##### Table of Contents





U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







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

For the quarterly period ended September 30, 2008



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

For the transition period from  to

Commission File Number: 000-53197





BUCKHEAD COMMUNITY BANCORP, INC.

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







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Georgia                                                        |  | 58-2265980                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

415 East Paces Ferry Road

Atlanta, Georgia 30305

(Address of principal executive offices)

(404) 504-2557

(Issuers telephone number)







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





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

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



|                           |  |                      |  |                                               |  |                             
|-------------------------- |  | -------------------- |  | --------------------------------------------- |  | ----------------------------
|Large Accelerated Filer   ̈ |  | Accelerated Filer   ̈ |  | Non-Accelerated Filer   ̈                      |  | Smaller Reporting Company  x
|                           |  |                      |  | (Do not check if a smaller reporting company) |  |                             

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

State the number of shares outstanding of each of the issuers classes of common equity, as of November 10, 2008: Common Stock, $0.01 par value 6,314,213 shares outstanding.









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BUCKHEAD COMMUNITY BANCORP, INC.

AND SUBSIDIARY

INDEX



|           |  |                       |  |                                                                                       |  |     
|---------- |  | --------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|           |  |                       |  |                                                                                       |  | Page
|Part I.    |  | FINANCIAL INFORMATION |  |                                                                                      
|           |  |                       | 
|           |  | Item 1.               |  | Financial Statements (Unaudited)                                                      |  |     
|           |  |                       | 
|           |  |                       |  | Consolidated Balance Sheets                                                           |  | 3   
|           |  |                       |  | Consolidated Statements of Operations                                                 |  | 4   
|           |  |                       |  | Consolidated Statements of Comprehensive Income (Loss)                                |  | 5   
|           |  |                       |  | Consolidated Statement of Changes in Shareholders Equity                             |  | 6   
|           |  |                       |  | Consolidated Statements of Cash Flows                                                 |  | 7   
|           |  |                       |  | Notes to Consolidated Financial Statements                                            |  | 8   
|           |  |                       | 
|           |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 18  
|           |  |                       | 
|           |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 37  
|           |  |                       | 
|           |  | Item 4T.              |  | Controls and Procedures                                                               |  | 40  
|           |  |                      
|Part II.   |  | OTHER INFORMATION     |  |                                                                                      
|           |  |                       | 
|           |  | Item 1.               |  | Legal Proceedings                                                                     |  | 41  
|           |  | Item 1A.              |  | Risk factors                                                                          |  | 41  
|           |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 41  
|           |  | Item 3.               |  | Defaults Upon Senior Securities                                                       |  | 41  
|           |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                   |  | 41  
|           |  | Item 5.               |  | Other Information                                                                     |  | 41  
|           |  | Item 6.               |  | Exhibits                                                                              |  | 41  
|           |  |                       | 
|Signatures |  |                       |  |                                                                                       |  | 41  



2



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##### Table of Contents

PART I - FINANCIAL INFORMATION

|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

BUCKHEAD COMMUNITY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS



|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  
|------------------------------------------------------------------------------ |  | ---------------- | ------- | - | --------------- | - | ------- | ---------------- |  | - | ------- | -
|(Dollars in thousands)                                                         |  | September 302008 |         |   | December 312007 |   |         | September 302007 | 
|                                                                               |  | (Unaudited)      |         |   |                 |   |         | (Unaudited)      | 
|                                                                               |  |                  |        
|ASSETS                                                                         |  |                  |         |   |                 |   |         |                  |  |   |         |  
|Cash and due from banks                                                        |  | $                | 8,276   |   |                 | $ | 19,157  |                  |  | $ | 6,137   |  
|Interest-bearing deposits in other banks                                       |  |                  | 356     |   |                 |   | 2,264   |                  |  |   | 341     |  
|Federal funds sold                                                             |  |                  | 1,141   |   |                 |   | 23,428  |                  |  |   | 32,050  |  
|                                                                               |  |                  |        
|Securities available for sale, at fair value                                   |  |                  | 109,976 |   |                 |   | 109,647 |                  |  |   | 100,805 |  
|Restricted equity securities, at cost                                          |  |                  | 3,183   |   |                 |   | 1,761   |                  |  |   | 1,419   |  
|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  
|Total investment securities                                                    |  |                  | 113,159 |   |                 |   | 111,408 |                  |  |   | 102,224 |  
|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  
|Loans held for sale                                                            |  |                  | 3,658   |   |                 |   | 1,232   |                  |  |   | 4,332   |  
|Loans, net of unearned income                                                  |  |                  | 724,043 |   |                 |   | 676,119 |                  |  |   | 455,553 |  
|Allowance for loan losses                                                      |  |                  | (10,836 | ) |                 |   | (9,787  | )                |  |   | (5,299  | )
|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  
|Net loans                                                                      |  |                  | 713,207 |   |                 |   | 666,332 |                  |  |   | 450,254 |  
|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  
|                                                                               |  |                  |        
|Bank premises and equipment                                                    |  |                  | 10,516  |   |                 |   | 10,949  |                  |  |   | 6,539   |  
|Accrued interest receivable                                                    |  |                  | 4,163   |   |                 |   | 4,696   |                  |  |   | 3,670   |  
|Goodwill                                                                       |  |                  | 32,669  |   |                 |   | 32,655  |                  |  |   | -       |  
|Other intangible assets                                                        |  |                  | 2,155   |   |                 |   | 2,367   |                  |  |   | -       |  
|Other real estate owned                                                        |  |                  | 29,229  |   |                 |   | 13,437  |                  |  |   | 7,937   |  
|Other assets                                                                   |  |                  | 9,625   |   |                 |   | 11,020  |                  |  |   | 3,689   |  
|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  
|Total assets                                                                   |  | $                | 928,154 |   |                 | $ | 898,945 |                  |  | $ | 617,173 |  
|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  
|                                                                               |  |                  |        
|LIABILITIES                                                                    |  |                  |         |   |                 |   |         |                  |  |   |         |  
|Noninterest-bearing demand deposits                                            |  | $                | 39,737  |   |                 | $ | 46,496  |                  |  | $ | 34,506  |  
|Interest-bearing deposits                                                      |  |                  | 701,327 |   |                 |   | 709,252 |                  |  |   | 507,874 |  
|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  
|Total deposits                                                                 |  |                  | 741,064 |   |                 |   | 755,748 |                  |  |   | 542,380 |  
|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  
|                                                                               |  |                  |        
|Short-term borrowings                                                          |  |                  | 64,730  |   |                 |   | 19,570  |                  |  |   | 11,585  |  
|Long-term debt                                                                 |  |                  | 16,000  |   |                 |   | -       |                  |  |   | -       |  
|Junior subordinated debt                                                       |  |                  | 15,465  |   |                 |   | 15,465  |                  |  |   | 15,465  |  
|Accrued interest payable                                                       |  |                  | 3,107   |   |                 |   | 3,885   |                  |  |   | 3,093   |  
|Accrued expenses and other liabilities                                         |  |                  | 2,260   |   |                 |   | 14,805  |                  |  |   | 909     |  
|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  
|Total liabilities                                                              |  |                  | 842,626 |   |                 |   | 809,473 |                  |  |   | 573,432 |  
|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  
|                                                                               |  |                  |        
|SHAREHOLDERS EQUITY                                                           |  |                  |         |   |                 |   |         |                  |  |   |         |  
|Special stock, no par value; 2,000,000 shares authorized; none issued          |  |                  | -       |   |                 |   | -       |                  |  |   | -       |  
|Common stock, par value $0.01; 20,000,000 shares authorized;                   |  |                  |         |   |                 |   |         |                  |  |   |         |  
|6,314,213, 6,315,813 and 4,575,166 shares issued and outstanding, respectively |  |                  | 63      |   |                 |   | 63      |                  |  |   | 46      |  
|Capital surplus                                                                |  |                  | 72,544  |   |                 |   | 72,584  |                  |  |   | 27,593  |  
|Retained earnings                                                              |  |                  | 13,581  |   |                 |   | 17,285  |                  |  |   | 17,042  |  
|Accumulated other comprehensive income/(loss)                                  |  |                  | (555    | ) |                 |   | (279    | )                |  |   | (744    | )
|Deferred compensation                                                          |  |                  | (105    | ) |                 |   | (181    | )                |  |   | (196    | )
|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  
|Total shareholders equity                                                     |  |                  | 85,528  |   |                 |   | 89,472  |                  |  |   | 43,741  |  
|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  
|Total liabilities and shareholders equity                                     |  | $                | 928,154 |   |                 | $ | 898,945 |                  |  | $ | 617,173 |  
|                                                                               |  |                  |         |   |                 |   |         |                  |  |   |         |  

The accompanying notes are an integral part of these financial statements.



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BUCKHEAD COMMUNITY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|------------------------------------------------------------------ |  | ------------------------------ | --------- | ----------------------------- | ---- | - | --------- |  | - | --------- | - |  | - | ---------
|                                                                   |  | Three Months EndedSeptember 30 |           | Nine Months EndedSeptember 30
|                                                                   |  |                                |           |                              
|(Dollars in thousands, except share and per share data)(Unaudited) |  | 2008                           |           |                               | 2007 |   | 2008      |  |   | 2007     
|                                                                   |  |                                |           |                              
|INTEREST INCOME                                                    |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|Loans, including fees                                              |  | $                              | 11,470    |                               |      | $ | 10,407    |  | $ | 35,405    |   |  | $ | 29,829   
|Securities:                                                        |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|Taxable                                                            |  |                                | 1,170     |                               |      |   | 976       |  |   | 3,362     |   |  |   | 3,024    
|Tax-exempt                                                         |  |                                | 204       |                               |      |   | 215       |  |   | 671       |   |  |   | 668      
|Federal funds sold and short-term investments                      |  |                                | 39        |                               |      |   | 489       |  |   | 446       |   |  |   | 1,653    
|Dividends                                                          |  |                                | 23        |                               |      |   | 57        |  |   | 87        |   |  |   | 66       
|                                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|Total interest income                                              |  |                                | 12,906    |                               |      |   | 12,144    |  |   | 39,971    |   |  |   | 35,240   
|                                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|                                                                   |  |                                |           |                              
|INTEREST EXPENSE                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|Deposits                                                           |  |                                | 7,123     |                               |      |   | 6,308     |  |   | 22,658    |   |  |   | 17,877   
|Short-term borrowings                                              |  |                                | 266       |                               |      |   | 120       |  |   | 681       |   |  |   | 325      
|Junior subordinated debt                                           |  |                                | 193       |                               |      |   | 291       |  |   | 632       |   |  |   | 865      
|Long-term debt                                                     |  |                                | 195       |                               |      |   | -         |  |   | 419       |   |  |   | -        
|                                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|Total interest expense                                             |  |                                | 7,777     |                               |      |   | 6,719     |  |   | 24,390    |   |  |   | 19,067   
|                                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|                                                                   |  |                                |           |                              
|NET INTEREST INCOME                                                |  |                                | 5,129     |                               |      |   | 5,425     |  |   | 15,581    |   |  |   | 16,173   
|Provision for loan losses                                          |  |                                | 2,134     |                               |      |   | 400       |  |   | 5,626     |   |  |   | 1,150    
|                                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                |  |                                | 2,995     |                               |      |   | 5,025     |  |   | 9,955     |   |  |   | 15,023   
|                                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|                                                                   |  |                                |           |                              
|NONINTEREST INCOME                                                 |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|Gain on sale of loans held for sale                                |  |                                | 171       |                               |      |   | 349       |  |   | 176       |   |  |   | 869      
|Gain on sale of securities available for sale                      |  |                                | 32        |                               |      |   | -         |  |   | 167       |   |  |   | -        
|Other noninterest income                                           |  |                                | (265      | )                             |      |   | 120       |  |   | 90        |   |  |   | 417      
|                                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|Total noninterest income                                           |  |                                | (62       | )                             |      |   | 469       |  |   | 433       |   |  |   | 1,286    
|                                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|                                                                   |  |                                |           |                              
|NONINTEREST EXPENSE                                                |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|Salaries and employee benefits                                     |  |                                | 2,790     |                               |      |   | 2,215     |  |   | 8,420     |   |  |   | 6,402    
|Occupancy expenses                                                 |  |                                | 624       |                               |      |   | 492       |  |   | 1,853     |   |  |   | 1,331    
|Advertising and marketing                                          |  |                                | 179       |                               |      |   | 194       |  |   | 512       |   |  |   | 467      
|Legal and other professional services                              |  |                                | 230       |                               |      |   | 165       |  |   | 679       |   |  |   | 410      
|Other operating expenses                                           |  |                                | 1,769     |                               |      |   | 813       |  |   | 5,250     |   |  |   | 1,923    
|                                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|Total noninterest expense                                          |  |                                | 5,592     |                               |      |   | 3,879     |  |   | 16,714    |   |  |   | 10,533   
|                                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|                                                                   |  |                                |           |                              
|(LOSS) INCOME BEFORE INCOME TAXES                                  |  |                                | (2,659    | )                             |      |   | 1,615     |  |   | (6,326    | ) |  |   | 5,776    
|Income tax (benefit)/expense                                       |  |                                | (1,082    | )                             |      |   | 550       |  |   | (2,622    | ) |  |   | 1,991    
|                                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|NET (LOSS) INCOME                                                  |  | $                              | (1,577    | )                             |      | $ | 1,065     |  | $ | (3,704    | ) |  | $ | 3,785    
|                                                                   |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|                                                                   |  |                                |           |                              
|(LOSS) EARNINGS PER SHARE                                          |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|Basic                                                              |  | $                              | (0.25     | )                             |      | $ | 0.23      |  | $ | (0.59     | ) |  | $ | 0.83     
|Diluted1                                                           |  | $                              | (0.25     | )                             |      | $ | 0.23      |  | $ | (0.59     | ) |  | $ | 0.82     
|WEIGHTED-AVERAGE SHARES OUTSTANDING                                |  |                                |           |                               |      |   |           |  |   |           |   |  |   |          
|Basic                                                              |  |                                | 6,308,347 |                               |      |   | 4,575,166 |  |   | 6,307,250 |   |  |   | 4,572,306
|Diluted                                                            |  |                                | 6,417,700 |                               |      |   | 4,625,224 |  |   | 6,421,368 |   |  |   | 4,622,364
|                                                                   |  |                                |           |                              
|CASH DIVIDENDS PER SHARE                                           |  | $                              | -         |                               |      | $ | -         |  | $ | -         |   |  | $ | -        



|1 | Calculated using average basic common shares for the three and nine months ended September 30, 2008
|- | ---------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements.



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BUCKHEAD COMMUNITY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



|                                                                                                                                                            |  |                                |        |   |      |                               |       |  |      |  |   |        |   |  |   |      
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | ----------------------------- | ----- |  | ---- |  | - | ------ | - |  | - | -----
|                                                                                                                                                            |  | Three Months EndedSeptember 30 |        |   |      | Nine Months EndedSeptember 30
|(Dollars in thousands)(Unaudited)                                                                                                                           |  | 2008                           |        |   | 2007 |                               |       |  | 2008 |  |   | 2007  
|                                                                                                                                                            |  |                                |        |   |     
|Net (loss) income                                                                                                                                           |  | $                              | (1,577 | ) |      | $                             | 1,065 |  |      |  | $ | (3,704 | ) |  | $ | 3,785
|                                                                                                                                                            |  |                                |        |   |      |                               |       |  |      |  |   |        |   |  |   |      
|                                                                                                                                                            |  |                                |        |   |     
|Other comprehensive income (loss):                                                                                                                          |  |                                |        |   |      |                               |       |  |      |  |   |        |   |  |   |      
|Unrealized holding gains (losses) arising during period on securities available for sale, net of tax (benefits) of $445, $777, $(90), and $67,
respectively |  |                                | 872    |   |      |                               | 1,508 |  |      |  |   | (166   | ) |  |   | 130  
|                                                                                                                                                            |  |                                |        |   |     
|Reclassification adjustment for (gains) losses realized in net income, net of tax (benefits) of $11, $0, $57 and $0,
respectively                           |  |                                | (21    | ) |      |                               | -     |  |      |  |   | (110   | ) |  |   | -    
|                                                                                                                                                            |  |                                |        |   |      |                               |       |  |      |  |   |        |   |  |   |      
|                                                                                                                                                            |  |                                |        |   |     
|Other comprehensive income (loss)                                                                                                                           |  |                                | 851    |   |      |                               | 1,508 |  |      |  |   | (276   | ) |  |   | 130  
|                                                                                                                                                            |  |                                |        |   |      |                               |       |  |      |  |   |        |   |  |   |      
|                                                                                                                                                            |  |                                |        |   |     
|Comprehensive (loss) income                                                                                                                                 |  | $                              | (726   | ) |      | $                             | 2,573 |  |      |  | $ | (3,980 | ) |  | $ | 3,915
|                                                                                                                                                            |  |                                |        |   |      |                               |       |  |      |  |   |        |   |  |   |      

The accompanying notes are an integral part of these financial statements.



