**U.S.
        SECURITIES AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 
 
 **FORM
        10-QSB**
 
 
 **x**
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
 
 **For
        the quarterly period ended June 30, 2005**
 
  ̈
              **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: 333-112845**
 
 
 
 
 **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) 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  ̈
 
 State
        the
        number of shares outstanding of each of the issuer’s classes of common equity,
        as of August 15, 2005: 3,571,556.
 
 Transitional
        Small Business Disclosure Format Yes  ̈ No x
  SouthCrest Financial Group,
        Inc.
 **And
        Subsidiaries** ****
 
 **INDEX**
 
 **Page****PART
                  I.**
              **FINANCIAL
                  INFORMATION****Item
                  1. Financial Statements****Condensed
                  Consolidated Balance Sheets - June 30, 2005 and
                  December 31, 2004**
              **3****Condensed
                  Consolidated Statements of Income - Three and Six
                  Months Ended June 30, 2005 and 2004**
              **4****Condensed
                  Consolidated Statements of Comprehensive
                  Income - Three and Six Months Ended June 30, 2005 and
                  2004**
              **5****Condensed
                  Consolidated Statements of Cash Flows - Six
                  Months Ended June 30, 2005 and 2004**
              **6****Notes
                  to Condensed Consolidated Financial
                  Statements**
              **8****Item
                  2. Management’s Discussion and Analysis of Financial
                  Condition and Results of Operations**
              **11****Item
                  3. Controls and Procedures**
              **18****PART
                  II.**
              **OTHER
                  INFORMATION****Item
                  2 - Unregistered Sales of Equity Securities and Use of
                  Proceeds**
              **20****Item
                  4 - Submission of Matters To A Vote of Security
                  Holders**
              **20****Item
                  6 - Exhibits**
              **20****Signatures**
              **21**
 2
 *Table
              on Contents*
  **PART
        I - FINANCIAL INFORMATION**
 
 **ITEM
        1. FINANCIAL STATEMENTS**
  **SouthCrest
          Financial Group, Inc. and
          Subsidiaries**
 **Condensed
          Consolidated Balance Sheets**
 **June
          30, 2005 and December 31, 2004**
 ***(Dollars
                  in thousands)*****Assets**
              
              **(Unaudited)**
                **June
                  30,**
                **2005**
              
              (*)
                December
                  31,
                2004Cash
                  and due from banks
              
              **$**
              **11,493**
              
              $
              9,814Interest-bearing
                  deposits at other financial institutions
              
              
              **4,554**
              
              
              5,246Federal
                  funds sold
              
              
              **-**
              
              
              9,930Securities
                  available for sale
              
              
              **48,926**
              
              
              41,060Securities
                  held to maturity (fair value $88,016 and $88,239)
              
              
              **88,065**
              
              
              87,921Restricted
                  equity securities, at cost
              
              
              **1,288**
              
              
              620Loans
                  held for sale
              
              
              **388**
              
              
              675Loans,
                  net of unearned income
              
              
              **247,115**
              
              
              229,232Less
                  allowance for loan losses
              
              
              **3,253**
              
              
              3,161Loans,
                  net
              
              
              **243,862**
              
              
              226,071Premises
                  and equipment, net
              
              
              **10,127**
              
              
              8,886Goodwill
              
              
              **2,665**
              
              
              2,665Other
                  intangible assets, net
              
              
              **4,660**
              
              
              5,211Other
                  assets
              
              
              **9,307**
              
              
              9,413**Total
                  assets**
              
              **$**
              **425,335**
              
              $
              407,512**Liabilities,
                  Redeemable Common Stock, and Stockholders'
                  Equity**Liabilities:Deposits:Noninterest-bearing
              
              **$**
              **57,360**
              
              $
              56,477Interest-bearing
              
              
              **307,511**
              
              
              295,775Total
                  deposits
              
              
              **364,871**
              
              
              352,252Federal
                  Home Loan Bank advances
              
              
              **330**
              
              
              385Federal
                  funds purchased
              
              
              **2,060**
              
              
              -Note
                  payable
              
              
              **1,500**
              
              
              -Other
                  liabilities
              
              
              **3,689**
              
              
              3,685**Total
                  liabilities**
              
              
              **372,450**
              
              
              356,322Commitments
                  and contingenciesRedeemable
                  common stock held by ESOP
              
              
              **485**
              
              
              450Stockholders'
                  equityCommon
                  stock, par value $1; 10,000,000 shares authorized, 3,578,724
                  issued
              
              
              **3,579**
              
              
              3,579Additional
                  paid in capital
              
              
              **40,715**
              
              
              40,715Retained
                  earnings
              
              
              **8,216**
              
              
              6,931Accumulated
                  other comprehensive loss
              
              
              **(35**
              **)**
              
              (410
              )**52,475**
              
              
              50,815Less
                  cost of shares of treasury stock
              
              
              **(75**
              **)**
              
              (75
              )**Total
                  stockholders' equity**
              
              
              **52,400**
              
              
              50,740**Total
                  liabilities, redeemable common stock, and stockholders'
                  equity**
              
              **$**
              **425,335**
              
              $
              407,512
  **See
        Notes to Condensed Consolidated Financial Statements.**
 ***
        Derived from audited consolidated financial
        statements.**
  3
 *Table
            on Contents*
  **SouthCrest
        Financial Group, Inc. and
        Subsidiaries**
 **Condensed
        Consolidated Statements of Income**
 **For
        The Three and Six Months Ended June 30, 2005 and 2004**
 **(Unaudited)**
 ***(Dollars
        in thousands except per share amounts)***
  **Three
                  Months**
              
              **Six
                  Months****2005**
              
              2004
              
              **2005**
              
              2004**Interest
                  income:**Loans
              
              **$**
              **4,243**
              
              $
              2,211
              
              **$**
              **8,178**
              
              $
              4,400Securities
                  - Taxable
              
              
              **1,311**
              
              
              866
              
              
              **2,554**
              
              
              1,862Securities
                  - Nontaxable
              
              
              **141**
              
              
              97
              
              
              **287**
              
              
              192Federal
                  funds sold
              
              
              **52**
              
              
              10
              
              
              **132**
              
              
              18Interest-bearing
                  deposits at other banks
              
              
              **50**
              
              
              36
              
              
              **91**
              
              
              73**Total
                  interest income**
              
              
              **5,797**
              
              
              3,220
              
              
              **11,242**
              
              
              6,545**Interest
                  expense:**Deposits
              
              
              **1,471**
              
              
              824
              
              
              **2,765**
              
              
              1,682Other
                  borrowings
              
              
              **11**
              
              
              9
              
              
              **16**
              
              
              17**Total
                  interest expense**
              
              
              **1,482**
              
              
              833
              
              
              **2,781**
              
              
              1,699**Net
                  interest income**
              
              
              **4,315**
              
              
              2,387
              
              
              **8,461**
              
              
              4,846**Provision
                  for loan losses**
              
              
              **152**
              
              
              91
              
              
              **273**
              
              
              172**Net
                  interest income after provision for loan losses**
              
              
              **4,163**
              
              
              2,296
              
              
              **8,188**
              
              
              4,674**Other
                  income:**Service
                  charges on deposit accounts
              
