**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 March 31, 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
                  Filerx
 
 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 May 10, 2007: 3,952,328.
 
 
 
  **SOUTHCREST
        FINANCIAL GROUP, INC.**
 **AND
        SUBSIDIARIES** ****
 
 **INDEX**
  PagePart
                  I.
              FINANCIAL
                  INFORMATIONItem
                  1.
              Condensed
                  Consolidated Financial StatementsCondensed
                  Consolidated Balance Sheets - March 31, 2007 and
                  December 31, 2006
              1Condensed
                  Consolidated Statements of Income - Three Months
                  Ended March 31, 2007 and 2006
              2Condensed
                  Consolidated Statements of Comprehensive Income -
                  Three Months Ended March 31, 2007 and 2006
              3Condensed
                  Consolidated Statements of Stockholders' Equity -
                  Three Months Ended March 31, 2007
              4Condensed
                  Consolidated Statements of Cash Flows - Three Months
                  Ended March 31, 2007 and 2006
              5Notes
                  to Condensed Consolidated Financial
                  Statements
              7Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and
                  Results of Operations
              12Item
                  3.
              Quantitative
                  and Qualitative Disclosures about Market
                  Risk
              19Item
                  4.
              Controls
                  and Procedures
              19Part
                  II.
              OTHER
                  INFORMATION
              19Item
                  1.
              Legal
                  Proceedings
              19Item
                  1A.
              Risk
                  factors.
              19Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              20Item
                  3.
              Defaults
                  Upon Senior Securities
              20Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              20Item
                  5.
              Other
                  Information
              20Item
                  6.
              Exhibits
              20Signatures
              21
 
 *Index*
  **PART
        I - FINANCIAL INFORMATION**
 **ITEM
        1. FINANCIAL STATEMENTS**
 
 **SouthCrest
        Financial Group, Inc. and
        Subsidiaries**
 **Condensed
        Consolidated Balance Sheets**
 **March
        31, 2007 and December 31, 2006**
 **(Unaudited)**
 **(In
        thousands, except share and per share data)**
  **Assets**
              
              **March
                  31,**
                **2007**
              
              December
                  31,
                2006*Cash
                  and due from banks
              
              **$**
              **14,504**
              
              $
              16,926Interest-bearing
                  deposits at other financial institutions
              
              
              **5,050**
              
              
              4,881Federal
                  funds sold
              
              
              **10,898**
              
              
              12,504Securities
                  available for sale
              
              
              **65,349**
              
              
              61,519Securities
                  held to maturity (fair value $64,800 and $66,036)
              
              
              **65,758**
              
              
              67,268Restricted
                  equity securities, at cost
              
              
              **1,981**
              
              
              2,029Loans
                  held for sale
              
              
              **284**
              
              
              446Loans,
                  net of unearned income
              
              
              **332,170**
              
              
              335,006Less
                  allowance for loan losses
              
              
              **4,667**
              
              
              4,480Loans,
                  net
              
              
              **327,503**
              
              
              330,526Bank-owned
                  life insurance
              
              
              **12,648**
              
              
              12,521Premises
                  and equipment, net
              
              
              **15,741**
              
              
              15,324Goodwill
              
              
              **9,057**
              
              
              9,057Intangible
                  assets, net
              
              
              **4,273**
              
              
              4,493Other
                  assets
              
              
              **7,139**
              
              
              6,523**Total
                  assets**
              
              **$**
              **540,185**
              
              $
              544,017**Liabilities,
                  Redeemable Common Stock, and Stockholders'
                  Equity**Liabilities:Deposits:Noninterest-bearing
              
              **$**
              **79,318**
              
              $
              80,581Interest-bearing
              
              
              **374,418**
              
              
              382,041Total
                  deposits
              
              
              **453,736**
              
              
              462,622Federal
                  Home Loan Bank advances
              
              
              **5,110**
              
              
              5,165Federal
                  funds purchased
              
              
              **2,910**
              
              
              **-**Note
                  payable
              
              
              **780**
              
              
              780Other
                  liabilities
              
              
              **7,882**
              
              
              6,907**Total
                  liabilities**
              
              
              **470,418**
              
              
              475,474Commitments
                  and contingenciesRedeemable
                  common stock held by ESOP
              
              
              **1,010**
              
              
              988Stockholders'
                  equity:Common
                  stock, par value $1; 10,000,000 shares authorized, 3,952,328
                  issued
              
              
              **3,952**
              
              
              3,952Additional
                  paid-in capital
              
              
              **50,061**
              
              
              50,034Retained
                  earnings
              
              
              **14,810**
              
              
              13,740Accumulated
                  other comprehensive loss
              
              
              **(66**
              **)**
              
              (171
              )**Total
                  stockholders' equity**
              
              
              **68,757**
              
              
              67,555**Total
                  liabilities, redeemable common stock, and stockholders'
                  equity**
              
              **$**
              **540,185**
              
              $
              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 Months Ended March 31, 2007 and 2006**
 **(Unaudited)**
 **(In
        thousands, except share and per share data)**
 
