserve and such analysis showed an overaccrual. This
overaccrual was due to the fact that the Company has indemnified fewer loans than previously estimated and has had several indemnified loans pay-off without any losses. Therefore, based upon this analysis, we reduced the recourse obligation reserve
by $118,394 during the second quarter of 2007. Given the limited historical information available to management with respect to the Companys potential obligations to make indemnification payments, the evaluation of these factors involves
subjective estimates and judgments that may change.

Results of Operations

General Discussion

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



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



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

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



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



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



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



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

The following table sets forth a distribution of the assets, liabilities and shareholders equity for the
six months ended June 30, 2007 and 2006:



|                            |  |                  |         |               |   |         |                  |      |                    |  |               |      |  |      |        |  |      |        |        |   |       |  |   |       |  |   |      
|--------------------------- |  | ---------------- | ------- | ------------- | - | ------- | ---------------- | ---- | ------------------ |  | ------------- | ---- |  | ---- | ------ |  | ---- | ------ | ------ | - | ----- |  | - | ----- |  | - | -----
|                            |  | Average Balances |         | Yields /Rates |   |         | Income / Expense |      | Increase(Decrease) |  | Change Due to
|                            |  | 2007             |         | 2006          |   | 2007    |                  |      | 2006               |  |               | 2007 |  | 2006 |        |  | Rate |        | Volume
|Assets                      |  |                  |         |               |   |         |                  |      |                    |  |               |      |  |      |        |  |      |        |        |   |       |  |   |       |  |   |      
|                            |  |                  |         |               |   |         |                  |      |                   
|Loans, including fee income |  | $                | 719,139 |               | $ | 603,512 |                  | 8.44 | %                  |  | 7.98          | %    |  | $    | 30,107 |  | $    | 23,879 |        | $ | 6,228 |  | $ | 1,383 |  | $ | 4,845



14



---

##### Table of Contents

|                                     |  |   |         |   |  |   |         |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|------------------------------------ |  | - | ------- | - |  | - | ------- | - |  | ---- | - |  | ---- | - |  | - | ------ |  | - | ------ |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|Mortgage loans held for sale         |  |   | 354     |   |  |   | 232     |   |  | 5.98 | % |  | 6.77 | % |  |   | 11     |  |   | 8      |  |   | 3     |   |  |   | (1    | ) |  |   | 4     |  
|                                     |  |   |         |   |  |   |         |   | 
|Taxable securities                   |  |   | 22,818  |   |  |   | 23,757  |   |  | 5.03 | % |  | 4.64 | % |  |   | 569    |  |   | 546    |  |   | 23    |   |  |   | 46    |   |  |   | (23   | )
|                                     |  |   |         |   |  |   |         |   | 
|Federal funds sold                   |  |   | 14,237  |   |  |   | 38,826  |   |  | 5.21 | % |  | 4.62 | % |  |   | 368    |  |   | 889    |  |   | (521  | ) |  |   | 114   |   |  |   | (635  | )
|                                     |  |   |         |   |  |   |         |   | 
|Interest-bearing deposits in banks   |  |   | 1,762   |   |  |   | 710     |   |  | 5.19 | % |  | 4.61 | % |  |   | 45     |  |   | 16     |  |   | 29    |   |  |   | 2     |   |  |   | 27    |  
|                                     |  |   |         |   |  |   |         |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Total earning assets                 |  |   | 758,310 |   |  |   | 667,037 |   |  | 8.27 | % |  | 7.66 | % |  |   | 31,100 |  |   | 25,338 |  |   | 5,762 |   |  |   | 1,544 |   |  |   | 4,218 |  
|                                     |  |   |         |   |  |   |         |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Cash and due from banks              |  |   | 6,633   |   |  |   | 11,208  |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Allowance for loan losses            |  |   | (8,309  | ) |  |   | (6,899  | ) |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Other assets                         |  |   | 59,317  |   |  |   | 51,646  |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|                                     |  |   |         |   |  |   |         |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Total                                |  | $ | 815,951 |   |  | $ | 722,992 |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|                                     |  |   |         |   |  |   |         |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Liabilities and Equity               |  |   |         |   |  |   |         |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Interest-bearing demand              |  | $ | 79,525  |   |  | $ | 92,358  |   |  | 3.14 | % |  | 3.19 | % |  | $ | 1,237  |  | $ | 1,459  |  | $ | (222  | ) |  | $ | (22   | ) |  | $ | (200  | )
|                                     |  |   |         |   |  |   |         |   | 
|Savings                              |  |   | 52,910  |   |  |   | 44,936  |   |  | 3.82 | % |  | 2.70 | % |  |   | 1,004  |  |   | 601    |  |   | 403   |   |  |   | 251   |   |  |   | 152   |  
|                                     |  |   |         |   |  |   |         |   | 
|Certificates of deposit              |  |   | 510,110 |   |  |   | 415,760 |   |  | 5.29 | % |  | 4.34 | % |  |   | 13,394 |  |   | 8,944  |  |   | 4,450 |   |  |   | 1,967 |   |  |   | 2,483 |  
|                                     |  |   |         |   |  |   |         |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Total interest-bearing deposits      |  |   | 642,545 |   |  |   | 553,054 |   |  | 4.91 | % |  | 4.01 | % |  |   | 15,635 |  |   | 11,004 |  |   | 4,631 |   |  |   | 2,196 |   |  |   | 2,435 |  
|                                     |  |   |         |   |  |   |         |   | 
|Borrowings                           |  |   | 47,551  |   |  |   | 60,074  |   |  | 5.01 | % |  | 4.61 | % |  |   | 1,181  |  |   | 1,374  |  |   | (193  | ) |  |   | 118   |   |  |   | (311  | )
|                                     |  |   |         |   |  |   |         |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Total interest-bearing liabilities   |  |   | 690,096 |   |  |   | 613,128 |   |  | 4.91 | % |  | 4.07 | % |  |   | 16,816 |  |   | 12,378 |  |   | 4,438 |   |  |   | 2,314 |   |  |   | 2,124 |  
|                                     |  |   |         |   |  |   |         |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Non interest-bearing demand deposits |  |   | 48,191  |   |  |   | 42,173  |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Other liabilities                    |  |   | 14,378  |   |  |   | 10,626  |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Shareholders equity                 |  |   | 63,286  |   |  |   | 57,065  |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|                                     |  |   |         |   |  |   |         |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Total                                |  | $ | 815,951 |   |  | $ | 722,992 |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|                                     |  |   |         |   |  |   |         |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Net interest income                  |  |   |         |   |  |   |         |   |  |      |   |  |      |   |  | $ | 14,284 |  | $ | 12,960 |  | $ | 1,324 |   |  | $ | (770  | ) |  | $ | 2,094 |  
|                                     |  |   |         |   |  |   |         |   |  |      |   |  |      |   |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|Net interest yield on earning assets |  |   |         |   |  |   |         |   |  | 3.80 | % |  | 3.92 | % |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  
|                                     |  |   |         |   |  |   |         |   | 
|Net interest spread                  |  |   |         |   |  |   |         |   |  | 3.36 | % |  | 3.59 | % |  |   |        |  |   |        |  |   |       |   |  |   |       |   |  |   |       |  

Results of Our Commercial Banking Business

Interest Income

Our interest income
related to commercial banking increased 21% to $16.0 million for the three months ended June 30, 2007 from $13.2 million for the three months ended June 30, 2006. Our interest income related to commercial banking increased 23% to $31.1
million for the six months ended June 30, 2007 from $25.3 million for the six months ended June 30, 2006. The increase in 2007 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 $121.9 million, or 20%, for the quarter ended June 30, 2007 and $115.6 million, or 19%, for the six months ended June 30, 2007 over the same periods for 2006. This
growth in commercial banking loans was the result of higher loan demand in our service area, as well as the expansion of the Banks operations in both its current markets and into new markets in north Fulton, Walton and Cobb Counties. The yield
from commercial banking loans increased from 8.21% and 7.98% for the three and six months ended June 30, 2006 to 8.48% and 8.44% for the three and six months ended June 30, 2007. The increase in the yield from commercial banking loans
during 2007 compared to 2006 was mainly the result of the repricing of the commercial banking loan portfolio as the Federal Reserve increased interest rates 125 basis points during the first six months of 2006. Since the second quarter of 2006, the
Federal Reserve has left interest rates unchanged. Approximately 61% of our commercial banking loan portfolio is variable rate and adjusts with changes in the prime rate.