              
              **876**
              
              
              511
              
              
              **1,636**
              
              
              929Other
                  service charges and fees
              
              
              **193**
              
              
              121
              
              
              **368**
              
              
              229Impairment
                  charge on investments (Note 4)
              
              
              **-**
              
              
              -
              
              
              **(600**
              **)**
              
              -Net
                  gain on sale of loans
              
              
              **39**
              
              
              60
              
              
              **78**
              
              
              141Other
                  operating income
              
              
              **121**
              
              
              52
              
              
              **267**
              
              
              159**Total
                  other income**
              
              
              **1,229**
              
              
              744
              
              
              **1,749**
              
              
              1,458**Other
                  expenses:**Salaries
                  and employee benefits
              
              
              **1,796**
              
              
              934
              
              
              **3,491**
              
              
              1,892Equipment
                  and occupancy expenses
              
              
              **381**
              
              
              175
              
              
              **748**
              
              
              350Amortization
                  of intangibles
              
              
              **206**
              
              
              137
              
              
              **551**
              
              
              275Other
                  operating expenses
              
              
              **1,030**
              
              
              553
              
              
              **2,024**
              
              
              1,071**Total
                  other expenses**
              
              
              **3,413**
              
              
              1,799
              
              
              **6,814**
              
              
              3,588**Income
                  before income taxes**
              
              
              **1,979**
              
              
              1,241
              
              
              **3,123**
              
              
              2,544**Income
                  tax expense**
              
              
              **621**
              
              
              366
              
              
              **946**
              
              
              747**Net
                  income**
              
              **$**
              **1,358**
              
              $
              875
              
              **$**
              **2,177**
              
              $
              1,797**Earnings
                  per share**
              
              **$**
              **0.38**
              
              $
              0.40
              
              **$**
              **0.61**
              
              $
              0.82**Dividends
                  per share**
              
              **$**
              **0.120**
              
              $
              0.115
              
              **$**
              **0.240**
              
              $
              0.230**Weighted
                  average number of shares outstanding**
              
              
              **3,571,556**
              
              
              2,180,585
              
              
              **3,571,556**
              
              
              2,180,585
  4
 *Table
            on Contents*
  **SouthCrest
        Financial Group, Inc. and
        Subsidiaries**
 **Condensed
        Consolidated Statements of Comprehensive Income**
 **For
        The Three And Six Months Ended June 30, 2005 and 2004**
 **(Unaudited)**
 ***(Dollars
        in thousands)***
  **Three
                  Months**
              
              **Six
                  Months****2005**
              
              2004
              
              **2005**
              
              2004**Net
                  income**
              
              **$**
              **1,358**
              
              $
              875
              
              **$**
              **2,177**
              
              $
              1,797**Other
                  comprehensive income (loss):**Unrealized
                  holding gain (loss) on securities available for sale arising during
                  period, net of tax
              
              
              **222**
              
              
              (43
              )
              
              **375**
              
              
              (26
              )**Comprehensive
                  income**
              
              **$**
              **1,580**
              
              $
              832
              
              **$**
              **2,552**
              
              $
              1,771
 
 **See
        Notes to Condensed Consolidated Financial Statements.**
  5
 *Table
            on Contents*
  **SouthCrest
        Financial Group, Inc. and
        Subsidiaries**
 **Condensed
        Consolidated Statements of Cash Flows**
 **For
        The Six Months Ended June 30, 2005 and 2004**
 **(Unaudited)**
 ***(Dollars
        in thousands)***
  **2005**
              
              2004**OPERATING
                  ACTIVITIES**Net
                  income
              
              **$**
              **2,177**
              
              $
              1,797Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              **382**
              
              
              213Amortization
                  of intangibles
              
              
              **551**
              
              
              275Provision
                  for loan losses
              
              
              **273**
              
              
              172Impairment
                  loss on investment securities
              
              
              **600**
              
              
              -Decrease
                  in interest receivable
              
              
              **149**
              
              
              59Increase
                  (decrease) in interest payable
              
              
              **130**
              
              
              (170
              )Net
                  gain on sale of loans
              
              
              **(78**
              **)**
              
              (141
              )Originations
                  of mortgage loans held for sale
              
              
              **(5,942**
              **)**
              
              (11,065
              )Proceeds
                  from sales of mortgage loans held for sale
              
              
              **6,307**
              
              
              11,526Net
                  other operating activities
              
              
              **(547**
              **)**
              
              408Net
                  cash provided by operating activities
              
              
              **4,002**
              
              
              3,074**INVESTING
                  ACTIVITIES**Purchases
                  of securities held to maturity
              
              
              **(8,667**
              **)**
              
              (4,095
              )Proceeds
                  from maturities of securities held to maturity
              
              
              **8,411**
              
              
              13,182Purchases
                  of securities available for sale
              
              
              **(12,001**
              **)**
              
              -Proceeds
                  from maturities of securities available for sale
              
              
              **4,053**
              
              
              -Purchases
                  of restricted equity securities
              
              
              **(668**
              **)**
              
              (90
              )Net
                  (increase) decrease in interest-bearing deposits in banks
              
              
              **692**
              
              
              (86
              )Net
                  decrease in federal funds sold
              
              
              **9,930**
              
              
              7,900Net
                  increase in loans
              
              
              **(17,830**
              **)**
              
              (8,360
              )Purchase
                  of premises and equipment
              
              
              **(1,623**
              **)**
              
              (233
              )Proceeds
                  from sale of other real estate owned
              
              
              **113**
              
              
              -Net
                  cash provided by (used in) investing activities
              
              
              **(17,590**
              **)**
              
              8,218**FINANCING
                  ACTIVITIES**Net
                  increase (decrease) in deposits
              
              
              **12,619**
              
              
              (10,827
              )Principal
                  repayments on Federal Home Loan Bank advances
              
              
              **(55**
              **)**
              
              (55
              )Net
                  increase in federal funds purchased
              
              
              **2,060**
              
              
              695Proceeds
                  from other borrowings
              
              
              **1,500**
              
              
              -Dividends
                  paid
              
              
              **(857**
              **)**
              
              (494
              )Net
                  cash provided by (used in) financing activities
              
              
              **15,267**
              
              
              (10,681
              )Net
                  increase in cash and due from banks
              
              
              **1,679**
              
              
              611Cash
                  and due from banks at beginning of year
              
              
              **9,814**
              
              
              7,262Cash
                  and due from banks at end of period
              
              **$**
              **11,493**
              
              $
              7,873
  **See
        Notes to Condensed Consolidated Financial Statements.**
  6
 *Table
            on Contents*
  **SouthCrest
        Financial Group, Inc. and
        Subsidiaries**
 **Condensed
        Consolidated Statements of Cash Flows (continued)**
 **For
        The Six Months Ended June 30, 2005 and 2004**
 **(Unaudited)**
  ***(Dollars
                  in
                  thousands)*****2005**
              
