**U.S.
        SECURITIES AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
  
  **FORM
        10-Q**
  
  **x**
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
 
 **For
        the quarterly period ended  September 30, 2007**
 
 ** ̈**
              **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: 000-51287**
  
 
 **SOUTHCREST
        FINANCIAL GROUP, INC.**
 **(Exact
        name of small business issuer as specified in its charter)**
  
  **Georgia**
              
              **58-2256460****(State
                  or other
                  jurisdiction of** **incorporation
                  or
                  organization)**
              
              **(****IRS****Employer** **Identification
                  No.)**
  **600
        North Glynn Street**
 **Fayetteville,
        GA 30214**
 **(Address
        of principal executive offices)**
  **(770)-461-2781**
 **(Issuer’s
        telephone number)**
  **____________________________________________________**
 **(Former
        name, former address and former fiscal year, if changed since last
        report)**
  
 Check
        whether the issuer (1) has filed all reports required to be filed by Section
        13
        or 15(d) of the Exchange Act during the past 12 months (or for such shorter
        period that the registrant was required to file such reports) and (2) has
        been
        subject to such filing requirements for the past 90
        days.    Yes   x    No    ̈
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.
 Large
        Accelerated Filer   ̈Accelerated
        Filer  ̈Non-Accelerated
        Filer  x
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes  £  No  S
 
 State
        the
        number of shares outstanding of each of the issuer’s classes of common equity,
        as of November 9, 2007: 3,952,328.
  
  
  **SouthCrest
        Financial Group, Inc.**
 **And
        Subsidiaries**
  **INDEX**
 
 
 PagePart
                  I.
              FINANCIAL
                  INFORMATIONItem
                  1.
              Condensed
                  Consolidated Financial
                  StatementsCondensed
                  Consolidated Balance Sheets – September 30, 2007
                  and December 31, 2006
              1Condensed
                  Consolidated Statements of Income  -
                  Three and Nine Months Ended September 30, 2007 and
                  2006
              2Condensed
                  Consolidated Statements of Comprehensive Income
                  - Three and Nine Months Ended September 30, 2007 and
                  2006
              3Condensed
                  Consolidated Statement of Stockholders' Equity –
                  Nine  Months Ended September 30, 2007
              4Condensed
                  Consolidated Statements of Cash Flows – Nine Months
                  Ended September 30, 2007 and 2006
              5Notes
                  to Condensed Consolidated Financial
                  Statements
              7Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition
                  and Results of Operations
              13Item
                  3.
              Quantitative
                  and Qualitative  Disclosures about
                  Market Risk
              22Item
                  4.
              Controls
                  and Procedures
              22Part
                  II.
              OTHER
                  INFORMATION
              22Item
                  1.
              Legal
                  Proceedings
              22Item
                  1A.
              Risk
                  Factors.
              22Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              23Item
                  3.
              Defaults
                  Upon Senior Securities
              23Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              23Item
                  5.
              Other
                  Information
              23Item
                  6.
              Exhibits
              23Signatures
              24
  ***Index***
  **PART
        I - FINANCIAL INFORMATION**
 **ITEM
        1. FINANCIAL STATEMENTS**
 **SouthCrest
                  Financial Group, Inc. and Subsidiaries****Condensed
                  Consolidated Balance Sheets****September
                  30, 2007 and December 31, 2006****(Unaudited)****(In
                  thousands, except share and per share data)****September
                  30,**
              
              
              December
                  31,Assets
              
              **2007**
              
              
              
              2006
              *Cash
                  and due from banks
              
              **$**
              **15,068**
              
              
              $
              16,926Interest-bearing
                  deposits at other financial institutions
              
              ****
              **11,215**
              
              
              
              4,881Federal
                  funds sold
              
              ****
              **3,447**
              
              
              
              12,504Securities
                  available for sale
              
              ****
              **84,243**
              
              
              
              61,519Securities
                  held to maturity (fair value $61,162 and $66,036)
              
              ****
              **62,309**
              
              
              
              67,268Restricted
                  equity securities, at cost
              
              ****
              **2,351**
              
              
              
              2,029Loans
                  held for sale
              
              ****
              **227**
              
              
              
              446Loans,
                  net of unearned income
              
              ****
              **376,377**
              
              
              
              335,006Less
                  allowance for loan losses
              
              ****
              **5,134**
              
              
              
              4,480Loans,
                  net
              
              ****
              **371,243**
              
              
              
              330,526Bank-owned
                  life insurance
              
              ****
              **16,136**
              
              
              
              12,521Premises
                  and equipment, net
              
              ****
              **17,839**
              
              
              
              15,324Goodwill
              
              ****
              **14,255**
              
              
              
              9,057Intangible
                  assets, net
              
              ****
              **4,525**
              
              
              
              4,493Other
                  assets
              
              ****
              **8,439**
              
              
              
              6,523Total
                  assets
              
              **$**
              **611,297**
              
              
              $
              544,017****Liabilities,
                  Redeemable Common Stock, and Stockholders' EquityLiabilities:Deposits:Noninterest-bearing
              
              **$**
              **77,641**
              
              
              $
              80,581Interest-bearing
              
              ****
              **434,390**
              
              
              
              382,041Total
                  deposits
              
              ****
              **512,031**
              
              
              
              462,622Federal
                  Home Loan Bank advances
              
              ****
              **10,555**
              
              
              
              5,165Federal
                  funds purchased
              
              ****
              **772**
              
              
              ****
              **-**Note
                  payable
              
              ****
              **4,780**
              
              
              
              780Other
                  liabilities
              
              ****
              **10,772**
              
              
              
              6,907Total
                  liabilities
              
              ****
              **538,910**
              
              
              
              475,474****Commitments
                  and contingenciesRedeemable
                  common stock held by ESOP
              
              ****
              **1,117**
              
              
              
              988Stockholders'
                  equity:Common
                  stock, par value $1; 10,000,000 shares authorized, 3,952,328
                  issued
              
              ****
              **3,952**
              
              
              
              3,952Additional
                  paid-in capital
              
              ****
              **50,113**
              
              
              
              50,034Retained
                  earnings
              
              ****
              **16,923**
              
              
              
              13,740Accumulated
                  other comprehensive income (loss)
              
              ****
              **282**
              
              
              
              (171
              )**Total
                  stockholders' equity**
              
              ****
              **71,270**
              
              
              
              67,555**Total
                  liabilities, redeemable common stock, and stockholders'
                  equity**
              
              **$**
              **611,297**
              
              
              $
              544,017
 
 **See
        Notes to Condensed Consolidated Financial Statements.**
 ***
        Derived from audited consolidated financial
        statements.**
  1
 ***Index***
 
 **SouthCrest
                  Financial Group, Inc. and
                  Subsidiaries****Condensed
                  Consolidated Statements of Income****For
                  The Three and Nine Months Ended September 30, 2007 and
                  2006****(Unaudited)****(In
                  thousands, except share and per share data)****Three
                  Months**
              
              
              **Nine
                  Months****2007**
              
              
              2006
              
              
              **2007**
              
              
              2006**Interest
                  income:**Loans
              
              **$**
              **7,840**
              
              
              $
              5,980
              
              
              **$**
              **21,654**
              
              
              $
              16,695Securities
                  - taxable
              
              ****
              **1,521**
              
              
              
              1,229
              
              
              ****
              **4,190**
              
              
              
              3,678Securities
                  - nontaxable
              
              ****
              **241**
              
              
              
              104
              
              
              ****
              **594**
              
              
              
              330Federal
                  funds sold
              
              ****
              **121**
              
              
              
              50
              
              
              ****
              **351**
              
              
              
              237Interest-bearing
                  deposits at other banks
              
              ****
              **92**
              
              
              
              46
              
              
              ****
              **265**
              
              
              
              134**Total
                  interest income**
              
              ****
              **9,815**
              
              
              
              7,409
              
              
              ****
              **27,054**
              
              
              
              21,074****
              
              
              
              
              
              
              
              ******Interest
                  expense:**Deposits
              
              ****
              **3,682**
              
              
              
              2,482
              
              
              ****
              **9,900**
              
              
              
              6,621Other
                  borrowings
              
              ****
              **229**
              
              
              
              186
              
              
              ****
              **415**
              
              
              
              507**Total
                  interest expense**
              
              ****
              **3,911**
              
              
              
              2,668
              
              
              ****
              **10,315**
              
              
              
              7,128****
              
              
              
              
              
              
              
              ******Net
                  interest income**
              
              ****
              **5,904**
              
              
              
              4,741
              
              
              ****
              **16,739**
              
              
              
              13,946**Provision
                  for loan losses**
              
              ****
              **212**
              
              
              
              267
              
              
              ****
              **438**
              
              
              
              508**Net
                  interest income after provision for loan losses**
              
              ****
              **5,692**
              
              
              
              4,474
              
              
              ****
              **16,301**
              
              
              
              13,438****
              
              
              
              
              
              
              
              ******Other
                  income:**Service
                  charges on deposit accounts
              
              ****
              **1,036**
              
              
              
              810
              
              
              ****
              **2,771**
              
              
              
              2,461Other
                  service charges and fees
              
              ****
              **340**
              
              
              
              281
              
              
              ****
              **957**
              
              
              
              808Net
                  gain on sale of loans
              
              ****
              **73**
              
              
              
              39
              
              
              ****
              **259**
              
              
              
              110Income
                  on bank-owned life insurance
              
              ****
              **168**
              
              
              
              104
              
              
              ****
              **428**
              
              
              
              197Other
                  operating income
              
              ****
              **132**
              
              
              
              103
              
              
              ****
              **386**
              
              
              
              326**Total
                  other income**
              
              ****
              **1,749**
              
              
              
              1,337
              
              
              ****
              **4,801**
              
              
              
              3,902****
              
              
              
              
              
              
              
              ******Other
                  expenses:**Salaries
                  and employee benefits
              
              ****
              **2,841**
              
              
              
              1,920
              
              
              ****
              **7,794**
              
              
              
              5,873Equipment
                  and occupancy expenses
              
              ****
              **552**
              
              
              
              419
              
              
              ****
              **1,508**
              
              
              
              1,179Amortization
                  of intangibles
              
              ****
              **237**
              
              
              
              189
              
              
              ****
              **683**
              
              
              
              602Other
                  operating expenses
              
              ****
              **1,451**
              
              
              
              1,128
              
              
              ****
              **4,089**
              
              
              
              3,318**Total
                  other expenses**
              
              ****
              **5,081**
              
              
              
              3,656
              
              
              ****
              **14,074**
              
              
              
              10,972****
              
              
              
              
              
              
              
              ******Income
                  before income taxes**
              
              ****
              **2,360**
              
              
              
              2,155
              
              
              ****
              **7,028**
              
              
              
              6,368**Income
                  tax expense**
              
              ****
              **710**
              
              
              
              706
              
              
              ****
              **2,174**
              
              
              
              2,087**Net
                  income**
              
              **$**
              **1,650**
              
              
              $
              1,449
              
              
              **$**
              **4,854**
              
              
              $
              4,281****
              
              
              
              
              
              
              
              ******Basic
                  and diluted earnings per share**
              
              **$**
              **0.42**
              
              
              $
              0.41
              
              
              **$**
              **1.23**
              
              
              $
              1.20**Dividends
                  per share**
              
              **$**
              **0.130**
              
              
              $
              0.125
              
              
              **$**
              **0.390**
              
              
              $
              0.375**Average
                  shares outstanding - basic and diluted**
              
