**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 June 30, 2007**




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




**For
      the transition period from
to**




**Commission
      File Number: 000-51287**










**SOUTHCREST
      FINANCIAL GROUP, INC.**


**(Exact
      name of small business issuer as specified in its charter)**









**Georgia**
            
            **58-2256460****(State
                or other jurisdiction of****incorporation
                or organization)**
            
            **(IRS
                Employer****Identification
                No.)**




**600
      North Glynn Street**


**Fayetteville,
      GA 30214**


**(Address
      of principal executive offices)**




**(770)-461-2781**


**(Issuer’s
      telephone number)**







**(Former
      name, former address and former fiscal year, if changed since last
      report)**







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





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




Large
      Accelerated Filer   ̈ Accelerated
      Filer   ̈ Non-Accelerated
      Filer  x







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





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of August 10, 2007: 3,952,328.




Index


**SouthCrest
      Financial Group, Inc.**


**And
      Subsidiaries**




**INDEX**




PagePart
                I.
            FINANCIAL
                INFORMATIONItem
                1.
            Condensed
                Consolidated Financial
                StatementsCondensed
                Consolidated Balance Sheets – June 30, 2007 and
                December 31, 2006
            1Condensed
                  Consolidated Statements of Income  - Three and Six Months EndedJune 30, 2007 and 2006
            2Condensed
                  Consolidated Statements of Comprehensive Income - Three and SixMonths Ended June 30, 2007 and 2006
            3Condensed
                  Consolidated Statement of Stockholders' Equity – Six  MonthsEnded June 30, 2007
            4Condensed
                  Consolidated Statements of Cash Flows – Six Months EndedJune 30,
                  2007 and 2006
            5Notes
                to Condensed Consolidated Financial
                Statements
            7Item
                2.
            Management’s
                  Discussion and Analysis of Financial Conditionand Results of
                  Operations
            12Item
                3.
            Quantitative
                and Qualitative  Disclosures
                about Market Risk
            21Item
                4.
            Controls
                and Procedures
            21Part
                II.
            OTHER
                INFORMATION
            21Item
                1.
            Legal
                Proceedings
            21Item
                1A.
            Risk
                factors.
            21Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            22Item
                3.
            Defaults
                Upon Senior Securities
            22Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            22Item
                5.
            Other
                Information
            22Item
                6.
            Exhibits
            22Signatures
            23


Index


**PARTI
      - FINANCIAL INFORMATION**


**ITEM1.
      FINANCIAL STATEMENTS**


**SouthCrestFinancial
                Group, Inc. and
                Subsidiaries****Condensed
                Consolidated Balance Sheets****June
                30, 2007 and December 31, 2006****(Unaudited)****(In
                thousands, except share and per share data)****June
                30,**
            
            
            December
                31,**Assets**
            
            **2007**
            
            
            
            2006*Cash
                and due from banks
            
            **$**
            **14,816**
            
            
            $
            16,926Interest-bearing
                deposits at other financial institutions
            
            ****
            **5,011**
            
            
            
            4,881Federal
                funds sold
            
            ****
            **795**
            
            
            
            12,504Securities
                available for sale
            
            ****
            **63,232**
            
            
            
            61,519Securities
                held to maturity (fair value $62,161 and $66,036)
            
            ****
            **64,230**
            
            
            
            67,268Restricted
                equity securities, at cost
            
            ****
            **1,981**
            
            
            
            2,029Loans
                held for sale
            
            ****
            **303**
            
            
            
            446Loans,
                net of unearned income
            
            ****
            **336,147**
            
            
            
            335,006Less
                allowance for loan losses
            
            ****
            **4,674**
            
            
            
            4,480Loans,
                net
            
            ****
            **331,473**
            
            
            
            330,526Bank-owned
                life insurance
            
            ****
            **12,781**
            
            
            
            12,521Premises
                and equipment, net
            
            ****
            **16,807**
            
            
            
            15,324Goodwill
            
            ****
            **9,057**
            
            
            
            9,057Intangible
                assets, net
            
            ****
            **4,052**
            
            
            
            4,493Other
                assets
            
            ****
            **6,932**
            
            
            
            6,523**Total
                assets**
            
            **$**
            **531,470**
            
            
            $
            544,017******Liabilities,
                Redeemable Common Stock, and Stockholders'
                Equity**Liabilities:Deposits:Noninterest-bearing
            
            **$**
            **74,500**
            
            
            $
            80,581Interest-bearing
            
            ****
            **372,523**
            
            
            
            382,041Total
                deposits
            
            ****
            **447,023**
            
            
            
            462,622Federal
                Home Loan Bank advances
            
            ****
            **5,110**
            
            
            
            5,165Federal
                funds purchased
            
            ****
            **504**
            
            
            ****
            **-**Note
                payable
            
            ****
            **780**
            
            
            
            780Other
                liabilities
            
            ****
            **7,371**
            
            
            
            6,907**Total
                liabilities**
            
            ****
            **460,788**
            
            
            
            475,474****Commitments
                and contingenciesRedeemable
                common stock held by ESOP
            
            ****
            **923**
            
            
            
            988Stockholders'
                equity:Common
                stock, par value $1; 10,000,000 shares authorized, 3,952,328
                issued
            
            ****
            **3,952**
            
            
            
            3,952Additional
                paid-in capital
            
            ****
            **50,087**
            
            
            
            50,034Retained
                earnings
            
            ****
            **15,981**
            
            
            
            13,740Accumulated
                other comprehensive loss
            
            ****
            **(261**
            **)**
            
            
            (171
            )**Total
                stockholders' equity**
            
            ****
            **69,759**
            
            
            
            67,555**Total
                liabilities, redeemable common stock, and stockholders'
                equity**
            
            **$**
            **531,470**
            
            
            $
            544,017





**See
                Notes to Condensed Consolidated Financial
                Statements.*****
                Derived from audited consolidated financial
                statements.**




1
 Index





**SouthCrestFinancial
                Group, Inc. and
                Subsidiaries****Condensed
                Consolidated Statements of Income****For
                The Three and Six Months Ended June 30, 2007 and 2006****(Unaudited)****(In
                thousands, except share and per share data)****Three
                Months**
            
            
            **Six
                Months****2007**
            
            
            2006
            
            
            **2007**
            
            
            2006**Interest
                income:**Loans
            
            **$**
            **6,985**
            
            
            $
            5,524
            
            
            **$**
            **13,814**
            
            
            $
            10,715Securities
                - taxable
            
            ****
            **1,325**
            
            
            
            1,224
            
            
            ****
            **2,642**
            
            
            
            2,449Securities
                - nontaxable
            
            ****
            **175**
            
            
            
            111
            
            
            ****
            **353**
            
            
            
            226Federal
                funds sold
            
            ****
            **109**
            
            
            
            86
            
            
            ****
            **257**
            
            
            
            187Interest-bearing
                deposits at other banks
            
            ****
            **90**
            
            
            
            50
            
            
            ****
            **173**
            
            
            
            88**Total
                interest income**
            
            ****
            **8,684**
            
            
            
            6,995
            
            
            ****
            **17,239**
            
            
            
            13,665****
            
            
            
            
            
            
            
            ******Interest
                expense:**Deposits
            
            ****
            **3,127**
            
            
            
            2,230
            
            
            ****
            **6,218**
            
            
            
            4,139Other
                borrowings
            
            ****
            **90**
            
            
            
            141
            
            
            ****
            **186**
            
            
            
            321**Total
                interest expense**
            
            ****
            **3,217**
            
            
            
            2,371
            
            
            ****
            **6,404**
            
            
            
            4,460****
            
            
            
            
            
            
            
            ******Net
                interest income**
            
            ****
            **5,467**
            
            
            
            4,624
            
            
            ****
            **10,835**
            
            
            
            9,205**Provision
                for loan losses**
            
            ****
            **77**
            
            
            
            133
            
            
            ****
            **226**
            
            
            
            241**Net
                  interest income after provision**for loan
                  losses
            