15



---

##### Table of Contents

Interest Expense

Our interest expense related to the commercial banking business for the three months and six months ended June 30, 2007 amounted to $8.7 million and $16.8 million, respectively, compared to $6.4 million and $12.4
million for the three and six months ended June 30, 2006, an increase of 36% for both periods. Interest expense related to commercial banking deposits for the three and six months ended June 30, 2007 was $8.1 million and $15.6 million,
respectively, compared to $5.7 million and $11.0 million for the three and six months ended June 30, 2006, an increase of 43% and 42%, respectively. 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 $107.7 million, or 19%, from $553.4 million for the three months ended
June 30, 2006 to $661.1 million for the three months ended June 30, 2007. Average interest-bearing deposits increased approximately $89.5 million, or 16%, from $553.1 million for the six months ended June 30, 2006 to $642.5 million
for the six months ended June 30, 2007. During the first half of 2007, the Bank has mainly used out-of-market and brokered deposits to fund its loan growth. The Banks out-of-market and brokered deposits increased $57.8 million, or 79%, in
the first half of 2007 from $72.8 million at December 31, 2006 to $130.6 million at June 30, 2007. We witnessed the cost of out-of-market and brokered deposits increase to levels equal to or even exceeding the costs in our local market
during 2006, and therefore, out-of-market and brokered deposits were rarely used as a funding source. Therefore, during 2006, the Bank ran several certificate of deposit promotions in its local markets in order to fund its loan growth. As a result,
certificates of deposit within our market area increased $88.2 million in 2006. However, since the fourth quarter of 2006, we saw the cost of out-of-market and brokered deposits fall to approximately 15 to 20 basis points below the cost of deposits
of similar maturity in our local market, and the Bank began to use out of market and brokered deposits in order to fund its loan growth during the first half of 2007. The Bank also ran several certificate of deposit specials in its local markets
during the second quarter of 2007, increasing deposits in its local markets by approximately $24.2 million during the quarter. The certificates of deposit were issued to fund the high level of loan growth the Bank experienced. The cost of funds from
commercial banking deposits increased from 4.13% and 4.01%, respectively, for the three and six months ended June 30, 2006 to 4.93% and 4.91% for the three and six months ended June 30, 2007. This increase in the cost of deposits was
mainly related to the repricing of time deposits, whose average cost increased 84 and 95 basis points, respectively, for the three and six months ended June 30, 2007 compared to the same period in 2006. The Bank has had to run higher costing
deposit specials during 2006 and in the first half of 2007 due to strong competition in its market area for local deposits and it has mainly used out-of-market time deposits in the first half of 2007 to fund its loan growth. In the first three
months of 2007 and 2006, interest expense accounted for 59% and 58%, respectively, of our total commercial banking business expenses. In the first six months of 2007 and 2006, interest expense accounted for 59% and 57%, respectively, of our total
commercial banking business expenses. The increase in interest expenses 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 and six months ended June 30, 2007 were $7.3 million, 3.79% and 3.38% and $14.3 million, 3.80% and 3.36%, respectively. Our net interest income,
net interest margin and interest spread for our commercial banking business for the three and six months ended June 30, 2006 were $6.8 million, 4.09% and 3.72% and $13.0 million, 3.92% and 3.59%, respectively. The increase in net interest
income from 2006 to 2007 was due primarily to an increase in average commercial banking loans. Average commercial banking loans increased 20% and 19%, respectively, for the three and six months ended June 30, 2007 compared to the same periods
in 2006. This growth in commercial banking loans was the result of higher loan demand in our service area, as well as the expansion of the Banks operations in both its current markets and into new markets in north Fulton, Walton and Cobb
Counties. The decrease in net interest margin and interest spread during the three and six months ended June 30, 2007 compared to the same periods in 2006 was due to the increase of 40 and 61 basis points, respectively, in yield on the
Banks interest earning assets being less than the increase of 74 and 84 basis points, respectively, in cost on the Banks interest-bearing liabilities. The increase in the cost on the Banks interest-bearing liabilities was mainly
related to the repricing of its certificate of deposits, the cost of which increased 84 and 95 basis points, respectively, during the three and six months ended June 30, 2007 compared to the same periods in 2006. The Bank has had to offer
costlier deposit specials due to strong competition in its market area for local deposits and has had to use out-of-market deposits during 2006 and in the first half of 2007 in order to fund the high level of loan growth during the same periods.

Loan Loss Provisions

For the three and six months ended June 30, 2007, we made a provision for loan losses of $715,000 and $1,205,000, respectively, and incurred net charge-offs of $30,939 and $409,036, respectively, of commercial banking loans. For the
three and six months ended June 30, 2006, we made a provision for loan losses of $395,000 and $865,000, respectively, and incurred net charge-offs of $132,858 and $290,830, respectively, of commercial banking loans. The ratios of net
charge-offs to average commercial banking loans outstanding were 0.11% (annualized) for the six months ended June 30, 2007, 0.12% for the year ended December 31, 2006 and 0.10% (annualized) for the six months ended June 30, 2006.
During the second quarter of 2007, the Bank had a recovery of $200,000 from a commercial real estate loan that was charged-off during 2005. If this recovery was



16



---

##### Table of Contents

not included in the totals for the six months ended June 30, 2007, the Bank would have incurred net charge-offs of $609,036 for the six month period
ended June 30, 2007, and the ratio of net charge-offs to average commercial banking loans outstanding during the period would have been 0.17% (annualized) rather than 0.11% (annualized). 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 six months ended June 30,
2006, the Bank would have incurred net charge-offs of $457,205 for the period, and the ratio of net charge-offs to average commercial banking loans outstanding during the period would have been 0.15% (annualized) rather than 0.10% (annualized). The
Banks charge-offs in the first six months of 2007 consisted of two commercial loan charge-offs of $331,141, three residential real estate loan charge-offs of 345,927 and various installment and other consumer loans charge-offs, while the
charge-offs in the first six months of 2006 consisted of two commercial real estate loan charge-offs of $176,524, one residential construction loan charge-off of $73,048, five commercial loan charge-offs of $35,474 and various installment and other
consumer loans charge-offs. During the first half of 2007, the Bank had two significant loan charge-offs. During the first quarter of 2007, the Bank had one commercial loan charge-off for $328,185 related to a commercial loan relationship originated
in 2003 with a finance company. In 2004, the principle owner and manager of the company died. The primary collateral for the loan was the accounts receivable of the finance company; however internal fraud was detected within the company. The balance
of the accounts receivables was not adequate to cover the outstanding loan. The Bank relied on the personal guarantee of the principal owner as well as the assets in the deceased principal owners estate to recover some of the difference. The
Bank settled with the estate in the first quarter of 2007 and charged off $328,185 of the outstanding balance of $965,685. During the second quarter of 2007, the Bank had one residential real estate loan charge-off for $250,000 related to a loan
relationship originated in 2004. The remaining balance on this loan of $3.25 million was moved to other real estate owned during the same quarter. For the three and six months ended June 30, 2007, the provision for loan losses increased to
$715,000 and $1,205,000, respectively, from $395,000 and $865,000 for the three and six months ended June 30, 2006. The increases in the amount of the provision for loan losses for these periods were mainly related to the increase in the growth
of the loan portfolio in 2007 compared to 2006. During the second quarter of 2007, the loan portfolio grew $55.0 million compared to $17.6 million during the second quarter of 2006. During the first half of 2007, the loan portfolio grew $70.2
million compared to $35.5 million during the first half of 2006. As a result of the growth in the loan portfolio and our analysis of our criticized loans, historical charge-offs and the composition of our loan portfolio, we adjusted our allowance
for loan losses accordingly. The allowance for loan losses as a percentage of total commercial banking loans was 1.15%, 1.15% and 1.16% at June 30, 2007, December 31, 2006 and June 30, 2006, respectively.