5



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BUCKHEAD COMMUNITY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY



|                                          |  |              |   |         |           |    |          |   |        |                                 |  |   |               |   |  |                     |      |   |        |   |      |   |  |   |        |  
|----------------------------------------- |  | ------------ | - | ------- | --------- | -- | -------- | - | ------ | ------------------------------- |  | - | ------------- | - |  | ------------------- | ---- | - | ------ | - | ---- | - |  | - | ------ | -
|                                          |  | Common Stock |   | Capital |           |    | Retained |   |        | Accumulated Other Comprehensive |  |   | Deferred      |   |  | Total Shareholders |     
|(Dollars in thousands, except share data) |  | Shares       |   |         | Par Value |    | Surplus  |   |        | Earnings                        |  |   | Income (Loss) |   |  | Compensation        |      |   | Equity |  
|Balance, December 31, 2006                |  | 4,567,344    |   |         | $         | 46 |          | $ | 27,403 |                                 |  | $ | 13,257        |   |  | $                   | (874 | ) |        | $ | (41  | ) |  | $ | 39,791 |  
|Net income                                |  | -            |   |         |           | -  |          |   | -      |                                 |  |   | 3,785         |   |  |                     | -    |   |        |   | -    |   |  |   | 3,785  |  
|Stock-based compensation                  |  | -            |   |         |           | -  |          |   | 4      |                                 |  |   | -             |   |  |                     | -    |   |        |   | 31   |   |  |   | 35     |  
|Restricted stock award                    |  | 7,822        |   |         |           | -  |          |   | 186    |                                 |  |   | -             |   |  |                     | -    |   |        |   | (186 | ) |  |   | -      |  
|Other comprehensive income (loss)         |  | -            |   |         |           | -  |          |   | -      |                                 |  |   | -             |   |  |                     | 130  |   |        |   | -    |   |  |   | 130    |  
|                                          |  |              |   |         |           |    |          |   |        |                                 |  |   |               |   |  |                     |      |   |        |   |      |   |  |   |        |  
|Balance, September 30, 2007(Unaudited)    |  | 4,575,166    |   |         | $         | 46 |          | $ | 27,593 |                                 |  | $ | 17,042        |   |  | $                   | (744 | ) |        | $ | (196 | ) |  | $ | 43,741 |  
|                                          |  |              |   |         |           |    |          |   |        |                                 |  |   |               |   |  |                     |      |   |        |   |      |   |  |   |        |  
|                                          |  |              |   |         |           |    |         
|Balance, December 31, 2007                |  | 6,315,813    |   |         | $         | 63 |          | $ | 72,584 |                                 |  | $ | 17,285        |   |  | $                   | (279 | ) |        | $ | (181 | ) |  |   | 89,472 |  
|Net loss                                  |  | -            |   |         |           | -  |          |   | -      |                                 |  |   | (3,704        | ) |  |                     | -    |   |        |   | -    |   |  |   | (3,704 | )
|Exercise of stock options                 |  | 400          |   |         |           | -  |          |   | 5      |                                 |  |   |               |   |  |                     |      |   |        |   |      |   |  |   | 5      |  
|Restricted stock forfeiture               |  | (2,000       | ) |         |           | -  |          |   | (50    | )                               |  |   | -             |   |  |                     | -    |   |        |   | 50   |   |  |   | -      |  
|Stock-based compensation                  |  | -            |   |         |           | -  |          |   | 5      |                                 |  |   | -             |   |  |                     | -    |   |        |   | 26   |   |  |   | 31     |  
|Other comprehensive income (loss)         |  | -            |   |         |           | -  |          |   | -      |                                 |  |   | -             |   |  |                     | (276 | ) |        |   | -    |   |  |   | (276   | )
|                                          |  |              |   |         |           |    |          |   |        |                                 |  |   |               |   |  |                     |      |   |        |   |      |   |  |   |        |  
|Balance, September 30, 2008(Unaudited)    |  | 6,314,213    |   |         | $         | 63 |          | $ | 72,544 |                                 |  | $ | 13,581        |   |  | $                   | (555 | ) |        | $ | (105 | ) |  | $ | 85,528 |  
|                                          |  |              |   |         |           |    |          |   |        |                                 |  |   |               |   |  |                     |      |   |        |   |      |   |  |   |        |  

The accompanying notes are an integral part of these financial statements.



6



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##### Table of Contents

BUCKHEAD COMMUNITY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                   |  |                               |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                   |  | Nine Months EndedSeptember 30 |        
|(Dollars in thousands)(Unaudited)                                                                  |  | 2008                          |         |   | 2007 |  
|                                                                                                   |  |                              
|OPERATING ACTIVITIES                                                                               |  |                               |         |   |      |   |         |  
|Net (loss) income                                                                                  |  | $                             | (3,704  | ) |      | $ | 3,785   |  
|Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |  |                               |         |   |      |   |         |  
|Depreciation, amortization and accretion                                                           |  |                               | 870     |   |      |   | 460     |  
|Amortization of intangible assets                                                                  |  |                               | 212     |   |      |   | -       |  
|Provision for loan losses                                                                          |  |                               | 5,626   |   |      |   | 1,150   |  
|Provision for foreclosed property losses                                                           |  |                               | 1,593   |   |      |   | 241     |  
|Net gains on sales of securities                                                                   |  |                               | (167    | ) |      |   | -       |  
|Gains on sales of loans                                                                            |  |                               | (176    | ) |      |   | (869    | )
|Losses on sales of other real estate                                                               |  |                               | 257     |   |      |   | -       |  
|Stock-based compensation                                                                           |  |                               | 31      |   |      |   | 35      |  
|(Increase) decrease in loans held for sale                                                         |  |                               | (2,250  | ) |      |   | 111     |  
|Decrease (increase) in interest receivable                                                         |  |                               | 533     |   |      |   | (435    | )
|(Decrease) increase in interest payable                                                            |  |                               | (778    | ) |      |   | 744     |  
|Net other operating activities                                                                     |  |                               | (2,464  | ) |      |   | (443    | )
|                                                                                                   |  |                               |         |   |      |   |         |  
|Net cash (used in) provided by operating activities                                                |  |                               | (417    | ) |      |   | 4,779   |  
|                                                                                                   |  |                               |         |   |      |   |         |  
|INVESTING ACTIVITIES                                                                               |  |                               |         |   |      |   |         |  
|Net decrease in interest-bearing deposits in banks                                                 |  |                               | 1,908   |   |      |   | 46      |  
|Purchases of securities available for sale                                                         |  |                               | (83,555 | ) |      |   | (6,640  | )
|Proceeds from sales of securities available for sale                                               |  |                               | 17,436  |   |      |   | -       |  
|Proceeds from calls and maturities of securities available for sale                                |  |                               | 65,425  |   |      |   | 3,874   |  
|Net purchases of restricted equity securities                                                      |  |                               | (1,422  | ) |      |   | (172    | )
|Net decrease in federal funds sold                                                                 |  |                               | 22,287  |   |      |   | 8,535   |  
|Net increase in loans                                                                              |  |                               | (80,287 | ) |      |   | (85,070 | )
|Proceeds from sale of other real estate                                                            |  |                               | 10,289  |   |      |   | 1,849   |  
|Purchases of bank premises and equipment                                                           |  |                               | (326    | ) |      |   | (774    | )
|Cash used for business combination                                                                 |  |                               | (13,375 | ) |      |   | -       |  
|                                                                                                   |  |                               |         |   |      |   |         |  
|Net cash used in investing activities                                                              |  |                               | (61,620 | ) |      |   | (78,352 | )
|                                                                                                   |  |                               |         |   |      |   |         |  
|FINANCING ACTIVITIES                                                                               |  |                               |         |   |      |   |         |  
|Net (decrease) increase in deposits                                                                |  |                               | (14,684 | ) |      |   | 70,291  |  
|Net change in short-term borrowings                                                                |  |                               | 45,160  |   |      |   | 1,550   |  
|Net proceeds from long-term debt                                                                   |  |                               | 16,000  |   |      |   | -       |  
|Proceeds from issuance of common stock                                                             |  |                               | 4,680   |   |      |   | -       |  
|                                                                                                   |  |                               |         |   |      |   |         |  
|Net cash provided by financing activities                                                          |  |                               | 51,156  |   |      |   | 71,841  |  
|                                                                                                   |  |                               |         |   |      |   |         |  
|Change in cash and due from banks                                                                  |  |                               | (10,881 | ) |      |   | (1,732  | )
|Cash and due from banks at beginning of period                                                     |  |                               | 19,157  |   |      |   | 7,869   |  
|                                                                                                   |  |                               |         |   |      |   |         |  
|Cash and due from banks at end of period                                                           |  | $                             | 8,276   |   |      | $ | 6,137   |  
|                                                                                                   |  |                               |         |   |      |   |         |  
|                                                                                                   |  |                              
|Supplemental Disclosures:                                                                          |  |                               |         |   |      |   |         |  
|Cash paid (received) during the period for:                                                        |  |                               |         |   |      |   |         |  
|Interest                                                                                           |  | $                             | 25,168  |   |      | $ | 18,323  |  
|Income taxes                                                                                       |  | $                             | (1,829  | ) |      | $ | 1,330   |  
|                                                                                                   |  |                              
|Non-cash investing activities:                                                                     |  |                               |         |   |      |   |         |  
|Transfer of loans to other real estate owned                                                       |  | $                             | 27,786  |   |      | $ | 7,474   |  

The accompanying notes are an integral part of these financial statements.



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##### Table of Contents

Buckhead Community Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 1  Accounting Policies and Recent Accounting Pronouncements

The accompanying unaudited consolidated financial
statements of Buckhead Community Bancorp, Inc. (Buckhead or the Company) and its subsidiary, The Buckhead Community Bank (the Bank) have been prepared in accordance with generally accepted accounting principles
for interim information and with the instructions to Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations are not necessarily indicative of the
results of operations for the full year or any other interim periods.

On October 10, 2008, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position (FSP) FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset Is Not Active. This FSP clarified the application of SFAS No. 157 in a
market that is not active and reiterated that the results of distressed sales or forced liquidations are not determinative when measuring fair value. It emphasized that when determining fair value, the use of managements internal assumptions
concerning future cash flows discounted at an appropriate risk-adjusted interest rate is acceptable when relevant observable market data do not exist. It also described how the use of broker quotes should be considered when assessing the relevance
of observable and unobservable inputs. This FSP was effective upon issuance, including prior periods for which financial statements have not been issued. Management has considered the guidance in this FSP when determining fair value; and its impact
did not result in a material change to the Companys financial position or results of operations.



8



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##### Table of Contents

Buckhead Community Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 2  Acquisitions

On December 4, 2007, the Company acquired 100 percent of the outstanding common shares of
Allied Bancshares, Inc. (Allied) and its subsidiary, First National Bank of Forsyth County. The merger enhanced the Companys geographic position in counties with high growth potential. The acquisition was accounted for under the
purchase method of accounting with the results of operations for Allied included in our consolidated financial results beginning December 4, 2007. Under the purchase method of accounting the assets and liabilities of Allied were recorded at
their respective fair values as of December 4, 2007.

The consideration for the acquisition was a combination of cash and stock with a
purchase price of approximately $53.8 million. The total consideration consisted of approximately $13.4 million in cash and approximately 1.5 million Buckhead Community Bancorp shares.

The calculation of the purchase price is as follows:



|                                                           |  |   |           |  |   |       
|---------------------------------------------------------- |  | - | --------- |  | - | ------
|(Dollars in thousands, except per share data)              |  |   |           | 
|Total Buckhead Community Bancorp common stock issued       |  |   | 1,534,553 |  |   |       
|Purchase price per Buckhead Community Bancorp common share |  | $ | 25.00     |  |   |       
|                                                           |  |   |           |  |   |       
|                                                           |  |  
|Value of Buckhead Community Bancorp stock issued           |  |   |           |  |   | 38,364
|Cash payable to shareholders                               |  |   |           |  |   | 13,375
|Estimated fair value of employee stock options assumed     |  |   |           |  |   | 2,108 
|                                                           |  |   |           |  |   |       
|Total purchase price                                       |  |   |           |  | $ | 53,847
|                                                           |  |   |           |  |   |       



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##### Table of Contents

Buckhead Community Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

The following unaudited condensed income statements disclose the pro forma results of the Company as though the Allied acquisition had occurred at the beginning of the periods presented.



|                                                                    |  |                                                   |           |                          |   |                        |  |   |                   |    |  |   |          
|------------------------------------------------------------------- |  | ------------------------------------------------- | --------- | ------------------------ | - | ---------------------- |  | - | ----------------- | -- |  | - | ---------
|                                                                    |  | Three months ended September 30, 2007 (Unaudited)
|(Dollars in thousands, except share data)                           |  | BuckheadCommunityBancorp, Inc. 1                  |           | AlliedBancshares, Inc. 2 |   | Pro FormaAdjustments 3 |  |   | Pro FormaCombined
|Interest and dividend income                                        |  | $                                                 | 12,144    |                          | $ | 4,674                  |  | $ | (147              | )  |  | $ | 16,671   
|Interest expense                                                    |  |                                                   | 6,719     |                          |   | 2,529                  |  |   | (46               | )  |  |   | 9,202    
|                                                                    |  |                                                   |           |                          |   |                        |  |   |                   |    |  |   |          
|Net interest income                                                 |  |                                                   | 5,425     |                          |   | 2,145                  |  |   | (101              | )  |  |   | 7,469    
|Provision for loan losses                                           |  |                                                   | 400       |                          |   | 230                    |  |   | -                 |    |  |   | 630      
|                                                                    |  |                                                   |           |                          |   |                        |  |   |                   |    |  |   |          
|Net interest income after provision for loan losses                 |  |                                                   | 5,025     |                          |   | 1,915                  |  |   | (101              | )  |  |   | 6,839    
|                                                                    |  |                                                   |           |                          |   |                        |  |   |                   |    |  |   |          
|                                                                    |  |                                                   |           |                         
|Noninterest income                                                  |  |                                                   | 469       |                          |   | 70                     |  |   | -                 |    |  |   | 539      
|Noninterest expense                                                 |  |                                                   | 3,879     |                          |   | 1,169                  |  |   | 78                |    |  |   | 5,126    
|                                                                    |  |                                                   |           |                          |   |                        |  |   |                   |    |  |   |          
|Income from continuing operations before provision for income taxes |  |                                                   | 1,615     |                          |   | 816                    |  |   | (179              | )  |  |   | 2,252    
|Provision for income taxes                                          |  |                                                   | 550       |                          |   | 295                    |  |   | (63               | )  |  |   | 782      
|                                                                    |  |                                                   |           |                          |   |                        |  |   |                   |    |  |   |          
|Income from continuing operations                                   |  | $                                                 | 1,065     |                          | $ | 521                    |  | $ | (116              | )  |  | $ | 1,470    
|                                                                    |  |                                                   |           |                          |   |                        |  |   |                   |    |  |   |          
|                                                                    |  |                                                   |           |                         
|Average shares:                                                     |  |                                                   |           |                          |   |                        |  |   |                   |    |  |   |          
|Basic                                                               |  |                                                   | 4,575,166 |                          |   | 1,531,591              |  |   | (153,159          | )4 |  |   | 5,953,598
|Diluted                                                             |  |                                                   | 4,625,224 |                          |   | 1,768,183              |  |   | (176,818          | )4 |  |   | 6,216,589
|                                                                    |  |                                                   |           |                         
|Income from continuing operations per average common share:         |  |                                                   |           |                          |   |                        |  |   |                   |    |  |   |          
|Basic                                                               |  |                                                   | 0.23      |                          |   | 0.34                   |  |   | -                 |    |  |   | 0.25     
|Diluted                                                             |  |                                                   | 0.23      |                          |   | 0.29                   |  |   | -                 |    |  |   | 0.24     



|1 | Represents results of Buckhead Community Bancorp, Inc. from July 1, 2007 through September 30, 2007.
|- | ----------------------------------------------------------------------------------------------------



|2 | Represents results of Allied Bancshares, Inc. from July 1, 2007 through September 30, 2007.
|- | -------------------------------------------------------------------------------------------



|3 | Pro forma adjustments include the following items: loss of interest on federal funds sold used to fund the acquisition of $84 thousand; amortization of core
deposit intangible of $71 thousand; amortization of loan purchase accounting adjustment of $38 thousand; amortization of investment securities purchase accounting adjustment of $25 thousand; depreciation of building purchase accounting adjustment of
$7 thousand; and accretion of deposit purchase accounting adjustment of $46 thousand; net tax effect of all pro-forma adjustments at 35%.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4 | Assumes 75% stock merger consideration at an exchange ratio of 1.20.
|- | --------------------------------------------------------------------