            ****
            **5,390**
            
            
            
            4,491
            
            
            ****
            **10,609**
            
            
            
            8,964****
            
            
            
            
            
            
            
            ******Other
                income:**Service
                charges on deposit accounts
            
            ****
            **920**
            
            
            
            859
            
            
            ****
            **1,735**
            
            
            
            1,651Other
                service charges and fees
            
            ****
            **345**
            
            
            
            282
            
            
            ****
            **617**
            
            
            
            527Net
                gain on sale of loans
            
            ****
            **82**
            
            
            
            37
            
            
            ****
            **186**
            
            
            
            71Income
                on bank-owned life insurance
            
            ****
            **133**
            
            
            
            59
            
            
            ****
            **260**
            
            
            
            93Other
                operating income
            
            ****
            **117**
            
            
            
            98
            
            
            ****
            **254**
            
            
            
            223**Total
                other income**
            
            ****
            **1,597**
            
            
            
            1,335
            
            
            ****
            **3,052**
            
            
            
            2,565****
            
            
            
            
            
            
            
            ******Other
                expenses:**Salaries
                and employee benefits
            
            ****
            **2,538**
            
            
            
            2,011
            
            
            ****
            **4,953**
            
            
            
            3,953Equipment
                and occupancy expenses
            
            ****
            **489**
            
            
            
            380
            
            
            ****
            **956**
            
            
            
            760Amortization
                of intangibles
            
            ****
            **226**
            
            
            
            207
            
            
            ****
            **446**
            
            
            
            413Other
                operating expenses
            
            ****
            **1,407**
            
            
            
            1,111
            
            
            ****
            **2,638**
            
            
            
            2,190**Total
                other expenses**
            
            ****
            **4,660**
            
            
            
            3,709
            
            
            ****
            **8,993**
            
            
            
            7,316****
            
            
            
            
            
            
            
            ******Income
                before income taxes**
            
            ****
            **2,327**
            
            
            
            2,117
            
            
            ****
            **4,668**
            
            
            
            4,213**Income
                tax expense**
            
            ****
            **728**
            
            
            
            691
            
            
            ****
            **1,464**
            
            
            
            1,381**Net
                income**
            
            **$**
            **1,599**
            
            
            $
            1,426
            
            
            **$**
            **3,204**
            
            
            $
            2,832****
            
            
            
            
            
            
            
            ******Basic
                and diluted earnings per share**
            
            **$**
            **0.40**
            
            
            $
            0.40
            
            
            **$**
            **0.81**
            
            
            $
            0.79**Dividends
                per share**
            
            **$**
            **0.130**
            
            
            $
            0.125
            
            
            **$**
            **0.260**
            
            
            $
            0.250**Average
                shares outstanding - basic and diluted**
            
            ****
            **3,952,328**
            
            
            
            3,581,193
            
            
            ****
            **3,952,328**
            
            
            
            3,581,193





**See
                Notes to Condensed Consolidated Financial Statements.**





2
 Index




**CondensedConsolidated
                Statements of
                Comprehensive Income****For
                The Three and Six Months Ended June 30, 2007 and 2006****(Unaudited)****(In
                thousands)****Three
                Months**
            
            
            **Six
                Months****2007**
            
            
            2006
            
            
            **2007**
            
            
            2006**Net
                income**
            
            **$**
            **1,599**
            
            
            $
            1,426
            
            
            **$**
            **3,204**
            
            
            $
            2,832**Other
                comprehensive income:**Unrealized
                  holding gains (losses) on securities availablefor sale arising
                  during the period, net of taxes of  $(121), $(112), $(56), and
                  $(100)
            
            ****
            **(195**
            **)**
            
            
            (187
            )
            
            ****
            **(90**
            **)**
            
            
            (166
            )**Comprehensive
                income**
            
            **$**
            **1,404**
            
            
            $
            1,239
            
            
            **$**
            **3,114**
            
            
            $
            2,666





**See
                Notes to Condensed Consolidated Financial Statements.**





3
 Index





**SouthCrestFinancial
                Group,
                Inc.****And
                Subsidiaries****Consolidated
                Statement of Stockholders' Equity****For
                The Six Months Ended June 30, 2007****(Unaudited)****(In
                thousands, except share and per share data)**AccumulatedAdditional
            
            
            
            
            
            Other
            
            
            TotalCommon
                Stock
            
            
            Paid-In
            
            
            Retained
            
            
            Comprehensive
            
            
            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
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            ****
            **3,204**
            
            
            ****
            **-**
            
            
            ****
            **3,204**Cash dividends declared,$.26 per share
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            ****
            **(1,028**
            **)**
            
            ****
            **-**
            
            
            ****
            **(1,028**
            **)**Stock-based
                compensation
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            ****
            **53**
            
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            ****
            **53**Adjustment for sharesowned by ESOP
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            ****
            **65**
            
            
            ****
            **-**
            
            
            ****
            **65**Other comprehensive income
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            ****
            **(90**
            **)**
            
            ****
            **(90**
            **)****Balance,
                June 30, 2007**
            
            ****
            **3,952,328**
            
            
            **$**
            **3,952**
            
            
            **$**
            **50,087**
            
            
            **$**
            **15,981**
            
            
            **$**
            **(261**
            **)**
            
            **$**
            **69,759**





**See
                Notes to Condensed Consolidated Financial Statements.**




4
 Index




**SouthCrestFinancial
                Group, Inc. and
                Subsidiaries****Condensed
                Consolidated Statements of Cash Flows****For
                The Six Months Ended June 30, 2007 and 2006****(Unaudited)****(In
                thousands)****2007**
            
            
            2006**OPERATING
                ACTIVITIES**Net
                income
            
            **$**
            **3,204**
            
            
            $
            2,832Adjustments
                  to reconcile net income to net cashprovided by operating
                  activities:Depreciation
            
            ****
            **509**
            
            
            
            384Amortization
                of intangibles
            
            ****
            **446**
            
            
            
            410Other
                amortization
            
            ****
            **120**
            
            
            
            60Provision
                for loan losses
            
            ****
            **226**
            
            
            
            241Stock
                compensation expense
            
            ****
            **53**
            
            
            
            48Deferred
                income taxes
            
            ****
            **(226**
            **)**
            
            
            (273
            )Income
                on bank-owned life insurance
            
            ****
            **(260**
            **)**
            
            
            (92
            )(Increase)
                decrease in interest receivable
            
            ****
            **56**
            
            
            
            (117
            )Increase
                in income taxes payable
            
            ****
            **116**
            
            
            
            50Increase
                in interest payable
            
            ****
            **94**
            
            
            
            338Net
                gain on sale of loans
            
            ****
            **(134**
            **)**
            
            
            (71
            )Originations
                of mortgage loans held for sale
            
            ****
            **(6,685**
            **)**
            
            
            (7,159
            )Proceeds
                from sales of mortgage loans held for sale
            
            ****
            **6,962**
            
            
            
            7,002Decrease
                in other assets
            
            ****
            **254**
            
            
            
            183Increase
                in other liabilities
            
            ****
            **46**
            
            
            
            349Net
                cash provided by operating activities
            
            ****
            **4,781**
            
            
            
            4,185******INVESTING
                ACTIVITIES**Proceeds
                from maturities of securities held to maturity
            
            ****
            **3,006**
            
            
            
            4,096Purchases
                of securities available for sale
            
            ****
            **(10,918**
            **)**
            
            
            (4,000
            )Proceeds
                from maturities of securities available for sale
            
            ****
            **8,070**
            
            
            
            1,502Proceeds
                from sales of securities available for sale
            
            ****
            **1,003**
            
            
            
            -Proceeds
                from redemption of restricted equity securities
            
            ****
            **48**
            
            
            
            134Net
                (increase) decrease in interest-bearing deposits in banks
            
            ****
            **(130**
            **)**
            
            
            495Net
                decrease in federal funds sold
            
            ****
            **11,709**
            
            
            