Noninterest Income

Our noninterest
income related to our commercial banking business was $1.0 million and $2.0 million during the three and six months ended June 30, 2007 compared to $1.2 million and $1.9 million during the three and six months ended June 30, 2006. The
decrease in noninterest income for the three month period ended June 30, 2007 compared to the same period in 2006 was primarily due to a gain of approximately $323,000 from the Companys investment in another financial institution that was
purchased during the second quarter of 2006. This decrease in noninterest income was partially offset by an approximately $139,000 increase in deposit service charges which was related to both a new overdraft protection program that was introduced
in March 2007 and to the growth in new accounts and customers during the first half of 2007. The slight increase in noninterest income for the six month period ended June 30, 2007 compared to the same period in 2006 was mainly due to an
increase in deposit service charges of approximately $200,000. This increase in deposit service charges was mainly due to both the new overdraft protection program that was introduced in March 2007 and to the growth in new accounts and customers in
the first half of 2007. Other operating income increased approximately $131,000 if the gain from the investment in another financial institution of $323,000 is excluded. This increase in other operating income was mainly due to an increase in income
from life insurance policies of approximately $53,000, the increase in ATM fee income of approximately $29,000 and an increase in SBA servicing fee income of approximately $13,000. The increase in income from life insurance policies was due to the
Bank purchasing $4.9 million in new policies during May 2007. The increase in ATM fee income was due to an increase in the number of checking accounts and customers utilizing ATM services, and the increase in income from servicing SBA loans was due
to the Bank originating and selling more SBA loans, which increased the total amount of loans serviced. These increases during the first half of 2007 were mostly offset by the gain of $323,000 on the investment in the financial institution described
above during the second quarter of 2006.

Noninterest Expense

Our noninterest expenses related to our commercial banking business (other than income tax expenses) were $5.3 million and $10.4 million, respectively,
for the three and six months ended June 30, 2007 compared to $4.3 million and $8.5 million, respectively, for the three and six months ended June 30, 2006. The increase in noninterest expense for both the three and six month periods ended
June 30, 2007 compared to the same periods in 2006 was attributable to an increase in salaries and benefits of approximately $795,000 and $1.4 million, respectively, an increase in depreciation and amortization expense of $95,000 and $152,000,
respectively, an increase in legal and professional expense of $72,000 and $146,000, respectively, and an increase in foreclosed asset expense, net of $8,000 and $99,000, respectively. The increase in salaries and other payroll expenses in the first



17



---

##### Table of Contents

half of 2007 are due to several factors. One factor is an increase in salaries, including payroll taxes, of approximately $615,000 and $1.1 million,
respectively, for the three and six months ended June 30, 2007 compared to the same periods in 2006. These increases are due to the addition of ten new banking officers since June 30, 2006, regular annual raises, and the introduction of
the Companys new bonus plan. Another factor is an increase in stock-based compensation expenses of approximately $220,000. This increase was mainly due to the issuance of 26,500 shares of restricted stock since December 2006, which created
stock-based compensation expenses of approximately $106,000 and $175,000 for the three and six months ended June 30, 2007. There was no similar expense from restricted stock in the first half of 2006. The expenses for the restricted stock are
taken over the vesting period for such shares. The increase in depreciation and amortization expense is due to the addition and completion of our new branch office in Canton, Georgia, which was completed in September 2006 and the addition and
completion of our new branch office in south Cherokee County near Woodstock, Georgia in January 2007. The increase in legal and professional fee expense in 2007 over the same periods in 2006 was mainly attributable to an increase in attorney and
accounting fees related to the increased regulatory and disclosure requirements for a public company and to an increase in legal fees related to the collection of loans. The increase in foreclosed asset expense in 2007 over the same periods in 2006
was mainly due to improvements made on two residential homes that were foreclosed upon by the Bank totaling approximately $104,000.

Pretax Net Income

In the three and six months ended June 30, 2007, our commercial banking pre-tax income was $2.3
million and $4.7 million, respectively, compared to pre-tax income of approximately $3.3 million and $5.6 million for the three and six months ended June 30, 2006. Pretax income for the three months ended June 30, 2007 decreased
approximately $1.0 million, or 30%, compared to the three months ended June 30, 2006. Pretax income for the six months ended June 30, 2007 decreased approximately $897,000, or 16%, compared to the six months ended June 30, 2006. An
increase in noninterest expense of approximately $1.0 million and $1.9 million, respectively, for the three and six months ended June 30, 2007 compared to the same periods in 2006 were the main reasons for the decreases in pretax income. The
increase in noninterest expense was primarily due to an increase in salaries and benefits, depreciation and amortization, legal and professional and foreclosed asset expense. The decrease in pretax income was also due to an increase in the provision
for loan losses of approximately $320,000 and $340,000, respectively, for the three and six months ended June 30, 2007 compared to the same periods in 2006. The increase in the provision for loan losses was mainly attributable to the increase
in loan growth in 2007 compared to the same period in 2006. These increases in noninterest expense and the provision for loan losses were partially offset by an increase in net interest income of approximately $486,000 and $1.3 million,
respectively, for the three and six months ended June 30, 2007 compared to the same periods in 2006. The increase in net interest income was due to an increase in average commercial banking loans. Average commercial banking loans increased 20%
and 19%, respectively, for the three and six months ended June 30, 2007 compared to the same periods in 2006. See further discussion above under Net Interest Income, Loan Loss Provision,
Noninterest Income, and Noninterest Expense.

Income Taxes

The effective income tax rate for our commercial banking business for the three and six months ended June 30, 2007 was 36.83% and 36.99%,
respectively, compared to 37.58% and 37.84% for the same periods in 2006. The commercial banking business had permanent income tax differences in 2007 and 2006 related to state income tax credits paid and bank-owned life insurance income. Based upon
our analysis for these permanent differences for 2007, the effective tax rate in 2007 decreased in comparison to the same period in 2006.

Results of Discontinued Operations From Our Mortgage Banking Business

During the first half of 2007, the results
from our mortgage banking operations consisted of an adjustment to our allowance for recourse liability. During the second quarter of 2007, we evaluated our allowance for recourse liability for indemnified loans based upon the number of loans
indemnified and the average loss on an indemnified loan. This evaluation showed an overaccrual in the allowance for recourse liability. This overaccrual is due to the fact that we have indemnified fewer loans than we had previously estimated and had
several indemnified loans pay-off without any losses during the first half of 2007. Therefore, based upon this analysis, we reduced the allowance for recourse liability by $118,394 during the second quarter of 2007. If these trends continue, we may
have to reduce the allowance for recourse liability further in the second half of 2007. During the first half of 2006, the Company had no revenues or expenses related to the wholesale mortgage banking business.