 **2007**
              
              2006**Interest
                  income:**Loans
              
              **$**
              **6,829**
              
              $
              5,191Securities
                  - taxable
              
              
              **1,317**
              
              
              1,225Securities
                  - nontaxable
              
              
              **178**
              
              
              115Federal
                  funds sold
              
              
              **148**
              
              
              101Interest-bearing
                  deposits at other banks
              
              
              **83**
              
              
              38**Total
                  interest income**
              
              
              **8,555**
              
              
              6,670**Interest
                  expense:**Deposits
              
              
              **3,091**
              
              
              1,909Other
                  borrowings
              
              
              **96**
              
              
              180**Total
                  interest expense**
              
              
              **3,187**
              
              
              2,089**Net
                  interest income**
              
              
              **5,368**
              
              
              4,581**Provision
                  for loan losses**
              
              
              **149**
              
              
              108**Net
                  interest income after provision for loan losses**
              
              
              **5,219**
              
              
              4,473**Other
                  income:**Service
                  charges on deposit accounts
              
              
              **815**
              
              
              792Other
                  service charges and fees
              
              
              **272**
              
              
              245Net
                  gain on sale of loans
              
              
              **104**
              
              
              34Income
                  on bank-owned life insurance
              
              
              **127**
              
              
              34Other
                  operating income
              
              
              **137**
              
              
              125**Total
                  other income**
              
              
              **1,455**
              
              
              1,230**Other
                  expenses:**Salaries
                  and employee benefits
              
              
              **2,415**
              
              
              1,942Equipment
                  and occupancy expenses
              
              
              **467**
              
              
              380Amortization
                  of intangibles
              
              
              **220**
              
              
              206Other
                  operating expenses
              
              
              **1,231**
              
              
              1,079**Total
                  other expenses**
              
              
              **4,333**
              
              
              3,607**Income
                  before income taxes**
              
              
              **2,341**
              
              
              2,096**Income
                  tax expense**
              
              
              **736**
              
              
              690**Net
                  income**
              
              **$**
              **1,605**
              
              $
              1,406**Basic
                  and diluted earnings per share**
              
              **$**
              **0.41**
              
              $
              0.39**Dividends
                  per share**
              
              **$**
              **0.130**
              
              $
              0.125**Average
                  shares outstanding - basic and diluted**
              
              
              **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 Months Ended March 31, 2007 and 2006**
 **(Unaudited)**
 **(In
        thousands)**
 **2007**
              
              2006**Net
                  income**
              
              **$**
              **1,605**
              
              $
              1,406**Other
                  comprehensive income:**Unrealized
                  holding gains on securities available for sale arising during the
                  period,
                  net of taxes of $65 and $17
              
              
              **105**
              
              
              21**Comprehensive
                  income**
              
              **$**
              **1,710**
              
              $
              1,427
 
 **See
        Notes to Condensed Consolidated Financial Statements.**
  3
 *Index*
 
 **SouthCrest
        Financial Group, Inc.**
 **And
        Subsidiaries**
 **Consolidated
        Statements of Stockholders' Equity**
 **For
        The Three Months Ended March 31, 2007**
 (Unaudited)
 (In
        thousands, except share and per share
        data)
 
 Common
                  Stock
              
              Additional
                  Paid-In
              
              Retained
              
              Accumulated
                  Other Comprehensive
              
              Total
                  Stockholders'Shares
              
              Par
              
              Capital
              
              Earnings
              
              Loss
              
              Equity**Balance,
                  December 31, 2006**
              
              
              **3,952,328**
              
              **$**
              **3,952**
              
              **$**
              **50,034**
              
              **$**
              **13,740**
              
              **$**
              **(171**
              **)**
              **$**
              **67,555**Net
                  income
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **1,605**
              
              
              **-**
              
              
              **1,605**Cash
                  dividends declared, $.13 per share
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **(513**
              **)**
              
              **-**
              
              
              **(513**
              **)**Stock-based
                  compensation
              
              
              **-**
              
              
              **-**
              
              
              **27**
              
              
              **-**
              
              
              **-**
              
              
              **27**Adjustment
                  for shares owned by ESOP
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **(22**
              **)**
              
              **-**
              
              
              **(22**
              **)**Other
                  comprehensive income
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **105**
              
              
              **105****Balance,
                  March 31, 2007**
              
              
              **3,952,328**
              
              **$**
              **3,952**
              
              **$**
              **50,061**
              
              **$**
              **14,810**
              
              **$**
              **(66**
              **)**
              **$**
              **68,757**
 
 **See
        Notes to Condensed Consolidated Financial Statements.**
  4
 *Index*
  **SouthCrest
        Financial Group, Inc. and
        Subsidiaries**
 **Condensed
        Consolidated Statements of Cash Flows**
 **For
        The Three Months Ended March 31, 2007 and 2006**
 **(Unaudited)**
 **(In
        thousands)**
 