            3,195Net
                increase in loans
            
            ****
            **(1,509**
            **)**
            
            
            (10,593
            )Purchase
                of premises and equipment
            
            ****
            **(1,992**
            **)**
            
            
            (2,160
            )Proceeds
                from sale of other real estate owned
            
            ****
            **-**
            
            
            
            472Purchase
                of life insurance contracts
            
            ****
            **-**
            
            
            
            (3,601
            )Net
                cash provided by (used in) investing activities
            
            ****
            **9,287**
            
            
            
            (10,460
            )******FINANCING
                ACTIVITIES**Net
                (decrease) increase in deposits
            
            ****
            **(15,599**
            **)**
            
            
            11,276Principal
                repayments on Federal Home Loan Bank advances
            
            ****
            **(55**
            **)**
            
            
            (5,055
            )Net
                increase in federal funds purchased
            
            ****
            **504**
            
            
            
            1,595Dividends
                paid
            
            ****
            **(1,028**
            **)**
            
            
            (896
            )Net
                cash provided by (used in) financing activities
            
            ****
            **(16,178**
            **)**
            
            
            6,920Net
                increase (decrease) in cash and due from banks
            
            ****
            **(2,110**
            **)**
            
            
            645Cash
                and due from banks at beginning of year
            
            ****
            **16,926**
            
            
            
            15,930Cash
                and due from banks at end of period
            
            **$**
            **14,816**
            
            
            $
            16,575





**See
                Notes to Condensed Consolidated Financial Statements.**





5
 Index





**SouthCrest
                Financial Group, Inc. and Subsidiaries****Condensed
                Consolidated Statements of Cash Flows (continued)****For
                The Six Months Ended June 30, 2007 and 2006****(Unaudited)****(In
                thousands)****2007**
            
            
            2006**SUPPLEMENTAL
                DISCLOSURES**Cash
                paid for:Interest
            
            **$**
            **6,310**
            
            
            $
            4,122Income
                taxes
            
            ****
            **1,416**
            
            
            
            1,604**NONCASH
                TRANSACTIONS**Principal
                balances of loans transferred to other real estate owned
            
            **$**
            **296**
            
            
            $
            166(Decrease)
                increase in redeemable common stock held by ESOP
            
            ****
            **(65**
            **)**
            
            
            21Unrealized
                loss on securities available for sale, net
            
            ****
            **(90**
            **)**
            
            
            (166
            )





**See
                Notes to Condensed Consolidated Financial Statements.**


6
 Index




**SouthCrestFinancial
      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
      and
      six month periods ended June 30, 2007 are not necessarily indicative of the
      results that may be expected for the year ended December 31, 2007. For
      further information, refer to the financial statements and notes included in
      the
      Company's consolidated financial statements and notes thereto for the year
      ended
      December 31, 2006 included in the Company’s annual report on Form 10-K
      (Registration No. 000-51287).




The
      consolidated financial statements include the accounts of the Company and its
      wholly-owned subsidiaries, Bank of Upson,  The First National Bank of
      Polk County, 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
      June
      30, 2007 and 2006, the Company had 191,400 and 183,500 options outstanding
      under
      the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan.  For
      the three and six month periods ended June 30, 2007 and 2006, these options
      were
      nondilutive.   The weighted average number of shares outstanding
      was 3,952,328 and 3,581,193 for the three and six month periods ended June
      30,
      2007 and 2006**.**




**NOTE
      3 - STOCK BASED COMPENSATION**




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





7
 Index




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





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





At
      June
      30, 2007, the Company maintained one share-based compensation plan, the
      SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan (the “Plan”),
      approved at the Company’s annual shareholders’ meeting held on May 12,
      2005.  The compensation cost that has been charged against income for
      the Plan was $26,330 and $23,770 for the three month periods ending June 30,
      2007 and 2006, respectively, and $52,660 and $47,540 for the six month periods
      ending June 30, 2007 and 2006, respectively.  The Company recorded no
      deferred tax benefit in 2007 or 2006 because all of the compensation cost was
      related to incentive (tax qualifying) stock options.





The
      Plan
      provides for up to 549,000 shares of common stock to be awarded in the form
      of
      stock options. Options are granted at the fair market value of the Company’s
      common stock on the date of grant. All options under the Plan expire ten years
      from the date of grant.  At June 30, 2007, 191,400 options had been
      granted.  Of these options, 104,000 were not tax qualifying and were
      fully vested on the date of grant, while 87,400 options were tax qualifying
      and
      vest over 60 months.  At June 30, 2007, 357,600 options were available
      for grant.





The
      fair
      market value of each option award is estimated on the date of grant using the
      Black-Scholes option pricing model.  The Company did not grant options
      during the six month periods ended June 30, 2007 and 2006.





A
      summary
      of option activity under the Plan as of June 30, 2007, and changes during the
      three month period ended June 30, 2007 is presented below:





WeightedWeighted
            
            
            AverageAverage
            
            
            Remaining
            
            
            AggregateExercise
            
            
            Contractual
            
            
            IntrinsicShares
            
            
            Price
            
            
            Term
            
            
            ValueOutstanding
                at December 31, 2006
            
            
            191,400
            
            
            $
            23.44Options
                granted
            
            
            -
            
            
            
            -Options
                exercised
            
            
            -
            
            
            
            -Options
                forfeited
            
            
            -
            
            
            
            -Outstanding
                at June 30, 2007
            
            
            191,400
            
            
            $
            23.44
            
            
            
            8.47
            
            
            $
            108,000Exercisable
                at June 30, 2007
            
            
            119,900
            
            
            $
            23.45
            
            
            
            8.47
            
            
            $
            66,000





For
      the
      quarter ended June 30, 2007, no options were granted, exercised or became fully
      vested.





As
      of
      June 30, 2007, there was $378,000 of total unrecognized compensation cost
      related to non-vested share-based compensation arrangements.  That
      cost is expected to be recognized over a weighted-average period of 3.6
      years.


8
 Index




**NOTE
      4 — LOANS
      RECEIVABLE**






The
      composition of loans at June 30, 2007 and December 31, 2006 is summarized as
      follows:




**June
                30,**
            
            
            December
                31,**(Dollars
                In Thousands)**
            
            **2007**
            
            
            2006Commercial,
                financial, and agricultural
            
            **$**
            **23,769**
            
            
            $
            23,996Real
                estate – construction
            
            ****
            **69,270**
            
            
            
            59,745Real
                estate – mortgage
            
            ****
            **203,598**
            
            
            
            211,676Consumer
            
            ****
            **33,061**
            
            
            
            33,690Other
            
            ****
            **6,605**
            
            
            
            6,058****
            **336,303**
            
            
            
            335,165Unearned
                income
            
            ****
            **(156**
            **)**
            
            
            (159
            )Allowance
                for loan losses
            
            ****
            **(4,674**
            **)**
            
            
            (4,480
            )Loans,
                net
            
            **$**
            **331,473**
            
            
            $
            330,526











Changes
      in the allowance for loan losses are as follows:




**June
                30,**
            
            
            December
                31,**(Dollars
                In Thousands)**
            
            **2007**
            
            
            2006Balance,
                beginning of year
            
            **$**
            **4,480**
            
            
            $
            3,477Provision
                for loan losses
            
            ****
            **226**
            
            
            
            839Loans
                charged off
            
            ****
            **(344**
            **)**
            
            
            (903
            )Recoveries
                of loans previously charged off
            
            ****
            **312**
            
            
            
            436Allowance
                acquired in business combination
            
            ****
            **-**
            
            
            
            631Balance,
                end of year
            
            **$**
            **4,674**
            
            
            $
            4,480




The
      following is a summary of information pertaining to impaired loans:




**June
                30,**
            
            
            December
                31,**(Dollars
                In Thousands)**
            
            **2007**
            
            
            2006Impaired
                loans without a valuation allowance
            
            $
            -
            
            
            $
            -Impaired
                loans with a valuation allowance
            
            
            178
            
            
            
            479Total
                impaired loans
            
            $
            178
            
            
            $
            479Valuation
                allowance related to impaired loans
            
            $
            27
            
            
            $
            38Average
                investment in impaired loans
            
            $
            235
            
            
            $
            614




There
      were $178,000 and $479,000 loans on nonaccrual status at June 30, 2007 and
      December 31, 2006.  Loans of  $368,000 and $1,015,000 were
      past due ninety days or more and still accruing interest at June 30, 2007 and
      December 31, 2006, respectively.