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##### Table of Contents

Buckhead Community Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)



|                                                                    |  |                                                  |           |                          |   |                        |  |   |                   |    |  |   |          
|------------------------------------------------------------------- |  | ------------------------------------------------ | --------- | ------------------------ | - | ---------------------- |  | - | ----------------- | -- |  | - | ---------
|                                                                    |  | Nine months ended September 30, 2007 (Unaudited)
|(Dollars in thousands, except share data)                           |  | BuckheadCommunityBancorp, Inc. 1                 |           | AlliedBancshares, Inc. 2 |   | Pro FormaAdjustments 3 |  |   | Pro FormaCombined
|                                                                    |  |                                                  |           |                         
|Interest and dividend income                                        |  | $                                                | 35,240    |                          | $ | 12,927                 |  | $ | (440              | )  |  | $ | 47,727   
|Interest expense                                                    |  |                                                  | 19,067    |                          |   | 6,815                  |  |   | (139              | )  |  |   | 25,743   
|                                                                    |  |                                                  |           |                          |   |                        |  |   |                   |    |  |   |          
|Net interest income                                                 |  |                                                  | 16,173    |                          |   | 6,112                  |  |   | (301              | )  |  |   | 21,984   
|Provision for loan losses                                           |  |                                                  | 1,150     |                          |   | 777                    |  |   | -                 |    |  |   | 1,927    
|                                                                    |  |                                                  |           |                          |   |                        |  |   |                   |    |  |   |          
|Net interest income after provision for loan losses                 |  |                                                  | 15,023    |                          |   | 5,335                  |  |   | (301              | )  |  |   | 20,057   
|                                                                    |  |                                                  |           |                          |   |                        |  |   |                   |    |  |   |          
|Noninterest income                                                  |  |                                                  | 1,286     |                          |   | 220                    |  |   | -                 |    |  |   | 1,506    
|Noninterest expense                                                 |  |                                                  | 10,533    |                          |   | 3,247                  |  |   | 234               |    |  |   | 14,014   
|                                                                    |  |                                                  |           |                          |   |                        |  |   |                   |    |  |   |          
|Income from continuing operations before provision for income taxes |  |                                                  | 5,776     |                          |   | 2,308                  |  |   | (535              | )  |  |   | 7,549    
|Provision for income taxes                                          |  |                                                  | 1,991     |                          |   | 836                    |  |   | (187              | )  |  |   | 2,640    
|                                                                    |  |                                                  |           |                          |   |                        |  |   |                   |    |  |   |          
|Income from continuing operations                                   |  | $                                                | 3,785     |                          | $ | 1,472                  |  | $ | (348              | )  |  | $ | 4,909    
|                                                                    |  |                                                  |           |                          |   |                        |  |   |                   |    |  |   |          
|                                                                    |  |                                                  |           |                         
|Average shares:                                                     |  |                                                  |           |                          |   |                        |  |   |                   |    |  |   |          
|Basic                                                               |  |                                                  | 4,572,306 |                          |   | 1,521,918              |  |   | (152,192          | )4 |  |   | 5,942,032
|Diluted                                                             |  |                                                  | 4,622,364 |                          |   | 1,758,510              |  |   | (175,851          | )4 |  |   | 6,205,023
|                                                                    |  |                                                  |           |                         
|Income from continuing operations per average common share:         |  |                                                  |           |                          |   |                        |  |   |                   |    |  |   |          
|Basic                                                               |  |                                                  | 0.83      |                          |   | 0.97                   |  |   | -                 |    |  |   | 0.83     
|Diluted                                                             |  |                                                  | 0.82      |                          |   | 0.84                   |  |   | -                 |    |  |   | 0.79     



|1 | Represents results of Buckhead Community Bancorp, Inc. from January 1, 2007 through September 30, 2007.
|- | -------------------------------------------------------------------------------------------------------



|2 | Represents results of Allied Bancshares, Inc. from January 1, 2007 through September 30, 2007.
|- | ----------------------------------------------------------------------------------------------



|3 | Pro forma adjustments include the following items: loss of interest on federal funds sold used to fund the acquisition of $252 thousand; amortization of core
deposit intangible of $212 thousand; amortization of loan purchase accounting adjustment of $113 thousand; amortization of investment securities purchase accounting adjustment of $75 thousand; depreciation of building purchase accounting adjustment
of $22 thousand; and accretion of deposit purchase accounting adjustment of $139 thousand; net tax effect of all pro-forma adjustments at 35%.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4 | Assumes 75% stock merger consideration at an exchange ratio of 1.20.
|- | --------------------------------------------------------------------



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##### Table of Contents

Buckhead Community Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 3  Stock-based Compensation

The Company has a stock incentive plan under which it may grant stock options or
other stock awards to employees, directors and other key persons to purchase shares of common stock. Awards are granted at prices equal to the fair market value of the shares at the date of grant and are exercisable as determined by the plans
administrative committee. Stock options expire ten years from the date of grant. The general terms of the plan also include a vesting period which is usually three to four years for awards granted since January of 2007. Options granted prior to that
date generally vested immediately. Through September 30, 2008, incentive stock options, nonqualified stock options and restricted stock awards and units had been granted under the plan.

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised), Share Based Payment(SFAS No. 123(R)) utilizing the modified prospective method of
accounting. Grant date fair value is measured on the date of grant using an option pricing model with market assumptions. The grant date fair value is amortized into expense on a straight-line basis over the vesting period. Option pricing models
require the use of highly subjective assumptions, including but not limited to, historical stock price volatility, forfeiture rates, term, annual dividends and interest rates, which if changed could materially affect our fair value estimates.
Accordingly, the model does not necessarily provide a reliable single measure of the fair value of our stock options.

Stock Options

The following is a summary of the Companys weighted average assumptions used to estimate the weighted average per share fair
value of options granted during the three and nine months ended September 30, 2008, and 2007, on the date of grant using the Black-Scholes option pricing model. No stock options were granted during 2008.



|                                       |  |                                |  |                               |  |      |  |      |     
|-------------------------------------- |  | ------------------------------ |  | ----------------------------- |  | ---- |  | ---- | ----
|                                       |  | Three Months EndedSeptember 30 |  | Nine Months EndedSeptember 30
|(Dollars in Thousands)(Unaudited)      |  | 2008                           |  | 2007                          |  | 2008 |  | 2007
|Expected volatility                    |  | N/A                            |  | N/A                           |  | N/A  |  |      | 18% 
|Expected dividend yield                |  | N/A                            |  | N/A                           |  | N/A  |  |      | 2%  
|Expected life (in years)               |  | N/A                            |  | N/A                           |  | N/A  |  |      | 6.5 
|Risk-free rate                         |  | N/A                            |  | N/A                           |  | N/A  |  |      | 4.6%
|Annual forfeiture rate                 |  | N/A                            |  | N/A                           |  | N/A  |  |      | 3%  
|Weighted average fair value of options |  | N/A                            |  | N/A                           |  | N/A  |  | $    | 5.04

The Company expensed approximately $2 thousand and $5 thousand during the three and nine months
ended September 30, 2008 and $2 thousand and $4 thousand during the same period of 2007, related to stock options. The total compensation cost related to nonvested awards not yet recognized was approximately $8 thousand as of September 30,
2008 and the weighted average period over which it is to be recognized is 1.25 years.



12



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##### Table of Contents

Buckhead Community Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

The following table presents a summary of stock option activity:



|                                        |  |                                      |   |  |                                |       |                                                   |     |                         |   |      
|--------------------------------------- |  | ------------------------------------ | - |  | ------------------------------ | ----- | ------------------------------------------------- | --- | ----------------------- | - | -----
|                                        |  | Nine months ended September 30, 2007
|(Dollars in thousands)(Unaudited)       |  | Shares                               |   |  | Weighted-AverageExercise Price |       | Weighted-AverageRemaining ContractualLife (years) |     | AggregateIntrinsicValue
|                                        |  |                                      |   | 
|Options outstanding, January 1, 2007    |  | 65,197                               |   |  | $                              | 5.95  |                                                   |     |                         |   |      
|Granted                                 |  | 3,779                                |   |  |                                | 22.50 |                                                   |     |                         |   |      
|                                        |  |                                      |   |  |                                |       |                                                   |     |                         |   |      
|Options outstanding, September 30, 2007 |  | 68,976                               |   |  | $                              | 6.86  |                                                   | 5.6 |                         | $ | 1,251
|                                        |  |                                      |   |  |                                |       |                                                   |     |                         |   |      
|                                        |  |                                      |   | 
|Exercisable, September 30, 2007         |  | 65,197                               |   |  | $                              | 5.95  |                                                   | 5.4 |                         | $ | 1,242
|                                        |  |                                      |   |  |                                |       |                                                   |     |                         |   |      
|                                        | 
|                                        |  | Nine months ended September 30, 2008
|(Dollars in thousands)(Unaudited)       |  | Shares                               |   |  | Weighted-AverageExercise Price |       | Weighted-AverageRemaining ContractualLife (years) |     | AggregateIntrinsicValue
|                                        |  |                                      |   | 
|Options outstanding, January 1, 2008    |  | 185,736                              |   |  | $                              | 8.55  |                                                   |     |                         |   |      
|Forfeited                               |  | (12,221                              | ) |  |                                | 9.75  |                                                   |     |                         |   |      
|Exercised                               |  | (400                                 | ) |  |                                | 12.50 |                                                   |     |                         |   |      
|                                        |  |                                      |   |  |                                |       |                                                   |     |                         |   |      
|Options outstanding, September 30, 2008 |  | 173,115                              |   |  | $                              | 8.46  |                                                   | 5.6 |                         | $ | 2,863
|                                        |  |                                      |   |  |                                |       |                                                   |     |                         |   |      
|                                        |  |                                      |   | 
|Exercisable, September 30, 2008         |  | 171,114                              |   |  | $                              | 8.29  |                                                   | 5.5 |                         | $ | 2,859
|                                        |  |                                      |   |  |                                |       |                                                   |     |                         |   |      

The total grant-date fair value of options vested during the period was $5 thousand and zero for
the nine months ended September 30, 2008 and 2007, respectively. No options vested during the third quarter of 2008 or 2007.

Restricted Stock

On April 1, 2006, the Companys President and Chief Executive Officer was awarded 3,000 shares of restricted common
stock, with an aggregate fair market value of $16.67 per share. The restricted stock vests in four equal increments on April 1, 2007, 2008, 2009, and 2010. The total expense associated with this grant of approximately $49,000 will be recognized
over the four year period on a straight-line basis.

On March 27, 2007 and April 25, 2007, the Companys President and Chief
Executive Officer and two employees were awarded 3,822 and 4,000 shares of restricted common stock, respectively, with an aggregate per share fair market values of $22.50 and $25.00, respectively. The restricted stock will vest annually in four
equal increments, beginning on the first anniversary of its grant date. The total expense associated with these grants was originally approximately $186,000 and scheduled to be recognized over the vesting period on a straight-line basis. In the
first quarter of 2008, 2,000 shares of the April 25, 2007 grant were forfeited, lowering the total expense associated with these grants to approximately $136,000.



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Buckhead Community Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

The unamortized balance of the fair value of the restricted stock grant has been recorded as deferred compensation in the equity section of the consolidated balance sheets. As of September 30, 2008, there was
approximately $105 thousand of unrecognized stock-based compensation expense related to restricted stock, which is expected to be recognized over a weighted average period of 2.2 years.

The following tables present restricted stock activity:



|                                                         |  |        |   |  |                                       |      
|-------------------------------------------------------- |  | ------ | - |  | ------------------------------------- | -----
|(Dollars in thousands, except per share data)(Unaudited) |  | Shares |   |  | Weighted-AverageGrant Date Fair Value
|                                                         |  |       
|Outstanding, January 1, 2007                             |  | 3,000  |   |  | $                                     | 16.67
|Granted                                                  |  | 7,822  |   |  |                                       | 23.78
|Vested                                                   |  | (750   | ) |  |                                       | 16.67
|                                                         |  |        |   |  |                                       |      
|Outstanding, September 30, 2007                          |  | 10,072 |   |  | $                                     | 22.19
|                                                         |  |        |   |  |                                       |      
|                                                         |  |       
|                                                         |  | Shares |   |  | Weighted-AverageGrant Date Fair Value
|                                                         |  |       
|Outstanding, January 1, 2008                             |  | 10,072 |   |  | $                                     | 22.19
|Forfeited                                                |  | (2,000 | ) |  |                                       | 25.00
|Vested                                                   |  | (2,206 | ) |  |                                       | 21.08
|                                                         |  |        |   |  |                                       |      
|Outstanding, September 30, 2008                          |  | 5,866  |   |  | $                                     | 21.65
|                                                         |  |        |   |  |                                       |      

The following table summarizes stock-based compensation expense:



|                                  |  |                                |    |                               |   |      |  |      |    |  |   |   
|--------------------------------- |  | ------------------------------ | -- | ----------------------------- | - | ---- |  | ---- | -- |  | - | --
|                                  |  | Three Months EndedSeptember 30 |    | Nine Months EndedSeptember 30
|(Dollars in Thousands)(Unaudited) |  | 2008                           |    | 2007                          |   | 2008 |  | 2007
|                                  |  |                                |    |                              
|Stock-based compensation expense  |  |                                |    |                               |   |      |  |      |    |  |   |   
|Stock options                     |  | $                              | 2  |                               | $ | 2    |  | $    | 5  |  | $ | 4 
|Restricted stock                  |  |                                | 11 |                               |   | 15   |  |      | 26 |  |   | 31
|                                  |  |                                |    |                               |   |      |  |      |    |  |   |   
|                                  |  | $                              | 13 |                               | $ | 17   |  | $    | 31 |  | $ | 35
|                                  |  |                                |    |                               |   |      |  |      |    |  |   |   



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##### Table of Contents

Buckhead Community Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Note 4  (Loss) Earnings Per Share (EPS)

The following table reflects the reconciliation of the numerator
and denominator of the basic EPS computation to the diluted EPS computation for the three and nine months ended September 30, 2008 and 2007. There is no dilution from dilutive securities due to the antidilutive effect of the net loss for the
three and nine months ended September 30, 2008.



|                                                         |  |                                 |        |                                |      |   |       |  |   |        |   |  |   |      
|-------------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------ | ---- | - | ----- |  | - | ------ | - |  | - | -----
|                                                         |  | Three Months Ended September 30 |        | Nine Months Ended September 30
|(Amounts in thousands, except per share data)(Unaudited) |  | 2008                            |        |                                | 2007 |   | 2008  |  |   | 2007  
|                                                         |  |                                 |        |                               
|Basic                                                    |  |                                 |        |                                |      |   |       |  |   |        |   |  |   |      
|Net (loss) income available to common shareholders       |  | $                               | (1,577 | )                              |      | $ | 1,065 |  | $ | (3,704 | ) |  | $ | 3,785
|                                                         |  |                                 |        |                               
|Average basic common shares                              |  |                                 | 6,308  |                                |      |   | 4,575 |  |   | 6,307  |   |  |   | 4,572
|                                                         |  |                                 |        |                               
|(Loss) earnings per average common share - basic         |  | $                               | (0.25  | )                              |      | $ | 0.23  |  | $ | (0.59  | ) |  | $ | 0.83 
|                                                         |  |                                 |        |                                |      |   |       |  |   |        |   |  |   |      
|                                                         |  |                                 |        |                               
|Diluted                                                  |  |                                 |        |                                |      |   |       |  |   |        |   |  |   |      
|Net (loss) income available to common shareholders       |  | $                               | (1,577 | )                              |      | $ | 1,065 |  | $ | (3,704 | ) |  | $ | 3,785
|                                                         |  |                                 |        |                               
|Average basic common shares                              |  |                                 | 6,308  |                                |      |   | 4,575 |  |   | 6,307  |   |  |   | 4,572
|Effect of dilutive securities:                           |  |                                 |        |                                |      |   |       |  |   |        |   |  |   |      
|Stock options and restricted stock                       |  |                                 | 110    |                                |      |   | 50    |  |   | 114    |   |  |   | 50   
|                                                         |  |                                 |        |                                |      |   |       |  |   |        |   |  |   |      
|Average diluted common shares                            |  |                                 | 6,418  |                                |      |   | 4,625 |  |   | 6,421  |   |  |   | 4,622
|                                                         |  |                                 |        |                                |      |   |       |  |   |        |   |  |   |      
|                                                         |  |                                 |        |                               
|(Loss) earnings per average common share - diluted1      |  | $                               | (0.25  | )                              |      | $ | 0.23  |  | $ | (0.59  | ) |  | $ | 0.82 
|                                                         |  |                                 |        |                                |      |   |       |  |   |        |   |  |   |      



|1 | Calculated using average basic common shares for the three and nine months ended September 30, 2008
|- | ---------------------------------------------------------------------------------------------------

Note 5  Fair Value

On January 1, 2008,
the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements(SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair
value measurements of reported balances. On February 12, 2008, the FASB issued Staff Position 157-2 which defers the effective date of Statement 157 for certain nonfinancial assets and liabilities to fiscal years beginning after
November 15, 2008. All other provisions of Statement 157 are effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.

As defined in SFAS No. 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the
asset or liability, including assumptions about risk and or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

On October 10, 2008, the FASB
issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset Is Not Active. This FSP clarified the application of SFAS No. 157 in a market that is not active and reiterated that the
results of distressed sales or forced liquidations are not determinative when measuring fair value. It emphasized that when determining fair value, the use of managements internal assumptions concerning future cash flows discounted at an
appropriate risk-adjusted interest rate is acceptable when relevant observable market data do not exist. In some situations, multiple inputs from a variety of sources may provide the best evidence of fair value. The FSP also described how the use of
broker quotes should be considered when assessing the relevance of observable and unobservable inputs.



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##### Table of Contents

Buckhead Community Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Based on the observability of the inputs used in the valuation techniques the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality
and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:



| |  |  | Level 1  Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities that
are traded in an active exchange market, as well as U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2  Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less
frequently than exchange-traded instruments, as well as U.S. Government and agency mortgage backed debt securities whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or
corroborated by observable market data.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value
requires significant management judgment or estimation.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Assets Measured at Fair Value on a Recurring Basis

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the
accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are
classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using
pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain
corporate, asset backed and other securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Broker quotes are not necessarily determinative of fair value if an active
market does not exist for the security. Currently, all of the Companys available-for-sale securities are considered to be Level 2 securities.