 **2007**
              
              2006**OPERATING
                  ACTIVITIES**Net
                  income
              
              **$**
              **1,605**
              
              $
              1,406Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              **244**
              
              
              192Amortization
                  of intangibles
              
              
              **220**
              
              
              206Other
                  amortization
              
              
              **(11**
              **)**
              
              (31
              )Provision
                  for loan losses
              
              
              **149**
              
              
              108Stock
                  compensation expense
              
              
              **27**
              
              
              24Deferred
                  income taxes
              
              
              **(85**
              **)**
              
              (157
              )Income
                  on bank-owned life insurance
              
              
              **(127**
              **)**
              
              (34
              )(Increase)
                  decrease in interest receivable
              
              
              **30**
              
              
              44Increase
                  (decrease) in income taxes payable
              
              
              **884**
              
              
              718Increase
                  (decrease) in interest payable
              
              
              **(6**
              **)**
              
              57Net
                  gain on sale of loans
              
              
              **(104**
              **)**
              
              (34
              )Originations
                  of mortgage loans held for sale
              
              
              **(3,072**
              **)**
              
              (2,947
              )Proceeds
                  from sales of mortgage loans held for sale
              
              
              **3,338**
              
              
              2,822Increase
                  in other assets
              
              
              **(592**
              **)**
              
              (532
              )Increase
                  in other liabilities
              
              
              **97**
              
              
              833Net
                  cash provided by operating activities
              
              
              **2,597**
              
              
              2,675**INVESTING
                  ACTIVITIES**Proceeds
                  from maturities of securities held to maturity
              
              
              **1,494**
              
              
              2,255Purchases
                  of securities available for sale
              
              
              **(7,609**
              **)**
              
              (1,000
              )Proceeds
                  from maturities of securities available for sale
              
              
              **2,955**
              
              
              701Proceeds
                  from sales of securities available for sale
              
              
              **1,003**
              
              
              -Proceeds
                  from redemption of restricted equity securities
              
              
              **48**
              
              
              144Net
                  (increase) decrease in interest-bearing deposits in banks
              
              
              **(169**
              **)**
              
              (94
              )Net
                  decrease in federal funds sold
              
              
              **1,606**
              
              
              4,297Net
                  (increase) decrease in loans
              
              
              **2,753**
              
              
              (3,338
              )Purchase
                  of premises and equipment
              
              
              **(661**
              **)**
              
              (1,141
              )Proceeds
                  from sale of other real estate owned
              
              
              **105**
              
              
              313Purchase
                  of life insurance contracts
              
              
              **-**
              
              
              (3,601
              )Net
                  cash provided by (used in) investing activities
              
              
              **1,525**
              
              
              (1,464
              )**FINANCING
                  ACTIVITIES**Net
                  (decrease) increase in deposits
              
              
              **(8,886**
              **)**
              
              231Principal
                  repayments on Federal Home Loan Bank advances
              
              
              **(55**
              **)**
              
              (5,055
              )Net
                  increase in federal funds purchased
              
              
              **2,910**
              
              
              2,274Dividends
                  paid
              
              
              **(513**
              **)**
              
              (448
              )Net
                  cash provided by (used in) financing activities
              
              
              **(6,544**
              **)**
              
              (2,998
              )Net
                  increase (decrease) in cash and due from banks
              
              
              **(2,422**
              **)**
              
              (1,787
              )Cash
                  and due from banks at beginning of year
              
              
              **16,926**
              
              
              15,930Cash
                  and due from banks at end of period
              
              **$**
              **14,504**
              
              $
              14,143**See
                  Notes to Condensed Consolidated Financial
                  Statements.**
  5
 *Index*
 
 **SouthCrest
        Financial Group, Inc. and Subsidiaries**
 **Condensed
        Consolidated Statements of Cash Flows (continued)**
 **For
        The Three Months Ended March 31, 2007 and 2006**
 **(Unaudited)**
 **(In
        thousands)**
  **2007**
              
              2006**SUPPLEMENTAL
                  DISCLOSURES**Cash
                  paid for:Interest
              
              **$**
              **3,193**
              
              $
              2,032Income
                  taxes
              
              
              **-**
              
              
              129**NONCASH
                  TRANSACTIONS**Principal
                  balances of loans transferred to other real estate owned
              
              **$**
              **137**
              
              $
              166Increase
                  in redeemable common stock held by ESOP
              
              
              **22**
              
              
              21Unrealized
                  gain (loss) on securities available for sale, net
              
              
              **105**
              
              
              21
 
 **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”), and Peachtree Bank (“Peachtree”). 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.
  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-month period ended March 31, 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, and Peachtree Bank. 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
        March
        31, 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
        month periods ended March 31, 2007 and 2006, these options were nondilutive.
        The
        weighted average number of shares outstanding were 3,952,328 and 3,581,193
        for
        the three-month periods ended March 31, 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
        March
        31, 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 during
        the
        three month periods ending March 31, 2007 and 2006 was $26,330 and $23,770,
        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 December 31, 2006, 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 March 31, 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
        three month periods ended March 31, 2007 and 2006.
 