9
 Index




**NOTE
      5 —
DEPOSITS**






At
      June
      30, 2007 and December 31, 2006, deposits were as follows:




**June
                30,**
            
            
            December
                31,**(Dollars
                In Thousands)**
            
            **2007**
            
            
            2006Noninterest
                bearing deposits
            
            **$**
            **74,500**
            
            
            $
            80,581Interest
                checking
            
            ****
            **66,643**
            
            
            
            72,386Money
                market
            
            ****
            **61,781**
            
            
            
            56,461Savings
            
            ****
            **35,553**
            
            
            
            35,542Certificates
                of deposit
            
            ****
            **208,546**
            
            
            
            217,652**$**
            **447,023**
            
            
            $
            462,622




**NOTE
      6 — NEW ACCOUNTING
      PRONOUNCEMENTS**




In
      March
      2006, the FASB issued SFAS No. 156, *Accounting for Servicing of Financial
      Assets-an amendment of FASB Statement No. 140*. This statement requires
      that an entity recognize a servicing asset or servicing liability each time
      it
      undertakes an obligation to service a financial asset, and that the servicing
      assets and servicing liabilities be initially measured at fair value. The
      statement also permits an entity to choose a subsequent measurement method
      for
      each class of separately recognized servicing assets and servicing liabilities.
      SFAS No. 156 is effective as of the beginning of the first fiscal year that
      begins after September 15, 2006. The Company adopted SFAS No. 156 as of January
      1, 2007 and it did not have a material impact on the Company’s financial
      condition or results of operations.




In
      July
      2006, the FASB issued Interpretation No. 48, *Accounting for Uncertainty in
      Income Taxes, an interpretation of FASB Statement No. 109*(“FIN 48”). This
      interpretation clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise’s financial statements in accordance with FASB
      Statement No. 109, *Accounting for Income Taxes*. The interpretation
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. The interpretation also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. We adopted FIN 48 effective January 1,
      2007.  FIN 48 clarifies the accounting for uncertainty in income taxes
      recognized in financial statements and requires the impact of a tax position
      to
      be recognized in the financial statements if that position is more likely than
      not of being sustained by the taxing authority.  The years 2003
      through 2006 are still subject to audit for our Federal, Georgia, and Alabama
      income tax returns.  The adoption of FIN 48 did not have a material
      effect on our consolidated financial position or results of
      operation.




In
      September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*,
      which provides for enhanced guidance for using fair value to measure assets
      and
      liabilities. SFAS No. 157 defines fair value, establishes a framework for
      measuring fair value in generally accepted accounting principles, and expands
      disclosures about fair value measurements. SFAS No. 157 is applicable under
      other accounting pronouncements that either require or permit fair value
      measurements and does not require any new fair value measurements. SFAS No.
      157
      is effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. The Company
      has not yet evaluated the impact of the implementation of SFAS No.
      157.





In
      September 2006, the FASB ratified EITF Issue 06-4, *Accounting for Deferred
      Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
      Life
      Insurance Arrangements.* EITF Issue 06-4 addresses accounting for
      split-dollar life insurance arrangements after the employer purchases a life
      insurance policy on the covered employee. This Issue states that an obligation
      arises as a result of a substantive agreement with an employee to provide future
      postretirement benefits. Under Issue EITF 06-4, the obligation is not settled
      upon entering into an insurance arrangement. Since the obligation is not
      settled, a liability should be recognized in accordance with applicable
      authoritative guidance. Issue EITF 06-4 is effective for fiscal years beginning
      after December 15, 2007. The Company has not yet evaluated the impact of the
      implementation of EITF Issue 06-4.





In
      September 2006, the FASB ratified EITF Issue 06-5, *Accounting for Purchases
      of Life Insurance—Determining the Amount That Could Be Realized in Accordance
      with FASB Technical Bulletin (“FTB”) No. 85-4, Accounting for Purchases of Life
      Insurance*. This Issue addresses how an entity should determine the amount
      that could be realized under the insurance contract at the balance sheet date
      in
      applying FTB 85-4 and if the determination should be on an individual or group
      policy basis. EITF Issue 06-5 is effective for fiscal years beginning after
      December 15, 2006. The Company’s adoption EITF Issue 06-5 effective January 1,
      2007 did not have a material effect on the Company’s financial
      statements.


10
 Index


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




**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)****Three
                Months**
            
            
            **Six
                Months****2007**
            
            
            2006
            
            
            **2007**
            
            
            2006Revenues
            
            $
            10,281
            
            
            $
            9,399
            
            
            $
            20,291
            
            
            $
            18,182Net
                income
            
            $
            1,599
            
            
            $
            1,662
            
            
            $
            3,204
            
            
            $
            3,279Earnings
                per share
            
            $
            0.40
            
            
            $
            0.42
            
            
            $
            0.81
            
            
            $
            0.83




**NOTE
      8 – SUBSEQUENT EVENT**




On
      July
      1, 2007 the Company completed its acquisition of Bank of Chickamauga pursuant
      to
      the definitive agreement entered into on February 23, 2007.  The
      shareholders of Chickamauga will received an aggregate of $18 million cash,
      less
      certain costs related to the termination of the Chickamauga defined benefit
      plan.  The merger will be accounted for under the purchase method of
      accounting. Accordingly, assets and liabilities of Bank of Chickamauga and
      its
      results of operations will only be recorded in the consolidated financial
      statements of the Company prospectively from the date of merger. The Company
      estimates that goodwill of approximately $3.7 million will be recorded in
      connection with the merger.





To
      fund
      the payments to the Chickamauga shareholders, the Company’s subsidiary banks
      paid $15 million in special dividends to the parent.  Additionally,
      the Company received an increase in its line of credit from $5.5 million to
      $8.0
      million on the same terms and conditions as previously existed on the
      loan.  The interest rate for the line of credit is Prime minus
      0.50%.  The Company drew $3 million on this line in connection with
      the merger.





Chickamauga
      maintains two offices in the City of Chickamauga.  Chickamauga is
      located in Walker County, Georgia.  At June 30, 2007, Chickamauga had
      approximately $67.2 million in assets, $49.8 million in deposits, and capital
      of
      $13.8 million.




11
 Index


**SOUTHCREST
        FINANCIAL GROUP, INC. AND SUBSIDIARIES**


****


**ITEM2.
      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 six months ended June 30, 2007, our total assets decreased $12.5 million
      to
      $531.5 million at June 30,  2007.   This decline in
      total assets was primarily the result of a decline in deposits which resulted
      in
      a reduction of our federal funds sold.





During
      the year to date period, total loans increased $1.1 million, or 0.3%, while
      loans held for sale decreased $143,000.  Securities available for sale
      increased $1.7 million while securities held to maturity decreased $3.0 million
      due to maturities.  Federal funds sold declined $11.7
      million.





During
      the year to date period ended June 30, 2007 deposits decreased $15.6 million
      or
      3.4%.  Significant components of the decline included a $6.1 million
      decline in noninterest bearing deposits, a $5.7 million decrease in interest
      checking accounts, and a $9.1 million decline in certificates of
      deposit.  Money market accounts increased $5.3 million.  The
      decline in noninterest bearing accounts is attributable to declines in deposits
      of local governments.  The decline in certificate accounts is
      primarily due to the maturity of a certificate issued to a local
      government.  At June 30, 2007 we had purchased $504,000 million in
      federal funds.   The Company monitors changes in its loan
      portfolio and changes in its deposit levels, and seeks to maintain a proper
      mix
      of types, maturities, and interest rates. We believe that our cash flows and
      liquidity levels are adequate to support the Company’s loan growth.