              2004**SUPPLEMENTAL
                  DISCLOSURES**Cash
                  paid for:Interest
              
              **$**
              **2,651**
              
              $
              1,869Income
                  taxes
              
              
              **1,165**
              
              
              369**NONCASH
                  TRANSACTION**Principal
                  balances of loans transferred to other real estate owned
              
              **$**
              **184**
              
              $
              105Increase
                  in redeemable common stock held by ESOP
              
              
              **35**
              
              
              -Unrealized
                  gain (loss) on securities available for sale, net
              
              
              **375**
              
              
              (26
              )
 
 **See
        Notes to Condensed Consolidated Financial Statements.**
  7
 *Table
            on Contents*
  **SouthCrest
        Financial Group, Inc. and Subsidiaries**
 **Notes
        to Condensed Consolidated Financial Statements**
 **(Unaudited)**
 
 **NOTE
        1 - NATURE OF BUSINESS AND BASIS OF PRESENTATION**
 
 SouthCrest
        Financial Group, Inc. (“SouthCrest,” or the “Company”) is a bank holding company
        whose principal activity is the ownership and management of its wholly owned
        subsidiary banks, Bank of Upson (“Upson”) and The First National Bank of Polk
        County (“FNB Polk”). Both 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 its primary market area of Polk County.
 
 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, 2005 are not necessarily indicative of the
        results that may be expected for the year ended December 31, 2005. For further
        information, refer to the Company's consolidated financial statements and
        notes
        thereto for the year ended December 31, 2004 included in the Company’s Form
        10-KSB (Registration
        No. 333-112845).
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        wholly-owned subsidiaries, Bank of Upson and The First National Bank of Polk
        County. 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
        shareholders by the weighted average number of shares outstanding during
        the
        period, which totaled 3,571,556 and 2,180,585 for the three- and six-months
        ended June 30, 2005 and 2004, respectively. 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 potential common shares. There were
        no
        potential common shares outstanding at June 30, 2005 and 2004.
 
 At
        the
        Company’s annual shareholders’ meeting held May 12, 2005, shareholders approved
        the adoption of the SouthCrest Financial Group, Inc. 2005 Stock Incentive
        Plan
        (the “Plan”), which provides for up to 549,000 shares of the Company’s stock to
        be awarded in the form of stock options. No options have been issued under
        the
        Plan. The impact of the Plan on the Company’s consolidated financial statements
        is not currently known, and will depend on the number of shares awarded under
        the Plan, the strike price at which options granted may be exercised, the
        time
        period over which those shares become exercisable by the recipient, and other
        criteria in determining the fair value of such options.
 
 **NOTE
        3 - LOANS RECEIVABLE**
  Major
        classifications of loans and leases are as follows (dollars in
        thousands):
 
 **June
                  30,**
                **2005**
              
              December
                  31,
                2004Commercial,
                  financial, and agricultural
              
              **$**
              **19,032**
              
              $
              18,560Real
                  estate - construction
              
              
              **33,915**
              
              
              25,265Real
                  estate - mortgage
              
              
              **155,172**
              
              
              145,413Consumer
              
              
              **33,424**
              
              
              35,680Other
              
              
              **5,766**
              
              
              4,415**247,309**
              
              
              229,333Unearned
                  income
              
              
              **(194**
              **)**
              
              (101
              )Allowance
                  for loan losses
              
              
              **(3,253**
              **)**
              
              (3,161
              )Loans,
                  net
              
              **$**
              **243,862**
              
              $
              226,071
 8
 *Table
              on Contents*
  **NOTE
        4 - IMPAIRMENT OF SECURITIES**
 
 In
        the
        quarter ended March 31, 2005, the Company recorded an impairment charge of
        $600,000 on $2.5 million of Federal Home Loan Mortgage Corporation (“Freddie
        Mac”) and Federal National Mortgage Association (“Fannie Mae”) perpetual
        preferred stock. The reclassification of an unrealized mark-to-market loss
        on
        these securities to an other-than-temporary impairment charge was based upon
        a
        detailed impairment analysis of these securities. Losses on the securities
        were
        previously recognized in the equity section of the balance sheet.
  **NOTE
        5 - OTHER BORROWED FUNDS**
 
 On
        June
        29, 2005 the Company entered into a $2 million line of credit on which it
        had
        drawn $1.5 million as of June 30, 2005. In July 2005 the line was repaid.
        The
        line of credit is available for a period of one year and is secured by the
        common stock of the Company’s subsidiary banks. The interest rate for the line
        of credit is established as prime rate minus 0.50%. Interest is payable
        quarterly with any unpaid principal due at maturity. The agreement contains
        restrictions concerning the maintenance of certain minimum capital levels
        and
        regulatory capital ratios, loan loss reserves, and profitability ratios.
        The
        primary purpose of the line is to provide funds for the Company that may
        be
        needed in connection with its announced stock repurchase plan.
 
 **NOTE
        6 - COMPLETION OF MERGER WITH FIRST POLK BANKSHARES, INC.**
 
 On
        September 30, 2004 the Company completed its merger with First Polk Bankshares,
        Inc., a bank holding company based in Cedartown, Georgia and the parent company
        of The First National Bank of Polk County. In connection with this merger,
        the
        Company issued 1,484,029 shares of common stock in exchange for all the
        outstanding common shares of Polk Bankshares, Inc. A stipulation to the merger
        agreement was that shareholders of both companies could elect to redeem their
        shares at a price of $16.00 per share, with the provision that the maximum
        aggregate amount of cash that would be paid to shareholders electing cash
        would
        be $1.5 million, or 93,750 shares. As a result, 93,058 shares were redeemed
        for
        cash for a total of $1,488,928.
 The
        merger was accounted for under the purchase method of accounting. Accordingly,
        results of operations for The First National Bank of Polk County are included
        in
        the results of operations of SouthCrest prospectively from the date of merger,
        and the purchase price of $24.2 million was allocated to the fair values
        of
        First Polk’s assets and liabilities. During the quarter ended June 30, 2005 the
        Company completed its valuation study of the core deposit intangible asset
        acquired in connection with the merger. In accordance with accounting
        requirements, the purchase accounting allocation for this transaction was
        adjusted to reflect the fair values from this valuation study. As a result,
        the
        core deposit intangible asset was adjusted from $6 million to $2.4 million
        with
        the remainder being reallocated to goodwill of $2.7 million and deferred
        income
        taxes of $0.9 million. Such account reclassifications are reflected as of
        December 31, 2004 and have no effect on stockholders’ equity as previously
        reported. The core deposit intangible will be amortized on an accelerated
        basis
        with $551,000 expensed in the first year following consummation of the purchase
        declining to $252,000 in the second year and $199,000 in future years. The
        Company will perform impairment testing of goodwill and the core deposit
        intangible annually as of a September 30 anniversary date.
 