              ****
              **3,952,328**
              
              
              
              3,581,193
              
              
              ****
              **3,952,328**
              
              
              
              3,581,193
 
 **See
        Notes to Condensed Consolidated Financial Statements.**
  2
 ***Index***
 
 **SouthCrest
                  Financial Group, Inc. and
                  Subsidiaries****Condensed
                  Consolidated Statements of Comprehensive Income****For
                  The Three and Nine Months Ended September 30, 2007 and
                  2006****(Unaudited)****(In
                  thousands)****Three
                  Months**
              
              
              **Nine
                  Months****2007**
              
              
              2006
              
              
              **2007**
              
              
              2006**Net
                  income**
              
              **$**
              **1,650**
              
              
              $
              1,449
              
              
              **$**
              **4,854**
              
              
              $
              4,281**Other
                  comprehensive income:**Unrealized
                  holding gains on securities available for sale arising during the
                  period,
                  net of taxes of  $335, $194, $274, and $95
              
              ****
              **543**
              
              
              
              324
              
              
              ****
              **453**
              
              
              
              158**Comprehensive
                  income**
              
              **$**
              **2,193**
              
              
              $
              1,773
              
              
              **$**
              **5,307**
              
              
              $
              4,439**See
                  Notes to Condensed Consolidated Financial Statements.**
  3
 ***Index***
 
 **SouthCrest
                  Financial Group, Inc.****And
                  Subsidiaries****Consolidated
                  Statement of Stockholders' Equity****For
                  The Nine Months Ended September 30, 2007****(Unaudited)****(In
                  thousands, except share and per share data)**AccumulatedAdditional
              
              
              
              
              
              Other
              
              
              TotalCommon
                  Stock
              
              
              Paid-In
              
              
              Retained
              
              
              Comprehensive
              
              
              Stockholders'Shares
              
              
              Par
              
              
              Capital
              
              
              Earnings
              
              
              Income
                  )Loss)
              
              
              Equity**Balance,
                  December 31, 2006**
              
              ****
              **3,952,328**
              
              
              **$**
              **3,952**
              
              
              **$**
              **50,034**
              
              
              **$**
              **13,740**
              
              
              **$**
              **(171**
              **)**
              
              **$**
              **67,555**Net
                  income
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **4,854**
              
              
              ****
              **-**
              
              
              ****
              **4,854**Cash
                  dividends declared,  $.39 per share
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **(1,542**
              **)**
              
              ****
              **-**
              
              
              ****
              **(1,542**
              **)**Stock-based
                  compensation
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **79**
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **79**Adjustment
                  for shares owned by ESOP
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **(129**
              **)**
              
              ****
              **-**
              
              
              ****
              **(129**
              **)**Other
                  comprehensive income
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **453**
              
              
              ****
              **453****Balance,
                  September 30, 2007**
              
              ****
              **3,952,328**
              
              
              **$**
              **3,952**
              
              
              **$**
              **50,113**
              
              
              **$**
              **16,923**
              
              
              **$**
              **282**
              
              
              **$**
              **71,270**
  **See
        Notes to Condensed Consolidated Financial Statements.**
  4
 ***Index***
 
 **SouthCrest
                  Financial Group, Inc. and
                  Subsidiaries****Condensed
                  Consolidated Statements of Cash Flows****For
                  The Nine Months Ended September 30, 2007 and 2006****(Unaudited)****(In
                  thousands)****2007**
              
              
              2006**OPERATING
                  ACTIVITIES**Net
                  income
              
              **$**
              **4,854**
              
              
              $
              4,281Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              ****
              **778**
              
              
              
              584Amortization
                  of intangibles
              
              ****
              **683**
              
              
              
              602Other
                  amortization
              
              ****
              **84**
              
              
              
              105Provision
                  for loan losses
              
              ****
              **438**
              
              
              
              508Stock
                  compensation expense
              
              ****
              **79**
              
              
              
              72Deferred
                  income taxes
              
              ****
              **116**
              
              
              
              (354
              )Income
                  on bank-owned life insurance
              
              ****
              **(428**
              **)**
              
              
              (197
              )Increase
                  in interest receivable
              
              ****
              **(518**
              **)**
              
              
              (316
              )Increase
                  (decrease) in income taxes payable
              
              ****
              **195**
              
              
              
              (9
              )Increase
                  (decrease) in interest payable
              
              ****
              **(215**
              **)**
              
              
              676Net
                  gain on sale of loans
              
              ****
              **(259**
              **)**
              
              
              (110
              )Originations
                  of mortgage loans held for sale
              
              ****
              **(9,307**
              **)**
              
              
              (11,473
              )Proceeds
                  from sales of mortgage loans held for sale
              
              ****
              **9,785**
              
              
              
              11,217Decrease
                  in other assets
              
              ****
              **(112**
              **)**
              
              
              (142
              )Increase
                  in other liabilities
              
              ****
              **613**
              
              
              
              449Net
                  cash provided by operating activities
              
              ****
              **6,786**
              
              
              
              5,893**INVESTING
                  ACTIVITIES**Proceeds
                  from maturities of securities held to maturity
              
              ****
              **4,913**
              
              
              
              7,153Purchases
                  of securities available for sale
              
              ****
              **(15,429**
              **)**
              
              
              (4,195
              )Proceeds
                  from maturities of securities available for sale
              
              ****
              **16,536**
              
              
              
              3,772Proceeds
                  from sales of securities available for sale
              
              ****
              **1,003**
              
              
              
              -Net
                  change in restricted equity securities
              
              ****
              **(65**
              **)**
              
              
              134Net
                  (increase) decrease in interest-bearing deposits in banks
              
              ****
              **(6,153**
              **)**
              
              
              1,096Net
                  decrease in federal funds sold
              
              ****
              **17,157**
              
              
              
              4,297Net
                  increase in loans
              
              ****
              **(15,332**
              **)**
              
              
              (24,699
              )Purchase
                  of premises and equipment
              
              ****
              **(2,384**
              **)**
              
              
              (2,871
              )Proceeds
                  from sale of other real estate owned
              
              ****
              **-**
              
              
              
              517Purchase
                  of life insurance contracts
              
              ****
              **-**
              
              
              
              (3,601
              )Net
                  cash paid in business combination
              
              ****
              **(14,247**
              **)**
              
              
              -Net
                  cash (used in) investing activities
              
              ****
              **(14,001**
              **)**
              
              
              (18,397
              )**FINANCING
                  ACTIVITIES**Net
                  (decrease) increase in deposits
              
              ****
              **(263**
              **)**
              
              
              12,904Principal
                  repayments on Federal Home Loan Bank advances
              
              ****
              **(110**
              **)**
              
              
              (5,110
              )Increases
                  in FHLB advances
              
              ****
              **2,500**
              
              
              
              -Net
                  increase in federal funds purchased
              
              ****
              **772**
              
              
              
              1,479Proceeds
                  from other borrowings
              
              ****
              **4,000**
              
              
              
              -Dividends
                  paid
              
              ****
              **(1,542**
              **)**
              
              
              (1,344
              )Net
                  cash provided by financing activities
              
              ****
              **5,357**
              
              
              
              7,929Net
                  decrease in cash and due from banks
              
              ****
              **(1,858**
              **)**
              
              
              (4,575
              )Cash
                  and due from banks at beginning of year
              
              ****
              **16,926**
              
              
              
              15,930Cash
                  and due from banks at end of period
              
              **$**
              **15,068**
              
              
              $
              11,355
 
 **See
        Notes to Condensed Consolidated Financial Statements.**
  5
 ***Index***
 
 **SouthCrest
                  Financial Group, Inc. and Subsidiaries****Condensed
                  Consolidated Statements of Cash Flows (continued)****For
                  The Nine Months Ended September 30, 2007 and 2006****(Unaudited)****(In
                  thousands)****2007**
              
              
              2006**SUPPLEMENTAL
                  DISCLOSURES**Cash
                  paid for:Interest
              
              **$**
              **10,100**
              
              
              $
              6,452Income
                  taxes
              
              ****
              **2,185**
              
              
              
              2,449**NONCASH
                  TRANSACTIONS**Principal
                  balances of loans transferred to other real estate owned
              
              **$**
              **422**
              
              
              $
              441(Decrease)
                  increase in redeemable common stock held by ESOP
              
              ****
              **129**
              
              
              
              75Unrealized
                  loss on securities available for sale, net
              
              ****
              **453**
              
              
              
              158**BUSINESS
                  COMBINATION**Cash
                  and due from banks, net of cash paid
              
              **$**
              **3,103**
              
              
              $
              -Federal
                  funds sold
              
              ****
              **8,100**
              
              
              
              -Interest
                  bearing deposits at other financial institutions
              
              ****
              **181**
              
              
              
              -Securities
                  available for sale
              
              ****
              **24,046**
              
              
              
              -Restricted
                  equity securities
              
              ****
              **257**
              
              
              
              -Loans,
                  net
              
              ****
              **26,344**
              
              
              
              -Bank-owned
                  life insurance
              
              ****
              **3,187**
              
              
              
              -Premises
                  and equipment
              
              ****
              **909**
              
              
              
              -Goodwill
              
              ****
              **5,198**
              
              
              
              -Core
                  deposit intangible
              
              ****
              **715**
              
              
              
              -Other
                  assets
              
              ****
              **1,254**
              
              
              
              -Total
                  assets
              
              **$**
              **73,294**
              
              
              $
              -Deposits
              
              **$**
              **49,672**
              
              
              $
              -Federal
                  Home Loan Bank advances
              
              ****
              **3,000**
              
              
              
              -Other
                  liabilities
              
              ****
              **3,272**
              
              
              
              -Total
                  liabilities assumed
              
              ****
              **55,944**
              
              
              
              -Purchase
                  price
              
              **$**
              **17,350**
              
              
              $
              -
 
 **See
        Notes to Condensed Consolidated Financial Statements.**
  6
 ***Index***
 
 **SOUTHCREST
        FINANCIAL GROUP, INC. AND
        SUBSIDIARIES**
 **Notes
        to Condensed Consolidated Financial Statements**
 **(Unaudited)**
 
 **NOTE
        1 — NATURE OF BUSINESS****AND****BASIS OF
        PRESENTATION**
 
 SouthCrest
        Financial Group, Inc. (“SouthCrest” or the “Company”) is a bank holding company
        whose principal activity is the ownership and management of its wholly owned
        subsidiary banks, Bank of Upson (“Upson”), The First National Bank of
        Polk County (“FNB Polk”), Peachtree Bank (“Peachtree”), and Bank of
        Chickamauga (“Chickamauga”).  All of the subsidiary banks
        (collectively, the “Banks”) are commercial banks that provide a full range of
        banking services within their primary market areas.  Upson is
        headquartered in Thomaston, Upson County, Georgia with six branches located
        in
        Thomaston, Fayetteville, Manchester, Warm Springs and Luthersville, Georgia,
        serving its primary market area of Upson, Fayette, Meriwether and the
        surrounding counties.  FNB Polk is located in Cedartown, Polk County,
        Georgia with two branches in Cedartown, Georgia and one branch in Rockmart,
        Georgia.  FNB Polk primarily serves the market area of
        Polk County.  Peachtree is headquartered in Maplesville, Chilton
        County, Alabama with one branch in Maplesville and another in Clanton,
        Alabama.  Chickamauga is headquartered in Chickamauga,
        Walker County, Georgia where it maintains two branches.
 