Our
      total
      stockholders’ equity has increased by $2.2 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 $90,000 increase
      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 June 30,
      2007 and December 31, 2006:




**June
                30,**
            
            
            December
                31,**(Dollars
                In Thousands)**
            
            **2007**
            
            
            2006Commercial,
                financial, and agricultural
            
            **$**
            **23,769**
            
            
            $
            23,996Real
                estate – construction
            
            ****
            **69,270**
            
            
            
            59,745Real
                estate – mortgage
            
            ****
            **203,598**
            
            
            
            211,676Consumer
            
            ****
            **33,061**
            
            
            
            33,690Other
            
            ****
            **6,605**
            
            
            
            6,058****
            **336,303**
            
            
            
            335,165Unearned
                income
            
            ****
            **(156**
            **)**
            
            
            (159
            )Allowance
                for loan losses
            
            ****
            **(4,674**
            **)**
            
            
            (4,480
            )Loans,
                net
            
            **$**
            **331,473**
            
            
            $
            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 June 30, 2007 and December 31, 2006:





**June
                30,**
            
            
            December
                31,**(Dollars
                In Thousands)**
            
            **2007**
            
            
            2006Nonaccrual
                loans
            
            **$**
            **178**
            
            
            $
            479Loans
                  past due 90 days ormore and still accruing
            
            **$**
            **368**
            
            
            $
            1,015Loans
                  restructured undertroubled debt
            
            **$**
            **-**
            
            
            $
            -





Nonaccrual
      loans decreased $148,000 during the quarter ended June 30, 2007 decreasing
      from
      $326,000 to $178,000.  Nonaccrual loans at June 30, 2007 included
      $273,000 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 $27,000 related to nonaccrual loans at June
      30, 2007.





Information
      regarding impaired loans as of June 30, 2007 and December 31, 2006 are as
      follows:


13
 Index





**June
                30,**
            
            
            December
                31,**(Dollars
                In Thousands)**
            
            **2007**
            
            
            2006Impaired
                loans without a valuation allowance
            
            $
            -
            
            
            $
            -Impaired
                loans with a valuation allowance
            
            
            178
            
            
            
            479Total
                impaired loans
            
            $
            178
            
            
            $
            479Valuation
                allowance related to impaired loans
            
            $
            27
            
            
            $
            38Average
                investment in impaired loans
            
            $
            235
            
            
            $
            614





**Summary
      of Loan Loss Experience.****An analysis of SouthCrest’s loan
      loss experience is included in the following table for the periods ended June
      30, 2007 and 2006:





**Analysis
                of Allowance for Loan Losses****For
                The Three and Six Months Ended June 30, 2007****(Dollars
                In Thousands)**
            
            **Three
                Months**
            
            
            **Six
                Months****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Balance
                at beginning of period
            
            $
            4,667
            
            
            $
            3,625
            
            
            $
            4,480
            
            
            $
            3,477ChargeoffsCommercial
                loans
            
            
            27
            
            
            
            -
            
            
            
            47
            
            
            
            -Real
                estate - construction
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Real
                estate - mortgage
            
            
            -
            
            
            
            1
            
            
            
            -
            
            
            
            1Consumer
            
            
            135
            
            
            
            77
            
            
            
            239
            
            
            
            143Other
            
            
            24
            
            
            
            23
            
            
            
            58
            
            
            
            59Total
                Chargeoffs
            
            
            186
            
            
            
            101
            
            
            
            344
            
            
            
            203RecoveriesCommercial
                loans
            
            
            22
            
            
            
            -
            
            
            
            26
            
            
            
            -Real
                estate - construction
            
            
            -
            
            
            
            5
            
            
            
            -
            
            
            
            5Real
                estate - mortgage
            
            
            -
            
            
            
            -
            
            
            
            4
            
            
            
            4Consumer
            
            
            77
            
            
            
            76
            
            
            
            233
            
            
            
            172Other
            
            
            17
            
            
            
            21
            
            
            
            49
            
            
            
            63Total
                recoveries
            
            
            116
            
            
            
            102
            
            
            
            312
            
            
            
            244Net
                (chargeoffs) recoveries
            
            
            (70
            )
            
            
            1
            
            
            
            (32
            )
            
            
            41Additions
                charged to operations
            
            
            77
            
            
            
            133
            
            
            
            226
            
            
            
            241Balance
                at end of period
            
            $
            4,674
            
            
            $
            3,759
            
            
            $
            4,674
            
            
            $
            3,759Annualized
                ratio of net chargeoffs (recoveries)  during the period to
                average loans outstanding during the period
            
            
            0.08
            %
            
            
            0.00
            %
            
            
            0.02
            %
            
            
            -0.03
            %





**Allowance
      for Loan Losses.**The allowance for loan losses as of June
      30, 2007 was $4,674,000 compared to $4,480,000 at December 31, 2006 and
      $3,759,000 at June 30, 2006.  Of the increase in the allowance since
      June 30, 2006, $643,000 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 1.39% at June
      30,
      2007 compared to 1.34% as of December 31, 2006 and 1.30% at June 30, 2006.
      The provision for loan losses during the six-month period ended June 30, 2007
      of
      $226,000 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 and Six Months Ended June 30, 2007 and
      2006**




Net
      income for the three-month period ended June 30, 2007 amounted to $1,599,000,
      or
      $0.40 basic and diluted earnings per share, compared to net income of $1,426,000
      or $0.40 basic and diluted earnings per share for the same three-month period
      in
      2006, an increase of $176,000, or 12.1%.  Of this increase,
      approximately $231,000 is attributable to the net earnings of Peachtree
      Bank.  Net income for the six-month period ended June 30, 2007
      amounted to $3,204,000, or $0.81 basic and diluted earnings per share, compared
      to net income of $2,832,000 or $0.79 basic and diluted earnings per share for
      the same six-month period in 2006, an increase of $372,000, or
      13.1%.  Of this increase, approximately $448,000 is attributable to
      the net earnings of Peachtree
      Bank.       Results of operations for
      Peachtree Bank are not included in the results for the periods ended June 30,
      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 June 30, 2007 increased $843,000
      or
      18.2% over the same period in 2006.  Excluding the impact of
      Peachtree, net interest income would have increased $194,000 or
      4.2%.  The primary reason for the increase in net interest income is
      the growth in the average balance of the loan portfolio of $51.0 million during
      the quarter ended June 30, 2007 compared to the same period in
      2006.  This growth, along with an increase in the average yield on
      loans from 7.84% in 2006 to 8.40% in 2007, resulted in a $1.5 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 67.8% for the 2006 period to 69.6% for
      2007.  This change in the mix of our earning assets contributed to the
      54 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 55 basis points to 3.39% for the three months
      ended June 30, 2007 compared to the same period in 2006.  Since 2005,
      the Company has generally funded the growth in its loan portfolio with borrowed
      funds, primarily Federal Home Loan Bank advances, and with certificates of
      deposit.  These sources of funds typically carry higher rates of
      interest than other sources of funds such as checking and money market
      accounts.  In addition, interest rates on these funds have increased
      over last year as a result of increases in the Federal Reserve discount rate,
      and in case of certificates of deposits, competition from other banks for such
      funds.




These
      changes resulted in the net yield on earning assets increasing 12 basis points
      from 4.45% for the quarter ended June 30, 2006 to 4.57% for the current year
      period.  The net interest spread decreased from 3.89% in 2006 to 3.88%
      in 2007.




The
      following presents, for the three month periods ended June 30, 2007 and 2006,
      the main components of interest earning assets and interest bearing liabilities
      and related interest income and expense and effective yields and cost of
      funds.