The following table presents financial assets measured at fair value on a recurring basis:



|                                  |  |                                                           |         |                                                             |   |                                            |  |                                         |         |  |   |  
|--------------------------------- |  | --------------------------------------------------------- | ------- | ----------------------------------------------------------- | - | ------------------------------------------ |  | --------------------------------------- | ------- |  | - | -
|                                  |  |                                                           |         | Fair Value Measurements at September 30, 2008, Using       
|(Dollars in thousands)(Unaudited) |  | Assets/LiabilitiesMeasured at FairValueSeptember 30, 2008 |         | Quoted Prices in ActiveMarkets forIdentical Assets(Level 1) |   | Significant OtherObservableInputs(Level
2) |  | SignificantUnobservable Inputs(Level 3)
|                                  |  |                                                           |         |                                                            
|Securities available for sale     |  | $                                                         | 109,976 |                                                             | $ | -                                          |  | $                                       | 109,976 |  | $ | -



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##### Table of Contents

Buckhead Community Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Assets Measured at Fair Value on a Non-recurring Basis

Following is a description of the valuation methodologies
used for instruments measured at fair value on a non-recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Impaired Loans

Loan impairment is reported when full payment under the loan terms is not expected. Impaired loans are carried at the present value of estimated future cash flows using the loans existing rate, or the fair value
of collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan
losses to require increase, such increase is reported as a component of the provision for loan losses. Loan losses are charged against the allowance when management believes the uncollectability of a loan is confirmed. During the first nine months
of 2008, certain impaired loans were partially charged-off or re-evaluated for impairment resulting in a remaining balance for these loans, net of specific allowances, of $35.4 million as of September 30, 2008. This valuation would be
considered Level 3, consisting of appraisals of underlying collateral and discounted cash flow analysis.

Other
Real Estate Owned

Other real estate assets acquired through or in lieu of foreclosure are held for sale and are initially
recorded at fair value. Any write-downs to fair value at the time of transfer to foreclosed assets are charged to the allowance for loan losses. Subsequent to foreclosure, valuations are periodically performed by management and the assets are
carried at the lower of carrying amount or fair value less costs to sell. This valuation would be considered Level 3, consisting of appraisals of real estate collateral, along with other factors known to management.

The following table presents financial assets measured at fair value on a non-recurring basis, for which impairment was recognized in the current period.



|                                  |  |                                       |        |                                                             |   |                                             |  |                                         |   |                                             |   |        |  |   |        |  
|--------------------------------- |  | ------------------------------------- | ------ | ----------------------------------------------------------- | - | ------------------------------------------- |  | --------------------------------------- | - | ------------------------------------------- | - | ------ |  | - | ------ | -
|                                  |  |                                       |        | Fair Value Measurements at September 30, 2008, Using        |   |                                             | 
|(Dollars in thousands)(Unaudited) |  | CarryingValue as
ofSeptember 30, 2008 |        | Quoted Prices in ActiveMarkets forIdentical
Assets(Level 1) |   | Significant OtherObservable Inputs(Level 2) |  | SignificantUnobservable Inputs(Level 3) |   | ValuationAllowances as ofSeptember 30, 2008 |  
|                                  |  |                                       |        |                                                             |  
|Impaired loans                    |  | $                                     | 35,366 |                                                             | $ | -                                           |  | $                                       | - |                                             | $ | 35,366 |  | $ | (4,459 | )
|Other real estate owned           |  |                                       | 29,229 |                                                             |   | -                                           |  |                                         | - |                                             |   | 29,229 |  |   | (1,511 | )

In February, 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, including an amendment of FASB Statement No. 115. SFAS No. 159 allows companies to report selected financial assets and liabilities at fair value. The changes in fair value are recognized in earnings
and the assets and liabilities measured under this methodology are required to be displayed separately on the balance sheet. While SFAS No. 159 became effective for the Company beginning January 1, 2008, the Company has not elected the
fair value option that is offered by this statement.



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##### Table of Contents

|ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

General

The following is managements discussion and analysis of certain significant factors
which have affected the financial position and operating results of the Company and the Bank, during the period included in the accompanying consolidated financial statements. The purpose of this discussion is to focus on information about our
financial condition and results of operations that are not otherwise apparent from our consolidated financial statements. Reference should be made to those statements and the selected financial data presented elsewhere in this report for an
understanding of the following discussion and analysis.

Throughout this Item, the terms we, us and our refer to the
Company and the Bank together on a consolidated basis.

The Company is a corporation which was organized under the laws of the state of
Georgia to be a holding company for the Bank. Like most community bank holding companies, the Company derives substantially all of its income from the earnings of its subsidiary Bank. The Bank is a bank chartered under the laws of the State of
Georgia that opened for business on February 16, 1998. The Bank is a full service commercial bank located in Atlanta, Georgia, with a primary service area consisting of the community of Atlanta and the surrounding areas within Fulton, Cobb,
Forsyth and Hall Counties. The principal business of the Bank is to accept deposits from the public and to make loans and other investments.

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 Buckhead Community Bancorp, 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, 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.



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##### Table of Contents

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. 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.

Allowance for Loan
Losses

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.

A loan is considered impaired, based on current information and events, if it is probable that we will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan agreement. Uncollateralized loans are measured for impairment based on the present value of expected future cash flows discounted at the historical effective interest
rate, while all collateral-dependent loans are measured for impairment based on the fair value of the collateral.

We use several factors
in determining if a loan is impaired. The internal asset classification procedures include a thorough review of significant loans and lending relationships and include the accumulation of related data. This data includes loan payment status,
borrowers financial data, and borrowers operating factors such as cash flows, operating income or loss, etc.

The allowance for
loan losses is established through charges to earnings in the form of a provision for loan losses. Increases and decreases in the allowance due to changes in the measurement of the impaired loans are included in the provision for loan losses. Loans
continue to be classified as impaired unless they are brought fully current and the collection of scheduled interest and principal is considered probable. When a loan or portion of a loan is determined to be uncollectible, the portion deemed
uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance.

Managements
periodic evaluation of the adequacy of the allowance also considers impaired loans and takes into consideration our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers ability
to repay, estimated value of any underlying collateral, and current economic conditions. While management believes that it has established the allowance in accordance with generally accepted accounting principles and has taken into account the views
of its regulators and the current economic environment, there can be no assurance that in the future our regulators or the economic environment will not require further increases in the allowance.

Goodwill Impairment Analysis

Goodwill
represents the excess of the cost of the acquisition over the fair value of the net assets acquired. The Company tests goodwill for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment. The
Company has elected to perform its annual testing as of September 30 each year. The goodwill impairment test is a two-step process, which requires management to make judgments in determining the assumptions used in the calculations. The first
step involves estimating the fair value of each reporting unit and comparing it to the reporting units carrying value, which includes the allocated goodwill. If the estimated fair value is less than the carrying value, then a second step is
performed to measure the actual amount of goodwill impairment. The second step first involves determining the implied fair value of goodwill. This requires the Company to allocate the estimated fair value to all the assets and liabilities of the
reporting unit. Any unallocated fair value represents the implied fair value of goodwill which is compared to its corresponding carrying value. If the carrying value exceeds the implied fair value, an impairment loss is recognized in an amount equal
to that excess.

Fair values of reporting units were estimated using discounted cash flow models derived from internal earnings forecasts.
The key assumptions used to estimate the fair value of each reporting unit included earnings forecasts for 5 years, terminal values based on future growth rates and discount interest rates. Changes in market interest rates, depending on the
magnitude and duration, could impact the discount interest rates used in the impairment analysis. Generally, and with all other assumptions remaining the same, increasing the discount interest rate used in the analysis would tend to lower the fair
value estimates, while lowering the discount interest rate would tend to increase the fair value estimates. The Company performed its goodwill impairment analysis according to the aforementioned method as of September 30, 2008. This analysis
indicated that no goodwill impairment was present; therefore no impairment loss was recognized.



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##### Table of Contents

Estimates of Fair Value

The estimation of fair value is significant to a number of the Companys assets, including, but not limited to, investment securities, impaired loans, other real estate owned (OREO), and other
intangible assets. Investment securities are recorded at fair value while impaired loans, other real estate owned, and other intangible assets are recorded at either cost or fair value, whichever is lower.

Fair values for investment securities are based on quoted market prices, and if not available, quoted prices on similar instruments. The fair values of
impaired loans and other real estate owned are typically determined based on third-party appraisals less estimated costs to sell. At the time of foreclosure, it is our policy to obtain current appraisals from a list of approved appraisers to assist
in the valuation of OREO. We reassess the value of OREO properties at least every 60 days with any updated information obtained by management, and establish reserves when deemed appropriate. Other intangible assets are periodically evaluated to
determine if any impairment might exist. The estimation of fair value and subsequent changes of fair value of investment securities, impaired loans, other real estate owned, and other intangible assets can have a significant impact on the value of
the Company, as well as have an impact on the recorded values and subsequently reported net income.

Income taxes

The determination of our overall income tax provision is complex and requires careful analysis. As part of the overall business strategy, we may enter
into business transactions that require management to consider tax laws and regulations that apply to the specific facts and circumstances under consideration. This analysis includes evaluating the amount and timing of the realization of income tax
liabilities or benefits. Management continually monitors tax developments as they affect our overall tax position. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred
tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Balance Sheet Review

At September 30, 2008, we
had total assets of $928.1 million as compared to $898.9 million as of December 31, 2007. The increase in assets was primarily attributable to a $50.4 million increase in loans and loans held for sale, as well as a $15.8 million increase in
other real estate owned. This increase was partially offset by a $10.9 million decrease in cash and due from banks and a $22.3 million decrease in federal funds sold. Total liabilities at September 30, 2008 increased to $842.6 million from
$809.5 million at December 31, 2007, primarily due to a $45.2 million increase in short-term borrowings and a $16.0 million increase in long-term debt. Shareholders equity totaled $85.5 million at September 30, 2008, a decrease of
$3.9 million, or 4.4% when compared to December 31, 2007. The decrease was primarily driven by a net loss of $3.7 million for the first nine months of 2008. On December 4, 2007, we completed the acquisition of Allied, which added
approximately $273.8 million in total assets to our balance sheet. This transaction is described more fully in Note 2 to the Consolidated Financial Statements included in Item 1.

Investment Portfolio

The fair value of the investment securities portfolio as of
September 30, 2008 was $110.0 million compared to $109.6 million as of December 31, 2007. In an effort to improve the yield and lengthen the duration of our investment portfolio, we sold approximately $7 million in U.S. Treasury and agency
securities and approximately $4 million in mortgage-backed securities during the second quarter of 2008. During the second quarter, we purchased approximately $24 million in mortgage-backed securities to replace these sold investments as well as
approximately $5 million in agency securities that were called during the second quarter. Our portfolio repositioning resulted in a shift from U.S. Treasury and agency securities to mortgage-backed securities. The mortgage-backed securities
purchased during the second quarter of 2008 are backed by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Association (FHLMC), and the aggregate total of all
mortgage-backed securities does not exceed 60% of the entire portfolio, in accordance with our investment policy. Aside from our repositioning activities, $34 million in U.S. Treasury securities matured shortly after the end of the first quarter of
2008, related to a temporary customer deposit.

Because our investment portfolio is managed with consideration of collateral requirements
for our overnight sweep product and public deposit balances, we elected to purchase mortgage-backed securities as opposed to other types of securities, such as municipal bonds. Mortgage-backed securities are considered acceptable collateral for
these deposits, while municipal bonds are not. During the third quarter of 2008, we sold approximately $5 million of state and municipal securities and replaced them with mortgage-backed and U.S. agency securities, since these types of securities
were eligible for pledging.



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|                                                                         |  |                    |         |                   |   |                    |  |           |         |               |   |           |  |   |         |  |   |        
|------------------------------------------------------------------------ |  | ------------------ | ------- | ----------------- | - | ------------------ |  | --------- | ------- | ------------- | - | --------- |  | - | ------- |  | - | -------
|                                                                         |  | September 30, 2008 |         | December 31, 2007 |   | September 30, 2007
|(Dollars in thousands)(Unaudited)                                        |  | AmortizedCost      |         | FairValue         |   | AmortizedCost      |  | FairValue |         | AmortizedCost |   | FairValue
|                                                                         |  |                    |         |                   |   |                   
|U.S. Treasury government sponsored securities, agencies and corporations |  | $                  | 33,688  |                   | $ | 33,667             |  | $         | 62,106  |               | $ | 62,250    |  | $ | 61,268  |  | $ | 60,785 
|Trust Preferred Securities                                               |  |                    | 1,450   |                   |   | 1,308              |  |           | 1,450   |               |   | 1,457     |  |   | 1,450   |  |   | 1,457  
|Corporate bonds                                                          |  |                    | 250     |                   |   | 167                |  |           | 250     |               |   | 251       |  |   | 250     |  |   | 252    
|State and municipal securities                                           |  |                    | 19,467  |                   |   | 18,902             |  |           | 24,561  |               |   | 24,242    |  |   | 23,914  |  |   | 23,692 
|Mortgage-backed securities                                               |  |                    | 55,967  |                   |   | 55,932             |  |           | 21,704  |               |   | 21,447    |  |   | 15,021  |  |   | 14,619 
|                                                                         |  |                    |         |                   |   |                    |  |           |         |               |   |           |  |   |         |  |   |        
|                                                                         |  |                    |         |                   |   |                   
|Total securities available for sale                                      |  | $                  | 110,822 |                   | $ | 109,976            |  | $         | 110,071 |               | $ | 109,647   |  | $ | 101,903 |  | $ | 100,805
|                                                                         |  |                    |         |                   |   |                    |  |           |         |               |   |           |  |   |         |  |   |        

The carrying value of investment securities at September 30, 2008, by contractual maturity,
is shown below. All of our securities are classified as available-for-sale, which means that we carry them at estimated fair value with unrealized gains and losses excluded from earnings and reported as a separate component of
stockholders equity until realized. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations without call or prepayment penalties.

Maturity Distribution and Weighted Average Yield on Investments



|                                                                |  |                  |       |       |       |                               |  |        |       |                               |       |  |  |                |        |        |       |  |  |        |        |  |  |       |       |  |  |        |         |  |  |       |      
|--------------------------------------------------------------- |  | ---------------- | ----- | ----- | ----- | ----------------------------- |  | ------ | ----- | ----------------------------- | ----- |  |  | -------------- | ------ | ------ | ----- |  |  | ------ | ------ |  |  | ----- | ----- |  |  | ------ | ------- |  |  | ----- | -----
|                                                                |  | One Year or Less |       |       |       | After One YearThrough 5 Years |  |        |       | After 5 YearsThrough 10 Years |       |  |  | After 10 Years |        | Totals
|                                                                |  |                  |       |       |       |                               |  |        |       |                               |       |  |  |                |        |       
|(Dollars in thousands)(Unaudited)                               |  | Amount           |       | Yield |       |                               |  | Amount |       | Yield                         |       |  |  | Amount         |        | Yield  |       |  |  | Amount |        |  |  | Yield |       |  |  | Amount |         |  |  | Yield
|Carrrying value:                                                |  |                  |       |       |       |                               |  |        |       |                               |       |  |  |                |        |        |       |  |  |        |        |  |  |       |       |  |  |        |         |  |  |       |      
|September 30, 2008                                              |  |                  |       |       |       |                               |  |        |       |                               |       |  |  |                |        |        |       |  |  |        |        |  |  |       |       |  |  |        |         |  |  |       |      
|U.S. Government sponsored securities, agencies and corporations |  | $                | 1,009 |       | 2.00% |                               |  |        | -     |                               | -     |  |  |                | 16,505 |        | 4.76% |  |  |        | 16,153 |  |  |       | 5.79% |  |  |        | 33,667  |  |  |       | 5.17%
|Trust preferred securities                                      |  |                  | -     |       | -     |                               |  |        | -     |                               | -     |  |  |                | -      |        | -     |  |  |        | 1,308  |  |  |       | 6.38% |  |  |        | 1,308   |  |  |       | 6.38%
|Corporate bonds                                                 |  |                  | -     |       | -     |                               |  |        | -     |                               | -     |  |  |                | -      |        | -     |  |  |        | 167    |  |  |       | 4.99% |  |  |        | 167     |  |  |       | 4.99%
|State and municipal securities1                                 |  |                  | -     |       | -     |                               |  |        | 1,099 |                               | 5.38% |  |  |                | 702    |        | 4.30% |  |  |        | 17,101 |  |  |       | 5.86% |  |  |        | 18,902  |  |  |       | 5.77%
|Mortgage-backed securities                                      |  |                  | -     |       | -     |                               |  |        | 4,130 |                               | 4.86% |  |  |                | 3,124  |        | 4.08% |  |  |        | 48,678 |  |  |       | 5.26% |  |  |        | 55,932  |  |  |       | 5.16%
|                                                                |  |                  |       |       |       |                               |  |        |       |                               |       |  |  |                |        |        |       |  |  |        |        |  |  |       |       |  |  |        |         |  |  |       |      
|Total securities                                                |  | $                | 1,009 |       |       |                               |  |        | 5,229 |                               |       |  |  |                | 20,331 |        |       |  |  |        | 83,407 |  |  |       |       |  |  |        | 109,976 |  |  |       |      
|                                                                |  |                  |       |       |       |                               |  |        |       |                               |       |  |  |                |        |        |       |  |  |        |        |  |  |       |       |  |  |        |         |  |  |       |      



|1 | Yields are on a tax-equivalent basis
|- | ------------------------------------