 A
        summary
        of option activity under the Plan as of March 31, 2007, and changes during
        the
        three month period ended March 31, 2007 is presented below:
 
 Shares
              
              WeightedAverageExercisePrice
              
              WeightedAverageRemainingContractualTerm
              
              AggregateIntrinsicValueOutstanding
                  at December 31, 2006
              
              
              191,400
              
              $
              23.44Options
                  granted
              
              
              -
              
              
              -Options
                  exercised
              
              
              -
              
              
              -Options
                  forfeited
              
              
              -
              
              
              -Outstanding
                  at March 31, 2007
              
              
              191,400
              
              $
              23.44
              
              
              8.76
              
              $
              35,300Exercisable
                  at March 31, 2007
              
              
              119,900
              
              $
              23.45
              
              
              8.76
              
              $
              20,400
 
 For
        the
        quarter ended March 31, 2007, no options were granted, exercised or became
        fully
        vested.
  As
        of
        March 31, 2007, there was $404,337 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 3.9
        years.
  8
 *Index*
   **NOTE
        4 — LOANS RECEIVABLE**
   The
        composition of loans at March 31, 2007 and December 31, 2006 is summarized
        as
        follows (in 000s):
  **March
                  31,**
                **2007**
              
              December
                  31,
                2006Commercial,
                  financial, and agricultural
              
              **$**
              **25,012**
              
              $
              23,996Real
                  estate - construction
              
              
              **68,503**
              
              
              59,745Real
                  estate - mortgage
              
              
              **199,990**
              
              
              211,676Consumer
              
              
              **33,528**
              
              
              33,690Other
              
              
              **5,325**
              
              
              6,058**332,358**
              
              
              335,165Unearned
                  income
              
              
              **(188**
              **)**
              
              (159
              )Allowance
                  for loan losses
              
              
              **(4,667**
              **)**
              
              (4,480
              )Loans,
                  net
              
              **$**
              **327,503**
              
              $
              330,526
  Changes
        in the allowance for loan losses are as follows (in 000s):
  **March
                  31,**
                **2007**
              
              March
                  31,
                2006Balance,
                  beginning of year
              
              **$**
              **4,480**
              
              $
              3,477Provision
                  for loan losses
              
              
              **149**
              
              
              108Loans
                  charged off
              
              
              **(158**
              **)**
              
              (102
              )Recoveries
                  of loans previously charged off
              
              
              **196**
              
              
              142Balance,
                  end of year
              
              **$**
              **4,667**
              
              $
              3,625
  The
        following is a summary of information pertaining to impaired loans (in
        000s):
  **March
                  31,**
                **2007**
              
              December
                  31,
                2006Impaired
                  loans without a valuation allowance
              
              $
              -
              
              $
              -Impaired
                  loans with a valuation allowance
              
              
              326
              
              
              479Total
                  impaired loans
              
              $
              326
              
              $
              479Valuation
                  allowance related to impaired loans
              
              $
              49
              
              $
              38Average
                  investment in impaired loans
              
              $
              264
              
              $
              614
  There
        were $326,000 and $479,000 loans on nonaccrual status at March 31, 2007 and
        December 31, 2006. Loans of $367,000 and $1,015,000 were past due ninety
        days or
        more and still accruing interest at March 31, 2007 and December 31, 2006,
        respectively.
  9
 *Index*
  **NOTE
        5 — DEPOSITS**
  At
        March
        31, 2007 and December 31, 2006, deposits were as follows:
  **(Dollars
                  In Thousands)**
              
              **March
                  31,**
                **2007**
              
              December
                  31,
                2006Noninterest
                  bearing deposits
              
              **$**
              **79,318**
              
              $
              80,581Interest
                  checking
              
              
              **69,136**
              
              
              72,386Money
                  market
              
              
              **57,211**
              
              
              56,461Savings
              
              
              **36,693**
              
              
              35,542Certificates
                  of deposit
              
              
              **211,378**
              
              
              217,652**$**
              **453,736**
              
              $
              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 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.
 
 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.
  10
 *Index*
  **NOTE
        7 - COMPLETION OF MERGER WITH MAPLESVILLE BANCORP**
  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.
 
 The
        following schedule presents pro forma information for revenues and net income
        as
        if the combination with Maplesville had
        occurred on January 1, 2006. Revenues include interest income plus other
        income
        less proforma merger
        adjustments affecting revenues.
        Net income
        includes the net income of the two entities less the proforma affect of merger
        adjustments, including the amortization of intangibles:
 