15
 Index




Average
                Consolidated Balance Sheets and Net Interest Income AnalysisFor
                the Three Month Periods Ended June 30,*(Dollars
                in thousands)*Average
                Balances (1)
            
            
            Yields
                / Rates
            
            
            Income
                / Expense
            
            
            Increase
            
            
            Change
                Due to2007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            (Decrease)
            
            
            Rate
            
            
            Volume**Assets**Loans,
                including fee income
            
            $
            333,674
            
            
            $
            282,696
            
            
            
            8.40
            %
            
            
            7.84
            %
            
            $
            6,985
            
            
            $
            5,524
            
            
            $
            1,461
            
            
            $
            414
            
            
            $
            1,047Taxable
                securities
            
            
            114,207
            
            
            
            111,707
            
            
            
            4.65
            %
            
            
            4.39
            %
            
            
            1,325
            
            
            
            1,224
            
            
            
            101
            
            
            
            73
            
            
            
            28Nontaxable
                securities
            
            
            18,194
            
            
            
            11,634
            
            
            
            3.86
            %
            
            
            3.83
            %
            
            
            175
            
            
            
            111
            
            
            
            64
            
            
            
            1
            
            
            
            63Federal
                funds sold
            
            
            8,019
            
            
            
            7,253
            
            
            
            5.45
            %
            
            
            4.76
            %
            
            
            109
            
            
            
            86
            
            
            
            23
            
            
            
            13
            
            
            
            10Interest
                bearing deposits in banks
            
            
            5,282
            
            
            
            3,805
            
            
            
            6.83
            %
            
            
            5.27
            %
            
            
            90
            
            
            
            50
            
            
            
            40
            
            
            
            17
            
            
            
            23Total
                earning assets
            
            
            479,376
            
            
            
            417,095
            
            
            
            7.27
            %
            
            
            6.73
            %
            
            
            8,684
            
            
            
            6,995
            
            
            
            1,689
            
            
            
            518
            
            
            
            1,171Cash
                and due from banks
            
            
            12,554
            
            
            
            11,243Allowance
                for loan losses
            
            
            (4,668
            )
            
            
            (3,686
            )Other
                assets
            
            
            48,806
            
            
            
            29,721Total
            
            $
            536,068
            
            
            $
            454,373**Liabilities
                and Equity**Interest
                bearing demand (2)
            
            $
            127,651
            
            
            $
            112,058
            
            
            
            1.90
            %
            
            
            1.62
            %
            
            $
            605
            
            
            $
            452
            
            
            $
            153
            
            
            $
            85
            
            
            $
            68Savings
            
            
            36,035
            
            
            
            35,092
            
            
            
            0.69
            %
            
            
            0.58
            %
            
            
            62
            
            
            
            51
            
            
            
            11
            
            
            
            10
            
            
            
            1Certificates
                of deposit
            
            
            210,396
            
            
            
            176,705
            
            
            
            4.69
            %
            
            
            3.92
            %
            
            
            2,460
            
            
            
            1,727
            
            
            
            733
            
            
            
            372
            
            
            
            361Total
                interest bearing deposits
            
            
            374,082
            
            
            
            323,855
            
            
            
            3.35
            %
            
            
            2.76
            %
            
            
            3,127
            
            
            
            2,230
            
            
            
            897
            
            
            
            467
            
            
            
            430Borrowed
                funds
            
            
            6,457
            
            
            
            11,137
            
            
            
            5.59
            %
            
            
            5.08
            %
            
            
            90
            
            
            
            141
            
            
            
            (51
            )
            
            
            82
            
            
            
            (133
            )Total
                interest bearing liabilities
            
            
            380,539
            
            
            
            334,992
            
            
            
            3.39
            %
            
            
            2.84
            %
            
            
            3,217
            
            
            
            2,371
            
            
            
            846
            
            
            
            549
            
            
            
            297Noninterest
                bearing demand deposits
            
            
            78,128
            
            
            
            62,038Other
                liabilities
            
            
            7,324
            
            
            
            1,606Redeemable
                common stock held by ESOP
            
            
            996
            
            
            
            1,018Shareholders'
                equity
            
            
            69,081
            
            
            
            54,719Total
            
            $
            536,068
            
            
            $
            454,373Net
                interest income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            5,467
            
            
            $
            4,624
            
            
            $
            843
            
            
            $
            (31
            )
            
            $
            874Net
                interest yield on earning assets
            
            
            
            
            
            
            
            
            
            
            4.57
            %
            
            
            4.45
            %Net
                interest spread
            
            
            
            
            
            
            
            
            
            
            3.88
            %
            
            
            3.89
            %





(1) Daily
                averages. Loans include nonaccrual loans.(2) Includes
                money market accounts




The
      following presents, for the six month periods ended June 30, 2007 and 2006,
      the
      main components of interest earning assets and interest bearing liabilities
      and
      related interest income and expense and effective yields and cost of
      funds.




16
 Index




Average
                Consolidated Balance Sheets and Net Interest Income
                AnalysisFor
                the Six Month Periods Ended June 30,*(Dollars
                in thousands)*Average
                Balances (1)
            
            
            Yields
                / Rates
            
            
            Income
                / Expense
            
            
            Increase
            
            
            Change
                Due to2007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            (Decrease)
            
            
            Rate
            
            
            Volume**Assets**Loans,
                including fee income
            
            $
            333,302
            
            
            $
            279,406
            
            
            
            8.36
            %
            
            
            7.73
            %
            
            $
            13,814
            
            
            $
            10,715
            
            
            $
            3,099
            
            
            $
            920
            
            
            $
            2,179Taxable
                securities
            
            
            114,432
            
            
            
            112,726
            
            
            
            4.66
            %
            
            
            4.38
            %
            
            
            2,642
            
            
            
            2,449
            
            
            
            193
            
            
            
            156
            
            
            
            37Nontaxable
                securities
            
            
            18,234
            
            
            
            11,648
            
            
            
            3.90
            %
            
            
            3.91
            %
            
            
            353
            
            
            
            226
            
            
            
            127
            
            
            
            (2
            )
            
            
            129Federal
                funds sold
            
            
            9,273
            
            
            
            7,090
            
            
            
            5.59
            %
            
            
            5.32
            %
            
            
            257
            
            
            
            187
            
            
            
            70
            
            
            
            10
            
            
            
            60Interest
                bearing deposits in banks
            
            
            5,097
            
            
            
            3,621
            
            
            
            6.84
            %
            
            
            4.90
            %
            
            
            173
            
            
            
            88
            
            
            
            85
            
            
            
            42
            
            
            
            43Total
                earning assets
            
            
            480,338
            
            
            
            414,491
            
            
            
            7.24
            %
            
            
            6.65
            %
            
            
            17,239
            
            
            
            13,665
            
            
            
            3,574
            
            
            
            1,126
            
            
            
            2,448Cash
                and due from banks
            
            
            13,118
            
            
            
            11,920Allowance
                for loan losses
            
            
            (4,626
            )
            
            
            (3,621
            )Other
                assets
            
            
            48,441
            
            
            
            28,613Total
            
            $
            537,271
            
            
            $
            451,403**Liabilities
                and Equity**Interest
                bearing demand (2)
            
            $
            127,268
            
            
            $
            112,606
            
            
            
            1.84
            %
            
            
            1.51
            %
            
            $
            1,160
            
            
            $
            845
            
            
            $
            315
            
            
            $
            198
            
            
            $
            117Savings
            
            
            36,040
            
            
            
            35,467
            
            
            
            0.71
            %
            
            
            0.59
            %
            
            
            126
            
            
            
            103
            
            
            
            23
            
            
            
            21
            
            
            
            2Certificates
                of deposit
            
            
            212,152
            
            
            
            171,597
            
            
            
            4.69
            %
            
            
            3.75
            %
            
            
            4,932
            
            
            
            3,191
            
            
            
            1,741
            
            
            
            896
            
            
            
            845Total
                interest bearing deposits
            
            
            375,460
            
            
            
            319,670
            
            
            
            3.34
            %
            
            
            2.61
            %
            
            
            6,218
            
            
            