21



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##### Table of Contents

Loan Portfolio

Our intent is to derive a substantial percentage of our earnings from loans. The Companys loan portfolio increased $47.8 million, or 7.1% from December 31, 2007 to September 30, 2008. The following
table presents various categories of loans contained in the loan portfolio of the Company as of September 30, 2008, December 31, 2007, and September 30, 2007:



|                                                      |  |                   |         |           |         |                  |  |        |   |                   |  |         |  |        |  |           |         |  |        
|----------------------------------------------------- |  | ----------------- | ------- | --------- | ------- | ---------------- |  | ------ | - | ----------------- |  | ------- |  | ------ |  | --------- | ------- |  | -------
|                                                      |  | September 30 2008 |         |           |         | December 31 2007 |  |        |   | September 30 2007
|(Dollars in thousands)(Unaudited)                     |  | Amount            |         | % ofLoans |         |                  |  | Amount |   | % ofLoans         |  |         |  | Amount |  | % ofLoans
|                                                      |  |                   |         |           |         |                  |  |       
|Breakdown of loan receivables:                        |  |                   |         |           |         |                  |  |        |   |                   |  |         |  |        |  |           |         |  |        
|Commercial                                            |  | $                 | 85,499  |           | 11.80%  |                  |  |        | $ | 77,837            |  | 11.50%  |  |        |  | $         | 67,648  |  | 14.82% 
|Real estate - mortgage                                |  |                   | 249,835 |           | 34.47%  |                  |  |        |   | 213,248           |  | 31.50%  |  |        |  |           | 105,829 |  | 23.19% 
|Real estate - construction                            |  |                   | 378,150 |           | 52.18%  |                  |  |        |   | 371,506           |  | 54.88%  |  |        |  |           | 279,027 |  | 61.14% 
|Consumer                                              |  |                   | 11,278  |           | 1.55%   |                  |  |        |   | 14,358            |  | 2.12%   |  |        |  |           | 3,901   |  | 0.85%  
|                                                      |  |                   |         |           |         |                  |  |       
|Total loans                                           |  |                   | 724,762 |           | 100.00% |                  |  |        |   | 676,949           |  | 100.00% |  |        |  |           | 456,405 |  | 100.00%
|                                                      |  |                   |         |           |         |                  |  |       
|Less: Allowance for loan losses                       |  |                   | 10,836  |           |         |                  |  |        |   | 9,787             |  |         |  |        |  |           | 5,299   |  |        
|Less: Unearned loan fees                              |  |                   | 719     |           |         |                  |  |        |   | 830               |  |         |  |        |  |           | 852     |  |        
|                                                      |  |                   |         |           |         |                  |  |        |   |                   |  |         |  |        |  |           |         |  |        
|Net loans                                             |  | $                 | 713,207 |           |         |                  |  |        | $ | 666,332           |  |         |  |        |  | $         | 450,254 |  |        
|                                                      |  |                   |         |           |         |                  |  |        |   |                   |  |         |  |        |  |           |         |  |        
|                                                      |  |                   |         |           |         |                  |  |       
|Ratio of the allowance for loan losses to total loans |  |                   | 1.50%   |           |         |                  |  |        |   | 1.45%             |  |         |  |        |  |           | 1.16%   |  |        

The major components of the loan portfolio at September 30, 2008 were real estate
construction and mortgage and represented 86.6% of the loan portfolio. In the context of this discussion, we define a real estate mortgage loan and a real estate construction loan as any loan, secured by real estate,
regardless of the purpose of the loan. We follow the common practice of financial institutions in our market area of obtaining a security interest in real estate whenever possible, in addition to any other available collateral. We take
this collateral to reinforce the likelihood of the ultimate repayment of the loan; however, this tends to increase the magnitude of our real estate loan portfolio component. Generally, we target our loan-to-value ratio to be consistent with the
supervisory loan to value limit guidelines provided by the banking regulators. In order to reduce collateral risk, we attempt to maintain a relatively diversified portfolio. To moderate credit risk in our declining real estate environment, in the
third quarter of 2007, management began requiring at least 20% cash equity on all new real estate development loans. As a further measure, during 2008, we ceased making speculative construction loans, we ceased making loans out of our market area,
and we no longer purchased participation loans.

Maturities and sensitivity of loans to changes in interest rates

The information in the following table is based on the contractual maturities of individual loans, including loans that may be subject to renewal at their
contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity. Actual repayments of loans may differ from maturities reflected below because borrowers have the
right to prepay obligations with or without prepayment penalties.



22



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##### Table of Contents

The following table summarizes major classifications of portfolio loans by maturities as of September 30, 2008:



|                                  |  |                 |         |                                |         |                |        |       |   |        
|--------------------------------- |  | --------------- | ------- | ------------------------------ | ------- | -------------- | ------ | ----- | - | -------
|(Dollars in thousands)(Unaudited) |  | One Yearor Less |         | After One,but withinFive Years |         | AfterFiveYears |        | Total
|                                  |  |                 |         |                               
|Commercial                        |  | $               | 61,974  |                                | 17,885  |                | 5,640  |       | $ | 85,499 
|Real estate  mortgage            |  |                 | 154,250 |                                | 74,332  |                | 21,253 |       |   | 249,835
|Real estate  construction        |  |                 | 367,126 |                                | 10,538  |                | 486    |       |   | 378,150
|Consumer                          |  |                 | 7,651   |                                | 3,486   |                | 141    |       |   | 11,278 
|                                  |  |                 |         |                                |         |                |        |       |   |        
|Total                             |  | $               | 591,001 |                                | 106,241 |                | 27,520 |       | $ | 724,762
|                                  |  |                 |         |                                |         |                |        |       |   |        

The following table represents the rate structure for loans as of September 30, 2008:



|                                  |  |              |         |           |   |        
|--------------------------------- |  | ------------ | ------- | --------- | - | -------
|(Dollars in thousands)(Unaudited) |  | VariableRate |         | FixedRate
|                                  |  |             
|Commercial                        |  | $            | 65,704  |           | $ | 19,795 
|Real estate  mortgage            |  |              | 155,304 |           |   | 94,531 
|Real estate  construction        |  |              | 360,328 |           |   | 17,822 
|Consumer                          |  |              | 5,885   |           |   | 5,393  
|                                  |  |              |         |           |   |        
|                                  |  |             
|Total                             |  | $            | 587,221 |           | $ | 137,541
|                                  |  |              |         |           |   |        

Provision and Allowance for Loan Losses

We have developed policies and procedures for evaluating the overall quality of the credit portfolio and the timely identification of potential credit problems. Additions to the allowance
for loan losses are made to maintain the allowance at an appropriate level based on our analysis of the potential risk in the loan portfolio. Our judgment about the adequacy of the allowance is based upon a number of assumptions about future
events which we believe to be reasonable, but which may or may not be accurate. Because of the inherent uncertainty of assumptions made during the evaluation process, there can be no assurance that loan losses in future periods will not exceed
the allowance for loan losses or that additional allocations will not be required. Our actual losses will undoubtedly vary from our estimates to some degree, and there is a possibility that charge-offs in future periods will exceed the
allowance for loan losses as estimated at any point in time.

As of September 30, 2008 the allowance for loan losses was $10.8 million
or 1.50% of outstanding loans, as compared to $9.8 million or 1.45% at December 31, 2007. The Companys current economic environment is turbulent, and the real estate values of our loan collateral are rapidly shifting. We continually
monitor the adequacy of our allowance and we have employed independent external loan review consultants to complement managements evaluation of the allowance. The Company is committed to following generally accepted accounting principles,
including the December 2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses, as it determines the level of the allowance. As of September 30, 2008, management believes the allowance for loan losses is adequate.

Our judgment in determining the adequacy of the allowance is based on evaluations of the collectability of loans. These evaluations
take into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions that may affect the borrowers ability to pay, overall portfolio quality, and review of specific problem loans. In
determining the adequacy of the allowance for loan losses, we use a loan grading system that rates loans in different categories. Certain grades representing criticized or classified loans are assigned allocations of loss based on
managements estimate of potential loss that is generally based on historical losses and/or collateral deficiencies. Other loans are graded by type and allocated loss ranges based on managements perceived inherent loss for the loan type.
The combination of these results is compared monthly to the recorded allowance for loan losses and material differences are adjusted by increasing or decreasing the provision for loan losses.



23



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##### Table of Contents

The following table shows an analysis of allowance for loan loss, including charge-off activity, for the
three and nine months ended September 30, 2008 and 2007:

Summary of Loan Loss Experience



|                                                                              |  |                                |        |      |   |                               |  |      |  |      |        |  |   |      
|----------------------------------------------------------------------------- |  | ------------------------------ | ------ | ---- | - | ----------------------------- |  | ---- |  | ---- | ------ |  | - | -----
|                                                                              |  | Three Months EndedSeptember 30 |        |      |   | Nine Months EndedSeptember 30
|(Dollars in thousands)(Unaudited)                                             |  | 2008                           |        | 2007 |   |                               |  | 2008 |  | 2007
|Balance at beginning of period                                                |  | $                              | 10,393 |      | $ | 5,250                         |  |      |  | $    | 9,787  |  | $ | 4,518
|Loans charged off:                                                            |  |                                |        |      |   |                               |  |      |  |      |        |  |   |      
|Commercial                                                                    |  |                                | -      |      |   | -                             |  |      |  |      | 421    |  |   | -    
|Real estate - mortgage                                                        |  |                                | 64     |      |   | -                             |  |      |  |      | 186    |  |   | -    
|Real estate - construction                                                    |  |                                | 1,627  |      |   | 371                           |  |      |  |      | 3,955  |  |   | 396  
|Consumer                                                                      |  |                                | -      |      |   | 4                             |  |      |  |      | 15     |  |   | 25   
|                                                                              |  |                                |        |      |   |                               |  |      |  |      |        |  |   |      
|Total loans charged off                                                       |  |                                | 1,691  |      |   | 375                           |  |      |  |      | 4,577  |  |   | 421  
|                                                                              |  |                                |        |      |   |                               |  |      |  |      |        |  |   |      
|                                                                              |  |                                |        |      |  
|Recoveries of losses previously charged off:                                  |  |                                |        |      |   |                               |  |      |  |      |        |  |   |      
|                                                                              |  |                                |        |      |  
|Commercial                                                                    |  |                                | -      |      |   | 20                            |  |      |  |      | -      |  |   | 48   
|Real estate - mortgage                                                        |  |                                | -      |      |   | -                             |  |      |  |      | -      |  |   | -    
|Real estate - construction                                                    |  |                                | -      |      |   | -                             |  |      |  |      | -      |  |   | -    
|Consumer                                                                      |  |                                | -      |      |   | 4                             |  |      |  |      | -      |  |   | 4    
|                                                                              |  |                                |        |      |   |                               |  |      |  |      |        |  |   |      
|Total recoveries                                                              |  |                                | -      |      |   | 24                            |  |      |  |      | -      |  |   | 52   
|                                                                              |  |                                |        |      |   |                               |  |      |  |      |        |  |   |      
|                                                                              |  |                                |        |      |  
|Net loans charged off                                                         |  |                                | 1,691  |      |   | 351                           |  |      |  |      | 4,577  |  |   | 369  
|                                                                              |  |                                |        |      |  
|Provision for loan losses                                                     |  |                                | 2,134  |      |   | 400                           |  |      |  |      | 5,626  |  |   | 1,150
|                                                                              |  |                                |        |      |   |                               |  |      |  |      |        |  |   |      
|                                                                              |  |                                |        |      |  
|Allowance for loan losses at end of period                                    |  | $                              | 10,836 |      | $ | 5,299                         |  |      |  | $    | 10,836 |  | $ | 5,299
|                                                                              |  |                                |        |      |   |                               |  |      |  |      |        |  |   |      
|                                                                              |  |                                |        |      |  
|Net loans charged off, as a percent of average loans outstanding (annualized) |  |                                | 0.93%  |      |   | 0.32%                         |  |      |  |      | 0.87%  |  |   | 0.12%

Our provision for loan losses for the three and nine months ended September 30, 2008 was $2.1
million and $5.6 million, which was $0.4 million more than net charge-offs for the three months ended September 30, 2008 and $1.0 million higher than net charge-offs for the nine months ended September 30, 2008. The comparable provision
and net charge-off amounts for the three and nine months ended September 30, 2007 were $0.4 million and $1.2 million and $0.4 million and $0.4 million, respectively. The loan loss provision increased from 2007 to 2008, due to increases in
non-performing loans and net charge-offs. Net charge-offs for the three and nine months ended September 30, 2008 represented 0.93% and 0.87% of average loans, compared to 0.32% and 0.12% of average loans for the three and nine months ended
September 30, 2007. The Company has been and will continue to be diligent in dealing with nonperforming assets, moving loans to nonaccrual status, charging them off and foreclosing on collateral, as deemed necessary.



24



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##### Table of Contents

The following tables show the allocation of the allowance and the percentage of the allowance allocated
to each category of total loans:



|                                  |  |                  |        |         |         |                 |  |        |   |                  |  |         |  |        |  |         |       |  |        
|--------------------------------- |  | ---------------- | ------ | ------- | ------- | --------------- |  | ------ | - | ---------------- |  | ------- |  | ------ |  | ------- | ----- |  | -------
|                                  |  | September 302008 |        |         |         | December 312007 |  |        |   | September 302007
|(Dollars in thousands)(Unaudited) |  | Amount           |        | Percent |         |                 |  | Amount |   | Percent          |  |         |  | Amount |  | Percent
|Commercial                        |  | $                | 1,273  |         | 11.75%  |                 |  |        | $ | 1,231            |  | 12.58%  |  |        |  | $       | 888   |  | 16.76% 
|Real estate  mortgage            |  |                  | 1,657  |         | 15.29%  |                 |  |        |   | 3,234            |  | 33.04%  |  |        |  |         | 1,679 |  | 31.69% 
|Real estate  construction        |  |                  | 7,831  |         | 72.27%  |                 |  |        |   | 5,181            |  | 52.94%  |  |        |  |         | 2,656 |  | 50.12% 
|Consumer                          |  |                  | 75     |         | 0.69%   |                 |  |        |   | 141              |  | 1.44%   |  |        |  |         | 76    |  | 1.43%  
|                                  |  |                  |        |         |         |                 |  |        |   |                  |  |         |  |        |  |         |       |  |        
|Total                             |  | $                | 10,836 |         | 100.00% |                 |  |        | $ | 9,787            |  | 100.00% |  |        |  | $       | 5,299 |  | 100.00%
|                                  |  |                  |        |         |         |                 |  |        |   |                  |  |         |  |        |  |         |       |  |        

Non-performing Assets

It is our policy to classify loans as non-accrual generally when they are past due in principal or interest payments for more than 90 days or if it is otherwise not reasonable to expect collection of principal and
interest under the original terms. Exceptions are allowed for 90 days past due loans when such loans are well secured and in the process of collection. Generally, payments received on non-accrual loans are applied directly to principal.

We have adopted the principles of SFAS No. 114 and No. 118 relating to accounting for impaired loans and as of
September 30, 2008, our impaired loans, totaled $39.8 million and had associated reserves of approximately $4.5 million. This is compared to impaired loans and associated reserves of $8.3 million and approximately $760 thousand, respectively,
as of December 31, 2007. A loan is considered impaired when it is probable, based on current information and events, the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the
loan agreement. Impaired loans are measured by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is
collateral dependent. The amount of impairment, if any and any subsequent changes are included in the allowance for loan losses. Interest on accruing impaired loans is recognized as long as such loans do not meet the criteria for nonaccrual status.

Non-performing assets, comprised of non-accrual loans, other real estate owned, other repossessed assets and loans for which payments are
more than 90 days past due totaled $67.1 million at September 30, 2008, compared to $25.2 million at December 31, 2007. Non-accrual loans were $34.1 million at September 30, 2008, an increase of $25.8 million from non-accrual loans of
$8.3 million at December 31, 2007. The Company had loans ninety days past due and still accruing at September 30, 2008 of $3.8 million as compared to $3.4 million as of December 31, 2007. We have been aggressive in dealing with
nonperforming loans, quickly moving them to nonaccrual status, other real estate owned, and/or charging them off, as deemed necessary. As mentioned above, our policy allows for us to continue accruing interest on loans that are 90 days past due
loans when such loans are well secured and in the process of collection. Net other real estate owned totaled $29.2 million as of September 30, 2008, compared to $13.4 million at December 31, 2007.

The current credit deterioration has been driven by a real estate slowdown that accelerated in mid to late 2007 and has continued into 2008. This
slowdown has had a greater impact on all banks in the Companys trade area than previous downturns in the economic cycle. The prolonged decline in the housing market and generally slowing economic conditions continue to have a negative impact
on our loan portfolio, particularly in real estate construction.