 **(Dollars
                  in thousands except per share amounts)**
              
              **2007**
              
              2006Revenues
              
              $
              10,010
              
              $
              8,874Net
                  Income
              
              $
              1,605
              
              $
              1,530Earnings
                  per share
              
              $
              0.41
              
              $
              0.39
  **NOTE
        8 - ANNOUNCED ACQUISITION**
  On
        February 23, 2007, the Company entered into a definitive agreement to acquire
        Bank of Chickamauga (Chickamauga). The shareholders of Chickamauga will receive
        an aggregate of $18 million cash, less certain costs related to the termination
        of the Chickamauga defined benefit plan. The Agreement is subject to regulatory
        approval as well as approval by the Chickamauga shareholders, and is anticipated
        to close during the third quarter of 2007. Chickamauga maintains two offices
        in
        the City of Chickamauga. Chickamauga is located in Walker County, Georgia.
        At
        March 31, 2007, Chickamauga had approximately $68.6 million in assets, $51.0
        million in deposits, and capital of $14.0 million.
  11
 *Index*
  **SOUTHCREST
        FINANCIAL GROUP, INC. AND SUBSIDIARIES**
 ****
 **ITEM
        2. Management’s Discussion and Analysis of 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, and Peachtree Bank, 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.
  12
 *Index*
  **Financial
        Condition**
 
 During
        the three months ended March 31, 2007, our total assets decreased $3.8 million
        to total assets of $540.2 million at March 31, 2007. During this period,
        total
        loans decreased $2.8 million, or 0.9%, while loans held for sale decreased
        $162,000. The decrease in loans was due to loan payoffs and principal reductions
        in excess of new loans booked during the quarter. Securities available for
        sale
        increased $3.8 million while securities held to maturity decreased $1.5 million
        due to maturities. Federal funds sold declined $1.6 million. Other assets
        increased $0.7 million.
 
 During
        the quarter, deposits decreased $8.9 million or 1.9%. Significant components
        of
        the decline included a $1.3 million decline in noninterest bearing deposits,
        a
        $3.3 million decrease in interest checking accounts, and a $6.3 million decline
        in certificates of deposit. The decline in certificate accounts is primarily
        due
        to the maturity of a certificate issued to a local government. At March 31,
        2007
        we had purchased $2.9 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 $1.2 million since December 31, 2006,
        primarily due to net income for the quarter, net of dividends paid to
        shareholders. In addition, the Company experienced a $105,000 reduction in
        the
        unrealized losses 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 March 31, 2007 and December 31,
        2006:
  *(dollars
                  in thousands)*
              
              **March
                  31,**
                **2007**
              
              December
                  31,
                2006Commercial,
                  financial, and agricultural
              
              **$**
              **25,012**
              
              $
              23,996Real
                  estate - construction
              
              
              **68,503**
              
              
              59,745Real
                  estate - mortgage
              
              
              **199,990**
              
              
              211,676Consumer
              
              
              **33,528**
              
              
              33,690Other
              
              
              **5,325**
              
              
              6,058**332,358**
              
              
              335,165Unearned
                  income
              
              
              **(188**
              **)**
              
              (159
              )Allowance
                  for loan losses
              
              
              **(4,667**
              **)**
              
              (4,480
              )Loans,
                  net
              
              **$**
              **327,503**
              
              $
              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 March 31, 2007 and
        December 31, 2006 (in 000s):
 
 **March
                  31,**
                **2007**
              
              December
                  31,
                2006Nonaccrual
                  loans
              
              **$**
              **326**
              
              $
              479Loans
                  past due 90 days or more and still accruing
              
              **$**
              **367**
              
              $
              1,015Loans
                  restuctured under troubled debt
              
              **$**
              **-**
              
              $
              -
 
 Nonaccrual
        loans decreased $153,000 during the quarter ended March 31, 2007 decreasing
        from
        $479,000 to $326,000. Nonaccrual loans at March 31, 2007 included $277,000
        in
        loans secured by first mortgage loans on single family dwellings. The largest
        of
        these loans was $119,000. 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 $49,000 related to nonaccrual
        loans at March 31, 2007.
 
 Information
        regarding impaired loans as of March 31, 2007 and December 31, 2006 are as
        follows (in 000s):
  13
 *Index*
 
 **March
                  31,**
              
              December
                  31,**2007**
              
              2006Impaired
                  loans without a valuation allowance
              
              $
              -
              
              $
              -Impaired
                  loans with a valuation allowance
              
              
              326
              
              
              479Total
                  impaired loans
              
              $
              326
              
              $
              479Valuation
                  allowance related to impaired loans
              
              $
              49
              
              $
              38Average
                  investment in impaired loans
              
              $
              264
              
              $
              614
 
 **Summary
        of Loan Loss Experience.** ** An
        analysis of SouthCrest’s loan loss experience is included in the following table
        for the periods ended March 31, 2007 and 2006:
 
 **Analysis
        of Allowance for Loan Losses**
 For
        The
        Three Months Ended March 31, 2007 and 2006
 
 (Dollars
                  in thousands)
              