 The
        following schedule presents unaudited pro forma information for revenues
        and net
        income as if the combination had occurred at the beginning of each period.
        Revenues include net interest income plus other income less proforma merger
        adjustments affecting revenues. Net income includes the net income of the
        two
        entities less the proforma effect of merger adjustments, including the
        amortization of intangibles:
  ***(dollars
          in thousands except per share amounts)***
 **Three
                  Months**
              
              **Year
                  To Date****2005**
              
              **2004**
              
              **2005**
              
              **2004**Revenues
              
              $
              7,026
              
              $
              6,478
              
              $
              12,991
              
              $
              13,021Net
                  Income
              
              $
              1,358
              
              $
              1,483
              
              $
              2,177
              
              $
              2,895Earnings
                  per share
              
              $
              0.38
              
              $
              0.40
              
              $
              0.61
              
              $
              0.79
  9
 *Table
            on Contents*
  **NOTE
        7 - INTANGIBLE ASSETS**
 
 The
        following information relates to intangible assets (dollars in
        thousands)
 
 As
                  of June 30, 2005
              
              As
                  of December 31, 2004GrossCarryingAmount
              
              AccumulatedAmortization
              
              GrossCarryingAmount
              
              AccumulatedAmortizationGoodwill
              
              $
              2,665
              
              $
              -
              
              $
              2,665
              
              $
              -Core
                  Deposit Intangible
              
              $
              7,674
              
              $
              (3,014
              )
              $
              7,674
              
              $
              (2,463
              )
 
 Amortization
        expense was $206,000 and $551,000 for the three and six months ended June
        30,
        2005, and $137,000 and $275,000 for the three and six months ended June 30,
        2004. Estimated amortization expense for the current and future years is
        as
        follows (dollars in thousands):
 
 2005
              
              $
              9632006
              
              
              7852007
              
              
              7502008
              
              
              7502009
              
              
              725Thereafter
              
              
              1,238Total
              
              $
              5,211
 10
 *Table
              on Contents*
  **SouthCrest
        Financial Group, Inc. and Subsidiaries**
  **ITEM
                    2.**
                **Management’s
                    Discussion and Analysis of Financial Condition and Results of
                    Operations**
 
 The
        following is management’s discussion and analysis of certain significant factors
        which have affected the financial position and operating results of SouthCrest
        Financial Group, Inc. and its bank subsidiaries, Bank of Upson and the First
        National Bank of Polk County 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
        footnotes to the consolidated financial statements for the year ended December
        31, 2004 included in our Form 10-KSB (Registration No. 333-112845). 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.
  11
 *Table
            on Contents*
  **Accounting
        Pronouncements Affecting Future Periods**
  In
        December 2004, the FASB issued SFAS No. 123(R), *Accounting
        for Stock-Based Compensation* (SFAS
        No. 123(R)). SFAS No. 123(R) establishes standards for the accounting for
        transactions in which an entity exchanges its equity instruments for goods
        or
        services. This Statement focuses primarily on accounting for transactions
        in
        which an entity obtains employee services in share-based payment transactions.
        SFAS No. 123(R) requires that the fair value of such equity instruments be
        recognized as an expense in the historical financial statements as services
        are
        performed. Prior to SFAS No. 123(R), only certain pro forma disclosures of
        fair
        value were required. The provisions of this Statement are effective for the
        first fiscal year reporting period beginning after June 15, 2005. Accordingly,
        the Company will adopt SFAS No. 123(R) commencing with the quarter ending
        March
        31, 2006. The Company has adopted a stock incentive plan, as discussed in
        Note
        2, but has not awarded any shares under the Plan. The adoption of this standard
        would have no effect on the current financial statements; yet, upon grants
        of
        options under the Plan, the Company’s consolidated financial statements will be
        effected with the expensing of such awards commencing in 2006.
 
 **Recent
        Developments**
 
 On
        September 30, 2004 we completed our merger with First Polk Bankshares, Inc.
        (“First Polk”), whereby First Polk merged with and into Upson Bankshares, Inc.,
        with the name of the surviving company changing to SouthCrest Financial Group,
        Inc. The merger combined our business with that of First Polk’s under a single
        holding company. As a result of the merger, SouthCrest owns two bank
        subsidiaries: Bank of Upson and The First National Bank of Polk County. Our
        combined company provides a full line of commercial and consumer services
        and
        products and operates nine full-service bank offices located in Upson, Polk,
        Fayette and Meriwether Counties.
 
 Subsequent
        to the merger, shareholders of both companies could elect to redeem their
        shares
        at a price of $16.00 per share, with the provision that the maximum aggregate
        amount of cash that would be paid to shareholders electing cash would be
        $1.5
        million, or 93,750 shares. After the merger was completed on September 30,
        2004,
        shareholders were given a period of time in which to elect to receive cash
        in
        lieu of stock. As a result, 93,058 shares were redeemed for cash for a total
        of
        $1,488,928.
  **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, 2005, we believe our liquidity,
        as
        determined under guidelines established by regulatory authorities and internal
        policies, was satisfactory. In addition, we have the ability on a short-term
        basis to borrow and purchase Federal funds from other financial institutions.
        At
        June 30, 2005, we had total federal funds lines of credit totaling $19.79
        million in place with three banks, and a $20.0 million line of credit with
        the
        Federal Home Loan Bank of Atlanta.
 
 At
        June
        30, 2005, our capital ratios substantially exceeded 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
                Required
                to
                  be Well
                Capitalized
              Consolidated
              Upson
              PolkRisk-based
                  capital ratiosTotal
                  risk based capital
              8.00%
              10.00%
              18.69%
              15.93%
              22.40%Tier
                  1
              4.00%
              6.00%
              17.51%
              14.76%
              21.15%Tier
                  1 leverage ratio
              4.00%
              5.00%
              11.13%
              9.69%
              12.68%
 
 These
        ratios may decline as asset growth continues, but are expected to continue
        to
        exceed minimum regulatory requirements.
 
 In
        the
        fourth quarter of 2004, FNB Polk began a branch construction project to double
        the size of its Rockmart branch, increasing its size from approximately 4,200
        square feet to 9,200 square feet. The project was completed in July 2005
        with
        the final cost of $950,000. Bank of Upson has begun a project to rebuild
        its
        main office in Thomaston, Georgia. This project will replace substantially
        all
        of its current facility, increasing its size from 16,000 to 26,000 square
        feet.
        Management expects that the construction for this project, which will take
        place
        in phases, will require approximately eighteen months to complete. The
        approximate cost of the project is estimated to be between $4.75 million
        and
        $5.25 million.
 
 In
        November, 2004 Upson opened a new full-service branch office in Fayetteville,
        Fayette County, Georgia operating under the name of “SouthCrest Bank.” The
        branch is located in a leased facility and is subject to a five-year
        lease.
  12
 *Table
            on Contents*
  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 Arrangements**
 
 We
        are a
        party to financial instruments with off-balance sheet risk in the normal
        course
        of business to meet the financing needs of our customers. These financial
        instruments include commitments to extend credit and standby letters of credit.
        Such commitments involve, to varying degrees, elements of credit risk and
        interest rate risk in excess of the amount recognized in the balance sheets.
 