 The
        accompanying unaudited condensed consolidated financial statements of the
        Company have been prepared in accordance with generally accepted accounting
        principles for interim financial information. Accordingly, they do not include
        all the information and notes required by generally accepted accounting
        principles for complete financial statements. In the opinion of management,
        all
        adjustments (consisting of normal recurring adjustments) considered necessary
        for a fair presentation have been included. Operating results for the three
        and
        nine month periods ended September 30, 2007 are not necessarily indicative
        of
        the results that may be expected for the year ended December 31, 2007. For
        further information, refer to the financial statements and notes included
        in the
        Company's consolidated financial statements and notes thereto for the year
        ended
        December 31, 2006 included in the Company’s annual report on Form 10-K
        (Registration No. 000-51287).
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        wholly-owned subsidiaries, Bank of Upson,  The First National Bank of
        Polk County, Peachtree Bank, and Bank of Chickamauga.  All significant
        inter-company accounts and transactions have been eliminated in
        consolidation.  Certain reclassifications to prior year balance sheets
        and income statements have been made to conform to current
        classifications.  These reclassifications have no impact on net income
        or stockholders’ equity reported for the previous year.
 
 **NOTE
        2 – EARNINGS****PER****COMMON
        SHARE**
 
 Basic
        earnings per share is computed by dividing net income available to common
        stockholders by the weighted average number of shares outstanding during
        the
        period.  Diluted earnings per share would be computed by dividing net
        income by the sum of the weighted-average number of shares of common stock
        outstanding and dilutive potential common shares, such as outstanding stock
        options.  Dilutive potential common shares are calculated in
        accordance with the treasury stock method, which assumes that proceeds from
        the
        exercise of all options are used to repurchase common stock at market
        value.  The amount of shares remaining after the proceeds are
        exhausted represents the potentially dilutive effect of the
        securities.
 
 At
        September 30, 2007 and 2006, the Company had 191,400 and 183,500 options
        outstanding under the SouthCrest Financial Group, Inc. 2005 Stock Incentive
        Plan.  For the three and nine month periods ended September 30, 2007
        and 2006, these options were nondilutive.   The weighted average
        number of shares outstanding was 3,952,328 and 3,581,193 for the three and
        nine
        month periods ended September 30, 2007 and 2006**.**
 
 **NOTE
        3 - STOCK BASED COMPENSATION**
  Effective
        January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
        Payment,” (“SFAS No. 123R”) which was issued by the Financial Accounting
        Standards Board (“FASB”) in December 2004.  SFAS No. 123R revises SFAS
        No. 123 “Accounting for Stock Based Compensation,” and supersedes APB No. 25,
“Accounting for Stock Issued to Employees,” (APB No. 25) and its related
        interpretations.  SFAS No. 123R requires recognition of the cost of
        employee services received in exchange for an award of equity instruments
        in the
        financial statements over the period the employee is required to perform
        the
        services in exchange for the award (presumptively the vesting
        period).  SFAS No. 123R also requires measurement of the cost of
        employee services received in exchange for an award based on the grant-date
        fair
        value of the award.  SFAS No. 123R also amends SFAS No. 95 “Statement
        of Cash Flows,” to require that excess tax benefits be reported as financing
        cash inflows, rather than as a reduction of taxes paid, which is included
        within
        operating cash flows.
  7
 ***Index***
  The
        Company adopted SFAS No. 123R using the modified prospective application
        as
        permitted under SFAS No. 123R.  Accordingly, prior period amounts have
        not been restated.  Under this application, the Company is required to
        record compensation expense for all awards granted after the date of adoption
        and for the unvested portion of previously granted awards that remain
        outstanding at the date of adoption.
 
 Prior
        to
        the adoption of SFAS No. 123R, the Company used the intrinsic value method
        as
        prescribed by APB No. 25 and thus recognized no compensation expense for
        options
        granted with exercise prices equal to the fair market value of the Company’s
        common stock on the date of grant.
 
 At
        September 30, 2007, the Company maintained one share-based compensation plan,
        the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan (the “Plan”),
        approved at the Company’s annual shareholders’ meeting held on May 12,
        2005.  The compensation cost that has been charged against income for
        the Plan was $26,330 and $23,770 for the three month periods ending September
        30, 2007 and 2006, respectively, and $78,990 and $71,310 for the nine month
        periods ending September 30, 2007 and 2006, respectively.  The Company
        recorded no deferred tax benefit in 2007 or 2006 because all of the compensation
        cost was related to incentive (tax qualifying) stock options.
 
 The
        Plan
        provides for up to 549,000 shares of common stock to be awarded in the form
        of
        stock options. Options are granted at the fair market value of the Company’s
        common stock on the date of grant. All options under the Plan expire ten
        years
        from the date of grant.  At September 30, 2007, 191,400 options had
        been granted.  Of these options, 104,000 were not tax qualifying and
        were fully vested on the date of grant, while 87,400 options were tax qualifying
        and vest over 60 months.  At September 30, 2007, 357,600 options were
        available for grant.
 
 The
        fair
        market value of each option award is estimated on the date of grant using
        the
        Black-Scholes option pricing model.  The Company did not grant options
        during the nine month periods ended September 30, 2007 and 2006.
 
 A
        summary
        of option activity under the Plan as of September 30, 2007, and changes during
        the nine month period ended September 30, 2007 is presented below:
 
 WeightedWeighted
              
              
              AverageAverage
              
              
              Remaining
              
              
              AggregateExercise
              
              
              Contractual
              
              
              IntrinsicShares
              
              
              Price
              
              
              Term
              
              
              ValueOutstanding
                  at December 31, 2006
              
              
              191,400
              
              
              $
              23.44Options
                  granted
              
              
              -
              
              
              
              -Options
                  exercised
              
              
              -
              
              
              
              -Options
                  forfeited
              
              
              -
              
              
              
              -Outstanding
                  at September 30, 2007
              
              
              191,400
              
              
              $
              23.44
              
              
              
              8.47
              
              
              $
              (390,000
              )Exercisable
                  at September 30, 2007
              
              
              119,900
              
              
              $
              23.45
              
              
              
              8.47
              
              
              $
              (246,000
              )
 
 For
        the
        quarter ended September 30, 2007, no options were granted, exercised or became
        fully vested.
 
 As
        of
        September 30, 2007, there was $352,000 of total unrecognized compensation
        cost
        related to non-vested share-based compensation arrangements.  That
        cost is expected to be recognized over a weighted-average period of 3.4
        years.
  8
 ***Index***
  **NOTE
        4 — LOANS
        RECEIVABLE**
 
 The
        composition of loans at September 30, 2007 and December 31, 2006 is summarized
        as follows:
 
 **September
                  30,**
              
              
              December
                  31,**(Dollars
                  in thousands)**
              
              **2007**
              
              
              2006Commercial,
                  financial, and agricultural
              
              **$**
              **23,907**
              
              
              $
              23,996Real
                  estate – construction
              
              ****
              **69,509**
              
              
              
              59,745Real
                  estate – mortgage
              
              ****
              **236,952**
              
              
              
              211,676Consumer
              
              ****
              **39,182**
              
              
              
              33,690Other
              
              ****
              **6,966**
              
              
              
              6,058****
              **376,516**
              
              
              
              335,165Unearned
                  income
              
              ****
              **(139**
              **)**
              
              
              (159
              )Allowance
                  for loan losses
              
              ****
              **(5,134**
              **)**
              
              
              (4,480
              )Loans,
                  net
              
              **$**
              **371,243**
              
              
              $
              330,526
 
 Changes
        in the allowance for loan losses are as follows:
 **September
                  30,**
              
              
              December
                  31,**(Dollars
                  in thousands)**
              
              **2007**
              
              
              2006Balance,
                  beginning of year
              
              **$**
              **4,480**
              
              
              $
              3,477Provision
                  for loan losses
              
              ****
              **438**
              
              
              
              839Loans
                  charged off
              
              ****
              **(600**
              **)**
              
              
              (903
              )Recoveries
                  of loans previously charged off
              
              ****
              **472**
              
              
              
              436Allowance
                  acquired in business combination
              
              ****
              **344**
              
              
              
              631Balance,
                  end of year
              
              **$**
              **5,134**
              
              
              $
              4,480
 
 The
        following is a summary of information pertaining to impaired loans:
 **September
                  30,**
              
              
              December
                  31,**(Dollars
                  in thousands)**
              
              **2007**
              
              
              2006Impaired
                  loans without a valuation allowance
              
              $
              -
              
              
              $
              -Impaired
                  loans with a valuation allowance
              
              
              196
              
              
              
              479Total
                  impaired loans
              
              $
              196
              
              
              $
              479Valuation
                  allowance related to impaired loans
              
              $
              29
              
              
              $
              38Average
                  investment in impaired loans
              
              $
              226
              
              
              $
              614
 
 There
        were $196,000 and $479,000 loans on nonaccrual status at September 30, 2007
        and
        December 31, 2006.  Loans of $778,000 and $1,015,000 were past due
        ninety days or more and still accruing interest at September 30, 2007 and
        December 31, 2006, respectively.
  **September
                  30,**
              
              
              December
                  31,**(Dollars
                  in thousands)**
              
              **2007**
              
              
              2006Nonaccrual
                  loans
              
              **$**
              **196**
              
              
              $
              479Loans
                  past due 90 days or more and still accruing
              
              **$**
              **778**
              
              
              $
              1,015Loans
                  restructured under troubled debt
              
              **$**
              **-**
              
              
              $
              -
 
 The
        Company acquired certain loans for which there was, at acquisition, evidence
        of
        deterioration of credit quality since the dates the loans were originated
        and
        for which it was probable, at acquisition, that all contractually required
        payments would not be collected.  Under the provisions of Statement of
        Position 03-03 *Accounting for Certain Loans or Debt Securities Acquired in a
        Transfer* (“SOP 03-03”), at the acquisition date these loans were recorded
        at a carrying value of $376,000, which was net of a nonaccretable adjustment
        of
        $183,000.  At September 30, 2007 the carrying value for these loans
        had been reduced to $366,000 as a result of cash payments by the
        borrowers.  For further discussion of these loans, refer to Note 7
        below.
  9
 ***Index***
  **NOTE
        5 —
DEPOSITS**
 
 At
        September 30, 2007 and December 31, 2006, deposits were as follows:
 
 **September
                  30,**
              
              
              December
                  31,**(Dollars
                  In Thousands)**
              
              **2007**
              
              
              2006Noninterest
                  bearing deposits
              
              **$**
              **77,641**
              
              
              $
              80,581Interest
                  checking
              
              ****
              **81,261**
              
              
              
              72,386Money
                  market
              
              ****
              **53,849**
              
              
              
              56,461Savings
              
              ****
              **44,145**
              
              
              
              35,542Certificates
                  of deposit
              
              ****
              **255,135**
              
              
              
              217,652**$**
              **512,031**
              
              
              $
              462,622
 
 **NOTE
        6 — NEW ACCOUNTING
        PRONOUNCEMENTS**
 
 In
        March
        2006, the FASB issued SFAS No. 156, *Accounting for Servicing of Financial
        Assets-an amendment of FASB Statement No. 140*. This statement requires
        that an entity recognize a servicing asset or servicing liability each time
        it
        undertakes an obligation to service a financial asset, and that the servicing
        assets and servicing liabilities be initially measured at fair value. The
        statement also permits an entity to choose a subsequent measurement method
        for
        each class of separately recognized servicing assets and servicing liabilities.
        SFAS No. 156 is effective as of the beginning of the first fiscal year that
        begins after September 15, 2006. The Company adopted SFAS No. 156 as of January
        1, 2007 and it did not have a material impact on the Company’s financial
        condition or results of operations.
 