            4,139
            
            
            
            2,079
            
            
            
            1,115
            
            
            
            964Borrowed
                funds
            
            
            6,620
            
            
            
            13,175
            
            
            
            5.67
            %
            
            
            4.91
            %
            
            
            186
            
            
            
            321
            
            
            
            (135
            )
            
            
            121
            
            
            
            (256
            )Total
                interest bearing liabilities
            
            
            382,080
            
            
            
            332,845
            
            
            
            3.38
            %
            
            
            2.70
            %
            
            
            6,404
            
            
            
            4,460
            
            
            
            1,944
            
            
            
            1,236
            
            
            
            708Noninterest
                bearing demand deposits
            
            
            78,345
            
            
            
            61,338Other
                liabilities
            
            
            7,414
            
            
            
            1,878Redeemable
                common stock held by ESOP
            
            
            968
            
            
            
            999Shareholders'
                equity
            
            
            68,464
            
            
            
            54,343Total
            
            $
            537,271
            
            
            $
            451,403Net
                interest income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            10,835
            
            
            $
            9,205
            
            
            $
            1,630
            
            
            $
            (110
            )
            
            $
            1,740Net
                interest yield on earning assets
            
            
            
            
            
            
            
            4.55
            %
            
            
            4.48
            %Net
                interest spread
            
            
            
            
            
            
            
            
            
            
            3.86
            %
            
            
            3.95
            %





(1) Daily
                averages. Loans includes nonaccrual loans.(2) Includes
                money market accounts




Net
      interest income for the six months ended June 30, 2007 increased $1,630,000
      or
      17.7% over the same period in 2006.  Excluding the impact of
      Peachtree, net interest income would have increased $356,000 or
      3.9%.  The primary reason for the increase in net interest income is
      the growth in the average balance of the loan portfolio of $54.0 million during
      the quarter ended June 30, 2007 compared to the same period in
      2006.  This growth, along with an increase in the average yield on
      loans from 7.73% in 2006 to 8.36% in 2007, resulted in a $3.1 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 67.4% for the 2006 period to 69.4% for
      2007.  This change in the mix of our earning assets contributed to the
      59 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.




17
 Index




The
      average cost of funds increased 68 basis points to 3.38% for the six months
      ended June 30, 2007 compared to the same period in 2006.  Since 2005,
      the Company has generally funded the growth in its loan portfolio with borrowed
      funds, primarily Federal Home Loan Bank advances, and with certificates of
      deposit.  These sources of funds typically carry higher rates of
      interest than other sources of funds such as checking and money market
      accounts.  In addition, interest rates on these funds have increased
      over last year as a result of increases in the Federal Reserve discount rate,
      and in case of certificates of deposits, competition from other banks for such
      funds.




These
      changes resulted in the net yield on earning assets increasing one basis point
      from 4.48% for the six months ended June 30, 2006 to 4.55% for the current
      year
      period.  The net interest spread decreased from 3.95% in 2006 to 3.86%
      in 2007.




**Other
      Income***.*Total other income for the three-month period ended
      June 30, 2007 amounted to $1,597,000, compared to $1,335,000 for the same period
      in 2006, an increase of $262,000.  The addition of Peachtree accounted
      for $235,000 of this increase.  Other income for the six-month period
      ended June 30, 2007 amounted to $3,052,000, compared to $2,565,000 for the
      same
      period in 2006, an increase of $487,000.  The addition of Peachtree
      accounted for $379,000 of this increase.




For
      the
      three month period, service charges on deposit accounts declined $120,000
      excluding the impact of Peachtree due to a $115,000 reduction in NSF fees
      earned.  For the six month period, service charges on deposit accounts
      declined $215,000 due to a $218,000 reduction in NSF fees earned.  For
      the three month periods ended June 30, 2007 other service charges and fees
      increased $61,000 exclusive of Peachtree and results primarily from a $16,000
      increase in fees earned from brokerage services and a $9,000 increase in ATM
      fees.  For the six month period, other service charges and fees
      increased $87,000 exclusive of Peachtree and results primarily from a $39,000
      increase in debit card fees, the result of increased usage by the banks’
customers, a $27,000 increase in brokerage services, and a $12,000 increase
      in
      ATM fees.




For
      the
      three months ended June 30, 2007, net gain on sale of loans increased $20,000
      (excluding Peachtree) due to recognition of mortgage servicing rights of $44,000
      in the current year.  For the six month period, net gain on sale of
      loans exclusive of Peachtree increased $90,000 due to recognition of mortgage
      servicing rights of $89,000.   The following presents the
      activity in the Company’s mortgage servicing rights in 2007:




**Three**
            
            
            **Six****(Dollars
                In Thousands)**
            
            **Months**
            
            
            **Months**Beginning
                balance
            
            $
            418
            
            
            $
            375Servicing
                rights recognized
            
            
            74
            
            
            
            142Amortization
            
            
            (76
            )
            
            
            (101
            )Balance
                at June 30, 2007
            
            $
            416
            
            
            $
            416




Exclusive
      of Peachtree, income recognized on bank-owned life insurance increased $53,000
      for the three months ended June 30, 2007.  For the year to date
      period, income recognized on bank-owned life insurance increased $125,000
      exclusive of Peachtree.  The higher income earned in 2007 results from
      insurance contracts purchased in the third and fourth quarters of
      2006.  Exclusive of Peachtree, other income increased $13,000 for the
      three month period and $21,000 for the six month period.




**Other
      Expenses.**  Other expenses for the three-month period ended
      June 30, 2007 amounted to $4,660,000 compared to $3,709,000 for the same period
      in 2006, an increase of $951,000 or 25.6%.  Excluding the impact of
      Peachtree, these expenses increased $647,000 or 17.5%.  For the six
      months ended June 30, 2007, other expenses increased $384,000 exclusive of
      Peachtree, or 10.4%.




The
      largest component of other expenses is salaries and employee benefits, which
      excluding the impact of Peachtree increased $229,000 for the three month period
      and $465,000 for the six month period.  The significant causes of this
      increase include an increase in salaries of $144,000 (including cost of living
      and merit increases as well as costs attributable to new hires) and an increase
      in incentive expense of $68,000.  For the six month period, the
      increase in cost is attributable to increased salaries of  $297,000
      higher incentive expense of $135,000.




The
      compensation cost that was charged against income for our stock option plans
      was
      $27,000 and $24,000 for the three months ended June 30, 2007 and 2006,
      respectively, and $53,000 and $48,000 for the six month periods ended June
      30,
      2007 and 2006.  The total compensation cost related to nonvested
      awards not yet recognized at June 30, 2007 is $378,000 which will be recognized
      over the weighted average period of approximately 3.6 years.  See
“Note 3 – Stock Compensation Plans” in the notes to condensed consolidated
      financial statements for further information.




18
 Index




For
      the
      three month period ended June 30, 2007, amortization of intangibles increased
      $19,000.  Amortization of the core deposit intangible recorded in
      conjunction with the acquisition of Peachtree Bank amounted to $33,000 for
      the
      quarter.  For the six month period, amortization expense increased
      $33,000 of which $66,000 relates to the Peachtree
      acquisition.  Occupancy expenses increased $109,000 for the quarter of
      which $44,000 relates to Peachtree.  Excluding the addition of
      Peachtree, occupancy expenses increased $65,000 which includes $52,000 of higher
      depreciation costs, due primarily to depreciation recorded in 2007 associated
      with the renovation of the main office of Bank of Upson which was still under
      construction during 2006.  For the six month period, occupancy
      expenses increased $196,000, or $104,000 exclusive of Peachtree, which includes
      $82,000 in higher depreciation costs.  Other operating expenses
      increased $296,000 for the three months or $104,000 excluding the impact of
      Peachtree.  For the six month period, other operating expenses
      increased $448,000 or $109,000 excluding the impact of Peachtree.