              **Three
                  Months****2007**
              
              **2006**Balance
                  at beginning of period
              
              $
              4,480
              
              $
              3,477ChargeoffsCommercial
                  loans
              
              
              20
              
              
              -Real
                  estate - construction
              
              
              -
              
              
              -Real
                  estate - mortgage
              
              
              -
              
              
              -Consumer
              
              
              104
              
              
              66Other
              
              
              34
              
              
              36Total
                  Chargeoffs
              
              
              158
              
              
              102RecoveriesCommercial
                  loans
              
              
              4
              
              
              -Real
                  estate - construction
              
              
              -
              
              
              -Real
                  estate - mortgage
              
              
              4
              
              
              4Consumer
              
              
              156
              
              
              96Other
              
              
              32
              
              
              42Total
                  recoveries
              
              
              196
              
              
              142Net
                  recoveries
              
              
              38
              
              
              40Additions
                  charged to operations
              
              
              149
              
              
              108Balance
                  at end of period
              
              $
              4,667
              
              $
              3,625Annualized
                  ratio of net recoveries during the period to average loans outstanding
                  during the period
              
              
              -0.05
              %
              
              -0.06
              %
 
 **Allowance
        for Loan Losses.** The
        allowance for loan losses as of March 31, 2007 was $4,667,000 compared to
        $4,480,000 at December 31, 2006 and $3,625,000 at March 31, 2006. Of the
        increase in the allowance since March 31, 2006, $631,000 relates to addition
        to
        the allowance attributable to the merger with Maplesville Bancorp in the
        fourth
        quarter of 2006. As a percentage of gross loans, the allowance for loan losses
        was 1.40% at March 31, 2007 compared to 1.34% as of December 31, 2006 and
        1.30% at March 31, 2006. The provision for loan losses during the three-month
        period ended March 31, 2007 of $149,000 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.
  14
 *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 Months Ended March 31, 2007 and
        2006**
  Net
        income for the three-month period ended March 31, 2007 amounted to $1,605,000,
        or $0.41 basic and diluted earnings per share, compared to net income of
        $1,406,000 or $0.39 basic and diluted earnings per share for the same
        three-month period in 2006, an increase of $199,000, or 14.2%. Of this increase,
        approximately $217,000 is attributable to the net earnings of Peachtree Bank.
        Results of operations for Peachtree Bank are not included in the results
        for the
        quarter ended March 31, 2006 as its net earnings are only included prospectively
        from the October 31, 2006 merger date with Maplesville Bancorp.
  **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 March 31, 2007 increased $787,000
        or
        17.2% over the same period in 2006. Excluding the impact of Peachtree, net
        interest income would have increased $162,000 or 3.5%. The primary reason
        for
        the increase in net interest income is the growth in the average balance
        of the
        loan portfolio of $56.8 million during the quarter ended March 31, 2007 compared
        to the same period in 2006. This growth, along with an increase in the average
        yield on loans from 7.63% in 2006 to 8.32% in 2007, resulted in a $1.6 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 portion of total earning assets comprised by loans increased
        from
        67.0% for the 2006 period to 69.2% for 2007. This change in the mix of our
        earning assets contributed to the 64 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 81 basis points to 3.37% for the three months
        ended March 31, 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 4.51% for the quarter ended March 31, 2006 to 4.52% for the current
        year
        period. The net interest spread decreased from 4.01% in 2006 to 3.84% in
        2007.
  The
        following presents, for the three month periods ended March 31, 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.
  15
 *Index*
  Average
                  Consolidated Balance Sheets and Net Interest Income
                  AnalysisFor
                  the Three Month Periods Ended March 31,*(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
              
              $
              332,926
              
              $
              276,079
              
              
              8.32
              %
              
              7.63
              %
              $
              6,829
              
              $
              5,191
              
              $
              1,638
              
              $
              500
              
              $
              1,138Taxable
                  securities
              
              
              114,659
              
              
              113,756
              
              
              4.66
              %
              
              4.37
              %
              
              1,317
              
              
              1,225
              
              
              92
              
              
              82
              
              
              10Nontaxable
                  securities
              
              
              18,274
              
              
              11,662
              
              
              3.95
              %
              
              4.00
              %
              
              178
              
              
              115
              
              
              63
              
              
              (10
              )
              
              73Federal
                  funds sold
              
              
              10,541
              
              
              6,925
              
              
              5.69
              %
              
              5.91
              %
              
              148
              
              
              101
              
              
              47
              
              
              (25
              )
              
              72Interest
                  bearing deposits in banks
              
              
              4,910
              
              
              3,435
              
              
              6.86
              %
              
              4.49
              %
              
              83
              
              
              38
              
              
              45
              
              
              25
              
              
              20Total
                  earning assets
              
              
              481,310
              
              
              411,857
              
              
              7.21
              %
              
              6.57
              %
              
              8,555
              
              
              6,670
              
              
              1,885
              
              
              572
              
              
              1,313Cash
                  and due from banks
              
              
              13,688
              
              
              12,605Allowance
                  for loan losses
              
              
              (4,584
              )
              
              (3,555
              )Other
                  assets
              
              
              48,072
              
              
              27,493Total
              
              $
              538,486
              
              $
              448,400**Liabilities
                  and Equity**Interest
                  bearing demand(2)
              