Financial Condition

General Discussion

Total Assets



18



---

##### Table of Contents

Our total assets increased $91.5 million, or 12%, from $779.7 million as of December 31, 2006 to
$871.2 million as of June 30, 2007. The increase in total assets was mainly comprised of a $70.2 million, or 10%, increase in the Banks commercial loans and a $10.5 million, or 51% increase in cash and due from banks, interest-bearing
deposits in banks and federal funds sold. The growth in commercial banking loans was the result of higher loan demand in our service area, as well as the expansion of the Banks operations in its current markets. The growth in cash and due from
banks, interest-bearing deposits in banks and federal funds sold was due to the Banks increase in deposits to fund loan growth. Our increase in total assets corresponded with a $91.3 million, or 14%, increase in deposits. At June 30,
2006, we had total assets of $754.1 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
June 30, 2007, interest-earning assets totaled $813.1 million and represented 93% of total assets. This represents a $82.7 million, or 11%, increase from December 31, 2006, when interest-earning assets totaled $733.4 million and
represented 94% of total assets. This increase was mainly related to a $70.2 million increase in the Banks commercial banking loan portfolio and a $7.9 million increase in interest-bearing deposits in banks and federal funds sold. See
Commercial Banking Business below. At June 30, 2006, our interest-earning assets totaled $700.6 million and represented 93% of our total assets.

Allowance for Loan Losses

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

Premises and Equipment

We had premises and equipment of $21.6 million at June 30, 2007, compared to $21.1 million at December 31, 2006 and $19.4 million at June 30, 2006. The increase in premises and equipment from
June 30, 2006 was primarily due to the remaining construction costs of approximately $1.6 million to complete our new full service branch in Canton, Georgia, which opened in September 2006, and due to the remaining construction costs of
approximately $1.4 million for the new full service branch in Woodstock, Georgia which opened in January 2007. These increases were partially offset by depreciation expense from the premises and equipment of approximately $1.4 million.

Cash Surrender Value of Life Insurance

In 1999, the Bank provided a supplemental retirement plan to its banking officers funded with life insurance. In the first quarter of 2000, we added our directors to the supplemental retirement plan. At June 30, 2007, the total cash
value of the life insurance was $13.3 million. At December 31, 2006 and June 30, 2006, the total cash value of the life insurance was $8.2 million and $8.0 million, respectively. The increase of approximately $5.3 million from
June 30, 2006 to June 30, 2007 was due to the purchase of $4.9 million in new insurance policies and due to the policy earnings. During the second quarter of 2007, the Bank purchased $4.9 million in new insurance policies due to the Bank
making changes to and restating its supplemental retirement plan. The plan is in the process of being restated due to new accounting interpretations and tax laws related to the previous supplemental retirement plan. We expect to complete the
restatement of the supplemental retirement plan during the third quarter of 2007.

Commercial Banking Business

Total Commercial Banking Loans

During
the first six months of 2007, our average commercial banking loans were $719.1 million. These loans constituted 95% of our average consolidated earning assets and 88% of our average consolidated total assets. For the first six months of 2006, we had
average commercial banking loans of $603.5 million, or 90% of our average consolidated earning assets and 83% of our average consolidated total assets. For the year ended December 31, 2006, we had average commercial banking loans of $636.7



19



---

##### Table of Contents

million, or 91% of our average consolidated earning assets and 85% of our average consolidated total assets. Commercial banking loans at the periods ended
June 30, 2007, December 31, 2006 and June 30, 2006 were $767.5 million, $697.3 million and $629.2 million, respectively. The 19% increase in average commercial banking loans from the six month period ended June 30, 2006 to
the six month period ended June 30, 2007 was the result of higher loan demand in our service area, as well as the expansion of the Banks operations in both its current markets and into new markets in north Fulton, Walton and Cobb
Counties.

Loan Loss Allowance

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



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



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



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

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



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



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



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



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

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

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

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

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

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

The allowance for loan losses totaled $8.8 million, or 1.15% of total commercial banking loans, at June 30, 2007, $7.3 million, or 1.16% of total commercial banking loans, at June 30, 2006, and $8.0 million,
or 1.15% of total loans, at December 31, 2006. During the first six months of 2007, we made a provision for loan losses of $1,205,000, which was mainly due to the $70.2 million increase we experienced in commercial banking loans during that
period. Net charge-offs for the six months ended June 30, 2007 were $409,036, or 0.11% (annualized) of average loans outstanding. Net charge-offs for the year ended December 31, 2006 were $771,410, or 0.12% of average loans outstanding and
for the three months ended June 30, 2006 were $290,830, or



20



---

##### Table of Contents

0.10% (annualized) of average loans outstanding. During the second quarter of 2007, the Bank had a recovery of $200,000 from a commercial real estate loan
that was charged-off during 2005. If this recovery was not included in the totals for the six months ended June 30, 2007, the Bank would have incurred net charge-offs of $609,036 for the six month period ended June 30, 2007, and the ratio
of net charge-offs to average commercial banking loans outstanding during the period would have been 0.17% (annualized) rather than 0.11% (annualized). 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 six months ended June 30, 2006, the Bank would have incurred
net charge-offs of $457,205 for the period, and the ratio of net charge-offs to average commercial banking loans outstanding during the period would have been 0.15% (annualized) rather than 0.10% (annualized). The Banks charge-offs in the
first six months of 2007 consisted of two commercial loan charge-offs of $331,141, three residential real estate loan charge-offs of 345,927 and various installment and other consumer loans charge-offs, while the charge-offs in the first six months
of 2006 consisted of two commercial real estate loan charge-offs of $176,524, one residential construction loan charge-off of $73,048, five commercial loan charge-offs of $35,474 and various installment and other consumer loans charge-offs. During
the first half of 2007, the Bank had two significant loan charge-offs. During the first quarter of 2007, the Bank had one commercial loan charge-off for $328,185 related to a commercial loan relationship originated in 2003 with a finance company. In
2004, the principal owner and manager of the company died. The primary collateral for the loan was the accounts receivable of the finance company; however internal fraud was detected within the company. The balance of the accounts receivables was
not adequate to cover the outstanding loan. The Bank relied on the personal guarantee of the principal owner as well as the assets in the deceased principal owners estate to recover some of the difference. The Bank settled with the estate in
the first quarter of 2007 and charged off $328,185 of the outstanding balance of $965,685. During the second quarter of 2007, the Bank had one residential real estate loan charge-off for $250,000 related to a loan relationship originated in 2004.
The remaining balance on this $3.25 million loan was moved to other real estate owned during the same quarter. The increase in net charge-offs and in the ratio of net loan charge-offs to average commercial banking loans is mainly related to the two
loan charge-offs described above.