 In
        July
        2006, the FASB issued Interpretation No. 48, *Accounting for Uncertainty in
        Income Taxes, an interpretation of FASB Statement No. 109*(“FIN 48”). 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. We adopted FIN 48 effective January 1,
        2007.  FIN 48 clarifies the accounting for uncertainty in income taxes
        recognized in financial statements and requires the impact of a tax position
        to
        be recognized in the financial statements if that position is more likely
        than
        not of being sustained by the taxing authority.  The years 2003
        through 2006 are still subject to audit for our Federal, Georgia, and Alabama
        income tax returns.  The adoption of FIN 48 did not have a material
        effect on our consolidated financial position or results of
        operation.
 
 In
        September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*,
        which provides for enhanced guidance for using fair value to measure assets
        and
        liabilities. SFAS No. 157 defines fair value, establishes a framework for
        measuring fair value in generally accepted accounting principles, and expands
        disclosures about fair value measurements. SFAS No. 157 is applicable under
        other accounting pronouncements that either require or permit fair value
        measurements and does not require any new fair value measurements. SFAS No.
        157
        is effective for financial statements issued for fiscal years beginning after
        November 15, 2007, and interim periods within those fiscal years. The Company
        has not yet evaluated the impact of the implementation of SFAS No.
        157.
 
 In
        September 2006, the FASB ratified EITF Issue 06-4, *Accounting for Deferred
        Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
        Life
        Insurance Arrangements.* EITF Issue 06-4 addresses accounting for
        split-dollar life insurance arrangements after the employer purchases a life
        insurance policy on the covered employee. This Issue states that an obligation
        arises as a result of a substantive agreement with an employee to provide
        future
        postretirement benefits. Under Issue EITF 06-4, the obligation is not settled
        upon entering into an insurance arrangement. Since the obligation is not
        settled, a liability should be recognized in accordance with applicable
        authoritative guidance. Issue EITF 06-4 is effective for fiscal years beginning
        after December 15, 2007. The Company has not yet evaluated the impact of
        the
        implementation of EITF Issue 06-4.
 
 In
        September 2006, the FASB ratified EITF Issue 06-5, *Accounting for Purchases
        of Life Insurance—Determining the Amount That Could Be Realized in Accordance
        with FASB Technical Bulletin (“FTB”) No. 85-4, Accounting for Purchases of Life
        Insurance*. This Issue addresses how an entity should determine the amount
        that could be realized under the insurance contract at the balance sheet
        date in
        applying FTB 85-4 and if the determination should be on an individual or
        group
        policy basis. EITF Issue 06-5 is effective for fiscal years beginning after
        December 15, 2006. The Company’s adoption EITF Issue 06-5 effective January 1,
        2007 did not have a material effect on the Company’s financial
        statements.
  10
 ***Index***
  In
        February 2007, the FASB issued SFAS No. 159, *The**Fair Value Option
        for Financial Assets and Financial Liabilities**.* This statement
        permits entities to choose to measure many financial instruments and certain
        other items at fair value. The objective of this standard is to improve
        financial reporting by providing entities with the opportunity to mitigate
        volatility in reported earnings caused by measuring related assets and
        liabilities differently without having to apply complex hedge accounting
        provisions. This statement is effective as of the beginning of fiscal years
        beginning after November 15, 2007, with early adoption permitted under certain
        circumstances. The Company did not choose to early adopt this standard and
        has
        not yet evaluated the impact of its implementation.
 
 
 **NOTE
        7 – COMPLETION OF MERGERS WITH MAPLESVILLE BANCORP AND BANK OF
        CHICKAMAUGA**
 
 On
        October 31, 2006, the Company completed its merger with Maplesville Bancorp.
        (“Maplesville”), a Maplesville, Alabama based bank holding company and the
        parent company of Peachtree Bank (“Peachtree”).  In connection with
        the merger,  shareholders of Maplesville received approximately
        371,135 shares of SouthCrest stock and $7,557,000 in cash.  The merger
        was accounted for using the purchase method of
        accounting.  Accordingly, results of operations for Peachtree Bank are
        included in the results of operations of SouthCrest prospectively from the
        date
        of merger, and the purchase price of $17.3 million, which includes merger
        costs
        of $254,000, was allocated to the fair values of Maplesville’s assets and
        liabilities.  As a result, the Company recorded a core deposit
        intangible of $1,052,000 and goodwill of $6,392,000.  The core deposit
        intangible is being amortized on an accelerated basis over the estimated
        life of
        the deposits.
 
 On
        July
        1, 2007 the Company completed its acquisition of Bank of Chickamauga pursuant
        to
        the definitive agreement entered into on February 23, 2007.  Bank of
        Chickamauga is a community bank located in the City of Chickamauga, Walker
        County, Georgia where it maintains two offices.  The City of
        Chickamauga is located in the Chattanooga, Tennessee metropolitan area, and
        completing this merger allows the Company to enter a new
        market.  Under terms of the agreement, the shareholders of Chickamauga
        were to receive $18 million cash, less certain costs related to merger and
        the
        termination of the Chickamauga defined benefit plan.  The Chickamauga
        shareholders received $17.2 million in cash with an additional $687,000 being
        placed in a reserve account to fund the costs related to terminating the
        Chickamauga defined benefit plan.  The reserve account is recorded as
        a liability in the financial statements.  Any funds remaining after
        the termination of the defined benefit plan will be distributed to the
        Chickamauga shareholders, which will increase the purchase amount recorded
        at
        acquisition.  The timing of the plan termination is dependent on
        approval by the Internal Revenue Service.  Management anticipates that
        the termination of the plan could occur in the second or third quarter of
        2008.
 
 The
        merger was accounted for under the purchase method of accounting. Accordingly,
        results of operations for Bank of Chickamauga are included in the results
        of
        operations of SouthCrest prospectively from the date of merger, and the purchase
        price of $17.35 million, which includes merger costs of $150,000 but does
        not
        include the $687,000 reserve established for the defined benefit plan
        termination, was allocated to the fair values of Chickamauga’s assets and
        liabilities.  As a result, the Company recorded a core deposit
        intangible of $715,000 and goodwill of $5,198,000.  The core deposit
        intangible is being amortized on an accelerated basis over the estimated
        life of
        the deposits.  Because of the uncertainty of the final disposition of
        the defined benefit plan and the resulting distribution from the reserve
        account, the purchase price and the resulting allocation have not been
        finalized.
 
 Statement
        of Position 03-03, *Accounting for Certain Loans or Debt Securities Acquired
        in a Transfer* (“SOP 03-03”) addresses accounting for differences between
        contractual cash flows and cash flows expected to be collected from an
        investor's initial investment in loans or debt securities (loans) acquired
        in a
        transfer if those differences are attributable, at least in part, to credit
        quality.  It includes loans acquired in purchase business
        combinations.  The SOP does not apply to loans originated by the
        entity.  At July 1, 2007 the Company identified $559,000 in loans to which
        the application of the provisions of SOP 03-03 was required.  The
        carrying amount of these loans was reduced to $376,000 at July 1, 2007,
        representing a nonaccretable adjustment of $183,000.  Because the
        Company could not reasonably estimate cash flows expected to be collected
        from
        these loans, interest income is only recognized when cash payments are received
        on such loans.  The purchase accounting adjustments reflect a
        reduction in loans for $183,000 related to Chickamauga’s impaired loans, thus
        reducing the carrying value of these loans to $376,000 as of July 1,
        2007.  At September 30, 2007, the carrying value of these loans had
        been reduced to $366,000 due to cash payments received from the
        borrowers.  Interest income recognized on such loans has been
        insignificant for the three months ended September 30, 2007.
 
 To
        fund
        the payments to the Chickamauga shareholders, the Company’s subsidiary banks
        paid $15 million in special dividends to the parent.  Additionally,
        the Company received an increase in its line of credit from $5.5 million
        to $8.0
        million on the same terms and conditions as previously existed on the
        loan.  The interest rate for the line of credit is Prime minus
        0.50%.  The Company drew $4 million on this line in connection with
        the merger.
  11
 ***Index***
  The
        following schedule presents pro forma information for revenues and net income
        as
        if the combinations with Maplesville Chickamauga had occurred on January
        1,
        2006. Revenues and net income of both acquired entities for periods prior
        to the
        dates of acquisition are added to actual results of SouthCrest for each of
        the
        periods indicated in the table.  Revenues include interest income plus
        other income less proforma merger adjustments affecting revenues. Net income
        includes the net income less the proforma effect of merger adjustments,
        including the amortization of intangibles:
 
 **(Dollars
                  in thousands except per share amounts)****Three
                  Months**
              
              
              **Nine
                  Months****2007**
              
              
              2006
              
              
              **2007**
              
              
              2006Revenues
              
              $
              11,564
              
              
              $
              10,790
              
              
              $
              33,807
              
              
              $
              30,766Net
                  income
              
              $
              1,650
              
              
              $
              1,645
              
              
              $
              4,783
              
              
              $
              4,841Earnings
                  per share
              
              $
              0.42
              
              
              $
              0.42
              
              
              $
              1.21
              
              
              $
              1.22
  12
 ***Index***
  **SOUTHCREST
        FINANCIAL GROUP, INC. AND SUBSIDIARIES**
 
 **ITEM
        2. Management’s Discussion and Analysisof Financial Condition
        and Results of Operations**
  The
        following is management’s discussion and analysis of certain significant factors
        which have affected the financial position and operating results of SouthCrest
        Financial Group, Inc. and its bank subsidiaries, Bank of Upson, The First
        National Bank of Polk County, Peachtree Bank, and Bank of Chickamauga during
        the
        period included in the accompanying consolidated financial
        statements.   The purpose of this discussion is to focus on
        information about our financial condition and results of operations that
        are not
        otherwise apparent from our consolidated financial
        statements.  Reference should be made to those statements and the
        selected financial data presented elsewhere in this report for an understanding
        of the following discussion and analysis.
  **Forward
        Looking Statements**
 