              $
              126,881
              
              $
              113,160
              
              
              1.77
              %
              
              1.41
              %
              $
              555
              
              $
              393
              
              $
              162
              
              $
              110
              
              $
              52Savings
              
              
              36,045
              
              
              35,846
              
              
              0.72
              %
              
              0.59
              %
              
              64
              
              
              52
              
              
              12
              
              
              12
              
              
              -Certificates
                  of deposit
              
              
              213,928
              
              
              166,432
              
              
              4.69
              %
              
              3.57
              %
              
              2,472
              
              
              1,464
              
              
              1,008
              
              
              528
              
              
              480Total
                  interest bearing deposits
              
              
              376,854
              
              
              315,438
              
              
              3.33
              %
              
              2.45
              %
              
              3,091
              
              
              1,909
              
              
              1,182
              
              
              650
              
              
              532Borrowed
                  funds
              
              
              6,785
              
              
              15,236
              
              
              5.74
              %
              
              4.79
              %
              
              96
              
              
              180
              
              
              (84
              )
              
              191
              
              
              (275
              )Total
                  interest bearing liabilities
              
              
              383,639
              
              
              330,674
              
              
              3.37
              %
              
              2.56
              %
              
              3,187
              
              
              2,089
              
              
              1,098
              
              
              841
              
              
              257Noninterest
                  bearing demand deposits
              
              
              78,564
              
              
              60,630Other
                  liabilities
              
              
              7,503
              
              
              2,153Redeemable
                  common stock held by ESOP
              
              
              940
              
              
              980Shareholders'
                  equity
              
              
              67,840
              
              
              53,963Total
              
              $
              538,486
              
              $
              448,400Net
                  interest income
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              5,368
              
              $
              4,581
              
              $
              787
              
              $
              (269
              )
              $
              1,056Net
                  interest yield on earning assets
              
              
              
              
              
              
              
              
              4.52
              %
              
              4.51
              %Net
                  interest spread
              
              
              
              
              
              
              
              
              3.84
              %
              
              4.01
              %
 
 (1)
        Daily
        averages. Loans includes nonaccrual loans.
 (2)
        Includes money market accounts
  **Other
        Income** *.* Total
        other income for the three-month period ended March 31, 2007 amounted to
        $1,455,000, compared to $1,230,000 for the same period in 2006, an increase
        of
        $225,000. The addition of Peachtree accounted for $144,000 of this increase.
        Excluding the impact of Peachtree, service charges on deposit accounts declined
        $95,000 due to reduction in NSF fees earned. Other service charges and fees
        increased $27,000 of which $1,000 relates to the addition of Peachtree. The
        $26,000 increase exclusive of Peachtree results primarily from a $34,000
        increase in debit card fees, the result of increased usage by the banks’
customers. Net gain on sale of loans increased $70,000 due to recognition
        of
        mortgage servicing rights of $68,000. Income recognized on bank-owned life
        insurance increased $93,000 of which $21,000 resulted from the addition of
        Peachtree. The remaining $72,000 increase is due to purchases of life insurance
        contracts during 2006. Other income increased $12,000 of which $4,000 is
        the
        result of the addition of Peachtree.
  16
 *Index*
  **Other
        Expenses.** Other
        expenses for the three-month period ended March 31, 2007 amounted to $4,333,000
        compared to $3,607,000 for the same period in 2006, an increase of $726,000
        or
        20.1%. Excluding the impact of Peachtree, these expenses increased $261,000
        or
        7.2%.
  The
        largest component of other expenses is salaries and employee benefits, which
        increased $473,000, or 24.4%, of which $237,000 related to the addition of
        Peachtree. Excluding the impact of Peachtree, salaries and employee benefits
        increased $236,000 or 12.2%. Salaries expense increased $121,000 due to cost
        of
        living and merit increases, while incentive expense increased $98,000 due
        to
        higher profit levels attained in the current year.
  Effective
        January 1, 2006, the Company adopted SFAS No. 123R “Share-Based Payment.” SFAS
        No. 123R requires recognition of the cost of employee services received in
        exchange for an award of equity instruments in the financial statements over
        the
        period the employee is required to perform the services in exchange for the
        award (presumptively the vesting period). The Company adopted SFAS No. 123R
        using the modified prospective application as permitted under SFAS No. 123R.
        Accordingly, prior period amounts have not been restated. Under this
        application, the Company is required to record compensation expense for all
        awards granted after the date of adoption and for the unvested portion of
        previously granted awards that remain outstanding at the date of adoption.
        Prior
        to the adoption of SFAS No. 123R, the Company used the intrinsic value method
        as
        prescribed by APB No. 25 and thus recognized no compensation expense for
        options
        granted with exercise prices equal to the fair market value of the Company’s
        common stock on the date of grant. The compensation cost that was charged
        against income for our stock option plans for the three months ended March
        31,
        2007 and 2006 was $27,000 and $24,000, respectively. The total compensation
        cost
        related to nonvested awards not yet recognized at March 31, 2007 is $404,000
        which will be recognized over the weighted average period of approximately
        3.9
        years. See “Note 3 - Stock Compensation Plans” in the notes to condensed
        consolidated financial statements for further information.
  For
        the
        three month period ended March 31, 2007, amortization of intangibles increased
        $14,000. Amortization of the core deposit intangible recorded in conjunction
        with the acquisition of Peachtree Bank amounted to $33,000 for the quarter.
        Occupancy expenses increased $87,000 for the quarter of which $48,000 relates
        to
        Peachtree. Excluding the addition of Peachtree, occupancy expenses increased
        $39,000 of which $30,000 results from 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 in the first quarter
        of 2006. Other operating expenses increased $152,000 of which $147,000 relates
        to Peachtree. Excluding Peachtree, such costs increased $5,000 or
        0.5%.
  **Income
        Taxes.** The
        Company recorded income taxes totaling $736,000 and $690,000 for the three-month
        periods ending March 31, 2007 and 2006, respectively. Effective tax rates
        for
        the periods were 31.4% and 32.9%, 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 March 31, 2007, we believe our liquidity,
        as determined under guidelines established by regulatory authorities and
        internal policies, was satisfactory.
 