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

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.



|                                                                                                                 |  |              |           |   |                  |   |           |              |  |   |           |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---------------- | - | --------- | ------------ |  | - | --------- | -
|                                                                                                                 |  | June 30,2007 |           |   | December 31,2006 |   |           | June 30,2006 | 
|Non-performing loans (1)                                                                                         |  | $            | 5,643,757 |   |                  | $ | 3,977,439 |              |  | $ | 2,333,908 |  
|Foreclosed properties                                                                                            |  |              | 3,538,088 |   |                  |   | 247,830   |              |  |   | 1,324,425 |  
|                                                                                                                 |  |              |           |   |                  |   |           |              |  |   |           |  
|Total non-performing assets                                                                                      |  | $            | 9,181,845 |   |                  | $ | 4,225,269 |              |  | $ | 3,658,333 |  
|                                                                                                                 |  |              |           |   |                  |   |           |              |  |   |           |  
|Loans 90 days or more past due on accrual status                                                                 |  | $            | 323,619   |   |                  | $ | 28,921    |              |  | $ | 51,286    |  
|Potential problem loans (2)                                                                                      |  | $            | 4,693,549 |   |                  | $ | 2,350,245 |              |  | $ | 3,425,457 |  
|Potential problem loans/total loans                                                                              |  |              | 0.61      | % |                  |   | 0.34      | %            |  |   | 0.54      | %
|Non-performing assets/total loans and foreclosed properties                                                      |  |              | 1.19      | % |                  |   | 0.61      | %            |  |   | 0.58      | %
|Non-performing assets and loans 90 days or more past due on accrual status/total loans and foreclosed properties |  |              | 1.23      | % |                  |   | 0.61      | %            |  |   | 0.59      | %

---

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



21



---

##### Table of Contents

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 $324,000 of commercial banking loans contractually
past due more than 90 days and still accruing interest as of June 30, 2007 compared to approximately $29,000 and $51,000, respectively, as of December 31, 2006 and June 30, 2006. Our non-performing commercial banking loans at
June 30, 2007 amounted to $5.6 million compared to $4.0 million at December 31, 2006 and $2.3 million at June 30, 2006. The Bank had no renegotiated commercial banking loans at June 30, 2007, December 31, 2006 or
June 30, 2006. The increase in non-performing commercial banking loans from December 31, 2006 to June 30, 2007 was mainly related to two loan relationships. One of the loan relationships, totaling $2.2 million, is secured by 36
single-family residential lots that are being developed in Forsyth County, Georgia. This loan relationship paid off on July 31, 2007, and the Bank did not experience any loss on the loan relationship. The other loan relationship, totaling
$345,000, is secured by a completed residential home in Jackson County, Georgia. The builder has not been able to sell the home, and the Bank is currently in process of foreclosure on the home. The increase in non-performing commercial banking loans
from these two loan relationships was partially offset by partial pay-off and charge-off of another loan relationship. In 2004, the Bank placed a loan relationship on non-accrual status related to a finance company. In 2004, the principal owner and
manager of the company died. The primary collateral for the loan was the accounts receivable of the finance company; however internal fraud was detected within the company. The balance of the accounts receivable was not adequate to cover the
outstanding loan. The Bank relied on the personal guarantee of the principal owner as well as the assets in the deceased principal owners estate to recover some of the difference. The Bank settled with the estate in the first quarter of 2007
and charged off $328,185 of the outstanding balance of $965,685. We have evaluated these loan relationships and foreclosed properties, and, based on available information, we presently feel that the Bank is in a well secured position on most of
these relationships. The Banks loan portfolio is predominantly secured by commercial and residential real estate in its primary market areas. We presently believe that any losses that may come from these loan relationships have been considered
in our determination of the loan loss allowance. As of June 30, 2007, loan loss allowance reserves related to non-performing commercial banking loans totaled approximately $1.4 million.

Total non-performing commercial assets totaled $9.2 million at June 30, 2007. This compares to total non-performing commercial assets of
approximately $4.2 million at December 31, 2006 and $3.7 million at June 30, 2006. The Bank foreclosed on two properties totaling approximately $3.4 million in the first half of 2007. One of the properties, totaling $3.25 million, consists
of a residential home on Lake Lanier in Hall County, Georgia. The home is approximately 17,000 square feet in size and is located on 1.07 acres. The other property, totaling approximately $145,000, consists of three land lots with mobile homes in
Murray County, Georgia. During July 2007, the Bank foreclosed upon another loan relationship that consisted of two commercial real estate properties in Cherokee County, Georgia totaling approximately $1.9 million. These two properties were
automobile service stores. During the first quarter of 2007, the Bank sold two properties totaling approximately $105,000 were foreclosed upon in 2006. These properties consisted of land lots with mobile homes and were sold at no gain or loss. The
Banks remaining foreclosed properties totaling $3.5 million that have not been sold relate to four loan relationships. One of the properties totaling approximately $3.25 million is a residential home in Hall County, Georgia. One of the
properties totaling approximately $198,000 is four mobile homes with land lots located in Murray County, Georgia. One of the properties totaling approximately $50,000 is a residential home lot located in Forsyth County, Georgia. The remaining
property totaling approximately $40,000 consists of one residential condominium in Fulton County, Georgia. The Bank is currently holding the foreclosed properties for sale. The foreclosed properties have been recorded at the lower of cost or market
less the estimated costs to sell the properties. The Bank does not foresee any further material losses from these loans and properties.

Potential problem loans represent commercial banking loans that are presently performing, but where management has doubts concerning the ability of the respective borrowers to meet contractual repayment terms. Potential problem commercial
loans increased approximately $2.3 million, or 100%, from December 31, 2006 to June 30, 2007. The increase in potential problem commercial loans from December 31, 2006 to June 30, 2007 was mainly related to one loan relationship
totaling approximately $2.5 million. This loan relationship is secured by 41 residential home lots and 6 commercial lots in Bartow County, Georgia that are being developed. Management feels that the loans categorized as potential problem loans at
June 30, 2007 are adequately collateralized and believes that any losses that may result from these loan relationships have been considered in our determination of the loan loss allowance.

Total Investment Securities

The Bank
invests in U.S. Government and government agency obligations, mortgage-backed securities, corporate securities, restricted equity securities, federal funds sold, and interest-bearing deposits with other banks. The Banks investments are managed
in relation to loan demand and deposit growth, and are generally used to provide for the investment of funds not needed to make loans, while providing liquidity to fund increases in loan demand or to offset fluctuations in deposits. Investment
securities, federal funds sold, restricted equity securities and interest-bearing deposits with other banks totaled $45.0 million at June 30, 2007, compared to $35.6 million at December 31, 2006 and $70.7 million at June 30, 2006. At
June 30, 2007, the Bank had federal funds sold and interest-bearing deposits with other banks of $20.9 million, compared to $13.0 million at December 31, 2006 and $46.5 million at June 30, 2006. The decrease in the federal funds sold
and interest-bearing deposits with other banks of



22



---

##### Table of Contents

$25.6 million was the main reason for the $25.7 million decrease in the Banks total investments from June 30, 2006. The reduction in federal funds
sold and interest-bearing deposits with other banks is due to an increased effort to reduce the Banks liquidity in order to improve its net interest margin. Investment securities and restricted equity securities totaled $24.1 million at
June 30, 2007, compared to $22.6 million at December 31, 2006 and $24.2 million at June 30, 2006. The restricted equity securities consist of shares held in the Federal Home Loan Bank of Atlanta in the amount of approximately $3.0
million and shares held in The Bankers Bank in the amount of $165,975 at June 30, 2007.

Unrealized losses on securities amounted to
$(536,069) at June 30, 2007, and $(609,265) and $(289,203) at June 30, 2006 and December 31, 2006, respectively. We have not specifically identified any securities for sale in future periods, which, if so designated, would require a
charge to operations if the market value would not be reasonably expected to recover prior to the time of sale. The Banks management believes all unrealized losses as of June 30, 2007 represent temporary impairment as a result of
temporary changes in the interest rate market and not as a result of credit deterioration. Also, total impairment represents approximately 3% of amortized cost. All bonds held at June 30, 2007 that have unrealized losses are backed by the U.S.
Government or one of its agencies/quasi-agencies.