**Income
      Taxes.**  The Company recorded income taxes totaling $728,000
      and $691,000 for the three-month periods ending June 30, 2007 and 2006,
      respectively.  Effective tax rates for the periods were 31.3% and
      32.6%, respectively.  For the six months ended June 30, 2007 and 2006,
      income taxes totaled $1,464,000 and $1,381,000,
      respectively.  Effective tax rates were 31.4% and 32.8%,
      respectively.  Tax-exempt interest income and income on bank-owned
      life insurance are the primary reasons that the Company’s effective tax rates
      are less than the statutory tax rate of 34%.




**Liquidity
      and Capital Resources**




Liquidity
      is our ability to meet deposit withdrawals immediately while also providing
      for
      the credit needs of our customers.  We monitor our liquidity resources
      on an ongoing basis. State and Federal regulatory authorities also monitor
      our
      liquidity on a periodic basis. As of June 30, 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 June 30, 2007, we had
      available to us additional federal funds lines of credit totaling $22.3 million
      in place with three banks and  $37.0 million of available funds on our
      line of credit with the Federal Home Loan Bank of Atlanta.





As
      disclosed in Note 8 of Notes to Condensed Consolidated Financial Statements,
      on
      July 1, 2007 the Company completed its acquisition of Bank of Chickamauga for
      $18 million in cash less certain costs related to the termination of the Bank
      of
      Chickamauga defined benefit plan.  To fund the acquisition, the
      Company borrowed $3 million against its line of credit and obtained $15 million
      in special dividends from its subsidiary banks, including $8 million from the
      Bank of Chickamauga and $3.5 million each from Upson and FNB
      Polk.  The banks were able to pay these special dividends from their
      existing liquidity.





At
      June
      30, 2007, our capital ratios were adequate based on regulatory minimum capital
      requirements. The minimum capital requirements and the actual capital ratios
      on
      a consolidated and bank-only basis are as follows:




**Minimum****Required****Minimum**
            
            
            **to
                be Well****Required**
            
            
            **Capitalized**
            
            
            **Consolidated**
            
            
            **Upson**
            
            
            **Polk**
            
            
            **Peachtree**Risk-based
                capital ratiosTotal
                risk based capital
            
            
            8.00
            %
            
            
            10.00
            %
            
            
            16.95
            %
            
            
            15.34
            %
            
            
            20.94
            %
            
            
            15.14
            %Tier
                1
            
            
            4.00
            %
            
            
            6.00
            %
            
            
            15.69
            %
            
            
            14.10
            %
            
            
            19.69
            %
            
            
            13.90
            %Tier
                1 leverage ratio
            
            
            4.00
            %
            
            
            5.00
            %
            
            
            11.12
            %
            
            
            10.50
            %
            
            
            12.69
            %
            
            
            9.85
            %





The
      capital ratios shown above do not reflect the special dividend paid by Upson
      or
      FNB Polk in connection with the Chickamauga acquisition as described
      above.  After payment of those dividends, both Upson and FNB Polk
      remained well-capitalized.





Capital
      ratios may decline as asset growth continues, but are expected to continue
      to
      exceed minimum regulatory requirements.





Other
      than the items described above, we are not aware of any trends, demands,
      commitments, events or uncertainties that will result, or are reasonably likely
      to result, in our liquidity increasing or decreasing in any material
      way.




**Off-Balance-Sheet
      Financing**




Our
      financial statements do not reflect various commitments and contingent
      liabilities that arise in the normal course of business. These off-balance-sheet
      financial instruments include commitments to extend credit and standby letters
      of credit. These financial instruments are included in the financial statements
      when funds are distributed or the instruments become payable. We use the same
      credit policies in making commitments as we do for on-balance ­sheet
      instruments. Our exposure to credit loss in the event of nonperformance by
      the
      other party to the financial instruments for commitments to extend credit,
      standby letters of credit and credit card commitments is represented by the
      contractual amount of those instruments. The table below contains a summary
      of
      our contractual obligations and commitments as of June 30, 2007.




19
 Index





**Commitments
                and Contractual Obligations****(Dollars
                in thousands)****Less
                than****one
                year**
            
            
            **1-3
                years**
            
            
            **3-5
                years**
            
            
            **Thereafter**
            
            
            **Total**Contractual
                obligationsDeposits
                having no stated maturity
            
            $
            238,477
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            238,477Certificates
                of Deposit
            
            
            172,269
            
            
            
            26,375
            
            
            
            9,902
            
            
            
            -
            
            
            
            208,546Federal
                funds purchased
            
            
            504
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            504FHLB
                  advances andother borrowed funds
            
            
            110
            
            
            
            5,156
            
            
            
            156
            
            
            
            468
            
            
            
            5,890Deferred
                compensation
            
            
            23
            
            
            
            46
            
            
            
            236
            
            
            
            2,646
            
            
            
            2,951Leases
            
            
            114
            
            
            
            230
            
            
            
            164
            
            
            
            335
            
            
            
            843Total
                contractual obligations
            
            $
            411,497
            
            
            $
            31,807
            
            
            $
            10,458
            
            
            $
            3,449
            
            
            $
            457,211CommitmentsCommitments
                to extend credit
            
            $
            39,927
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            39,927Credit
                card commitments
            
            
            9,293
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            9,293Commercial
                standby letters of credit
            
            
            925
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            925Total
                commitments
            
            $
            50,145
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            50,145


20
 Index




**ITEM3.  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
      June 30, 2007, SouthCrest’s market risk profile has not changed significantly
      from December 31, 2006. Changes in fair value that result from movement in
      market rates cannot be predicted with any degree of certainty. Therefore, the
      impact that future changes in market rates will have on the fair values of
      financial instruments is uncertain.




**ITEM4.
      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 Notes 7 and 8 of the Notes to Condensed Consolidated Financial
      Statements, on October 31, 2006 SouthCrest completed its acquisition of
      Maplesville Bancorp, the parent of Peachtree Bank, and on July 1, 2007 it
      completed its acquisition of Bank of Chickamauga (collectively “the acquired
      banks” or “the acqisitions”).  If SouthCrest does not successfully
      integrate the acquired banks into its business, SouthCrest may not realize
      the
      expected benefits from its acquisitions.    SouthCrest may
      encounter unforeseen expenses, as well as difficulties and complications in
      integrating the operations of the acquired banks with its overall
      operations.  SouthCrest expects that it be able to maintain most of
      the acquired banks’ key customers and personnel and integrate their operating
      systems and procedures with those of SouthCrest with a minimal amount of costs
      and diversion of management time and attention.  If SouthCrest is
      unable to integrate the acquired banks in a timely manner or experiences
      disruptions with their customer relationships, the anticipated benefits of
      the
      acquisitions may not be realized and SouthCrest’s results of operations may be
      adversely affected.





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.





21
 Index





**Item2.  Unregistered
      Sales
      of Equity Securities and Use of Proceeds**





The
      Company made no repurchases of its common stock during the quarter ended June
      30, 2007.





**Item3. Defaults
      upon
      Senior Securities**





None.





**Item4. Submission
      of
      Matters to a Vote of Security Holders**





The
      Company held its annual meeting on May 12, 2007.  The following
      directors were elected as for terms to expire as indicated:




Name
            Term
                to Expire
            Votes
                For
            Votes
                Withheld
            Broker
                NonvotesHarvey
                Clapp
            2008
            3,130,443
            6,000
            259,196Joan
                B. Cravey
            2010
            3,122,665
            13,778
            259,196Dr.
                Warren Patrick
            2010
            3,132,043
            4,400
            259,196Harold
                W. Wyatt, Jr.
            2010
            3,132,043
            4,400
            259,196





**Item5. Other
      Information**





None.





**Item6. 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




22
 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:  August
                14, 2007
            
            BY:
            
            /s/
                Larry T. KuglarLarry
                T. Kuglar.President
                and Chief Executive OfficerDATE:  August
                14, 2007
            
            BY:
            
            /s/
                Douglas J. HerthaDouglas
                J. HerthaSenior
                Vice President, Chief Financial
                Officer






23