 If
        needed, we have the ability on a short-term basis to borrow and purchase
        Federal
        funds from other financial institutions. At March 31, 2007, we had available
        to
        us additional federal funds lines of credit totaling $18.4 million in place
        with
        three banks and $44.6 million of available funds on our line of credit with
        the
        Federal Home Loan Bank of Atlanta.
 
 At
        March
        31, 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:
  17
 *Index*
 
 **Minimum**
                **Required**
              
              **Minimum**
                **Required**
                **to
                  be Well**
                **Capitalized**
              
              **Consolidated**
              
              **Upson**
              
              **Polk**
              
              **Peachtree**Risk-based
                  capital ratiosTotal
                  risk based capital
              
              
              8.00
              %
              
              10.00
              %
              
              16.40
              %
              
              14.94
              %
              
              20.16
              %
              
              13.32
              %Tier
                  1
              
              
              4.00
              %
              
              6.00
              %
              
              15.19
              %
              
              13.70
              %
              
              18.91
              %
              
              12.09
              %Tier
                  1 leverage ratio
              
              
              4.00
              %
              
              5.00
              %
              
              10.82
              %
              
              10.12
              %
              
              12.05
              %
              
              9.53
              %
 
 These
        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 March 31, 2007.
 
 **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
              
              $
              242,358
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              242,358Certificates
                  of Deposit
              
              
              175,212
              
              
              25,003
              
              
              11,163
              
              
              -
              
              
              211,378FHLB
                  advances and other borrowed funds
              
              
              3,020
              
              
              5,078
              
              
              156
              
              
              546
              
              
              8,800Deferred
                  compensation
              
              
              17
              
              
              40
              
              
              180
              
              
              2,522
              
              
              2,759Leases
              
              
              104
              
              
              260
              
              
              153
              
              
              453
              
              
              970Total
                  contractal obligations
              
              $
              420,711
              
              $
              30,381
              
              $
              11,652
              
              $
              3,521
              
              $
              466,265CommitmentsCommitments
                  to extend credit
              
              $
              42,714
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              42,714Credit
                  card commitments
              
              
              9,351
              
              
              -
              
              
              -
              
              
              -
              
              
              9,351Commercial
                  standby letters of credit
              
              
              436
              
              
              -
              
              
              -
              
              
              -
              
              
              436Total
                  commitments
              
              $
              52,501
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              52,501
  18
 *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. As
        of
        March 31, 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 first fiscal quarter that have materially affected, or are reasonably
        likely
        to materially affect, our internal control over financial
        reporting.
 
 ****
 **PARTII
        - 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,
        SouthCrest completed its acquisition of Maplesville Bancorp on October 31,
        2006.
        If SouthCrest does not successfully integrate Maplesville into its business,
        SouthCrest may not realize the expected benefits from its acquisition of
        Maplesville. SouthCrest may encounter unforeseen expenses, as well as
        difficulties and complications in integrating Maplesville’s operations with its
        overall operations. SouthCrest expects that it be able to maintain most of
        Maplesville’s key customers and personnel and integrate Maplesville’s 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
        Maplesville in a timely manner or experiences disruptions with Maplesville’s
        customer relationships, the anticipated benefits of the acquisition of
        Maplesville may not be realized and SouthCrest’s results of operations may be
        adversely affected.
 
 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.
  19
 *Index*
  **Item2.**
              **Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds**
 
 The
        Company made no repurchases of its common stock during the quarter ended
        March
        31, 2007.
  **Item3.**
              **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
  20
 *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:
                  May 15, 2007
              
              BY:
              
              /s/
                  Larry T. KuglarLarry
                  T. Kuglar.President
                  and Chief Executive OfficerDATE:
                  May 15, 2007
              
              BY:
              
              /s/
                  Douglas J. HerthaDouglas
                  J. HerthaSenior
                  Vice President, Chief Financial Officer






21