Total Commercial Bank Deposits

The Banks commercial deposits totaled $750.2 million, $658.9 million and $625.1 million at June 30, 2007, December 31, 2006 and
June 30, 2006, respectively, representing increases of 14% and 20%, respectively, over December 31, 2006 and June 30, 2006. Commercial deposits averaged $690.7 million during the six month period ended June 30, 2007, $595.2
million during the six month period ended June 30, 2006 and $625.8 million during the twelve-month period ended December 31, 2006. The increase in deposits from December 31, 2006 to June 30, 2007 is mainly due an increase in
out-of-market and brokered deposits. During the first six months of 2007, the Bank mainly used out-of-market and brokered deposits to fund its loan growth. The Banks out-of-market and brokered deposits increased $57.8 million in the first six
months of 2007 from $72.8 million at December 31, 2006 to $130.6 million at June 30, 2007. The Banks out-of-market and brokered deposits at June 30, 2006 was $73.0 million. For a more detailed analysis of the increase in the
cost of out-of-market and brokered deposits, see Results of OperationsInterest Expense above. We attempt to offset potential decreases in our share of local deposits by accepting out-of-market and brokered deposits. The costs of
out of market and brokered deposits can be volatile, and if our access to these markets is limited in any way, then our liquidity and ability to support commercial loan demand could be affected adversely. The Bank also ran several certificate of
deposit specials in its local markets during the second quarter of 2007, increasing certificate of deposits in its local markets approximately $24.2 million in order to fund the high level of loan growth the Bank experienced. The Bank also has grown
its non interest-bearing deposits approximately $6.0 million, or 13%, from December 31, 2006 to June 30, 2007. One of the Banks goals has been growth in business checking accounts during 2007. Interest-bearing deposits represented
93% of total deposits at June 30, 2007, compared to 93% at December 31, 2006 and 93% at June 30, 2006. Certificate of deposits comprised 80% of total interest-bearing deposits for June 30, 2007, compared to 79% at
December 31, 2006 and 78% at June 30, 2006. The composition of these deposits is indicative of the interest rate-sensitive market in which the Bank operates. We cannot provide any assurance that the Bank can maintain or increase its market
share of deposits in its highly competitive service area.

Total Commercial Bank Borrowings

At June 30, 2007, the Bank had outstanding $35.0 million of Federal Home Loan Bank (FHLB) advances at maturity terms ranging from six
months to ten years and with an average rate of 3.98%. These advances were borrowed for use with the commercial banking business and are secured by a blanket lien on the Banks 1 4 family first lien mortgage loans, by a blanket lien on
the Banks commercial real estate loans, by investment securities and by FHLB stock. As of June 30, 2007 the Bank has the capacity to borrow an additional $8.9 million or up to approximately $43.9 million in total FHLB advances.There were $47.0 million and $38.0 million, respectively, in Federal Home Loan Bank advances outstanding at June 30, 2006 and December 31, 2006.

At June 30, 2007, the Bank had approximately $39.5 million of federal funds lines of credit available from correspondent institutions. There were no amounts outstanding on these federal funds lines of credit at
June 30, 2007 and the average balance outstanding during the first six months of 2007 was approximately $230,000 with an average rate of 5.72%.

Discontinued Operations

On December 31, 2003, the Company completed the sale of its
wholesale residential mortgage business conducted by CMS to Carolina Financial Corporation (Carolina Financial) and its subsidiary Crescent Mortgage Corporation (CMC). Carolina Financial and CMC are not affiliated with the
Company or its subsidiaries. Carolina purchased all of CMSs mortgage loans, pipeline mortgage loans, premises and equipment and assumed all leases and liabilities related to the transferred assets. The Companys consolidated balance
sheets at June 30, 2007 and December 31, 2006 include no assets and include liabilities of $2,001,578 and $2,318,895, respectively, related to discontinued operations. These liabilities consist of the allowance for



23



---

##### Table of Contents

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 June 30, 2007 and December 31, 2006, the Company had approximately $2.2 million and $3.6 million, respectively, of mortgage loans for which it had agreed to
indemnify the purchaser for losses suffered by the purchaser. In the event that the purchaser of these loans experiences any losses with respect to the loans, the Company will be required to indemnify the purchaser for its losses or to repurchase
the loans from the purchaser. The Company has established a specific allowance for recourse liability for the loans on which the Company has already become obligated to make indemnification payments to the purchaser and an estimated allowance for
recourse liability for probable future losses from loans that the Company may have to indemnify. The estimated recourse liability at both June 30, 2007 and December 31, 2006 for future losses was approximately $2.0 million and $2.3
million, respectively, and is based upon historical information on the number of loans indemnified and the average loss on an indemnified loan. During 2005, 2006 and 2007, our losses related to indemnified loans gradually decreased. During the
second quarter of 2007, we evaluated our allowance for the recourse obligation reserve and our analysis showed an overaccrual. This overaccrual was due to the fact that we have indemnified fewer loans than we had previously estimated and had several
indemnified loans pay-off without any losses. Therefore, based upon this analysis, we reduced the recourse obligation reserve by $118,394 during the second quarter of 2007. If these trends continue, we may have to reduce the allowance for recourse
liability further in the second half of 2007.

Capital and Liquidity

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

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

At June 30, 2007, the Companys and Banks leverage ratio was 8.64% and 8.28%, respectively, compared to 8.83% and 8.31% at December 31, 2006 and 9.64% and 8.67%, respectively, at June 30,
2006. On May 18, 2006, the Company, through Crescent Capital Trust III, completed an offering and sale of $3.5 million of trust preferred securities. The proceeds from the sale of the trust preferred securities were used during the fourth
quarter of 2006 to repay the junior subordinated debentures issued to Crescent Capital Trust I in connection with a previous issuance of trust preferred securities in the fourth quarter of 2001.

At June 30, 2007, our total consolidated shareholders equity was $64.3 million, or 7.38% of total consolidated assets, compared to $58.5
million, or 7.75% of total consolidated assets, at June 30, 2006, and $61.8 million, or 7.92% of total consolidated assets, at December 31, 2006. The decrease in the consolidated shareholders equity to total consolidated assets ratio
in the first half of 2007 was the result of the increase in the Banks total consolidated assets, which grew approximately $91.5 million, or 12%, in the first half of 2007 and due to the payment of approximately $834,000 in dividends in the
first six months of 2007. The decrease in this ratio caused by the effects of the increase in our consolidated assets and the payment of dividends was somewhat offset by the Companys net income of $3.0 million and the exercise of 4,500 stock
options during the first six months of 2007.

At June 30, 2007, the Companys ratio of total consolidated capital to
risk-adjusted assets was 9.80%, 8.73% of which consisted of tier 1 capital and the Banks ratio of total consolidated capital to risk-adjusted assets was 9.32%, 8.25% of which consisted of tier 1 capital. A quarterly dividend of $0.16 was
declared in April 2007 and paid on May 31, 2007. A quarterly dividend of $0.16 per share was declared in July 2007, and is payable on August 31, 2007.



24



---

##### Table of Contents

As of June 30, 2006, the Companys ratio of total consolidated capital to risk-adjusted assets
was 11.26%, 10.19% of which consisted of tier 1 capital, and, as of December 31, 2006, total consolidated capital to risk-adjusted assets was 10.45%, 9.37% of which consisted of tier 1 capital. As of June 30, 2006, the Banks ratio of
total capital to risk-adjusted assets was 10.06%, 8.99% of which consisted of tier 1 capital, and, as of December 31, 2006, total capital to risk-adjusted assets was 9.91%, 8.83% of which consisted of tier 1 capital.