At September 30, 2008, we had non-performing loans, defined as
non-accrual and accruing loans past due more than 90 days, of $37.9 million or 5.23% of total loans. Non-performing loans for December 31, 2007 were $11.7 million or 1.74% of total loans. Interest that would have been recorded on non-accrual
loans had they performed in accordance with their original terms, amounted to $753.2 thousand and $1.8 million for the three and nine months ended September 30, 2008, compared to approximately $81 thousand and $358 thousand for the same periods
in 2007. Interest income on non-accrual loans included in the results of operations for the three and nine months ended September 30, 2008, totaled $87.0 thousand and $268.8 thousand, respectively. For the same periods ended September 30,
2007, interest income on non-accrual loans included in our results of operations totaled $0.1 thousand and $22.7 thousand, respectively.



25



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##### Table of Contents

A summary of nonperforming assets as of September 30, 2008, December 31, 2007 and September 30, 2007
is presented below:

Non-performing Assets



|                                                                                  |  |                  |        |                 |   |                  |  |   |       
|--------------------------------------------------------------------------------- |  | ---------------- | ------ | --------------- | - | ---------------- |  | - | ------
|(Dollars in thousands)(Unaudited)                                                 |  | September 302008 |        | December 312007 |   | September 302007
|Non-accrual loans                                                                 |  | $                | 34,052 |                 | $ | 8,310            |  | $ | 8,706 
|Loans 90 days or more past due and still accruing                                 |  |                  | 3,818  |                 |   | 3,439            |  |   | 879   
|                                                                                  |  |                  |        |                 |   |                  |  |   |       
|Total non-performing loans                                                        |  |                  | 37,870 |                 |   | 11,749           |  |   | 9,585 
|All other real estate owned, net                                                  |  |                  | 29,229 |                 |   | 13,437           |  |   | 7,937 
|All other repossessed assets                                                      |  |                  | 38     |                 |   | -                |  |   | -     
|                                                                                  |  |                  |        |                 |   |                  |  |   |       
|Total non-performing assets 1                                                     |  | $                | 67,137 |                 | $ | 25,186           |  | $ | 17,522
|                                                                                  |  |                  |        |                 |   |                  |  |   |       
|                                                                                  |  |                  |       
|As a percent of total loans at end of period:                                     |  |                  |        |                 |   |                  |  |   |       
|Non-accrual loans                                                                 |  |                  | 4.70%  |                 |   | 1.23%            |  |   | 1.91% 
|Loans 90 days or more past due and still accruing                                 |  |                  | 0.53%  |                 |   | 0.51%            |  |   | 0.19% 
|                                                                                  |  |                  |       
|Total non-performing assets to total loans plus OREO and other repossessed assets |  |                  | 8.90%  |                 |   | 3.65%            |  |   | 3.77% 



|1 | Total non-performing assets includes non-performing loans guaranteed by the Small Business Administration. At September 30, 2008, December 31, 2007 and
September 30, 2007, the guaranteed portion of these loans amounted to $5.9 million, $3.6 million and $1.8 million, respectively
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The increase to our non-accrual loans during the first nine months of 2008 is the net result of the following changes:

Nonaccrual Loans



|                                                         |  |                  |         |  
|-------------------------------------------------------- |  | ---------------- | ------- | -
|(Dollars in thousands)(Unaudited)                        |  | September 302008 |        
|Balance at December 31, 2007                             |  | $                | 8,310   |  
|Loans reclassified to non-accrual status in 2008         |  |                  | 52,707  |  
|Payments received on non-accrual loans during 2008       |  |                  | (1,702  | )
|Non-accrual loans charged-off during 2008                |  |                  | (3,746  | )
|Non-accrual loans reclassified to other real estate      |  |                  | (18,915 | )
|Non-accrual loans returned to accruing status            |  |                  | (2,025  | )
|Non-accrual loans reclassified to repossessed collateral |  |                  | (577    | )
|                                                         |  |                  |         |  
|Balance at September 30, 2008                            |  | $                | 34,052  |  
|                                                         |  |                  |         |  



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During 2008, additions to loans on nonaccrual status consisted of 55 real estate secured loans totaling
$47.3 million and 8 commercial SBA loans totaling $5.4 million. At September 30, 2008, non-accrual loans consisted of 33 construction loans, three commercial and industrial loans, seven SBA real estate loans, one real estate mortgage loan, and
one consumer loan, totaling approximately $25.6 million, $1.2 million, $7.2 million, $52.6 thousand and $2.3 thousand, respectively.

At
September 30, 2008, the Companys Other Real Estate Owned consisted of 46 properties totaling $29.2 million, compared to 15 properties totaling $13.4 million as of December 31, 2007. The increase in OREO during the first nine months
of 2008 was the result of the foreclosure of 42 construction loan properties, two real estate mortgage loans, and two SBA real estate loans. Fifteen properties were sold during the first nine months of 2008.

At September 30, 2008, the Companys OREO consisted of the following:



|                                  |  |                  |       
|--------------------------------- |  | ---------------- | ------
|(Dollars in thousands)(Unaudited) |  | September 302008
|Construction and land development |  | $                | 27,323
|1-4 family residential properties |  |                  | 205   
|Commercial properties             |  |                  | 1,701 
|                                  |  |                  |       
|Total other real estate owned     |  | $                | 29,229
|                                  |  |                  |       

The following is a summary of OREO activity for the first nine months of 2008:



|                                            |  |   |         |  
|------------------------------------------- |  | - | ------- | -
|(Dollars in thousands)(Unaudited)           |  |   |        
|Balance at December 31, 2007                |  | $ | 13,437  |  
|Transfers into OREO                         |  |   | 27,786  |  
|Sales of OREO                               |  |   | (10,289 | )
|Loss on sale of OREO                        |  |   | (257    | )
|Capitalized improvements net of charge-offs |  |   | (434    | )
|Change in valuation allowance               |  |   | (1,014  | )
|                                            |  |   |         |  
|Ending Balance - September 30, 2008         |  | $ | 29,229  |  
|                                            |  |   |         |  

Our OREO procedures currently determine disposition value, the valuation used to place the
property into OREO, based upon the most recent appraisal of the property that we have at the time, less estimated costs to sell the property. Any difference between the disposition value and the loan balance is recommended for charge
off. Once the property is in OREO, the property is listed with a realtor to begin sales efforts. Listing prices are also considered when determining the fair value of OREO.

Management continually monitors the loan portfolio to ensure that all loans potentially having a material adverse impact on future operating results, liquidity or capital resources have been
classified as non-performing. Should economic conditions deteriorate, the inability of distressed customers to service their existing debt could cause higher levels of non-performing loans.

It is our general policy to stop accruing interest income and place the recognition of interest on a cash basis when a loan is placed on non-accrual status and any interest previously accrued but
not collected is reversed against current income. Generally, a loan is placed on non-accrual status when it is over 90 days past due and there is reasonable doubt that all principal will be collected.



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In addition to loans formally classified as non-accrual or non-performing, management maintains a list of
monitored loans which may eventually become so classified. Individual loan officers are responsible for assessing business and credit risk for each loan in their respective portfolios. The monitored loan list exists as a vehicle measuring and
monitoring identified assets with heightened risk characteristics. Heightened risk characteristics would include a history of poor payment performance, poor financial performance, as well as the potential for adverse earnings impact from
deteriorating collateral values. Management meets at least monthly to re-assess the ongoing status of credits on this list. As of September 30, 2008, there were loans totaling $78.7 million on the monitored loan list, $34.1 million on
nonaccrual status and $3.8 million that were past due 90 days or more and still accruing. The $78.7 million on the monitored loan list included $1.3 million representing the portion of loans guaranteed by the Small Business Administration
(SBA). As of December 31, 2007, there were loans totaling $46.4 million on the monitored loan list, $8.3 million on nonaccrual status, and $3.4 million that were past due 90 days or more and still accruing. The $46.4 million on the
December 31, 2007 monitored loan list included $2.1 million representing the portion of loans guaranteed by the SBA.

Deposits

Core deposits, which exclude time deposits of $100,000 or more, CDARs deposits, and brokered time deposits, provide a relatively
stable funding source for our loan portfolio and other earning assets. Core deposits were approximately $312.1 million at September 30, 2008 compared to $345.1 million at December 31, 2007. Although we view CDARs as core customers,
CDARs balances are not considered to be core deposits under banking regulations. CDARs balances were $91.0 million at September 30, 2008, compared to $70.6 million as of December 31, 2007.

The maturity distribution of time deposits of $100,000 or more as of September 30, 2008 was as follows:



|                                  |  |   |        
|--------------------------------- |  | - | -------
|(Dollars in thousands)(Unaudited) |  |  
|Three months or less              |  | $ | 39,210 
|Over three through six months     |  |   | 23,190 
|Over six through twelve months    |  |   | 59,879 
|Over twelve months                |  |   | 45,963 
|                                  |  |   |        
|Total                             |  | $ | 168,242
|                                  |  |   |        

Borrowed Funds

Short-term:

We have access to various short-term borrowings,
including the purchase of federal funds and borrowing arrangements from other financial institutions. The Company had $20.0 million in federal funds purchased as of September 30, 2008 and $1.5 million as of December 31, 2007.

Overnight customer sweep agreements totaled $25.8 million at September 30, 2008 compared to $15.1 million as of December 31, 2007. These
short-term borrowings are collateralized by securities and generally mature within one day from the transaction date. The agreements are reflected at the amount of cash received in connection with the transaction. The Company may be required to
provide additional collateral based on the fair value of the underlying securities.

As of September 30, 2008, other borrowings
included in short-term borrowings totaled $19.0 million in Federal Home Loan bank advances maturing in the next twelve months, compared to $3.0 million of other borrowings as of December 31, 2007.



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##### Table of Contents

Long-term:

We had $6.0 million in long-term FHLB borrowings as of September 30, 2008, compared to zero at December 31, 2007. These fixed rate advances mature in July of 2010.

As of September 30, 2008, long-term debt also consisted of $10.0 million in subordinated capital notes. This borrowing has a variable rate and
matures on March 31, 2020. Beginning in March 2010, quarterly principal payments of $250 thousand are required through maturity. For regulatory capital purposes, these notes are included in Tier 2 capital. The December 31, 2007 balance of
long-term debt was zero.

Junior Subordinated Debt

Buckhead Community Bancorp Statutory Trust I

In August, 2004 we
formed a wholly-owned grantor trust to issue cumulative trust preferred securities. The grantor trust has invested the proceeds of the trust preferred securities in junior subordinated debentures of the Company. The junior subordinated debentures
can be redeemed prior to maturity at the option of the Company on or after August 11, 2009. The sole assets of the guarantor trust are the junior subordinated deferrable interest debentures of the Company (the first series of
debentures) held by the grantor trust. The first series of debentures have the same interest rate (three month LIBOR plus 2.90%, floating) as the trust preferred securities. We have the right to defer interest payments on the first series of
debentures at any time or from time to time for a period not exceeding 20 consecutive quarters provided that no extension period may extend beyond the stated maturity of the related first series of debentures. During any such extension period,
distributions on the trust preferred certificates would also be deferred.

Payment of periodic cash distributions and payment upon
liquidation or redemption with respect to the trust preferred securities are guaranteed by the Company to the extent of funds held by the grantor trust (the Preferred Securities Guarantee I). The Preferred Securities Guarantee I, when
taken together with the Companys other obligations under the first series of debentures, constitute a full and unconditional guarantee, on a subordinated basis, by the Company of payments due on the trust preferred securities.

The trust preferred securities and the related first series of debentures were issued on August 11, 2004. Distributions on the trust preferred
securities are paid quarterly on March 31, June 30, September 30 and December 31 of each year, beginning September 30, 2004. Interest on the first series of debentures is paid on the corresponding dates. The
aggregate principal amount of the first series of debentures outstanding at September 30, 2008 and December 31, 2007 was $5,155,000. Certain issue costs have been deferred and recorded in other assets in the accompanying consolidated
balance sheets. The issue costs are being amortized over the life of the first series of debentures, and the outstanding balance of the unamortized issue costs at September 30, 2008 and December 31, 2007 was approximately $86 and $92
thousand, respectively.

Buckhead Community Bancorp Statutory Trust II

In May 2006, we formed a second wholly-owned grantor trust to issue cumulative trust preferred securities. The grantor trust has invested the proceeds of
the trust preferred securities in junior subordinated debentures of the Company. The junior subordinated debentures can be redeemed prior to maturity at the option of the Company on or after July 7, 2011. The sole assets of the guarantor trust
are the junior subordinated deferrable interest debentures of the Company (the second series of debentures) held by the grantor trust. The second series of debentures have the same interest rate (LIBOR plus 1.55%, floating) as these
trust preferred securities. We have the right to defer interest payments on the second series of debentures at any time or from time to time for a period not exceeding 20 consecutive quarters provided that no extension period may extend beyond the
stated maturity of the related second series of debentures. During any such extension period, distributions on the trust preferred certificates would also be deferred.

Payment of periodic cash distributions and payment upon liquidation or redemption with respect to the trust preferred securities are guaranteed by the Company to the extent of funds held by the grantor trust (the
Preferred Securities Guarantee II). The Preferred Securities Guarantee II, when taken together with our other obligations under the second series of debentures, constitutes a full and unconditional guarantee, on a subordinated basis, by
the Company of payments due on the trust preferred securities.

The trust preferred securities and the related second series of debentures
were issued on May 24, 2006. Distributions on the trust preferred securities are paid quarterly on April 7, July 7, October 7 and January 7 of each year, beginning July 7, 2006. Interest on the second series
of debentures is paid on the corresponding dates. The aggregate principal amount of the second series of debentures outstanding at September 30, 2008 and December 31, 2007 was $10,310,000. There were no issue costs associated with the
issuance of the second series of debentures.



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Income Statement Review

We reported a net loss of $1.6 million for the three months ended September 30, 2008, a decrease in earnings of $2.6 million compared to the same period of the prior year. Basic and diluted loss per share
amounted to $(0.25) respectively, compared to $0.23 basic and diluted earnings per share for the three months ended September 30, 2007. Net loss for the first nine months of 2008 was $3.7 million, a decrease in earnings of $7.5 million compared
to the same period of the prior year. Basic and diluted loss per share totaled $(0.59) for the nine months ended September 30, 2008, compared to basic earnings per share of $0.83 and diluted earnings per share of $0.82 for the same period of
the prior year. Margin compression and increasing costs to carry nonperforming assets, including provisions to associated valuation allowances, had a negative impact on earnings for the third quarter and first nine months of 2008.

On December 4, 2007, the Company acquired Allied Bancshares, Inc. The acquisition was accounted for under the purchase method of accounting with the
results of operations for Allied included in our consolidated financial results beginning December 4, 2007. This transaction is more fully described in Note 2 to the Consolidated Financial Statements included in Item 1.

Net Interest Income/Margin

Net interest
income for the three months ended September 30, 2008 was $5.1 million, a decrease of $296 thousand or 5.5% from the same period of 2007. The decrease in net interest income was driven by declining interest rates and interest reversals on
non-performing loans. Our rates on loans have declined more quickly than the rates on our deposits, as our certificates of deposit take longer to reprice. We also had additional borrowings expense in 2008, which further contributed to the decline in
net interest income.

Average loans for the third quarter of 2008 were $725.2 million, compared to $441.1 million for the same period in
2007. The average yield on loans decreased from 9.36% for the three months ended September 30, 2007 to 6.29% for the three months ended September 30, 2008. Interest reversals related to non-performing loans contributed to the decline,
along with interest rate cuts from the Federal Reserve. For the three months ended September 30, 2008, average securities available for sale were $113.9 million compared to $102.9 million for the same period of 2007.

The average cost of funds decreased 123 basis points to 3.88% for the third quarter of 2008 compared to the same period in 2007, primarily due to
decreases in the interest rates paid on certificates of deposits. Average time deposits for the third quarter of 2008 were $593.4 million, compared to $397.9 million for the same period of 2007, an increase of 49.1%. The average rate paid on time
deposits decreased from 5.45% for the three months ended September 30, 2007 to 4.22% for the same period of 2008. While the Federal Reserve reduced the federal funds target rate beginning late 2007, average rates paid on these deposits
typically lag these rate reductions due to the longer terms of the accounts.

The banking industry uses two ratios to measure relative
profitability of net interest income. The net interest rate spread measures the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. The interest rate spread eliminates the impact
of non-interest-bearing deposits and gives a direct perspective on the effect of market interest rate movements. The net interest margin is defined as net interest income as a percent of average total interest-earning assets and takes into account
the positive impact of investing non interest-bearing deposits.

The Companys net interest margin has experienced significant
compression over the past year. The cause of this compression is generally threefold. First, as a loan is identified as non-performing, it may result in the reversal of previously accrued interest income on that loan. Due to the
current economic environment, we are experiencing a larger volume of loans classified as non-performing, resulting in a significant reversal of previously recognized interest income. Second, when a loan defaults and the bank repossesses the
collateral, it results in the reclassifying of a previously earning asset to a non-earning asset. As the current economic environment continues to decline, the bank is experiencing a larger volume of foreclosures, resulting in a significant
reduction in the balance of earning assets. Third, from an asset/liability management perspective, we are in an asset sensitive position, meaning our earning assets reprice more immediately with a rate change than the cost of our funding and
deposits. In a declining rate environment, asset sensitivity has a negative impact on net interest margin and earnings. Therefore, in the current declining rate environment, we have experienced a significant decline in earnings as our
earning assets reprice immediately downward with each rate change, while our funding costs adjust over a longer period of time. Management has implemented measures to combat the compression associated with interest rate declines, such as
interest rate floors on loans, no changes to lending rates despite reductions in the Prime rate, and the continued collection of fees on renewing loans.