 Our
        exposure to credit loss in the event of nonperformance by the other party
        to the
        financial instrument for commitments to extend credit and standby letters
        of
        credit is represented by the contractual amount of those instruments. We
        use the
        same credit policies in making commitments and conditional obligations as
        we do
        for on-balance sheet instruments. A summary of our commitments as of June
        30,
        2005 and December 31, 2004 are as follows (dollars in thousands):
 
 **June
                  30,**
                **2005**
              
              December
                  31,
                2004Commitments
                  to extend credit
              
              **$**
              **31,260**
              
              $
              22,391Credit
                  card commitments
              
              
              **7,739**
              
              
              7,584Commercial
                  letters of credit
              
              
              **161**
              
              
              261**$**
              **39,160**
              
              $
              30,236
 
 Commitments
        to extend credit are agreements to lend to a customer as long as there is
        no
        violation of any condition established in the contract. Since many of the
        commitments are expected to expire without being drawn upon, the total
        commitment amounts do not necessarily represent future cash requirements.
 
 Commercial
        letters of credit are conditional commitments issued by us to guarantee the
        performance of a customer to a third party. Those letters of credit are
        primarily issued to support public and private borrowing arrangements. The
        credit risk involved in issuing letters of credit is essentially the same
        as
        that involved in extending loans to customers. Collateral is required in
        instances which we deem necessary.
 
 **Financial
        Condition**
 
 Our
        total
        assets increased from $407.5 million at December 31, 2004 to $425.3 million
        at
        June 30, 2005, an increase of $17.8 million, or 4.4%. During this six month
        period, total loans increased $17.9 million, or 7.8%. The increase in loans
        was
        due to a focus on loan growth with the opening of a new branch in Fayetteville,
        Georgia. Securities available for sale increased $7.9 million while securities
        held to maturity increased $144,000. Federal funds sold declined $9.9 million.
 
 During
        the quarter ended June 30, 2005, the Company completed its valuation study
        of
        the core deposit intangible asset acquired in connection with its merger
        with
        First Polk Bankshares, Inc. In accordance with accounting requirements, the
        purchase accounting allocation for this transaction was adjusted to reflect
        the
        fair values from this valuation study. As a result, the core deposit intangible
        asset was adjusted from $6 million to $2.4 million with the remainder being
        reallocated to goodwill of $2.7 million and deferred income taxes of $0.9
        million. Such account reclassifications are reflected as of December 31,
        2004
        and have no effect on shareholders’ equity as previously reported. The core
        deposit intangible will be amortized on an accelerated basis with $551,000
        expensed in the first year following consummation of the purchase declining
        to
        $252,000 in the second year and $199,000 in future years. The Company will
        perform impairment testing of goodwill and the core deposit intangible annually
        as of a September 30 anniversary date.
 
 Deposits
        increased $12.6 million during the six month period in 2005. The increase
        in
        loans and securities was funded by this increase in deposits, as well as
        by the
        decline in federal funds sold. The Company monitors the growth 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 increased by $1.7 million during the six months ended June
        30, 2005, primarily from net earnings less cash dividends paid to stockholders.
        Of this increase, $375,000 was due to an improvement in the unrealized losses
        on
        securities available for sale, net of deferred taxes, during the period.
 
 **Loan
        Portfolio** *.* The
        following table presents various categories of loans contained in Bank of
        Upson’s and The First National Bank of Polk County’s loan portfolios as of June
        30, 2005 and December 31, 2004.
  13
 *Table
            on Contents*
  *(dollars
                  in thousands)*
              
              **June
                  30, 2005**
              
              December
                  31, 2004Commercial,
                  financial, and agricultural
              
              **$**
              **19,032**
              
              $
              18,560Real
                  estate - construction
              
              
              **33,915**
              
              
              25,265Real
                  estate - mortgage
              
              
              **155,172**
              
              
              145,413Consumer
              
              
              **33,424**
              
              
              35,680Other
              
              
              **5,766**
              
              
              4,415**247,309**
              
              
              229,333Unearned
                  income
              
              
              **(194**
              **)**
              
              (101
              )Allowance
                  for loan losses
              
              
              **(3,253**
              **)**
              
              (3,161
              )Loans,
                  net
              
              **$**
              **243,862**
              
              $
              226,071
 
 **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, 2005 and
        December 31, 2004:
 
 ***(Dollars
                  in thousands)***
              
              **June
                  30,**
                **2005**
              
              **December
                  31,**
                **2004**Nonaccrual
                  loans
              
              $
              177
              
              $
              190Loans
                  past due 90 days or more and still accruing
              
              $
              386
              
              $
              186Loans
                  restructured under troubled debt
              
              $
              -
              
              $
              -
 
 Information
        regarding impaired loans as of June 30, 2005 and December 31, 2004 are as
        follows:
 
 *(Dollars
                  in thousands)*
              
              **June
                  30,**
                **2005**
              
              **December
                  31,**
                **2004**Impaired
                  loans without a valuation allowance
              
              $
              -
              
              $
              -Impaired
                  loans with valuation allowances of $27 and $29,
                  respectively
              
              $
              177
              
              $
              190Average
                  investment in impaired loans for the period
              
              $
              295
              
              $
              47
 
 **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, 2005 and 2004:
  14
 *Table
            on Contents*
  **Analysis
          of Allowance for Loan Losses**
 For
          The
          Three And Six Months Ended June 30,
 *(dollars
                  in thousands)*
              
              **Three
                  Months**
              
              **Six
                  Months****2005**
              
              **2004**
              
              **2005**
              
              **2004**Balance
                  at beginning of period
              
              $
              3,208
              
              $
              1,883
              
              $
              3,161
              
              $
              1,825ChargeoffsCommercial
                  loans
              
              
              -
              
              
              -
              
              
              -
              
              
              -Real
                  estate - construction
              
              
              -
              
              
              -
              
              
              -
              
              
              -Real
                  estate - mortgage
              
              
              11
              
              
              17
              
              
              11
              
              
              23Consumer
              
              
              131
              
              
              107
              
              
              287
              
              
              158Other
              
              
              62
              
              
              39
              
              
              84
              
              
              77Total
                  Chargeoffs
              
              
              204
              
              
              163
              
              
              382
              
              
              258RecoveriesCommercial
                  loans
              
              
              -
              
              
              -
              
              
              2
              
              
              -Real
                  estate - construction
              
              
              -
              
              
              -
              
              
              -
              
              
              -Real
                  estate - mortgage
              
              
              -
              
              
              14
              
              
              -
              
              
              31Consumer
              
              
              91
              
              
              49
              
              
              146
              
              
              76Other
              
              
              6
              
              
              12
              
              
              53
              
              
              40Total
                  recoveries
              
              
              97
              
              
              75
              
              
              201
              
              
              147Net
                  (chargeoffs)
              
              
              (107
              )
              
              (88
              )
              
              (181
              )
              
              (111
              )Additions
                  charged to operations
              
              
              152
              
              
              91
              
              
              273
              
              
              172Balance
                  at end of period
              
              $
              3,253
              
              $
              1,886
              
              $
              3,253
              
              $
              1,886Annualized
                  ratio of net chargeoffs during the period to average loans outstanding
                  during the period
              