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

Our average liquid assets consist of cash and amounts due from banks, interest-bearing deposits in other
banks, federal funds sold, mortgage loans held for sale net of borrowings, investment securities held to maturity and investment securities held for sale. These average liquid assets totaled $45.8 million, $70.5 million and $65.9 million,
respectively, during the six month period ended June 30, 2007, the six month period ended June 30, 2006, and the twelve month period ended December 31, 2006, representing 6%, 11% and 10% of average deposits and borrowings,
respectively, for those periods. Average liquid assets decreased by approximately $20.1 million, or 31%, from December 31, 2006 to June 30, 2007 and average liquid assets as a percentage of average deposits and borrowings decreased
approximately 4% from December 31, 2006 to June 30, 2007. Our average liquid assets and the percentage of average liquid assets as a percentage of average deposits and borrowings decreased due to the Company reducing its liquidity in 2007
in trying to earn a higher net interest margin. The Company, on average, held $22.0 million less in federal funds sold in the first six months of 2007 compared to year end 2006. Average commercial banking loans were 99%, 94% and 95% of average
commercial bank deposits and borrowings during the six month periods ended June 30, 2007 and June 30, 2006, and the twelve month period ended December 31, 2006, respectively. Average interest-earning assets were 104% of average
commercial banking deposits and borrowings during the six month periods ended June 30, 2007 and June 30, 2006, and the twelve month period ended December 31, 2006. The ratio of average commercial banking loans to average commercial
banking deposits and borrowings increased during the first six months of 2007 compared to the first six months of 2006. The increase in the percentage is also mainly due to the Company reducing its liquidity in 2007 to earn a higher net interest
margin. The growth in average interest-earning assets of $91.3 million outpaced the growth in average interest-bearing liabilities of $77.0 million from the first six months of 2006 to the first six months of 2007, and therefore, the Bank held less
in federal funds sold during the first six months of 2007 in comparison with the same period in 2006.

The Bank actively manages the
levels, types and maturities of interest-earning assets in relation to the sources available to fund current and future needs. The Bank maintains federal funds lines of credit totaling $39.5 million and maintains a line of credit up to approximately
$44.0 million at the FHLB. At June 30, 2007 we had $35.0 million in the FHLB advances outstanding and no amounts outstanding on our federal funds lines of credit. For the six months ended June 30, 2007, the average balance in FHLB advances
was approximately $35.5 million. All of the $35.0 million in advances outstanding are secured by the Banks 1  4 family first lien mortgage loans and commercial real estate loans, by investment securities and by FHLB stock. The Bank
currently is holding approximately $6.8 million in unpledged investment securities, which gives the Bank the ability to borrow an additional $15 million in FHLB advances at June 30, 2007. We presently believe that the Banks liquidity is
under pressure due to the volume of commercial bank loan production and the competitive pricing for deposits in the Banks market area. In the past, the Bank has used out-of market and brokered deposits to provide liquidity in order to fund
loan growth but decreased its use of these deposits in the second and third quarters of 2006. During the first six months of 2007, the Bank mainly used out-of-market and brokered deposits to fund its loan growth. The Banks out-of-market and
brokered deposits increased $57.8 million in the first six months of 2007 from $72.8 million at December 31, 2006 to $130.6 million at June 30, 2007. The Banks out-of-market and brokered deposits at June 30, 2006 was $73.0
million. We saw the cost of out of market and brokered deposits increase to levels equal to or even exceeding that in our local market in 2006 and out-of-market and brokered deposits were used very little as a funding source during this time period.
However, since the fourth quarter of 2006, we saw the cost of out of market and brokered deposits fall to approximately 15 to 20 basis points below the cost of deposits of similar maturity in our local market, and the Bank began to use out of market
and brokered deposits in order to fund its loan growth during the first six months of 2007. The costs of out of market and brokered deposits can be volatile, and if our access to these markets is limited in any way, then our liquidity and ability to
support commercial loan demand could be affected adversely. The Bank may have to increase its deposit rates in the future in its local markets, as it did during 2006, if the Banks liquidity position remains under pressure. The cost of funds of
interest-bearing deposits has increased only slightly from 4.89% in the first quarter of 2007 to 4.91% in the second quarter of 2007. An increase in deposit rates could affect our net interest margin and net income in the future.



25



---

##### Table of Contents

Commercial Commitments

The following table presents our other commercial commitments at June 30, 2007. These commitments are not included in our consolidated balance sheet.

Commercial Commitments



|                                 |  |                                            |         |              |   |           |  |           |        |               |   |     |  |   |      
|-------------------------------- |  | ------------------------------------------ | ------- | ------------ | - | --------- |  | --------- | ------ | ------------- | - | --- |  | - | -----
|                                 |  | Amount of Commitment Expiration Per Period
|                                 |  | Total                                      |         | Under 1 Year |   | 1-3 Years |  | 4-5 Years |        | After 5 Years
|                                 |  | (in thousands)                            
|Commitments to extend credit (1) |  | $                                          | 133,845 |              | $ | 97,546    |  | $         | 33,497 |               | $ | 228 |  | $ | 2,574
|Letters of Credit (2)            |  |                                            | 3,217   |              |   | 3,122     |  |           | 27     |               |   | 68  |  |   |     
|                                 |  |                                            |         |              |   |           |  |           |        |               |   |     |  |   |      
|Total commercial commitments     |  | $                                          | 137,062 |              | $ | 100,668   |  | $         | 33,524 |               | $ | 296 |  | $ | 2,574
|                                 |  |                                            |         |              |   |           |  |           |        |               |   |     |  |   |      

---

|(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 June 30, 2007 and December 31, 2006, the Company was a party to
interest rate swap contracts (back-end derivative) under which it pays a fixed rate of interest and receives a variable rate of interest. The notional amount of the interest rate swaps was approximately $9,430,000 with a fair value of approximately
$(185,000) at June 30, 2007 and approximately $9,604,000 with a fair value of approximately $(391,000) at December 31, 2006. The Company also has an embedded derivative in each of the loan agreements (front-end derivative) that would
require the borrower to pay or receive from the Bank an amount equal to and offsetting the value of the interest rate swaps. These front-end and back-end derivatives are recorded in other assets and other liabilities. The net effect of recording the
derivatives at fair value through earnings was immaterial to the Companys financial condition and results of operations as of and for the three months ended June 30, 2007. If a counterparty, in particular our borrower, fails to perform
and the market value of the financial derivative is negative, the Company would be obligated to pay the settlement amount for the financial derivative. If the market value is positive, the Company would receive a payment for the settlement amount
for the financial derivative. The settlement amount of the financial derivative could be material to the Company and is determined by the fluctuation of interest rates.

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



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

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

Interest
Rate Risk

Interest rate risk is the risk to earnings or market value of equity from the potential movement in interest rates. The
primary purpose of managing interest rate risk is to reduce interest rate volatility and thereby achieve reasonably stable earnings and preserve the value of our equity. Changes in interest rates affect our volume of mortgage production. Changes in
interest rates also affect our net interest 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.



26



---

##### 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 June 30, 2007. Approximately 75% of
earning assets and 89% of funding for these earning assets is scheduled to reprice at least once during the next twelve months. The total excess of interest-bearing liabilities over interest-bearing assets, based on a one-year cumulative time
period, was $52.6 million, or 6.0% of total assets. At June 30, 2006, for the one-year cumulative period, the Bank had excess interest-bearing assets over interest-bearing liabilities of approximately $79.5 million, or 10.5% of total assets.
Since the second quarter of 2006, the Bank has offered several short-term certificate of deposit specials and also originated more fixed-rate loans. This has changed our rate sensitivity position in the one year cumulative period from an
asset-sensitive position to a liability-sensitive position. The Bank has used shorter-term funding and tried to originate more fixed rate loans in anticipation of a possible decrease in interest rates during 2007 and 2008.