For the three months ended September 30, 2008 and 2007, the net interest spread was 2.18% and 3.18%, respectively, while the net interest margin was 2.41% and 3.70%, respectively. As noted above, a number of
factors contributed to the net interest spread and net interest margin compression from a year ago. Additionally, competition for deposits has increased and we have had to offer relatively higher rates to retain deposits. For example, toward the end
of the third quarter of 2008, the economic turmoil in the financial markets resulted in some runoff in our money market deposit accounts, which had to be replaced with more expensive funding sources.

Net interest income for the nine months ended September 30, 2008 was $15.6 million, a decrease of $592 thousand or 3.7% compared to the same period
of 2007. The decrease in net interest income was primarily driven by the aforementioned cost of funds declining more slowly in relation to the reduction of yield on our loans, which was exacerbated by interest reversals related to non-performing
loans.



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##### Table of Contents

Average loans for the first nine months of 2008 were $702.0 million, compared to $419.4 million for the
same period in 2007. The average yield on loans decreased from 9.51% for the nine months ended September 30, 2007 to 6.74% for the nine months ended September 30, 2008, a decline of 277 basis points. Interest reversals related to
non-performing loans contributed to the decline, along with interest rate cuts from the Federal Reserve. For the nine months ended September 30, 2008, average securities available for sale were $113.9 million compared to $101.3 million for the
same period of 2007.

The average cost of funds decreased 87 basis points to 4.20% for the first nine months of 2008 compared to the same
period in 2007, primarily due to decreases in the interest rates paid on certificates of deposit. Average time deposits for the first nine months of 2008 were $576.3 million, compared to $376.1 million for the same period of 2007, an increase of
53.2%. The average rate paid on time deposits decreased from 5.42% for the nine months ended September 30, 2007 to 4.62% for the same period of 2008.

For the nine months ended September 30, 2008 and 2007, the net interest spread was 2.17% and 3.29%, respectively, while the net interest margin was 2.48% and 3.84%, respectively. The compression in net interest
spread and net interest margin on a year-to-date basis was caused by similar factors discussed surrounding the quarter-over-quarter decline.



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##### Table of Contents

The following tables show the relationship between interest income and expense and the average balances
of interest earning assets and interest bearing liabilities for the three and nine months ended September 30, 2008 and 2007:



|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|--------------------------------------------- |  | ------------------ | ------- | -------------- | - | ------------------ |  | ----- |  | -------------- |  | -------------- | ------- | ---------- | - | ------ |  | -----
|                                              |  | Three Months Ended
|                                              |  | September 30, 2008 |         |                |   | September 30, 2007
|(Dollars in thousands)(Unaudited)             |  | AverageBalance     |         | Income/Expense |   | Yield/Rate         |  |       |  | AverageBalance |  | Income/Expense |         | Yield/Rate
|                                              |  |                    |         |                |   |                    | 
|ASSETS:                                       |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|Federal funds sold                            |  | $                  | 7,529   |                | $ | 36                 |  | 1.90% |  |                |  | $              | 36,980  |            | $ | 485    |  | 5.20%
|Interest bearing deposits                     |  |                    | 452     |                |   | 3                  |  | 2.64% |  |                |  |                | 362     |            |   | 4      |  | 3.95%
|Investment securities available for sale      |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|Taxable                                       |  |                    | 93,883  |                |   | 1,193              |  | 5.08% |  |                |  |                | 80,253  |            |   | 1,033  |  | 5.04%
|Nontaxable1                                   |  |                    | 20,019  |                |   | 204                |  | 6.27% |  |                |  |                | 22,667  |            |   | 215    |  | 5.71%
|Loans                                         |  |                    | 725,156 |                |   | 11,470             |  | 6.29% |  |                |  |                | 441,070 |            |   | 10,407 |  | 9.36%
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|                                              |  |                    |         |                |   |                    | 
|Total interest earning assets                 |  |                    | 847,039 |                |   | 12,906             |  | 6.06% |  |                |  |                | 581,332 |            |   | 12,144 |  | 8.29%
|All other assets                              |  |                    | 85,427  |                |   |                    |  |       |  |                |  |                | 15,402  |            |   |        |  |      
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|Total assets                                  |  | $                  | 932,466 |                |   |                    |  |       |  |                |  | $              | 596,734 |            |   |        |  |      
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|                                              |  |                    |         |                |   |                    | 
|LIABILITIES AND SHAREHOLDERS EQUITY:         |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|Interest bearing demand deposits and savings  |  | $                  | 134,351 |                |   | 833                |  | 2.47% |  |                |  | $              | 94,576  |            |   | 841    |  | 3.53%
|Time                                          |  |                    | 593,352 |                |   | 6,290              |  | 4.22% |  |                |  |                | 397,889 |            |   | 5,467  |  | 5.45%
|Junior subordinated debt                      |  |                    | 15,465  |                |   | 193                |  | 4.96% |  |                |  |                | 15,465  |            |   | 291    |  | 7.46%
|Short-term borrowings                         |  |                    | 33,986  |                |   | 266                |  | 3.11% |  |                |  |                | 13,826  |            |   | 120    |  | 3.44%
|Long-term borrowings                          |  |                    | 20,522  |                |   | 195                |  | 3.78% |  |                |  |                | -       |            |   | -      |  | -    
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|                                              |  |                    |         |                |   |                    | 
|Total interest bearing liabilities            |  |                    | 797,676 |                |   | 7,777              |  | 3.88% |  |                |  |                | 521,756 |            |   | 6,719  |  | 5.11%
|                                              |  |                    |         |                |   |                    | 
|Noninterest-bearing deposits                  |  |                    | 42,519  |                |   |                    |  |       |  |                |  |                | 31,852  |            |   |        |  |      
|Other liabilities                             |  |                    | 5,252   |                |   |                    |  |       |  |                |  |                | 4,334   |            |   |        |  |      
|Shareholders equity                          |  |                    | 87,019  |                |   |                    |  |       |  |                |  |                | 38,792  |            |   |        |  |      
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|Total liabilities and shareholders equity    |  | $                  | 932,466 |                |   |                    |  |       |  |                |  | $              | 596,734 |            |   |        |  |      
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|                                              |  |                    |         |                |   |                    | 
|Net interest spread                           |  |                    |         |                |   |                    |  | 2.18% |  |                |  |                |         |            |   |        |  | 3.18%
|Net interest margin on average earning assets |  |                    |         |                |   |                    |  | 2.41% |  |                |  |                |         |            |   |        |  | 3.70%
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|Net interest income                           |  |                    |         |                | $ | 5,129              |  |       |  |                |  |                |         |            | $ | 5,425  |  |      
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      



|1 | Yield is on a tax-equivalent basis
|- | ----------------------------------



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|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|--------------------------------------------- |  | ------------------ | ------- | -------------- | - | ------------------ |  | ----- |  | -------------- |  | -------------- | ------- | ---------- | - | ------ |  | -----
|                                              |  | Nine Months Ended 
|                                              |  | September 30, 2008 |         |                |   | September 30, 2007
|(Dollars in thousands)(Unaudited)             |  | AverageBalance     |         | Income/Expense |   | Yield/Rate         |  |       |  | AverageBalance |  | Income/Expense |         | Yield/Rate
|ASSETS:                                       |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|Federal funds sold                            |  | $                  | 21,011  |                | $ | 417                |  | 2.65% |  |                |  | $              | 42,305  |            | $ | 1,641  |  | 5.19%
|Interest bearing deposits                     |  |                    | 1,091   |                |   | 29                 |  | 3.55% |  |                |  |                | 382     |            |   | 12     |  | 4.32%
|Investment securities available for sale      |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|Taxable                                       |  |                    | 91,478  |                |   | 3,449              |  | 5.03% |  |                |  |                | 78,664  |            |   | 3,090  |  | 5.18%
|Nontaxable1                                   |  |                    | 22,461  |                |   | 671                |  | 6.13% |  |                |  |                | 22,661  |            |   | 668    |  | 5.98%
|Loans                                         |  |                    | 701,971 |                |   | 35,405             |  | 6.74% |  |                |  |                | 419,356 |            |   | 29,829 |  | 9.51%
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|                                              |  |                    |         |                |   |                    | 
|Total interest earning assets                 |  |                    | 838,012 |                |   | 39,971             |  | 6.37% |  |                |  |                | 563,368 |            |   | 35,240 |  | 8.36%
|All other assets                              |  |                    | 79,978  |                |   |                    |  |       |  |                |  |                | 15,461  |            |   |        |  |      
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|Total assets                                  |  | $                  | 917,990 |                |   |                    |  |       |  |                |  | $              | 578,829 |            |   |        |  |      
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|                                              |  |                    |         |                |   |                    | 
|LIABILITIES AND SHAREHOLDERS EQUITY:         |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|Interest bearing demand deposits and savings  |  | $                  | 138,680 |                |   | 2,707              |  | 2.61% |  |                |  | $              | 98,556  |            |   | 2,629  |  | 3.57%
|Time                                          |  |                    | 576,342 |                |   | 19,951             |  | 4.62% |  |                |  |                | 376,088 |            |   | 15,248 |  | 5.42%
|Junior subordinated debt                      |  |                    | 15,465  |                |   | 632                |  | 5.46% |  |                |  |                | 15,465  |            |   | 865    |  | 7.48%
|Short-term borrowings                         |  |                    | 29,682  |                |   | 681                |  | 3.06% |  |                |  |                | 12,422  |            |   | 325    |  | 3.50%
|Long-term borrowings                          |  |                    | 14,766  |                |   | 419                |  | 3.79% |  |                |  |                | -       |            |   | -      |  | -    
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|                                              |  |                    |         |                |   |                    | 
|Total interest bearing liabilities            |  |                    | 774,935 |                |   | 24,390             |  | 4.20% |  |                |  |                | 502,531 |            |   | 19,067 |  | 5.07%
|                                              |  |                    |         |                |   |                    | 
|Noninterest-bearing deposits                  |  |                    | 45,698  |                |   |                    |  |       |  |                |  |                | 32,438  |            |   |        |  |      
|Other liabilities                             |  |                    | 10,924  |                |   |                    |  |       |  |                |  |                | 4,565   |            |   |        |  |      
|Shareholders equity                          |  |                    | 86,433  |                |   |                    |  |       |  |                |  |                | 39,295  |            |   |        |  |      
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|Total liabilities and shareholders equity    |  | $                  | 917,990 |                |   |                    |  |       |  |                |  | $              | 578,829 |            |   |        |  |      
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|                                              |  |                    |         |                |   |                    | 
|Net interest spread                           |  |                    |         |                |   |                    |  | 2.17% |  |                |  |                |         |            |   |        |  | 3.29%
|Net interest margin on average earning assets |  |                    |         |                |   |                    |  | 2.48% |  |                |  |                |         |            |   |        |  | 3.84%
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      
|Net interest income                           |  |                    |         |                | $ | 15,581             |  |       |  |                |  |                |         |            | $ | 16,173 |  |      
|                                              |  |                    |         |                |   |                    |  |       |  |                |  |                |         |            |   |        |  |      



|1 | Yield is on a tax-equivalent basis
|- | ----------------------------------

Nonaccrual loans and the interest income which was recorded on these loans, if any, are included in the yield calculation for loans in all periods reported. Loan fees totaled $582.3 thousand and $568.4 thousand for the three months ended
September 30, 2008 and 2007, respectively, and are included with interest income on loans. Loan fees totaled $1.7 million and $1.6 million for the nine months ended September 30, 2008 and 2007.



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Other Income and Other Expense

For the three months ended September 30, 2008 and 2007, total noninterest income totaled $(62) thousand and $469 thousand, respectively. There was a $178 thousand decrease in gains on the
sale of SBA loans and a $32 thousand increase in gains on sales of securities available for sale. Other noninterest income declined $385 thousand from the third quarter of 2007, primarily due to a loss of approximately $227 thousand on a declined
SBA guarantee that was recorded in the third quarter of 2008. In addition, we recorded approximately $147 thousand in losses on the sale of other real estate owned during the third quarter of 2008.

For the nine months ended September 30, 2008 and 2007, total noninterest income totaled $433 thousand and $1.3 million, respectively. The decrease
was due to a $693 thousand decrease in gains on the sale of SBA loans and the aforementioned losses on the sale of other real estate owned and the declined SBA guarantee.

Total noninterest expense for the three months ended September 30, 2008 increased $1.7 million, or 44.2% from 2007. The primary component of total noninterest expense was salary and employee benefits, which
totaled $2.8 million and $2.2 million for the third quarter of 2008 and 2007, respectively. The $0.6 million, or 26.0% increase in salary and employee benefits primarily resulted from additional employees due to the acquisition of Allied. In mid
August of 2008, we underwent a reduction in force of approximately 30% of headcount, although the cost savings of this reduction will not be realized until the fourth quarter of 2008. We had 92 full time equivalent employees at September 30,
2008, compared to 98 full time equivalent employees at September 30, 2007. Other operating expenses increased $1.0 million, or 117.6% from the three months ended September 30, 2007, primarily due to a $568 thousand increase in provision
for OREO losses and OREO expenses, as well as a $125 thousand increase in data processing expenses, primarily due to the acquisition of Allied. In addition, FDIC premiums increased $67 thousand from the third quarter of 2007.

For the nine months ended September 30, 2008, total noninterest expense was $16.7 million compared to $10.5 million for the same period of 2007. The
increase was primarily driven by a $3.3 million, or 173.0% increase in other operating expenses. This increase was attributable to a $1.4 million increase in provision for OREO losses, as well as approximately $703 thousand in additional expenses
related to carrying OREO. In addition, FDIC premiums increased $361 thousand and data processing expenses increased $368 thousand compared to the nine months ended September 30, 2007. Salaries and employee benefits increased $2.0 million, or
31.5% from the nine months ended September30, 2007 to the nine months ended September 30, 2008, primarily due to the increase in headcount resulting from the Allied acquisition. The aforementioned reduction in force is expected to reduce
salaries and employee benefits expense for the fourth quarter of 2008.

The following table shows the components of noninterest expense for
the three and nine months ended September 30, 2008 and 2007:



|                                      |  |                                 |       |      |   |                                |  |      |  |      |        |  |   |       
|------------------------------------- |  | ------------------------------- | ----- | ---- | - | ------------------------------ |  | ---- |  | ---- | ------ |  | - | ------
|                                      |  | Three months ended September 30 |       |      |   | Nine months ended September 30
|(Dollars in thousands)(Unaudited)     |  | 2008                            |       | 2007 |   |                                |  | 2008 |  | 2007
|                                      |  |                                 |       |      |  
|Salaries and employee benefits        |  | $                               | 2,790 |      | $ | 2,215                          |  |      |  | $    | 8,420  |  | $ | 6,402 
|Occupancy expenses                    |  |                                 | 624   |      |   | 492                            |  |      |  |      | 1,853  |  |   | 1,331 
|Advertising and marketing             |  |                                 | 179   |      |   | 194                            |  |      |  |      | 512    |  |   | 467   
|Legal and other professional services |  |                                 | 230   |      |   | 165                            |  |      |  |      | 679    |  |   | 410   
|FDIC premiums                         |  |                                 | 161   |      |   | 94                             |  |      |  |      | 483    |  |   | 122   
|Provision for OREO losses             |  |                                 | 524   |      |   | 216                            |  |      |  |      | 1,593  |  |   | 241   
|OREO expenses                         |  |                                 | 297   |      |   | 37                             |  |      |  |      | 801    |  |   | 98    
|Amortization of intangibles           |  |                                 | 70    |      |   | -                              |  |      |  |      | 212    |  |   | -     
|Data processing and technology        |  |                                 | 270   |      |   | 145                            |  |      |  |      | 896    |  |   | 528   
|Other expenses                        |  |                                 | 447   |      |   | 321                            |  |      |  |      | 1,265  |  |   | 934   
|                                      |  |                                 |       |      |   |                                |  |      |  |      |        |  |   |       
|Total noninterest expense             |  | $                               | 5,592 |      | $ | 3,879                          |  |      |  | $    | 16,714 |  | $ | 10,533
|                                      |  |                                 |       |      |   |                                |  |      |  |      |        |  |   |       



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Income Taxes

We had a tax benefit of $1.1 million for the third quarter of 2008, compared to a provision for income taxes of $550 thousand for the three months ended September 30, 2007. Effective tax rates for the periods
were (40.1) % and 34.1%, respectively. For the nine months ended September 30, 2008, our tax benefit totaled $2.6 million, compared to tax expense of $2.0 million for the nine months ended September 30, 2007, resulting in effective
tax rates of (41.1)% and 34.5%, respectively.

Liquidity

We must maintain, on a daily basis, sufficient funds to cover the withdrawals from depositors accounts and to supply new borrowers with funds. To meet these obligations, we keep cash on hand, maintain account
balances with our correspondent banks, and purchase and sell federal funds and other short-term investments. Asset and liability maturities are monitored in an attempt to match these to meet liquidity needs. We seek to monitor our
liquidity to meet regulatory requirements and local funding requirements. We believe the current level of liquidity is adequate to meet current needs, and we are constantly monitoring it in an effort to improve our position. The turmoil in the
financial markets, especially at the end of the third quarter of 2008, has put a strain on our liquidity, and maintaining an adequate level of liquidity continues to be a top priority of management.