              
              0.18
              %
              
              0.27
              %
              
              0.16
              %
              
              0.17
              %
 
 **Allowance
        for Loan Losses.** The
        allowance for loan losses as of June 30, 2005 was $3,253,000 compared to
        $3,161,000 at December 31, 2004 and $1,876,000 at June 30, 2004. The large
        increase in the allowance since June 30, 2004 relates to the $1.26 million
        addition to the allowance attributable to the merger with FNB Polk. As a
        percentage of loans net of unearned interest, the allowance for loan losses
        was
        1.32% at June 30, 2005 compared to 1.38% as of December 31, 2004, with most
        of
        this decline due to the $17.9 million increase in loans, as reserves for
        the new
        loans were generally provided for at rates less than 1.00%. The provision
        for
        loan losses during the six-month period ended June 30, 2005 of $273,000 was
        the
        result of management's assessment of risks inherent in the loan portfolio.
        Information provided from internal loan review procedures provided by management
        and from the Banks’ regulatory agencies, and other information known to the
        Banks' Boards of Directors, are utilized by the Boards of Directors to monitor,
        on a quarterly basis, the loan portfolio. Specifically, management and the
        Banks' Boards of Directors attempt to identify risks inherent in the loan
        portfolio (e.g., problem loans, potential problem loans and loans to be charged
        off), assess the overall quality and collectibility of the loan portfolio,
        and
        determine amounts of the allowance for loan losses and the provision for
        loan
        losses to be reported based on the results of their review.
 
 Management
        considers the allowance for loan losses to be adequate and sufficient; 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, 2005 and 2004**
 
 Net
        income for the three-month period ended June 30, 2005 amounted to $1,358,000
        or
        $0.38 basic earnings per share, compared to net income of $875,000, or $0.40
        basic earnings per share, for the same three-month period in 2004, an increase
        of $483,000 or 55.2%. For the six-month year-to-date periods, net income
        was
        $2,177,000, or $0.61 per share, in 2005 compared to $1,797,000 in 2004. The
        declines in earnings per share are primarily caused by an increase in the
        number
        of shares outstanding as a result of the merger
        with First Polk Bankshares, Inc. as of September 30, 2004. The
        following is a brief discussion of the more significant components of net
        income
        during these periods.
 
 15
 *Table
            on Contents*
  **Net
        Interest Income** *.* Net
        interest income represents the difference between interest received on interest
        earning assets and interest paid on interest bearing liabilities. The following
        presents, for the three month periods ended June 30, 2005 and 2004, the main
        components of interest earning assets and interest bearing liabilities and
        related interest income and expense and effective yields and cost of funds.
        The
        table also presents the changes in income and expense attributable to changes
        in
        volume and changes in average rates.
  Average
            Consolidated Balance Sheets and Net Interest Income Analysis
 (Dollars
          in thousands)
 Average
                  Balances (1)
              
              Yields
                  / Rates
              
              Income
                  / Expense
              
              Increase
              
              Change
                  Due to2005
              
              2004
              
              2005
              
              2004
              
              2005
              
              2004
              
              (Decrease)
              
              Rate
              
              Volume**Assets**Loans,
                  including fee income
              
              $
              237,533
              
              $
              131,971
              
              
              7.16
              %
              
              6.74
              %
              $
              4,243
              
              $
              2,211
              
              $
              2,032
              
              $
              147
              
              $
              1,885Taxable
                  securities
              
              
              127,032
              
              
              84,515
              
              
              4.14
              %
              
              4.12
              %
              
              1,311
              
              
              866
              
              
              445
              
              
              4
              
              
              441Nontaxable
                  securities
              
              
              12,413
              
              
              7,908
              
              
              4.56
              %
              
              4.93
              %
              
              141
              
              
              97
              
              
              44
              
              
              (46
              )
              
              90Federal
                  funds sold
              
              
              6,907
              
              
              5,137
              
              
              3.02
              %
              
              0.78
              %
              
              52
              
              
              10
              
              
              42
              
              
              37
              
              
              5Interest
                  bearing deposits in banks
              
              
              4,781
              
              
              4,843
              
              
              4.19
              %
              
              2.99
              %
              
              50
              
              
              36
              
              
              14
              
              
              17
              
              
              (3
              )Total
                  earning assets
              
              
              388,666
              
              
              234,374
              
              
              5.98
              %
              
              5.53
              %
              
              5,797
              
              
              3,220
              
              
              2,577
              
              
              159
              
              
              2,418Cash
                  and due from banks
              
              
              10,218
              
              
              7,092Allowance
                  for loan losses
              
              
              (3,195
              )
              
              (1,909
              )Other
                  assets
              
              
              26,445
              
              
              12,468Total
              
              $
              422,134
              
              $
              252,025**Liabilities
                  and Equity**Interest
                  bearing demand (2)
              
              $
              116,727
              
              $
              71,869
              
              
              0.94
              %
              
              0.71
              %
              $
              273
              
              $
              127
              
              $
              146
              
              $
              50
              
              $
              96Savings
              
              
              37,684
              
              
              20,108
              
              
              0.48
              %
              
              0.50
              %
              
              45
              
              
              25
              
              
              20
              
              
              (7
              )
              
              27Certificates
                  of deposit
              
              
              152,194
              
              
              97,203
              
              
              3.04
              %
              
              2.78
              %
              
              1,153
              
              
              673
              
              
              480
              
              
              68
              
              
              412Total
                  interest bearing deposits
              
              
              306,605
              
              
              189,180
              
              
              1.92
              %
              
              1.75
              %
              
              1,471
              
              
              825
              
              
              646
              
              
              111
              
              
              535Short-term
                  borrowed funds
              
              
              537
              
              
              7
              
              
              3.73
              %
              
              0.00
              %
              
              5
              
              
              -
              
              
              5
              
              
              -
              
              
              5Long-term
                  debt
              
              
              347
              
              
              440
              
              
              6.94
              %
              
              7.31
              %
              
              6
              
              
              8
              
              
              (2
              )
              
              -
              
              
              (2
              )Total
                  interest bearing liabilities
              
              
              307,489
              
              
              189,627
              
              
              1.93
              %
              
              1.77
              %
              
              1,482
              
              
              833
              
              
              649
              
              
              111
              
              
              538Noninterest
                  bearing demand deposits
              
              
              58,698
              
              
              33,203Other
                  liabilities
              
              
              3,661
              
              
              2,147Shareholders'
                  equity
              
              
              52,286
              
              
              27,048Total
              
              $
              422,134
              
              $
              252,025Net
                  interest income
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              4,315
              
              $
              2,387
              
              $
              1,928
              
              $
              48
              
              $
              1,880Net
                  interest yield on earning assets
              
              
              
              
              
              
              
              
              4.45
              %
              
              4.10
              %Net
                  interest spread
              
              
              
              
              
              
              