 
 Some
        of
        the statements in this Report, including, without limitation, matters discussed
        under the caption “Management’s Discussion and Analysis of Financial Condition
        and Results of Operation,” of SouthCrest Financial Group, Inc. are
“forward-looking statements” within the meaning of the federal securities
        laws.  Forward-looking statements include statements about the
        competitiveness of the banking industry, potential regulatory obligations,
        our
        entrance and expansion into other markets, integration of recently acquired
        banks, pending or proposed acquisitions, our other business strategies, our
        expectations with respect to our allowance for loan losses and impaired loans,
        anticipated capital expenditures for our operations center, and other statements
        that are not historical facts.  When we use words like “anticipate,”
“believe,” “intend,” “expect,” “estimate,” “could,” “should,” “will,” and
        similar expressions, you should consider them as identifying forward-looking
        statements, although we may use other phrasing.  These forward-looking
        statements involve risks and uncertainties and are based on our beliefs and
        assumptions, and on the information available to us at the time that these
        disclosures were prepared.  Factors that may cause actual results to differ
        materially from those expressed or implied by such forward-looking statements
        include, among others, the following possibilities: (1) competitive pressures
        among depository and other financial institutions may increase significantly;
        (2) changes in the interest rate environment may reduce margins; (3) general
        economic conditions may be less favorable than expected, resulting in, among
        other things, a deterioration in credit quality and/or a reduction in demand
        for
        credit; (4) legislative or regulatory changes, including changes in accounting
        standards may adversely affect the businesses in which we are engaged; (5)
        costs
        or difficulties related to the integration of our businesses, may be greater
        than expected; (6) deposit attrition, customer loss or revenue loss following
        acquisitions may be greater than expected; (7) competitors may have greater
        financial resources and develop products that enable such competitors to
        compete
        more successfully than us; and (8) adverse changes may occur in the equity
        markets.
  Many
        of
        such factors are beyond our ability to control or predict, and readers are
        cautioned not to put undue reliance on such forward-looking statements.  We
        disclaim any obligation to update or revise any forward-looking statements
        contained in this Report, whether as a result of new information, future
        events
        or otherwise.
  **Critical
        Accounting Estimates**
  We
        have
        adopted various accounting policies that govern the application of accounting
        principles generally accepted in the United States in the preparation of
        our
        financial statements. Our significant accounting policies are described in
        the
        notes to the consolidated financial statements for the year ended December
        31,
        2006 included in our Form 10-K (Registration No.
        000-51287).   Certain accounting policies involve significant
        judgments and assumptions by us that have a material impact on the carrying
        value of certain assets and liabilities. We consider these accounting judgments
        and assumptions to be our critical accounting estimates. The judgments and
        assumptions we use are based on historical experience and other factors,
        which
        we believe to be reasonable under the circumstances. Because of the nature
        of
        the judgments and assumptions we make, actual results could differ from these
        judgments and estimates which could have a material impact on our carrying
        values of assets and liabilities and our results of operations.
  We
        believe the allowance for loan losses is a critical accounting estimate that
        requires the most significant judgments and assumptions used in preparation
        of
        our consolidated financial statements.  Because the allowance for loan
        losses is replenished through a provision for loan losses that is charged
        against earnings, our subjective determinations regarding the allowance affect
        our earnings directly.   Refer to the portion of this discussion
        that addresses our allowance for loan losses for a description of our processes
        and methodology for determining our allowance for loan losses.
 
 The
        consolidated financial statements include certain accounting and disclosures
        that require management to make estimates about fair
        values.  Estimates of fair value are used in the accounting for
        securities available for sale, loans held for sale, intangible assets, and
        acquisition purchase accounting adjustments.  Estimates of fair values
        are used in disclosures regarding securities held to maturity, stock
        compensation, commitments, and the fair values of financial
        instruments.  Fair values are estimated using relevant market
        information and other assumptions such as interest rates, credit risk,
        prepayments and other factors.  The fair values of financial
        instruments are subject to change as influenced by market
        conditions.
  13
 ***Index***
  **Financial
        Condition**
  During
        the nine months ended September 30, 2007, our total assets increased $67.3
        million to $611.3 million at September 30, 2007 of which $73.3 million relates
        to the assets acquired in the Chickamauga
        acquisition.   Excluding the impact of those acquired assets,
        total assets declined by $6.0 million.
 
 During
        the year to date period, total loans increased $41.4 million, or 12.4%, while
        loans held for sale decreased $219,000.  Excluding the Chickamauga
        acquisition, loans increased $14.7 million, an annual growth rate of
        $5.8%.  Securities available for sale increased $22.7 million due
        primarily to securities obtained in the Chickamauga acquisition, while
        securities held to maturity decreased $5.0 million due to
        maturities.  Federal funds sold declined $9.1 million.
 
 During
        the year to date period ended September 30, 2007, deposits increased $49.4
        million or 10.7%.  Excluding the impact of Chickamauga, deposits would
        have declined by $263,000.  The Company has generally funded its loan
        growth with maturities in its investment portfolio and has not had to
        aggressively seek deposits for that funding.  Significant components
        of the decline excluding Chickamauga included a $10.8 million decline in
        noninterest bearing deposits, a $2.9 million decline in money market accounts,
        and a $2.2 million decline in savings accounts.  Interest checking
        accounts increased $3.7 million while certificate accounts increased $11.9
        million.  The decline in noninterest bearing accounts is attributable
        to declines in deposits of local governments.****Since
        December 31, 2006, FHLB advances increased $5.4 million which includes $3.5
        million acquired as a result of the Chickamauga
        acquisition.    Other borrowed funds increased $4.0 million
        as the Company drew on its line of credit to provide a portion of the funding
        for the Chickamauga acquisition.  At September 30, 2007 we had
        purchased $772,000 million in federal funds.  The Company monitors
        changes in its loan portfolio and changes in its deposit levels, and seeks
        to
        maintain a proper mix of types, maturities, and interest rates. We believe
        that
        our cash flows and liquidity levels are adequate to support the Company’s loan
        growth.
 
 Our
        total
        stockholders’ equity has increased by $3.7 million since December 31, 2006,
        primarily due to net income for the period, net of dividends paid to
        shareholders.  In addition, the Company experienced a $453,000
        increase in the unrealized gain (loss) on securities available for sale,
        net of
        deferred taxes.
 
 **Loan
        Portfolio***.*The following table presents various categories of
        loans contained in the loan portfolios of the subsidiary banks as of September
        30, 2007 and December 31, 2006:
 
 **September
                  30,**
              
              
              December
                  31,**(Dollars
                  in thousands)**
              
              **2007**
              
              
              2006Commercial,
                  financial, and agricultural
              
              **$**
              **23,907**
              
              
              $
              23,996Real
                  estate – construction
              
              ****
              **69,509**
              
              
              
              59,745Real
                  estate – mortgage
              
              ****
              **236,952**
              
              
              
              211,676Consumer
              
              ****
              **39,182**
              
              
              
              33,690Other
              
              ****
              **6,966**
              
              
              
              6,058****
              **376,516**
              
              
              
              335,165Unearned
                  income
              
              ****
              **(139**
              **)**
              
              
              (159
              )Allowance
                  for loan losses
              
              ****
              **(5,134**
              **)**
              
              
              (4,480
              )Loans,
                  net
              
              **$**
              **371,243**
              
              
              $
              330,526
 
 **Nonaccrual,
        Past Due and Restructured Loans***.*The following table presents
        various categories of nonaccrual, past due and restructured loans in the
        Banks’
loan portfolios as of September 30, 2007 and December 31, 2006:
 
 **September
                  30,**
              
              
              December
                  31,**(Dollars
                  in thousands)**
              
              **2007**
              
              
              2006Nonaccrual
                  loans
              
              **$**
              **196**
              
              
              $
              479Loans
                  past due 90 days or more and still accruing
              
              **$**
              **778**
              
              
              $
              1,015Loans
                  restructured under troubled debt
              
              **$**
              **-**
              
              
              $
              -
 
 Nonaccrual
        loans increased $18,000 during the quarter ended September 30, 2007 increasing
        from $178,000 to $196,000.  Nonaccrual loans at September 30, 2007
        include $174,000 in loans secured by first mortgage loans on single family
        dwellings.  The largest of these loans was $42,000.  The
        Company believes that there is limited risk of loss for the nonaccrual loans
        secured by single family dwellings.  In total, the Company has
        recorded a valuation allowance of $29,000 related to nonaccrual loans at
        September 30, 2007.
  14
 ***Index***
  Information
        regarding impaired loans as of September 30, 2007 and December 31, 2006 are
        as
        follows:
 
 **September
                  30,**
              
              
              December
                  31,**(Dollars
                  in thousands)**
              
              **2007**
              
              
              2006Impaired
                  loans without a valuation allowance
              
              $
              -
              
              
              $
              -Impaired
                  loans with a valuation allowance
              
              
              196
              
              
              
              479Total
                  impaired loans
              
              $
              196
              
              
              $
              479Valuation
                  allowance related to impaired loans
              
              $
              29
              
              
              $
              38Average
                  investment in impaired loans
              
              $
              226
              
              
              $
              614
 
 
 **Summary
        of Loan Loss Experience.****An analysis of SouthCrest’s loan
        loss experience is included in the following table for the periods ended
        September 30, 2007 and 2006:
 
 **Analysis
                  of Allowance for Loan Losses****For
                  The Three and Nine Months Ended September 30,
                  2007****(Dollars
                  in thousands)**
              
              **Three
                  Months**
              
              
              **Nine
                  Months****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Balance
                  at beginning of period
              
              $
              4,674
              
              
              $
              3,759
              
              
              $
              4,480
              
              
              $
              3,477ChargeoffsCommercial
                  loans
              
              
              25
              
              
              
              34
              
              
              
              72
              
              
              
              34Real
                  estate - construction
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Real
                  estate - mortgage
              
              
              41
              
              
              
              78
              
              
              
              41
              
              
              
              79Consumer
              
              
              158
              
              
              
              132
              
              
              
              397
              
              
              
              275Other
              
              
              32
              
              
              
              50
              
              
              
              90
              
              
              
              109Total
                  Chargeoffs
              
              
              256
              
              
              
              294
              
              
              
              600
              
              
              
              497RecoveriesCommercial
                  loans
              
              
              1
              
              
              
              -
              
              
              
              27
              
              
              
              -Real
                  estate - construction
              
              
              40
              
              
              
              -
              
              
              
              40
              
              
              
              5Real
                  estate - mortgage
              
              
              8
              
              
              
              2
              
              
              
              12
              
              
              
              6Consumer
              
              
              101
              
              
              
              69
              
              
              
              334
              
              
              
              241Other
              
              
              10
              
              
              
              15
              
              
              
              59
              
              
              
              78Total
                  recoveries
              
              
              160
              
              
              
              86
              
              
              
              472
              
              
              
              330Net
                  (chargeoffs) recoveries
              
              
              (96
              )
              
              
              (208
              )
              
              
              (128
              )
              
              
              (167
              )Additions
                  charged to operations
              
              
              212
              
              
              
              267
              
              
              
              438
              
              
              
              508Additions
                  to reserves resulting from business combination
              
              
              344
              
              
              
              -
              
              
              
              344
              
              
              
              -Balance
                  at end of period
              
              $
              5,134
              
              
              $
              3,818
              
              
              $
              5,134
              
              
              $
              3,818Annualized
                  ratio of net chargeoffs (recoveries)  during the period to
                  average loans outstanding during the period
              
              
              0.10
              %
              
              
              0.28
              %
              
              
              0.05
              %
              
              
              0.08
              %
 
 **Allowance
        for Loan Losses.**The allowance for loan losses as of
        September 30, 2007 was $5,134,000 compared to $4,480,000 at December 31,
        2006 and $3,818,000 at September 30, 2006.  Of the $1,316,000 increase
        in the allowance since September 30, 2006, $987,000 relates to addition to
        the
        allowance attributable to the acquisitions of Peachtree and Chickamauga,
        with
        $643,000 relating to the acquisition of Peachtree in the fourth quarter of
        2006
        and $344,000 relating to the acquisition of Chickamauga in the third quarter
        of
        2007.  As a percentage of gross loans, the allowance for loan losses
        was 1.36% at September 30, 2007 compared to 1.34% as of December 31, 2006
        and 1.27% at September 30, 2006. The provision for loan losses during the
        nine-month period ended September 30, 2007 of $438,000 was the result of
        management's assessment of risks inherent in the loan
        portfolio.  Management’s estimate of the allowance for loan losses
        utilizes a loan grading system to assign a risk grade to each loan based
        on
        factors such as the quality of collateral securing a loan, the financial
        condition of the borrower and the payment history of each loan.  Based
        on net charge-off history experienced for each category within the loan
        portfolio, as well as general economic factors affecting the lending market,
        management assigns an estimated allowance range for each risk grade within
        each
        of the loan categories.  Management then estimates the required
        allowance, which may also include a portion that is not allocated to a specific
        category of the loan portfolio, but which management deems is necessary based
        on
        the overall risk inherent in the loan portfolio.  The estimation of
        the allowance may change due to fluctuations in the factors noted above as
        well
        as changes in the trends of net charge-offs, past due loans, and general
        economic conditions of the markets served by the Company’s subsidiary
        banks.
  15
 ***Index***
  Management
        considers the allowance for loan losses to be adequate; however, there can
        be no
        assurance that charge-offs in future periods will not exceed the allowance
        for
        loan losses or that additional provisions of the allowance will not be
        required.
 