Our primary sources of liquidity are a relatively stable base of deposits, scheduled repayments on loans, and interest and maturities of
investments. All securities have been classified as available for sale, which means they are carried at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of other comprehensive
income. If necessary, we have the ability to sell a portion of our unpledged investment securities to manage interest sensitivity gap or liquidity. Our pledged securities totaled $65.4 million as of September 30, 2008. Cash and due
from banks and federal funds sold may also be utilized to meet liquidity needs.

At September 30, 2008 and December 31, 2007, we
had arrangements with a correspondent and commercial banks for short term unsecured advances up to $38.5 million and $30.5 million, respectively. At September 30, 2008, $20.0 million of these short term facilities were being utilized.

Our cash flows are composed of three classifications: cash flows from operating activities, cash flows from investing activities, and cash
flows from financing activities. Cash and due from banks decreased $10.9 million from December 31, 2007, to a total of $8.3 million at September 30, 2008. Cash used in investing activities totaled $61.6 million for the nine months ended
September 30, 2008, primarily due to purchases of securities available for sale, and the funding of loans, as well as for the cash portion of the purchase of Allied. Cash provided by financing activities totaled $51.2 million for the nine
months ended September 30, 2008, primarily due to proceeds from short-term borrowings and long-term debt.

The table below contains a summary of our
contractual obligations as of September 30, 2008:



|                                   |  |               |         |           |   |           |  |              |        |       |   |        |  |   |        
|---------------------------------- |  | ------------- | ------- | --------- | - | --------- |  | ------------ | ------ | ----- | - | ------ |  | - | -------
|(Dollars in thousands)(Unaudited)  |  | 1 yearor less |         | 1-3 years |   | 3-5 years |  | After5 years |        | Total
|Deposits having no stated maturity |  | $             | 149,160 |           | $ | -         |  | $            | -      |       | $ | -      |  | $ | 149,160
|Junior subordinated debt           |  |               | -       |           |   | -         |  |              |        |       |   | 15,465 |  |   | 15,465 
|Certificates of deposit            |  |               | 456,859 |           |   | 119,335   |  |              | 15,710 |       |   | -      |  |   | 591,904
|Short-term borrowings              |  |               | 64,730  |           |   | -         |  |              | -      |       |   | -      |  |   | 64,730 
|Long-term debt                     |  |               | -       |           |   | 6,000     |  |              | -      |       |   | 10,000 |  |   | 16,000 
|Leases                             |  |               | 858     |           |   | 1,496     |  |              | 1,384  |       |   | 1,291  |  |   | 5,029  
|                                   |  |               |         |           |   |           |  |              |        |       |   |        |  |   |        
|                                   |  | $             | 671,607 |           | $ | 126,831   |  | $            | 17,094 |       | $ | 26,756 |  | $ | 842,288
|                                   |  |               |         |           |   |           |  |              |        |       |   |        |  |   |        



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Capital Resources

We are subject to various regulatory capital requirements administered by our respective federal banking regulators. Failure to meet minimum capital requirements can initiate certain mandatoryand possibly
additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the Companys financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, both the
Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Companys and the Banks
respective capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors.

Quantitative measures established by regulations to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets, as such terms are defined in the regulations. Management believes, as of September 30, 2008, that the Company and the Bank meet all capital adequacy requirements to which each is subject.

As of September 30, 2008, the most recent regulatory notification categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios. There are no conditions or events since that notification that management believes have changed
the Banks category.

On October 14, 2008, the Treasury Department announced the Troubled Asset Recovery Programs
(TARP) voluntary Capital Purchase Program. Under the program, the Treasury will purchase up to $250 billion of senior preferred shares on standardized terms, and the shares will qualify as Tier 1 capital. The minimum subscription amount
available to a participating institution is one percent of risk-weighted assets with the maximum amount set at the lesser of $25 billion or three percent of risk-weighted assets. Interested institutions must apply and elect to participate by
November 14, 2008. We are currently examining opportunities provided by the TARP Capital Purchase Plan as a component of our overall capital management strategy, and expect to make a decision whether to participate prior to the
November 14, 2008, deadline.

At September 30, 2008, our capital ratios were sufficient for us to be considered well capitalized
based on regulatory minimum capital requirements. The minimum capital requirements and the actual capital ratios on a consolidated and bank-only basis are as follows:



|                                        |  |                |  |                  |  |                
|--------------------------------------- |  | -------------- |  | ---------------- |  | ---------------
|(Unaudited)                             |  | Tier 1Leverage |  | Tier 1Risk-based |  | TotalRisk-based
|Minimum required                        |  | 4.00%          |  | 4.00%            |  | 8.00%          
|Minimum required to be well capitalized |  | 5.00%          |  | 6.00%            |  | 10.00%         
|                                        |  |                | 
|Actual ratios at September 30, 2008     |  |                |  |                  |  |                
|The Buckhead Community Bank             |  | 7.03%          |  | 7.88%            |  | 10.38%         
|Consolidated                            |  | 7.13%          |  | 7.95%            |  | 10.45%         

Off-Balance-Sheet Items

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

The table below contains a summary of our commitments as of September 30, 2008 and December 31, 2007.



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##### Table of Contents

|                                  |  |                  |         |                 |   |        
|--------------------------------- |  | ---------------- | ------- | --------------- | - | -------
|(Dollars in thousands)(Unaudited) |  | September 302008 |         | December 312007
|                                  |  |                 
|Commitments to extend credit      |  | $                | 112,618 |                 | $ | 158,997
|Standby letters of credit         |  |                  | 8,978   |                 |   | 7,681  
|                                  |  |                  |         |                 |   |        
|                                  |  | $                | 121,596 |                 | $ | 166,678
|                                  |  |                  |         |                 |   |        



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

Interest Rate Sensitivity Management

The absolute level and volatility of interest rates can have a significant
impact on the Companys profitability. The objective of interest rate risk management is to identify and manage the sensitivity of net interest income to changing interest rates, in order to achieve the Companys overall financial goals.
Based on economic conditions, asset quality and various other considerations, management establishes tolerance ranges for interest rate sensitivity and manages within these ranges.

The Companys net interest income and the fair value of its financial instruments are influenced by changes in the level of interest rates. We manage our exposure to fluctuations in interest
rates through policies established by the asset/liability committee of the board of directors. The asset/liability committee meets periodically and has responsibility for approving asset/liability management policies, formulating and implementing
strategies to improve balance sheet positioning and/or earnings and reviewing the Companys interest rate sensitivity.

One of the
tools management utilizes to estimate the sensitivity of net interest revenue to changes in interest rates is an interest rate simulation model. Such estimates are based upon a number of assumptions for each scenario, including the level of balance
sheet growth, deposit repricing characteristics and the rate of prepayments. The simulation model measures the potential change in net interest revenue over a twelve-month period under six interest rate scenarios. The first scenario assumes rates
remain flat over the next twelve months and is the scenario that all others are compared to in order to measure the change in net interest income. The second scenario is a most likely scenario that projects the most likely change in rates over the
next twelve months based on the slope of the yield curve. The Company models ramp scenarios that assume gradual increases and decreases of 300 basis points each over the next twelve months. At September 30, 2008, our simulation model indicated
that a 300 basis point increase in rates over the next twelve months would cause an approximate 21.72% increase in net interest income and a 300 basis point decrease in rates over the next twelve months would cause an approximate 20.01% decrease in
net interest income. At December 31, 2007, our simulation model indicated that a 300 basis point increase in rates over the next twelve months would cause an approximate 16.43% increase in net interest income and a 300 basis point decrease in
rates over the next twelve months would cause an approximate 12.63% decrease in net interest income.

Interest rate sensitivity is a
function of the repricing characteristics of the portfolio of assets and liabilities. These repricing characteristics are the time frames within which the interest-earning assets and interest-bearing liabilities are subject to change in interest
rates either at replacement, repricing or maturity during the life of the instruments. Interest rate sensitivity management focuses on the maturity structure of assets and liabilities and their repricing characteristics during periods of changes in
market interest rates. Effective interest rate sensitivity management seeks to ensure that both assets and liabilities respond to changes in interest rates within an acceptable timeframe, thereby minimizing the impact of interest rate changes on net
interest revenue. Interest rate sensitivity is measured as the difference between the volumes of assets and liabilities in the Companys current portfolio that are subject to repricing at various time horizons: immediate; one to three months;
four to twelve months; one to five years; over five years, and on a cumulative basis. The differences are known as interest sensitivity gaps.



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|                                                                    |  |                                                       |          |        |         |         |           |          |           |         |        |       |        
|------------------------------------------------------------------- |  | ----------------------------------------------------- | -------- | ------ | ------- | ------- | --------- | -------- | --------- | ------- | ------ | ----- | -------
|                                                                    |  | Interest Sensitivity by MonthAs of September 30, 2008
|(Dollars in thousands)(Unaudited)                                   |  | Immediate                                             |          | 1 to 3 |         | 4 to 12 |           | 13 to 60 |           | Over 60 |        | Total
|Interest-earning assets:                                            |  |                                                       |          |        |         |         |           |          |           |         |        |       |        
|Federal funds sold                                                  |  | $                                                     | 1,141    |        | -       |         | -         |          | -         |         | -      |       | 1,141  
|Interest Bearing due from accounts                                  |  |                                                       | 356      |        | -       |         | -         |          | -         |         | -      |       | 356    
|Investment securities available for sale                            |  |                                                       | -        |        | 9,639   |         | 8,292     |          | 41,605    |         | 53,623 |       | 113,159
|Loans                                                               |  |                                                       | -        |        | 585,408 |         | 51,978    |          | 51,583    |         | 35,074 |       | 724,043
|                                                                    |  |                                                       |          |        |         |         |           |          |           |         |        |       |        
|Total earning assets                                                |  |                                                       | 1,497    |        | 595,047 |         | 60,270    |          | 93,188    |         | 88,697 |       | 838,699
|                                                                    |  |                                                       |          |        |         |         |           |          |           |         |        |       |        
|Interest-bearing liabilities:                                       |  |                                                       |          |        |         |         |           |          |           |         |        |       |        
|Non-interest bearing deposits                                       |  |                                                       | -        |        | 1,245   |         | 3,732     |          | 19,903    |         | 14,857 |       | 39,737 
|Interest bearing deposits (NOW)                                     |  |                                                       | -        |        | 1,575   |         | 4,728     |          | 25,152    |         | -      |       | 31,455 
|Savings deposits (includes MMkt)                                    |  |                                                       | -        |        | 75,125  |         | 450       |          | 2,393     |         | -      |       | 77,968 
|Time deposits                                                       |  |                                                       | -        |        | 144,343 |         | 312,720   |          | 134,841   |         | -      |       | 591,904
|Short-term borrowings                                               |  |                                                       | 54,730   |        | -       |         | 10,000    |          | -         |         | -      |       | 64,730 
|Long-term debt                                                      |  |                                                       | -        |        | -       |         | -         |          | 6,000     |         | 10,000 |       | 16,000 
|Junior subordinated debt                                            |  |                                                       | -        |        | -       |         | 5,155     |          | 10,310    |         | -      |       | 15,465 
|                                                                    |  |                                                       |          |        |         |         |           |          |           |         |        |       |        
|Total interest-bearing liabilities                                  |  |                                                       | 54,730   |        | 222,288 |         | 336,785   |          | 198,599   |         | 24,857 |       | 837,259
|                                                                    |  |                                                       |          |        |         |         |           |          |           |         |        |       |        
|                                                                    |  |                                                       |          |        |         |        
|Interest sensitivity gap                                            |  |                                                       | (53,233) |        | 372,759 |         | (276,515) |          | (105,411) |         | 63,840 |       |        
|                                                                    |  |                                                       |          |        |         |        
|Cumulative interest-sensitivity gap                                 |  | $                                                     | (53,233) |        | 319,526 |         | 43,011    |          | (62,400)  |         | 1,440  |       |        
|                                                                    |  |                                                       |          |        |         |         |           |          |           |         |        |       |        
|                                                                    |  |                                                       |          |        |         |        
|Ratio of cumulative interest-sensitivity gap tototal earning assets |  |                                                       | -6.35%   |        | 38.10%  |         | 5.13%     |          | -7.44%    |         | 0.17%  |       |        
|                                                                    |  |                                                       |          |        |         |         |           |          |           |         |        |       |        

As demonstrated in the preceding table, 73.3% of interest-bearing liabilities will
reprice within twelve months compared with 78.3% of interest-earning assets, however such changes may not be proportionate with changes in market rates within each balance sheet category. In addition, the Company may have some discretion in the
extent and timing of deposit repricing depending upon the competitive pressures in the markets in which it operates. Changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without
affecting interest rate sensitivity. The interest rate spread between an asset and its supporting liability can vary significantly even when the timing of repricing for both the asset and the liability remains the same, due to the two instruments
repricing according to different indices.

Varying interest rate environments can create unexpected changes in prepayment
levels of assets and liabilities that are not reflected in the interest rate sensitivity gap analysis. These prepayments may have significant impact on the net interest margin. Because of these limitations, an interest sensitivity gap analysis alone
generally does not provide an accurate assessment of exposure to changes in interest rates.



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##### Table of Contents

Impact of Inflation and Changing Prices

The effect of relative purchasing power over time due to inflation has not been taken into effect in our financial statements. Rather, the statements have been prepared on a historical cost basis
in accordance with generally accepted accounting principles in the United States.

Since most of the assets and liabilities of a financial
institution are monetary in nature, the effect of changes in interest rates will have a more significant impact on our performance than will the effect of changing prices and inflation in general. Interest rates may generally increase as the rate of
inflation increases, although not necessarily in the same magnitude.

The table below summarizes the return on average assets, return on
average equity, and average equity to average assets for the three and nine months ended September 30, 2008 and 2007:



|                                 |  |                                |  |        |  |                               |  |        |  |       
|-------------------------------- |  | ------------------------------ |  | ------ |  | ----------------------------- |  | ------ |  | ------
|                                 |  | Three Months EndedSeptember 30 |  |        |  | Nine Months EndedSeptember 30
|(Unaudited)                      |  | 2008                           |  | 2007   |  |                               |  | 2008   |  | 2007  
|Return on average assets         |  | -0.67%                         |  | 0.71%  |  |                               |  | -0.54% |  | 0.87% 
|Return on average equity         |  | -7.21%                         |  | 10.89% |  |                               |  | -5.72% |  | 12.88%
|Average equity to average assets |  | 9.33%                          |  | 6.50%  |  |                               |  | 9.42%  |  | 6.79% 



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##### Table of Contents

|ITEM 4T. | Controls and Procedures
|-------- | -----------------------

As of the end
of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have evaluated the effectiveness of our disclosure controls and procedures (Disclosure Controls).
Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act), are procedures that are designed with the objective of ensuring that information required to be disclosed in our
reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure Controls are also
designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Our management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the
company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based upon their controls evaluation, our CEO and CFO have concluded that our Disclosure Controls are effective at a reasonable assurance level.

There have been no changes in our internal controls over financial reporting during our third fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II  OTHER INFORMATION



|ITEM 1. | Legal Proceedings
|------- | -----------------

The Company and its
subsidiaries are subject to claims and suits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of these pending claims and legal proceedings will not have a material adverse effect on the
Companys results of operations.



|ITEM 1A. | Risk Factors
|-------- | ------------

In addition to the other
information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2007, as well as in Part II,
Item 1A. Risk Factors in our Quarterly Report on form 10-Q for the quarter ended June 30, 2008, which could materially affect our business, financial condition or future results. The risks described above and in our Annual Report on
Form 10-K and Quarterly Report on Form 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business,
financial condition and/or operating results.



|ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

The Company made no repurchases of its common stock during the quarter ended September 30, 2008.



|ITEM 3. | Defaults upon Senior Securities
|------- | -------------------------------

None.



|ITEM 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None.



|ITEM 5. | Other Information
|------- | -----------------

None.



|ITEM 6. | Exhibits
|------- | --------



|                 |  |                                                                                                                                               
|---------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|                 | 
|Exhibit No. 31.1 |  | Chief Executive Officer Certification Pursuant to Rule 13a-14(a)/15d-14(a)                                                                    
|                 | 
|Exhibit No. 31.2 |  | Chief Financial Officer Certification Pursuant to Rule 13a-14(a)/15d-14(a)                                                                    
|                 | 
|Exhibit No. 32.1 |  | Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|                 | 
|Exhibit No. 32.2 |  | Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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.

Buckhead Community Bancorp, Inc.

(Registrant)



|                        |  |  |  |     |  |                    |  |                                      
|----------------------- |  |  |  | --- |  | ------------------ |  | -------------------------------------
|                        |  |  | 
|DATE: November 13, 2008 |  |  |  | BY: |  | /s/ Marvin Cosgray
|                        |  |  |  |     |  |                    |  | Marvin Cosgray                       
|                        |  |  |  |     |  |                    |  | President and Chief Executive Officer
|                        |  |  | 
|DATE: November 13, 2008 |  |  |  | BY: |  | /s/ Dawn Kinard   
|                        |  |  |  |     |  |                    |  | Dawn Kinard                          
|                        |  |  |  |     |  |                    |  | Chief Financial Officer              



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