              
              4.05
              %
              
              3.76
              %
 (1)
            Daily
            averages
 (2)
          Includes money market accounts
 Net
        interest income for the three months ended June 30, 2005 increased $1,928,000
        or
        80.8% over the same period in 2004. Much of the increase is the result of
        the
        increase in volume that resulted from the September 30, 2004 merger with
        FNB
        Polk. In addition, the average yield on earning assets increased 45 basis
        points, more than the increase in the average cost of interest bearing
        liabilities, which increased 16 basis points. The increase in the average
        yields
        on earning assets results from a change in the composition of earnings assets,
        as loans, which typically earn higher returns than other earning assets,
        comprise a larger portion of earning assets in the current year than in the
        previous year, increasing from 56.3% in 2004 to 61.1% in 2005. Increases
        in the
        prime interest rate as the Federal Reserve has increased the discount rate
        have
        contributed to the 42 basis points increase in overall loan yield for the
        2005
        period compared to 2004. Deposit costs have also increased in the 2005 period
        by
        17 basis points compared to 2004. These changes resulted in the net yield
        on
        earning assets increasing from 4.10% for the quarter ended June 30, 2004
        to
        4.45% for the same period in 2005. The net interest spread increased from
        3.76%
        in 2004 to 4.05% in 2005.
  16
 *Table
            on Contents*
  The
        following presents, for the six month periods ended June 30, 2005 and 2004,
        the
        main components of interest earning assets and interest bearing liabilities
        and
        related interest income and expense and effective yields and cost of funds,
        and
        the changes in income and expense attributable to changes in volume and changes
        in average rates.
  Average
          Consolidated Balance Sheets and Net Interest Income Analysis
 For
          the
          Six Months Ended June 30,
 *(Dollars
          in thousands)*
 Average
                  Balances (1)
              
              Yields
                  / Rates
              
              Income
                  / Expense
              
              Increase
              
              Change
                  Due to2005
              
              2004
              
              2005
              
              2004
              
              2005
              
              2004
              
              (Decrease)
              
              Rate
              
              Volume**Assets**Loans,
                  including fee income
              
              $
              233,226
              
              $
              130,065
              
              
              7.07
              %
              
              6.80
              %
              $
              8,178
              
              $
              4,400
              
              $
              3,778
              
              $
              180
              
              $
              3,598Taxable
                  securities
              
              
              123,212
              
              
              86,956
              
              
              4.18
              %
              
              4.31
              %
              
              2,554
              
              
              1,862
              
              
              692
              
              
              (164
              )
              
              856Nontaxable
                  securities
              
              
              12,651
              
              
              7,771
              
              
              4.57
              %
              
              4.97
              %
              
              287
              
              
              192
              
              
              95
              
              
              (44
              )
              
              139Federal
                  funds sold
              
              
              10,028
              
              
              3,898
              
              
              2.65
              %
              
              0.93
              %
              
              132
              
              
              18
              
              
              114
              
              
              62
              
              
              52Interest
                  bearing deposits in banks
              
              
              4,901
              
              
              4,880
              
              
              3.74
              %
              
              3.01
              %
              
              91
              
              
              73
              
              
              18
              
              
              18
              
              
              -Total
                  earning assets
              
              
              384,018
              
              
              233,570
              
              
              5.90
              %
              
              5.64
              %
              
              11,242
              
              
              6,545
              
              
              4,697
              
              
              52
              
              
              4,645Cash
                  and due from banks
              
              
              10,853
              
              
              7,382Allowance
                  for loan losses
              
              
              (3,189
              )
              
              (1,885
              )Other
                  assets
              
              
              26,226
              
              
              13,409Total
              
              $
              417,908
              
              $
              252,476**Liabilities
                  and Equity**Interest
                  bearing demand(2)
              
              $
              115,790
              
              $
              72,265
              
              
              0.90
              %
              
              0.70
              %
              $
              518
              
              $
              250
              
              $
              268
              
              $
              86
              
              $
              182Savings
              
              
              36,903
              
              
              19,775
              
              
              0.49
              %
              
              0.49
              %
              
              89
              
              
              48
              
              
              41
              
              
              -
              
              
              41Certificates
                  of deposit
              
              
              150,841
              
              
              98,010
              
              
              2.89
              %
              
              2.84
              %
              
              2,158
              
              
              1,385
              
              
              773
              
              
              24
              
              
              749Total
                  interest bearing deposits
              
              
              303,534
              
              
              190,050
              
              
              1.84
              %
              
              1.78
              %
              
              2,765
              
              
              1,683
              
              
              1,082
              
              
              110
              
              
              972Short-term
                  borrowed funds
              
              
              270
              
              
              177
              
              
              3.73
              %
              
              1.14
              %
              
              5
              
              
              1
              
              
              4
              
              
              -
              
              
              4Long-term
                  debt
              
              
              359
              
              
              461
              
              
              6.18
              %
              
              6.54
              %
              
              11
              
              
              15
              
              
              (4
              )
              
              (1
              )
              
              (3
              )Total
                  interest bearing liabilities
              
              
              304,163
              
              
              190,688
              
              
              1.84
              %
              
              1.79
              %
              
              2,781
              
              
              1,699
              
              
              1,082
              
              
              109
              
              
              973Noninterest
                  bearing demand deposits
              
              
              57,994
              
              
              32,850Other
                  liabilities
              
              
              3,885
              
              
              2,155Shareholders'
                  equity
              
              
              51,866
              
              
              26,783Total
              
              $
              417,908
              
              $
              252,476Net
                  interest income
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              8,461
              
              $
              4,846
              
              $
              3,615
              
              $
              (57
              )
              $
              3,672Net
                  interest yield on earning assets
              
              
              
              
              
              
              
              
              4.44
              %
              
              4.17
              %Net
                  interest spread
              
              
              
              
              
              
              
              
              4.06
              %
              
              3.85
              %
  (1)
            Daily
            averages
 (2)
          Includes money market accounts
 Net
        interest income for the six months ended June 30, 2005 increased $3,615,000
        or
        74.6% over the same period in 2004 with increases largely due to the merger
        with
        FNB Polk. In addition, the average yield on earning assets increased 36 basis
        points, more than the increase in the average cost of interest bearing
        liabilities, which increased 5 basis points. For the year to date, the increase
        in the average yields on earning assets results from a change in the composition
        of earnings assets, as loans comprised 60.7% of the total average earning
        assets
        for the period ended June 30, 2005 compared to 55.7% for the same period
        in
        2004. The net yield on earning assets increased from 4.17% for the quarter
        ended
        June 30, 2004 to 4.44% for the same period in 2005. The net interest spread
        increased from 3.85% in 2004 to 4.06% in 2005. The Company has maintained
        a net
        asset sensitive position in its asset/liability management. As interest rates
        have increased, its net interest margin has improved.
 