 **Results
        of Operations For The Three and Nine Months Ended September 30, 2007 and
        2006**
 
 Net
        income for the three-month period ended September 30, 2007 amounted to
        $1,650,000, or $0.42 basic and diluted earnings per share, compared to net
        income of $1,449,000 or $0.41 basic and diluted earnings per share for the
        same
        three-month period in 2006, an increase of $201,000, or 13.9%.  Of
        this increase, approximately $314,000 is attributable to the net earnings
        of
        Peachtree and Chickamauga.  Net income for the nine-month period ended
        September 30, 2007 amounted to $4,854,000, or $1.23 basic and diluted earnings
        per share, compared to net income of $4,281,000 or $1.20 basic and diluted
        earnings per share for the same nine-month period in 2006, an increase of
        $573,000, or 13.4%.  Of this increase, approximately $762,000 is
        attributable to the net earnings of Peachtree and Chickamauga. Results of
        operations for Peachtree and Chickamauga are only included since their
        respective acquisition dates of October 31, 2006 and July 1, 2007.
 
 **Net
        Interest Income***.*Net interest income represents the difference
        between interest received on interest earning assets and interest paid on
        interest bearing liabilities.
 
 Net
        interest income for the three months ended September 30, 2007 increased
        $1,163,000 or 24.5% over the same period in 2006.  The increase in net
        interest income is primarily driven by the increase in the average balances
        in
        earning assets.  This growth accounted for an increase in net interest
        income of $1.2 million and is primarily the result of the acquisitions of
        Peachtree and Chickamauga.  There was growth in the average balance of
        the loan portfolio of $76.0 million during the quarter ended September 30,
        2007
        compared to the same period in 2006.  This growth, along with an
        increase in the average yield on loans from 8.07% in 2006 to 8.41% in 2007,
        resulted in a $1.9 million increase in interest income earned on loans in
        2007
        over 2006.  Increases in the prime interest rate, resulting from
        Federal Reserve increases in the discount rate, contributed to the increase
        in
        the loan yield for the 2007 period compared to 2006.  The increase in
        rates and the growth in the loan portfolio contributed to the 29 basis point
        increase in the average yield on earning assets as loans earn a higher rate
        of
        interest than investment securities and other earning assets.
 
 The
        average cost of funds increased 43 basis points to 3.52% for the three months
        ended September 30, 2007 compared to the same period in 2006.  Since
        2005, the Company has generally funded the growth in its loan portfolio with
        borrowed funds, primarily Federal Home Loan Bank advances, and with certificates
        of deposit.  These sources of funds typically carry higher rates of
        interest than other sources of funds such as checking and money market
        accounts.  In addition, interest rates on these funds have increased
        over last year as a result of increases in the Federal Reserve discount rate,
        and in case of certificates of deposits, competition from other banks for
        such
        funds.  While the Federal Reserve has recently reduced its discount
        rate, average rates paid on these deposits typically lag these rate reductions
        due to the longer term of the accounts.
 
 The
        net
        yield on earning assets declined 9 basis points from 4.46% for the quarter
        ended
        September 30, 2006 to 4.37% for the current year period.  The net
        interest spread decreased from 3.88% in 2006 to 3.74% in 2007.
 
 Excluding
        the impact of Peachtree and Chickamauga, net interest income would have declined
        $78,000 or 1.7%.
 
 The
        following presents, for the three month periods ended September 30, 2007
        and
        2006, the main components of interest earning assets and interest bearing
        liabilities and related interest income and expense and effective yields
        and
        cost of funds.
  16
 ***Index***
 
 Average
                  Consolidated Balance Sheets and Net Interest Income
                  AnalysisFor
                  the Three Month Periods Ended September 30,*(Dollars
                  in thousands)*Average
                  Balances (1)
              
              
              Yields
                  / Rates
              
              
              Income
                  / Expense
              
              
              Increase
              
              
              Change
                  Due to2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              (Decrease)
              
              
              Rate
              
              
              Volume**Assets**Loans,
                  including fee income
              
              $
              369,857
              
              
              $
              293,949
              
              
              
              8.41
              %
              
              
              8.07
              %
              
              $
              7,840
              
              
              $
              5,980
              
              
              $
              1,860
              
              
              $
              261
              
              
              $
              1,599Taxable
                  securities
              
              
              126,625
              
              
              
              110,174
              
              
              
              4.77
              %
              
              
              4.43
              %
              
              
              1,521
              
              
              
              1,229
              
              
              
              292
              
              
              
              99
              
              
              
              193Nontaxable
                  securities
              
              
              24,489
              
              
              
              11,114
              
              
              
              3.90
              %
              
              
              3.71
              %
              
              
              241
              
              
              
              104
              
              
              
              137
              
              
              
              6
              
              
              
              131Federal
                  funds sold
              
              
              8,175
              
              
              
              3,639
              
              
              
              5.87
              %
              
              
              5.45
              %
              
              
              121
              
              
              
              50
              
              
              
              71
              
              
              
              4
              
              
              
              67Interest
                  bearing deposits in banks
              
              
              7,029
              
              
              
              3,117
              
              
              
              5.19
              %
              
              
              5.85
              %
              
              
              92
              
              
              
              46
              
              
              
              46
              
              
              
              (35
              )
              
              
              81Total
                  earning assets
              
              
              536,175
              
              
              
              421,993
              
              
              
              7.26
              %
              
              
              6.97
              %
              
              
              9,815
              
              
              
              7,409
              
              
              
              2,406
              
              
              
              335
              
              
              
              2,071Cash
                  and due from banks
              
              
              15,379
              
              
              
              11,694Allowance
                  for loan losses
              
              
              (5,059
              )
              
              
              (3,793
              )Other
                  assets
              
              
              56,239
              
              
              
              31,729Total
              
              $
              602,734
              
              
              $
              461,623**Liabilities
                  and Equity**Interest
                  bearing demand (2)
              
              $
              133,037
              
              
              $
              112,526
              
              
              
              1.87
              %
              
              
              1.77
              %
              
              $
              628
              
              
              $
              503
              
              
              $
              125
              
              
              $
              30
              
              
              $
              95Savings
              
              
              45,393
              
              
              
              32,440
              
              
              
              0.75
              %
              
              
              0.59
              %
              
              
              86
              
              
              
              48
              
              
              
              38
              
              
              
              15
              
              
              
              23Certificates
                  of deposit
              
              
              246,868
              
              
              
              183,588
              
              
              
              4.77
              %
              
              
              4.17
              %
              
              
              2,968
              
              
              
              1,931
              
              
              
              1,037
              
              
              
              305
              
              
              
              732Total
                  interest bearing deposits
              
              
              425,298
              
              
              
              328,554
              
              
              
              3.43
              %
              
              
              3.00
              %
              
              
              3,682
              
              
              
              2,482
              
              
              
              1,200
              
              
              
              350
              
              
              
              850Borrowed
                  funds
              
              
              15,614
              
              
              
              14,128
              
              
              
              5.82
              %
              
              
              5.22
              %
              
              
              229
              
              
              
              186
              
              
              
              43
              
              
              
              22
              
              
              
              21Total
                  interest bearing liabilities
              
              
              440,912
              
              
              
              342,682
              
              
              
              3.52
              %
              
              
              3.09
              %
              
              
              3,911
              
              
              
              2,668
              
              
              
              1,243
              
              
              
              372
              
              
              
              871Noninterest
                  bearing demand deposits
              
              
              81,835
              
              
              
              58,914Other
                  liabilities
              
              
              281
              
              
              
              3,020Redeemable
                  common stock held by ESOP
              
              
              1,062
              
              
              
              1,038Shareholders'
                  equity
              
              
              78,644
              
              
              
              55,969Total
              
              $
              602,734
              
              
              $
              461,623Net
                  interest income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              5,904
              
              
              $
              4,741
              
              
              $
              1,163
              
              
              $
              (37
              )
              
              $
              1,200Net
                  interest yield on earning assets
              
              
              
              
              
              
              
              
              
              
              4.37
              %
              
              
              4.46
              %Net
                  interest spread
              
              
              
              
              
              
              
              
              
              
              3.74
              %
              
              
              3.88
              %(1) Daily
                  averages. Loans include nonaccrual loans.(2) Includes
                  money market accounts
  17
 ***Index***
  The
        following presents, for the nine month periods ended September 30, 2007 and
        2006, the main components of interest earning assets and interest bearing
        liabilities and related interest income and expense and effective yields
        and
        cost of funds.
 