Interest Rate Sensitivity Gaps

As
of June 30, 2007



|                                         |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|---------------------------------------- |  | ---------------------- | ------- | ----------- | - | -------- | --------- |  | ------------ | ------- | ----- | - | ------ |  | - | -------
|                                         |  | Amounts Repricing In  
|                                         |  | 0-90 Days              |         | 91-365 Days |   |          | 1-5 Years |  | Over 5 Years |         | Total
|                                         |  | (thousands of dollars)
|Interest-earning assets                  |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|Commercial banking loans                 |  | $                      | 513,191 |             | $ | 73,598   |           |  | $            | 160,123 |       | $ | 20,552 |  | $ | 767,464
|Investment securities                    |  |                        | 537     |             |   | 1,466    |           |  |              | 9,223   |       |   | 9,712  |  |   | 20,938 
|Mortgage loans held for sale             |  |                        | 659     |             |   |         |           |  |              |        |       |   |       |  |   | 659    
|Federal funds sold                       |  |                        | 17,887  |             |   |         |           |  |              |        |       |   |       |  |   | 17,887 
|Interest-bearing deposits in other banks |  |                        | 3,020   |             |   |         |           |  |              |        |       |   |       |  |   | 3,020  
|                                         |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|Total interest-earning assets            |  | $                      | 535,294 |             | $ | 75,064   |           |  | $            | 169,346 |       | $ | 30,264 |  | $ | 809,968
|                                         |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|Interest-bearing liabilities             |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|Interest-bearing demand deposits         |  | $                      | 137,992 |             | $ |         |           |  | $            |        |       | $ |       |  | $ | 137,992
|Time deposits                            |  |                        | 160,965 |             |   | 334,134  |           |  |              | 65,001  |       |   |       |  |   | 560,100
|Other borrowings                         |  |                        | 18,857  |             |   | 11,000   |           |  |              | 17,000  |       |   |       |  |   | 46,857 
|                                         |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|Total interest-bearing liabilities       |  | $                      | 317,814 |             | $ | 345,134  |           |  | $            | 82,001  |       | $ |       |  | $ | 744,949
|                                         |  |                        |         |             |   |          |           |  |              |         |       |   |        |  |   |        
|Interest sensitivity gap                 |  | $                      | 217,480 |             | $ | (270,070 | )         |  | $            | 87,345  |       | $ | 30,264 |  | $ | 65,019 
|Interest sensitivity gap  cumulative    |  | $                      | 217,480 |             | $ | (52,590  | )         |  | $            | 34,755  |       | $ | 65,019 |  | $ | 65,019 

We continually try to manage our interest rate sensitivity gap. Attempting to reduce the gap is a
constant challenge in a changing interest rate environment and one of the objectives of our asset/liability management strategy. We were in an asset-sensitive position on a cumulative basis for each time period represented on the table above except
for the one year time frame. An asset sensitive position means that during each period, if interest rates increase, then the net interest margin will increase, and if interest rates decline, then the net interest margin will decline. A liability
sensitive position means that during each period, if interest rates increase, then the net interest margin will decrease, and if interest rates decline, the net interest margin will increase. At June 30, 2007, we were within our policy
guidelines of rate-sensitive assets to rate-sensitive liabilities of 80-140% at the one-year interval. Since all interest rates and yields do not adjust at the same time or rate, this is only a general indicator of rate sensitivity.

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

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.



27



---

##### Table of Contents

Effects of Inflation

Inflation generally increases the cost of funds and operating overhead, and, to the extent loans and other assets bear variable rates, the yields on such assets. Unlike most industrial companies, virtually all of our
assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on our performance than the effects of general levels of inflation. Although interest rates do not necessarily move in the same
direction, or to the same extent, as the prices of goods and services, low inflation or deflation generally results in decreased interest rates while high inflation generally results in increased interest rates. The economy experienced deflation in
2001 and the Federal Reserve reduced interest rates on eleven occasions for a total of 475 basis points in 2001. Inflation remained low in 2002 and 2003, which resulted in fairly steady interest rates in 2002 and 2003, dropping only 50 basis points
in 2002 and 25 basis points in 2003. During 2004, inflation gradually increased with the improvement in the economy and the Federal Reserve increased interest rates by 125 basis points. During 2005, the Federal Reserve raised rates by a total of 200
basis points and raised rates by an additional 125 basis points in the first six months of 2006. The Federal Reserve did not raise rates during the third and fourth quarters of 2006 and the first and second quarters of 2007, but indicated that
further changes in rates would be determined by market information.

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



|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 management, including the Chief Executive Officer and
the Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on this evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that the Companys disclosure controls and procedures are effective in recording, processing, summarizing and reporting in a timely manner the information that the Company is required to disclose in its Exchange Act reports
and in accumulating and communicating to the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, such information as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Companys internal control over financial reporting that occurred during the three months ended June 30, 2007 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.



28



---

##### Table of Contents

PART IIOTHER INFORMATION



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

From time to time, the Company
is a party to a variety of legal proceedings and claims arising in the ordinary course of its businesses. While these matters generally are covered by the Companys insurance policies, there is no assurance that the Companys insurance
policies will cover the expenses that may arise in connection with any particular proceeding or claim. The Company presently believes that all of the legal proceedings and claims to which the Company was subject as of June 30, 2007, taken as a
whole, will not have a material adverse effect on the Companys liquidity, business, financial condition or results of operations.



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

There were no material changes during
the period covered by this quarterly report to the risk factors previously disclosed in the Companys annual report on Form 10-K for the year ended December 31, 2006.



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

Not Applicable.



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

Not Applicable.



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

The Annual Meeting of Shareholders of the Company was held on May 3, 2007, at which time the following matters were brought before and voted upon by the shareholders:



|                                     |  |               |  |           |  |                            |  |                                
|------------------------------------ |  | ------------- |  | --------- |  | -------------------------- |  | -------------------------------
|Name                                 |  | Term expiring |  | For       |  | WithholdAuthorityorAgainst |  | Abstentionsand Broker Non-Votes
|John S. Dean, Sr., Class I Director  |  | 2010          |  | 2,196,920 |  | 16,379                     |  | 51,540                         
|                                     |  |               |  |          
|Charles R. Fendley, Class I Director |  | 2010          |  | 2,206,723 |  | 6,576                      |  | 52,540                         

The terms of office of the following directors continued after the Annual Meeting of Shareholders:



|                                         |  |              
|---------------------------------------- |  | -------------
|Name                                     |  | Term expiring
|J. Donald Boggus, Jr., Class II Director |  | 2008         
|                                         | 
|Charles Gehrmann, Class II Director      |  | 2008         
|                                         | 
|Michael W. Lowe, Class III Director      |  | 2009         
|                                         | 
|Janie Whitfield, Class III Director      |  | 2009         
|                                         | 
|Cecil Pruett, Class III Director         |  | 2009         



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

None.



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



|    |  |                                                                                                                                                                                                      
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1 |  | Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Companys Registration Statement on Form S-4 dated January 27, 1992, File No. 33-45254 (the
Form S-4)).
|    | 
|3.2 |  | Amendment to the Companys Articles of Incorporation (incorporated by reference from Exhibit 3.1 to the                                                                                              



29



---

##### Table of Contents

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

---

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



30



---

##### 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: August 10, 2007 |  |  |  | /s/ J. Donald Boggus, Jr.                                  
|                      |  |  |  | J. Donald Boggus, Jr. President and Chief Executive Officer
|                      |  | 
|Date: August 10, 2007 |  |  |  | /s/ Leland W. Brantley, Jr.                                
|                      |  |  |  | Leland W. Brantley, Jr. Chief Financial Officer            



---

##### Table of Contents

EXHIBIT INDEX



|              |  |                                                                                                                                                       
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                           
|31.1          |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|              | 
|31.2          |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|              | 
|32.1*         |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|              | 
|32.2*         |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---

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