 **Other
        Income** *.* Total
        other income for the three-month period ended June 30, 2005 amounted to
        $1,229,000, compared to $744,000 for the same period in 2004, an increase
        of
        $485,000, or 65.2%. For the six-month period ended June 30, 2005 total other
        income was $1,749,000, compared to $1,458,000 for the same period in 2004,
        an
        increase of $291,000 or 20.0%. The inclusion of First Polk in 2005 accounts
        for
        $396,000 of the increase in the second quarter and $626,000 of this increase
        for
        the year to date.
  17
 *Table
            on Contents*
  The
        gain
        on sale of loans for the quarter ended June 30, 2005 was $39,000 compared
        to
        $60,000 for the same period a year ago. Upson originated and sold mortgage
        loans
        totaling $3.2 million during the second quarter of 2005 without recourse
        compared with $6.0 million for the second quarter of 2004. For the year to
        date
        period ended June 30, 2005, the gain on sale of loans was $78,000 resulting
        from
        volume sold of $6.2 million, compared to $141,000 in 2004 from volume of
        $11.4
        million. Mortgage loan originations have slowed in the current year with
        an
        increase in mortgage loan interest rates in the latter half of 2004. Service
        charges on deposit accounts was $876,000 for the quarter in 2005 compared
        to
        $511,000 in 2004, and $1,636,000 for the year to date in 2005 compared to
        $929,000 in 2004, attributable to the addition of FNB Polk.
 
 During
        the first quarter of 2005, the Company recorded an impairment charge of $600,000
        on $2.5 million of Federal Home Loan Mortgage Corporation (“Freddie Mac”) and
        Federal National Mortgage Association (“Fannie Mae”) perpetual preferred stock.
        The reclassification of an unrealized mark-to-market loss on these securities
        to
        an other-than-temporary charge was based upon a detailed impairment analysis
        of
        these securities. Previous losses on the securities were recognized in the
        equity section of the balance sheet. The Company’s conclusion considered the
        duration and severity of the unrealized loss, the financial condition and
        near-term prospects of the issuers, and the likelihood of the market value
        of
        these instruments increasing to our initial cost basis within a reasonable
        period of time.
 
 **Other
        Expenses.** Other
        expenses for the three-month period ended June 30, 2005 amounted to $3,413,000
        compared to $1,799,000 for the same period in 2004, an increase of $1,614,000,
        or 89.7%. Of this increase, $1,371,000 relates to FNB Polk. For the year-to-date
        period, other expenses were $6,814,000 for the current year compared to
        $3,588,000 for 2004, an increase of $3,226,000 or 89.9%. FNB Polk accounts
        for
        $2,674,000 of the increase for the year.
 
 The
        largest component of other expenses is salaries and employee benefits, which
        grew $862,000, or 92.3% to $1,796,000 for the quarter ended June 30, 2005.
        FNB
        Polk accounted for $764,000 of the increase. For the year-to-date, salaries
        and
        benefits increased $1,599,000 to $3,491,000 with FNB Polk accounting for
        $1,344,000 of the increase.
 
 Amortization
        of intangibles increased to $551,000 for the current year-to-date compared
        to
        $275,000 for the prior year, with the increase due to the core deposit
        intangible recorded as a result of the merger with FNB Polk. For further
        information, refer to discussion under “Financial Condition” on page
        13.
 
 **Income
        Taxes.** The
        Company recorded income taxes totaling $621,000 and $366,000 for the three-month
        periods ending June 30, 2005 and 2004, respectively. Effective tax rates
        for
        those periods were 31.4% and 29.5%, respectively. For the six-month periods
        ended June 30, income tax expense was $946,000 in 2005 and $747,000 for 2004.
        Effective tax rates for the periods were 30.3% and 29.4%, respectively.
        Tax-exempt interest income and income on bank owned life insurance are the
        primary reasons that the Company’s effective tax rate is less than the statutory
        34% rate.
  **ITEM
                    3.**
                **Controls
                    and Procedures**
  As
        of the
        end of the period covered by this Quarterly Report on Form 10-QSB, 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.
 
 18
 *Table
            on Contents*
  Our
        management, including the CEO and CFO, does not expect that our Disclosure
        Controls will prevent all errors 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
        this fiscal quarter that have materially affected, or are reasonably likely
        to
        materially affect, our internal control over financial reporting. ****
  19
 *Table
            on Contents*
  **PART
        II - OTHER INFORMATION**
  **ITEM
                    2.**
                **UNREGISTERED
                    SALES OF EQUITY SECURITIES AND USE OF
                    PROCEEDS**
 
 The
        Company did not sell or issue any equity securities during the quarter. On
        June
        27, 2005, the Company announced a stock repurchase program (the "Repurchase
        Program") under which the Company is authorized to repurchase up to 100,000
        shares, or approximately 2.8%, of its outstanding common stock. The Repurchase
        Program will end after 100,000 shares are repurchased or December 31, 2005,
        whichever comes first. The repurchases, which will be conducted through open
        market purchases or privately negotiated purchases, will be made from time
        to
        time, subject to market conditions, at the discretion of management of the
        Company. As of June 30, 2005, no shares of the Company’s stock had been
        repurchased.
  **ITEM
                    4.**
                **SUBMISSION
                    OF MATTERS TO A VOTE OF SECURITY
                    HOLDERS**
 
 The
        Company held its annual meeting on May 12, 2005. The following directors
        were
        elected for their respective terms as indicated in the following
        table:
  Name
              Term
                  to Expire
              Votes
                  For
              Votes
                  Withheld
              Broker
                  NonvotesLarry
                  T. Kuglar
              2006
              2,194,434
              4,400
              118,307Michael
                  D. McRae
              2006
              2,194,434
              4,400
              118,307Harold
                  W. Wyatt
              2007
              2,194,434
              4,400
              118,307Richard
                  T. Bridges
              2008
              2,194,434
              4,400
              118,307Daniel
                  W. Brinks
              2008
              2,194,434
              4,400
              118,307Edmund
                  J. Wall
              2008
              2,194,434
              4,400
              118,307
  Directors
        continuing in office are: Zack D. Cravey, Jr., Robert P. Cravey, and Dr.
        Warren
        Patrick.
 
 At
        the
        meeting, shareholders approved the SouthCrest Financial Group, Inc. 2005
        Stock
        Incentive Plan by a vote of 1,938,965 (94.1%) votes for and 122,351 (5.9%)
        votes
        against. There were 19,211 shares that abstained and 118,307 broker nonvotes.
  **ITEM
                    6.**
                **EXHIBITS.**
 
 Exhibits.
 
 31.1
              Rule
                  15d-14(a) Certification of Principal Executive
                  Officer.
 31.2
              Rule
                  15d-14(a) Certification of Principal Financial
                  Officer
 32.1
              Section
                  1350 Certification of Principal Executive
                  Officer
 32.2
              Section
                  1350 Certification of Principal Financial
                  Officer
  20
 *Table
            on Contents*
  **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 15, 2005
              BY:
              /s/
                  Larry T. KuglarLarry
                  T. Kuglar.President
                  and Chief Executive OfficerDATE:
                  August 15, 2005
              BY:
              /s/
                  Douglas J. HerthaDouglas
                  J. HerthaSenior
                  Vice President, Chief Financial Officer




21