 Average
                  Consolidated Balance Sheets and Net Interest Income
                  AnalysisFor
                  the Nine Month Periods Ended September 30,*(Dollars
                  in thousands)*Average
                  Balances (1)
              
              
              Yields
                  / Rates
              
              
              Income
                  / Expense
              
              
              Increase
              
              
              Change
                  Due to2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              (Decrease)
              
              
              Rate
              
              
              Volume**Assets**Loans,
                  including fee income
              
              $
              345,621
              
              
              $
              284,307
              
              
              
              8.38
              %
              
              
              7.85
              %
              
              $
              21,654
              
              
              $
              16,695
              
              
              $
              4,959
              
              
              $
              1,182
              
              
              $
              3,777Taxable
                  securities
              
              
              118,541
              
              
              
              111,866
              
              
              
              4.73
              %
              
              
              4.40
              %
              
              
              4,190
              
              
              
              3,678
              
              
              
              512
              
              
              
              285
              
              
              
              227Nontaxable
                  securities
              
              
              20,342
              
              
              
              11,468
              
              
              
              3.90
              %
              
              
              3.85
              %
              
              
              594
              
              
              
              330
              
              
              
              264
              
              
              
              5
              
              
              
              259Federal
                  funds sold
              
              
              8,903
              
              
              
              5,927
              
              
              
              5.27
              %
              
              
              5.35
              %
              
              
              351
              
              
              
              237
              
              
              
              114
              
              
              
              (6
              )
              
              
              120Interest
                  bearing deposits in banks
              
              
              5,748
              
              
              
              3,451
              
              
              
              6.16
              %
              
              
              5.19
              %
              
              
              265
              
              
              
              134
              
              
              
              131
              
              
              
              28
              
              
              
              103Total
                  earning assets
              
              
              499,155
              
              
              
              417,019
              
              
              
              7.25
              %
              
              
              6.76
              %
              
              
              27,054
              
              
              
              21,074
              
              
              
              5,980
              
              
              
              1,494
              
              
              
              4,486Cash
                  and due from banks
              
              
              13,880
              
              
              
              11,844Allowance
                  for loan losses
              
              
              (4,772
              )
              
              
              (3,679
              )Other
                  assets
              
              
              51,069
              
              
              
              29,663Total
              
              $
              559,332
              
              
              $
              454,847**Liabilities
                  and Equity**Interest
                  bearing demand (2)
              
              $
              129,212
              
              
              $
              112,579
              
              
              
              1.85
              %
              
              
              1.60
              %
              
              $
              1,788
              
              
              $
              1,348
              
              
              $
              440
              
              
              $
              226
              
              
              $
              214Savings
              
              
              39,192
              
              
              
              34,447
              
              
              
              0.72
              %
              
              
              0.59
              %
              
              
              212
              
              
              
              151
              
              
              
              61
              
              
              
              38
              
              
              
              23Certificates
                  of deposit
              
              
              223,851
              
              
              
              175,638
              
              
              
              4.72
              %
              
              
              3.90
              %
              
              
              7,900
              
              
              
              5,122
              
              
              
              2,778
              
              
              
              1,205
              
              
              
              1,573Total
                  interest bearing deposits
              
              
              392,255
              
              
              
              322,664
              
              
              
              3.37
              %
              
              
              2.74
              %
              
              
              9,900
              
              
              
              6,621
              
              
              
              3,279
              
              
              
              1,469
              
              
              
              1,810Borrowed
                  funds
              
              
              9,651
              
              
              
              13,496
              
              
              
              5.75
              %
              
              
              5.02
              %
              
              
              415
              
              
              
              507
              
              
              
              (92
              )
              
              
              100
              
              
              
              (192
              )Total
                  interest bearing liabilities
              
              
              401,906
              
              
              
              336,160
              
              
              
              3.43
              %
              
              
              2.83
              %
              
              
              10,315
              
              
              
              7,128
              
              
              
              3,187
              
              
              
              1,569
              
              
              
              1,618Noninterest
                  bearing demand deposits
              
              
              79,521
              
              
              
              60,521Other
                  liabilities
              
              
              5,011
              
              
              
              2,263Redeemable
                  common stock held by ESOP
              
              
              1,054
              
              
              
              1,012Shareholders'
                  equity
              
              
              71,840
              
              
              
              54,891Total
              
              $
              559,332
              
              
              $
              454,847Net
                  interest income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              16,739
              
              
              $
              13,946
              
              
              $
              2,793
              
              
              $
              (75
              )
              
              $
              2,868Net
                  interest yield on earning assets
              
              
              
              
              
              
              
              4.48
              %
              
              
              4.47
              %Net
                  interest spread
              
              
              
              
              
              
              
              
              
              
              3.82
              %
              
              
              3.93
              %(1) Daily
                  averages. Loans includes nonaccrual loans.(2) Includes
                  money market accounts
 
 Net
        interest income for the nine months ended September 30, 2007 increased $2.8
        million or 20.0% over the same period in 2006.  Excluding the impact
        of Peachtree and Chickamauga, net interest income would have increased $278,000
        or 2.0%.  The primary reason for the increase in net interest income
        is the growth in the average balance of the loan portfolio of $62.0 million
        during the period ended September 30, 2007 compared to the same period in
        2006.  This growth, along with an increase in the average yield on
        loans from 7.85% in 2006 to 8.38% in 2007, resulted in a $5.0 million increase
        in interest income earned on loans in 2007 over 2006.  Increases in
        the prime interest rate, resulting from Federal Reserve increases in the
        discount rate, contributed to the increase in the loan yield for the 2007
        period
        compared to 2006.  The average yield on earning assets increased 49
        basis points to 7.25%.
  18
 ***Index***
  The
        average cost of funds increased 60 basis points to 3.43% for the nine months
        ended September 30, 2007 compared to the same period in 2006.  Since
        2005, the Company has generally funded the growth in its loan portfolio with
        borrowed funds, primarily Federal Home Loan Bank advances, and with certificates
        of deposit.  These sources of funds typically carry higher rates of
        interest than other sources of funds such as checking and money market
        accounts.  In addition, interest rates on these funds have increased
        over last year as a result of increases in the Federal Reserve discount rate,
        and in case of certificates of deposits, competition from other banks for
        such
        funds.
 
 These
        changes resulted in the net yield on earning assets increasing one basis
        point
        from 4.47% for the nine months ended September 30, 2006 to 4.48% for the
        current
        year period.  The net interest spread decreased from 3.93% in 2006 to
        3.82% in 2007.
 
 **Other
        Income***.*Total other income for the three-month period ended
        September 30, 2007 amounted to $1,749,000, compared to $1,337,000 for the
        same
        period in 2006, an increase of $412,000.  The addition of Peachtree
        and Chickamauga accounted for $254,000 of this increase.  Other income
        for the nine-month period ended September 30, 2007 amounted to $4,801,000,
        compared to $3,902,000 for the same period in 2006, an increase of
        $899,000.  The addition of Peachtree and Chickamauga accounted for
        $633,000 of this increase.
 
 For
        the
        three month period, service charges on deposit accounts declined $28,000
        excluding the impact of Peachtree and Chickamauga due to a $38,000 reduction
        in
        NSF fees earned.  For the nine month period, service charges on
        deposit accounts declined $243,000 exclusive of acquisitions due to a $251,000
        reduction in NSF fees earned.  In general, NSF fees have declined as a
        result of the implementation of required consumer disclosures regarding these
        fees.  For the three month periods ended September 30, 2007 other
        service charges and fees increased $26,000 exclusive of acquisitions and
        results
        primarily from a $22,000 increase in fees earned from brokerage services
        and a
        $8,000 increase in debit card fees.  For the nine month period, other
        service charges and fees increased $113,000 exclusive of acquisitions and
        results primarily from a $48,000 increase in debit card fees, the result
        of
        increased usage by the banks’ customers, a $50,000 increase in brokerage
        services, and a $18,000 increase in ATM fees.
 
 For
        the
        three months ended September 30, 2007, net gain on sale of loans increased
        $22,000 exclusive of acquisitions due to recognition of mortgage servicing
        rights, net of amortization, of $20,000 in the current year.  For the
        nine month period, net gain on sale of loans exclusive of acquisitions increased
        $112,000 due to recognition of mortgage servicing rights net of amortization
        of
        $111,000.   The following presents the activity in the Company’s
        mortgage servicing rights in 2007:
 
 **Three**
              
              
              **Nine****(dollars
                  in thousands)**
              
              **Months**
              
              
              **Months**Beginning
                  balance
              
              $
              466
              
              
              $
              375Servicing
                  rights recognized
              
              
              60
              
              
              
              202Amortization
              
              
              (40
              )
              
              
              (91
              )Ending
                  balance
              
              $
              486
              
              
              $
              486
 
 Exclusive
        of acquisitions, income recognized on bank-owned life insurance increased
        $6,000
        for the three months ended September 30, 2007 and $133,000 for the nine month
        period.  The higher income earned in 2007 results from insurance
        contracts purchased in the third and fourth quarters of
        2006.  Excluding acquisitions, other income increased $14,000 for the
        three month period and $35,000 for the nine month period.
 
 **Other
        Expenses.**  Other expenses for the three-month period ended
        September 30, 2007 amounted to $5,081,000 compared to $3,656,000 for the
        same
        period in 2006, an increase of $1,425,000 or 39.0%.  Excluding the
        impact of acquisitions, these expenses increased $390,000 or
        10.7%.  For the nine months ended September 30, 2007, other expenses
        increased $1,035,000 exclusive of acquisitions, or 9.4%.
 
 The
        largest component of other expenses is salaries and employee benefits, which
        excluding the impact of acquisitions increased $348,000 for the three month
        period and $813,000 for the nine month period.  The significant causes
        of this increase include an increase in salaries of $175,000 (including cost
        of
        living and merit increases as well as costs attributable to new hires), a
        $54,000 increase in employee benefits, and an increase in incentive expense
        of
        $93,000.  For the nine month period, the increase in cost is
        attributable to increased salaries of $473,000 in higher incentive expense
        of
        $219,000.
 The
        compensation cost that was charged against income for our stock option plans
        was
        $26,000 and $24,000 for the three months ended September 30, 2007 and 2006,
        respectively, and $79,000 and $71,000 for the nine month periods ended September
        30, 2007 and 2006.  The total compensation cost related to nonvested
        awards not yet recognized at June 30, 2007 is $354,000 which will be recognized
        over the weighted average period of approximately 3.4 years.  See
“Note 3 – Stock Compensation Plans” in the notes to condensed consolidated
        financial statements for further information.
  19
 ***Index***
  For
        the
        three month period ended September 30, 2007, amortization of intangibles
        increased $48,000.  Amortization of the core deposit intangible
        recorded in conjunction with the acquisitions of Peachtree and Chickamauga
        amounted to $55,000 for the quarter.  For the nine month period,
        amortization expense increased $81,000 of which $121,000 relates to Peachtree
        and Chickamauga.  Occupancy expenses increased $133,000 for the
        quarter of which $91,000 relates to Peachtree and
        Chickamauga.  Excluding the impact of acquisitions, occupancy expenses
        increased $42,000 for the three-month period which includes $37,000 of higher
        depreciation costs, due primarily to depreciation recorded in 2007 associated
        with the renovation of the main office of Bank of Upson which was still under
        construction during 2006.  For the nine month period, occupancy
        expenses increased $329,000, or $146,000 exclusive of acquisitions, which
        includes $119,000 in higher depreciation costs.  Other operating
        expenses increased $323,000 for the three months of which $316,000 relates
        to
        Peachtree and Chickamauga.  For the nine month period, other operating
        expenses increased $771,000 or $116,000 excluding the impact of Peachtree
        and
        Chickamauga.
 
 **Income
        Taxes.**  The Company recorded income taxes totaling $710,000
        and $706,000 for the three-month periods ending September 30, 2007 and 2006,
        respectively.  Effective tax rates for the periods were 30.1% and
        32.8%, respectively.  For the nine months ended September 30, 2007 and
        2006, income taxes totaled $2,174,000 and $2,087,000,
        respectively.  Effective tax rates were 30.9% and 32.8%,
        respectively.  Tax-exempt interest income and income on bank-owned
        life insurance are the primary reasons that the Company’s effective tax rates
        are less than the statutory tax rate of 34%.
  **Liquidity
        and Capital Resources**
  Liquidity
        is our ability to meet deposit withdrawals immediately while also providing
        for
        the credit needs of our customers.  We monitor our liquidity resources
        on an ongoing basis. State and Federal regulatory authorities also monitor
        our
        liquidity on a periodic basis. As of September 30, 2007, we believe our
        liquidity, as determined under guidelines established by regulatory authorities
        and internal policies, was satisfactory.
 
 If
        needed, our banks have the ability on a short-term basis to borrow and purchase
        federal funds from other financial institutions.  At September 30,
        2007, the banks had available additional federal funds lines of credit totaling
        $23.2 million in place with five banks and  $44.1 million of available
        funds on their lines of credit with the Federal Home Loan Bank of
        Atlanta.
 
 At
        September 30, 2007, our capital ratios were adequate based on regulatory
        minimum
        capital requirements. The minimum capital requirements and the actual capital
        ratios on a consolidated and bank-only basis are as follows:
 
 **Tier
                  1**
              
              
              **Tier
                  1 Risk-**
              
              
              **Total
                  Risk-****Leverage**
              
              
              **Based**
              
              
              **Based****Minimum
                  required**
              
              ****
              **4.00**
              **%**
              
              ****
              **4.00**
              **%**
              
              ****
              **8.00**
              **%****Minimum
                  required to be well capitalized**
              
              ****
              **5.00**
              **%**
              
              ****
              **6.00**
              **%**
              
              ****
              **10.00**
              **%**Actual
                  ratios at September 30, 2007Consolidated
              
              
              9.26
              %
              
              
              13.14
              %
              
              
              14.39
              %Bank
                  of Upson
              
              
              9.80
              %
              
              
              12.92
              %
              
              
              14.13
              %The
                  First National Bank of Polk County
              
              
              11.48
              %
              
              
              17.14
              %
              
              
              18.39
              %Peachtree
                  Bank
              
              
              9.14
              %
              
              
              12.89
              %
              
              
              14.12
              %Bank
                  of Chickamauga
              
              
              7.42
              %
              
              
              13.11
              %
              
              
              14.36
              %
  Capital
        ratios may decline as asset growth continues, but are expected to continue
        to
        exceed minimum regulatory requirements.
 
 Other
        than the items described above, we are not aware of any trends, demands,
        commitments, events or uncertainties that will result, or are reasonably
        likely
        to result, in our liquidity increasing or decreasing in any material
        way.
  **Off-Balance-Sheet
        Financing**
 
 Our
        financial statements do not reflect various commitments and contingent
        liabilities that arise in the normal course of business. These off-balance-sheet
        financial instruments include commitments to extend credit and standby letters
        of credit. These financial instruments are included in the financial statements
        when funds are distributed or the instruments become payable. We use the
        same
        credit policies in making commitments as we do for on-balance ­sheet
        instruments. Our exposure to credit loss in the event of nonperformance by
        the
        other party to the financial instruments for commitments to extend credit,
        standby letters of credit and credit card commitments is represented by the
        contractual amount of those instruments. The table below contains a summary
        of
        our contractual obligations and commitments as of September 30,
        2007.
  20
 ***Index***
 
 **Commitments
                  and Contractual Obligations****(Dollars
                  in thousands)****Less
                  than****one
                  year**
              
              
              **1-3
                  years**
              
              
              **3-5
                  years**
              
              
              **Thereafter**
              
              
              **Total**Contractual
                  obligationsDeposits
                  having no stated maturity
              
              $
              256,896
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              256,896Certificates
                  of Deposit
              
              
              210,520
              
              
              
              32,373
              
              
              
              12,242
              
              
              
              -
              
              
              
              255,135Federal
                  funds purchased
              
              
              772
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              772FHLB
                  advances andother
                  borrowed funds
              
              
              5,555
              
              
              
              5,956
              
              
              
              956
              
              
              
              2,868
              
              
              
              15,335Deferred
                  compensation
              
              
              23
              
              
              
              86
              
              
              
              356
              
              
              
              18,494
              
              
              
              18,959Leases
              
              
              114
              
              
              
              226
              
              
              
              158
              
              
              
              335
              
              
              
              833Total
                  contractal obligations
              
              $
              473,880
              
              
              $
              38,641
              
              
              $
              13,712
              
              
              $
              21,697
              
              
              $
              547,930CommitmentsCommitments
                  to extend credit
              
              $
              35,228
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              35,228Credit
                  card commitments
              
              
              9,141
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              9,141Commercial
                  standby letters of credit
              
              
              930
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              930Total
                  commitments
              
              $
              45,299
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              45,299
  21
 ***Index***
  **ITEM
        3.  Quantitative and Qualitative Disclosures about Market Risk**
 
 Market
        risk is the potential economic loss resulting from changes in market prices
        and
        interest rates. This risk can either result in diminished current fair values
        of
        financial instruments or reduced net interest income in future periods. While
        its balance sheet has changed as a result of the Chickamauga acquisition,
        Management believes that as of September 30, 2007, SouthCrest’s market risk
        profile has not changed significantly from December 31, 2006. Changes in
        fair
        value that result from movement in market rates cannot be predicted with
        any
        degree of certainty. Therefore, the impact that future changes in market
        rates
        will have on the fair values of financial instruments is uncertain.
 
 **ITEM
        4. Controls and Procedures**
 
 As
        of the
        end of the period covered by this Quarterly Report on Form 10-Q, our principal
        executive officer and principal financial officer have evaluated the
        effectiveness of our “disclosure controls and procedures” (“Disclosure
        Controls”).  Disclosure Controls, as defined in Rule 13a-15(e) of the
        Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures
        that are designed with the objective of ensuring that information required
        to be
        disclosed in our reports filed under the Exchange Act, such as this Quarterly
        Report, is recorded, processed, summarized and reported within the time periods
        specified in the Securities and Exchange Commission’s rules and
        forms.  Disclosure Controls are also designed with the objective of
        ensuring that such information is accumulated and communicated to our
        management, including the CEO and CFO, as appropriate to allow timely decisions
        regarding required disclosure.
 
 Our
        management, including the CEO and CFO, does not expect that our Disclosure
        Controls will prevent all error and all fraud.  A control system, no
        matter how well conceived and operated, can provide only reasonable, not
        absolute, assurance that the objectives of the control system are
        met.  Further, the design of a control system must reflect the fact
        that there are resource constraints, and the benefits of controls must be
        considered relative to their costs.  Because of the inherent
        limitations in all control systems, no evaluation of controls can provide
        absolute assurance that all control issues and instances of fraud, if any,
        within the company have been detected.  These inherent limitations
        include the realities that judgments in decision-making can be faulty, and
        that
        breakdowns can occur because of simple error or mistake.  The design
        of any system of controls also is based in part upon certain assumptions
        about
        the likelihood of future events, and there can be no assurance that any design
        will succeed in achieving its stated goals under all potential future
        conditions.
 
 Based
        upon their controls evaluation, our CEO and CFO have concluded that our
        Disclosure Controls are effective at a reasonable assurance level.
 
 There
        have been no changes in our internal controls over financial reporting during
        our third fiscal quarter that have materially affected, or are reasonably
        likely
        to materially affect, our internal control over financial
        reporting.
  
 **PART
        II - OTHER INFORMATION**
 
 **Item
                  1.**
              **Legal
                  Proceedings**
 
 The
        Company and its subsidiaries are subject to claims and suits arising in the
        ordinary course of business.  In the opinion of management, the
        ultimate resolution of these pending claims and legal proceedings will not
        have
        a material adverse effect on the Company’s results of operations.
 
 **Item
                  1A.**
              **Risk
                  Factors**
 
 As
        disclosed in Note 7 of the Notes to Condensed Consolidated Financial Statements,
        on October 31, 2006 SouthCrest completed its acquisition of Maplesville Bancorp,
        the parent of Peachtree Bank, and on July 1, 2007 it completed its acquisition
        of Bank of Chickamauga (collectively “the acquired banks” or “the
        acquisitions”).  If SouthCrest does not successfully integrate the
        acquired banks into its business, SouthCrest may not realize the expected
        benefits from its acquisitions.    SouthCrest may encounter
        unforeseen expenses, as well as difficulties and complications in integrating
        the operations of the acquired banks with its overall
        operations.  SouthCrest expects that it be able to maintain most of
        the acquired banks’ key customers and personnel and integrate their operating
        systems and procedures with those of SouthCrest with a minimal amount of
        costs
        and diversion of management time and attention.  If SouthCrest is
        unable to integrate the acquired banks in a timely manner or experiences
        disruptions with their customer relationships, the anticipated benefits of
        the
        acquisitions may not be realized and SouthCrest’s results of operations may be
        adversely affected.
  22
 ***Index***
  In
        addition to the other information set forth in this report, you should carefully
        consider the factors discussed in Part I, "Item 1. Business" under the heading
        "Risk Factors" in our Annual Report on Form 10-K for the year ended December
        31,
        2006, which could materially affect our business, financial condition or
        future
        results.  The risks described in our Annual Report on Form 10-K are
        not the only risks facing our Company.  Additional risks and
        uncertainties not currently known to us or that we currently deem to be
        immaterial also may materially adversely affect our business, financial
        condition and/or operating results.
 
 
 **Item
                  2.**
              **Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds**
 
 The
        purchases shown below were made by the SouthCrest Financial Group, Inc. Employee
        Stock Ownership Plan whose trustees are executive officers of the
        Company.  The transactions were open market transactions.
 
 Total
                  Number of Shares Purchased
              
              
              Average
                  Price Paid Per Share
              
              
              Total
                  Number of Shares Purchased as Part of Publicly Announced Plans
                  or
                  Programs
              
              
              Maximum
                  Number of Shares that May Yet Be Purchased Under the Plans or
                  ProgramsJanuary
                  1 - 31
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              
              -February
                  1 - 28
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              
              -March
                  1 - 31
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              
              -April
                  1 - 30
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              
              -May
                  1 - 31
              
              
              1,422
              
              
              $
              22.00
              
              
              
              -
              
              
              
              -June
                  1 - 30
              
              
              479
              
              
              $
              24.00
              
              
              
              -
              
              
              
              -July
                  1 - 31
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              
              -August
                  1 - 31
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              
              -September
                  1 - 30
              
              
              6,500
              
              
              $
              22.23
              
              
              
              -
              
              
              
              -
 
 
 **Item
                  3.**
              **Defaults
                  upon Senior Securities**
 
 None.
 
 **Item
                  4.**
              **Submission
                  of Matters to a Vote of Security Holders**
 
 None.
 
 **Item
                  5.**
              **Other
                  Information**
 
 None.
 
 **Item
                  6.**
              **Exhibits**
 
 Exhibits
 
 Exhibit
                  No. 31.1
              Chief
                  Executive Officer Certification Pursuant to Rule
                  13a-14(a)/15d-14(a)
 
 Exhibit
                  No. 31.2
              Chief
                  Financial Officer Certification Pursuant to Rule
                  13a-14(a)/15d-14(a)
 
 Exhibit
                  No. 32.1
              Chief
                  Executive Officer Certification Pursuant to 18 U.S.C. Section 1350,
                  as
                  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002
 
 Exhibit
                  No. 32.2
              Chief
                  Financial Officer Certification Pursuant to 18 U.S.C. Section 1350,
                  as
                  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002
  23
 ***Index***
  **SIGNATURES**
  In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
  SOUTHCREST
        FINANCIAL GROUP, INC.
 (Registrant)
 
  DATE:  November
                  14, 2007
              
              BY:
              
              /s/
                  Larry T. KuglarLarry T. Kuglar.President
                  and Chief Executive OfficerDATE:  November
                  14, 2007
              
              BY:
              
              /s/
                  Douglas J. HerthaDouglas J. HerthaSenior
                  Vice President, Chief Financial
                  Officer
   24